Technical & training

IPSAS First time adoption & AFS conversion: Namibia 2018

December 12, 2018

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In 2018, Ducharme hosted an IPSAS Implementation training sessions to Namibian municipalities and public entities who have been contemplating the transition from the modified cash basis of accounting to the accruals based International Public Sector Accounting Standards (IPSAS).

“As at March 2017, nearly three-quarters of OECD countries have adopted accrual accounting for their year-end financial reports and more than a quarter now prepare their annual budgets on an accrual basis”

The course provided for considerations pertaining to such a conversion as well as a high-level overview of the IPSAS standards.

  • Conversion considerations from modified cash accounting to IPSAS accrual accounting This include focus on the key differences between modified cash and accrual-based IPSAS, together with practical considerations on the impact of these changes on how to report for property, plant and equipment, investment property, liabilities, leases, provisions, financial instruments, interest, capital receipts and more.
  • Overview of IPSAS standards This will include a high-level overview of the recognition, measurement and disclosure requirements as required by IPSAS in terms of general financial accounting, accounting for assets, accounting for revenue, accounting for liabilities and related expenses, separate and consolidated financial statements and more.

Various municipal and entity stakeholders have expressed their concern about the transparency of budgets and financial reports of these institutions. It is difficult for users such as banks, councillors, executive boards and lenders to understand these financial reports. Such users have to be experts in fund (modified cash) accounting, the present system used by many municipalities and entities, to be able to assess the operating results, financial position and cash flows of these institutions. Clearly, this does not promote stakeholder understandability & reliance on this very important financial information. Additionally, the sovereign debt and cash flow crisis has illustrated the dire consequences of insufficient transparency and accountability of governments and inadequate public financial management and reporting.

In keeping with the global move towards the improvement in public sector accounting many municipalities, jurisdictions and governments have adopted or are in the process of adopting the accruals-basis International Public Sector Accounting Standards (IPSAS). As at March 2017, nearly three-quarters of OECD countries have adopted accrual accounting for their year-end financial reports and more than a quarter now prepare their annual budgets on an accrual basis.

The switch to accrual accounting inevitably has its challenges, such as changes in information systems, detailed accounting for assets, embedding a new culture and fostering a different way of thinking about the numbers etc. Therefore, high-quality training of staff and expert assistance is of vital importance for the effective, successful implementation of the IPSAS accounting framework and to fully reap its many benefits.

Many Namibian municipalities have been contemplating the adoption of the IPSAS Accounting Framework due to its benefits, which will assist in achieving improved accountability and transparency, ultimately leading to enhanced stakeholder relationships and investor and financial community confidence. Other Namibian municipalities, such as the City of Windhoek, have already adopted the IPSAS public sector accounting framework.

FOCUS ELEMENT 1: Conversion considerations: Modified Cash to IPSAS accrual accounting

This focussed on core differences between Modified Cash (IMFO) and the Accrual (IPSAS) Basis of Accounting as well as implementation steps to address these differences during such a conversion. The key difference between these frameworks can be summarised as:

  • In modified cash accounting, revenue, expenditure, assets and liabilities are either not accounted for at all, or, when accounted, often are only accounted for once underlying cash flows occur and based on certain fund accounting principles.
  • However, in accrual accounting, all revenue, expenditure, assets and liabilities are accounted for at their cost or fair value, as and when the underlying transactions have taken place and not dependent on their resulting cash flows or funding sources. Therefore in the current modified cash environment, such as the IMFO accounting basis, it is difficult to obtain a view of the full accounting “picture”.

Please find below more details of some of the core differences and focus areas:

Property, plant & equipment
PPE are expensed when acquired PPE are capitalized as assets when acquired
Investment property
No distinction is made between investment property and PPE The distinction is made between investment property and PPE
Short and long term liabilities
Majority of liabilities not accounted for All liabilities accounted for where a present obligation exists due to past event for which settlement requires an outflow of economic benefits
All transactions in terms of leasing arrangements are expensed Leasing arrangements are categorized as finance or operating leases and assets held under finance leases as capitalized
Non-current and current provisions
Provisions are not accounted for All provisions accounted for where liabilities exist of uncertain timing or amount
Financial instruments
Financial assets and financial liabilities are not accounted for in accordance with the accounting standards on financial instruments. Examples of financial instruments are cash, debtors and creditor Financial assets and financial liabilities are accounted for in accordance with the accounting standards on financial instruments, e.g. debtors are tested for impairment annually and provision for bad debt is made accordingly
Accrual of interest
Interest received or paid in cash is recognized The interest which accrues to the entity is recognized once it accrues
Loans Redeemed & other Capital Receipts
When capital assets are acquired and expensed, the related assets are thereafter capitalised with a corresponding entry to an LROCR account. There is no such reserve/ fund as the LROCR in accrual account in IPSAS, thus the LROCR needs to be unbundled to accounts such as the Accumulated Surplus, Accumulated Depreciation and sources of finance such as Loans (where relevant)


FOCUS ELEMENT 2: Overview of IPSAS Standards

This included high-level introduction to each relevant individual IPSAS Standards and recognition, measurement and disclosure considerations such as:

General financial accounting & background

  • Introduction to the IPSAS and the IPSASB
  • Fundamental accounting concepts which are essential in being able to understand and apply the requirements of the accounting standards

Accounting for assets

  • IPSAS 12 Inventory
  • IPSAS 16 Investment property
  • IPSAS 17 Property, plant and equipment
  • IPSAS 5 Borrowing costs
  • IPSAS 27 Agriculture
  • IPSAS 31 Intangible assets
  • IPSAS 21 Impairment of non-cash generating assets
  • IPSAS 26 Impairment of cash-generating assets
  • IPSAS 11 Construction contracts
  • IPSAS 32 Service concessions: Grantor

General reporting, presentation & disclosure standards

  • IPSAS 1 Presentation of financial statements
  • IPSAS 2 Cash flow statements
  • IPSAS 3 Accounting policies, changes in accounting estimates and errors
  • IPSAS 10 Financial reporting in hyper-inflationary economies
  • IPSAS 24 Presentation of budget information in financial statements
  • IPSAS 14 Events after the reporting period
  • IPSAS 18 Segmental reporting
  • IPSAS 20 Related party disclosures
  • IPSAS 22 Disclosures of information about the government sector

Accounting for Revenue

  • IPSAS 9 Revenue from exchange transactions
  • IPSAS 23 Revenue from non-exchange transactions

Accounting for financing & financial instruments

  • IPSAS 13 Leases
  • IPSAS 4 The effects of changes in foreign exchange rates
  • IPSAS 28 Financial instruments: Presentation
  • IPSAS 29 Financial instruments: recognition and measurement
  • IPSAS 30 Financial instruments: Disclosure

Separate and consolidated financial statements

  • IPSAS 6/34/35 Separate/consolidated financial statements
  • IPAS 7/36 Investments in associates (and joint ventures)
  • IPSAS 8/37 Interests in joint ventures (joint arrangements)
  • IPSAS 38 Disclosure of interests in other entities

Accounting for liabilities & related expenses

  • IPSAS 19 Provisions, contingent liabilities and contingent assets
  • IPSAS 25/39 Employee benefits