IPSAS 1 is based on IAS 1 Presentation of Financial Statements (Revised 2003).
IPSAS 1 Presentation of Financial Statements sets out the overall requirements for financial statements prepared under the accrual principle, including guidance for their structure and minimum requirements for the content of financial statements.
The standard requires a complete set of financial statements to comprise:
- a statement of financial position
- a statement of financial performance
- a statement of changes in net assets/equity
- a statement of cash flows
- notes, comprising a summary of accounting policies and other explanatory notes
- a comparison of budget and actual amounts (if approved budget is made public)
IPSAS 1 was reissued in December 2006 and applies to annual periods beginning on or after 1 January 2008.
History of IPSAS 1
Annual periods beginning on or after 1 January 2008.
Refer to IFAC website here
Summary of IPSAS 1 Presentation of Financial Statements
The objective of IPSAS 1 (2006) is to prescribe the basis for presentation of general purpose financial statements, to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities. IPSAS 1 sets out the overall requirements in which general purpose financial statements should be presented, including guidelines for their structure and minimum requirements for their content [IPSAS 1.1].
Standards and guidance for recognising, measuring, and disclosing specific transactions are addressed in other Standards [IPSAS 1.1].
Applies to all general purpose financial statements based on International Public Sector Accounting Standards prepared and presented under the accrual basis of accounting [IPSAS 1.2].
General purpose financial statements are the statements intended to serve users who are not in a position to demand financial reports tailored to their particular information needs [IPSAS 1.3].
The standard applies to all public sector entities other than GBEs (Government Business Enterprises) [IPSAS 1.5].
Accrual basis of accounting
While cash accounting has been the basis for public sector reporting during many years, accrual accounting is being introduced in an increasing number of public entities. Accrual accounting means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid) [IPSAS 1.7].
While cash accounting systems present only a short term view on public finance it excludes any comprehensive overview of assets or liabilities of the public entity. Accrual accounting overcomes this shortcoming and provides disclosures on assets and liabilities, revenues and expenses leading to a better informed user (and public sector entity) of the financial statements. This increased transparency gives a better insight on the long term consequences of (short term) policy decisions, being translated in the financial statements.
The IPSASB has issued IPSASs concerning financial reporting under the accrual basis and under cash basis accounting.
Objective of financial statements
The objective of general purpose financial statements is to provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making and evaluating decisions about allocating resources. To meet that objective, financial statements provide information about an entity's [IPSAS 1.9]:
• resources, allocation and use of financial resources
• financing and how the entity met its cash requirements
• the ability to obtain financing for its activities and to meet its liabilities and commitments
• the financial condition and changes in its financial condition
• aggregate information useful to evaluate the entity’s performance in terms of service cost, efficiency and accomplishments
To meet these objectives financial statements should provide information about [IPSAS 1.17]:
• Net assets/equity
• Other changes in net assets/equity
• Cash flows
Components of financial statements
A complete set of financial statements should include: [IPSAS 1.21]
• a statement of financial position (a “balance sheet”)
• a statement of financial performance (an “income statement”)
• a statement of changes in net assets/equity
• a cash flow statement
• a comparison of budget and actual amounts (in case the entity makes publicly available its approved budget). To be presented as a separate statement or as an additional column in the financial statements.
• notes, comprising a summary of accounting policies and other explanatory notes
An entity may use titles for the statements as defined in [IPSAS 1.22].
A statement of financial position may also be referred as:
• balance sheet
• statement of assets and liabilities
A statement of financial performance may also be referred as:
• Statement of revenues and expenses
• Income statement
• Operating statement
• Statement of revenues and expenses
Fair presentation and compliance with IPSASs
The financial statements must "present fairly" the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in IPSASs. The application of IPSASs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation [IPSAS 1.27].
IPSAS 1 requires that an entity whose financial statements comply with IPSASSs make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IPSASs unless they comply with all the requirements of IPSASs [IPSAS 1.28].
Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material [IPSAS 1.30].
IPSAS 1 acknowledges that, in extremely rare circumstances, management may conclude that compliance with an IPSAS requirement would be so misleading that it would conflict with the objective of financial statements set out in IPSAS 1. In this case, the entity is required to depart from the IPSAS requirement, with detailed disclosure of the nature, reasons, and impact of the departure [IPSAS 1.31-32].
An entity’s IPSAS financial statements will be prepared on a going concern basis unless management has significant concerns about the entity's ability to continue as a going concern. These uncertainties must be disclosed. If the financial statements are not prepared on a going concern basis that fact shall be disclosed together with some other of disclosures [IPSAS 1.38].
Consistency of presentation
The presentation and classification of items in the financial statements shall be retained from one period to the next unless a change is justified either by a change in circumstances or a requirement of a new IPSAS [IPSAS 1.42].
Materiality and aggregation
Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be aggregated only if they are immaterial on an individual basis [IPSAS 1.45].
Assets and liabilities, and revenue and expenses, may not be offset unless required or permitted by an IPSAS. [IPSAS 1.48]
IPSAS 1 requires that comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements, unless another IPSAS requires otherwise [IPSAS 1.53].
If comparative amounts are changed or reclassified, various disclosures are required [IPSAS 1.55].
Structure and content of financial statements
The financial statements shall be clearly identified and distinguished from other information in the document [IPSAS 1.61].
Furthermore the entity shall clearly identify [IPSAS 1.63]:
• the reporting entity
• whether the statements are for the individual or for the economic entity
• the date or period covered
• the presentation currency
• the level of precision (thousands, millions, etc.)
A presumption exists that financial statements will be prepared at least annually. In case the annual reporting period changes and financial statements are prepared for a longer or shorter period, the entity must disclose the reason for the change and the limitations on comparability [IPSAS 1.66].
Statement of Financial Position (Balance Sheet)
A classified statement of financial position, separating current and non-current assets and liabilities shall normally be presented by the entity. Except when a presentation based on liquidity provides information that is reliable and more relevant the current/non-current split may be omitted [IPSAS 1.70].
Regardless of the method of presentation applied, if an asset (liability) category includes amounts that will be received (settled) after more than 12 months with assets (liabilities) that will be received (settled) within 12 months, disclosure is required separating the longer-term amounts from the 12-month amounts [IPSAS 1.71].
Current assets are cash or cash equivalents; assets held for sale or consumption within the entity's normal operating cycle; assets that are held primarily for trading or assets held to be realized within the next 12 months. All other assets are non-current [IPSAS 1.76].
Current liabilities are expected to be settled within the entity's normal operating cycle or are held for trading, or those for which the entity does not have an unconditional right to defer payment beyond 12 months. Other liabilities are non-current [IPSAS 1.80].
When the entity has expect and has the discretion to refinance a long-term debt under an existing loan facility, the debt is classified as non-current, even if the outstanding debt is due within 12 months [IPSAS 1.84].
When a liability has become payable on demand because an entity has breached an undertaking under a long-term loan agreement on or before the reporting date, the liability is current, even if the lender has agreed, after the reporting date and before the authorisation of the financial statements for issue, not to demand payment as a consequence of the breach [IPSAS 1.85]. The liability is classified as non-current if the lender agreed by the reporting date to provide a period of grace ending at least 12 months after the end of the reporting period, in which the entity can rectify the breach and during which the lender cannot demand immediate repayment [IPSAS 1.86].
Minimum items on the face of the statement of financial position concern [IPSAS 1.88]:
(a) property, plant and equipment
(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (g), (h), and (i))
(e) investments accounted for using the equity method
(g) Recoverables from non-exchange transactions (taxes and transfers)
(g) Receivables from exchange transactions
(i) cash and cash equivalents
(j) Taxes and transfers payable
(k) Payables under exchange transactions
(m) financial liabilities (excluding amounts shown under (j),(k) and (l))
(n) Minority interest, presented within net assets/equity; and
(o) Net assets/equity attributable to owners of the controlling entity
Additional line items may be needed to fairly present the entity's financial position [IPSAS 1.89].
IPSAS 1 does not prescribe the format of the balance sheet or the order in which items must be presented [IPSAS 1.90].
Further subclassifications of line items shall be presented on the face of the statement of financial position or in the notes [IPSAS 1.93].
If an entity has no share capital following disclosures are required [IPSAS 1.93]:
• contributed capital, which is the difference between the cumulative contributions and the distributions to owners
• accumulated surplus or deficit
• Reserves and a description of nature and purpose of the reserve
• Minority interests
If an entity has share capital the following disclosures are required [IPSAS 1.98]:
• number of shares authorised, issued and fully paid, and the number issued but not fully paid
• par value or that share have no par value
• reconciliation of shares outstanding at the beginning and at the end of the period
• subcription of rights, preferences, and restrictions
• treasury shares, including shares held by controlled entities and associates
• shares reserved for issuance under options and contracts
• a description of the nature and purpose of each reserve within net assets/equity
Statement of Financial Performance (“Income Statement”)
All items of revenue and expense recognised in a period must be included in surplus or deficit unless a Standard requires otherwise [IPSAS 1.99]. Some IPSASs require or permit that some items are excluded from surplus or deficit and are included directly in net assets/equity [IPSAS 1.101].
Minimum items on the face of the statement of financial performance should include [IPSAS 1.102]:
(b) Finance costs
(c) Share of the surplus or deficit of associates and joint ventures accounted for using the equity method
(d) Pre-tax gain or loss recognized on the disposal of assets or settlement of liabilities attributable to discontinued operations
(e) Surplus or deficit
Surplus or deficit attributable to minority interests and owners of the controlling entity must also be disclosed in the statement of financial performance as allocations for the period [IPSAS 1.103].
Additional line items may be needed to fairly present the entity's financial performance [IPSAS 1.104].
If material, certain items must be disclosed separately either in the statement of financial performance or in the notes, including: [IPSAS 1.106-107]
• write-downs of inventories to net realisable value or of property, plant and equipment to recoverable amount or recoverable service amount as appropriate, as well as reversals of such write-downs
• restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring
• disposals of items of property, plant and equipment
• privatizations or disposals of investments
• discontinuing operations
• litigation settlements
• other reversals of provisions
Expenses recognised in the income statement should be analysed either by nature (raw materials, employee benefits, depreciation, advertising etc.) or by function (cost of sales, distribution, selling expenses, administrative, etc) [IPSAS 1.108]. When an entity presents costs by function additional disclosure on the nature of expenses is required. As a minimum depreciation and amortisation expenses and employee benefits expense must be disclosed [IPSAS 1.115].
Statement of Changes in Net Assets / Equity
IPSAS 1 requires an entity to present a statement of changes in net assets / equity as a separate component of the financial statements. The statement must show [IPSAS 1.118]:
• Surplus or deficit for the period (a)
• each item of included directly in net assets/equity and the total of these items (b)
• total revenue and expense (sum of (a)+(b)) showing separately amounts attributable to owners of the controlling entity and to minority interests
• the effects of changes in accounting policies and, when applicable, the correction of errors for each component of net assets /equity in accordance with IPSAS 3
Furthermore an entity must present on the face of the statement of changes in equity or in the notes [IPSAS 1.119]:
• amount of transactions with owners, showing separately distributions to owners
• balance of accumulated surpluses or deficits at the beginning and at the end of the reporting period and the changes between them
• reconciliations between the carrying amounts at the beginning and the end of the period for each component of equity, separately disclosing each change
When an entity has share capital the following amounts shall also be presented on the face of the statement of changes in net assets / equity or on the face of the statement of financial performance, or they may be presented in the notes: [IPSAS 1.117]
• amount of dividends or similar recognised as distributions, and
• the related amount per share
Cash Flow Statement
IPSAS 1.126 refers to IPSAS 2 Cash Flow Statements instead of setting out the standards for the Cash Flow Statement.
Notes to the financial statements
The notes shall [IPSAS 1.127]
• present information about the basis of preparation of the financial statements and the specific accounting policies used
• disclose any information required by IPSASs that is not presented on the face of the statement of financial position, Statement of financial performance, Cash Flow Statement of Statement of changes in Net Assets / Equity
• provide additional information that is not presented on the face of the financial statements but is relevant to an understanding of any of them
Notes should be presented in a systematic order and cross-referenced from the face of the financial statements to the relevant note [IPSAS 1.128].
IPSAS 1.129 suggests that the notes should normally be presented in the following order:
• a statement of compliance with IPSASs
• a summary of significant accounting policies applied, including [IPSAS 1.132]
o the measurement basis (or bases) used in preparing the financial statements
o extent to which the entity has applied transitional provisions in IPSAS
o the other accounting policies used that are relevant to an understanding of the financial statements
• supporting information for items presented on the face of the statement of financial position (balance sheet), statement of financial performance (income statement), statement of changes in net assets / equity and the cash flow statement, in the order in which each statement and each line item is presented
• other disclosures, including:
o contingent liabilities (see IPSAS 19) and unrecognised contractual commitments
o non-financial disclosures, such as the entity's financial risk management objectives and policies (see IPSAS 30)
An entity must disclose, in the summary of significant accounting policies or other notes, the judgements, apart from those involving estimations, that management has made in the process of applying the entity's accounting policies that have the most significant effect on the amounts recognised in the financial statements [IPSAS 1.137].
Examples cited in IPSAS 1.138 include management's judgements in determining:
• Whether assets are investment properties;
• Whether agreements for the provision of goods and/or services that involve the use of dedicated assets are leases;
• Whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and
• Whether the substance of the relationship between the reporting entity and other entities indicates that these other entities are controlled by the reporting entity
Disclosure of key sources of estimation uncertainty. An entity must disclose, in the notes, information about the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year [IPSAS 1.140]. These disclosures do not concern the disclosure of budget or forecast information [IPSAS 1.145].
The following other note disclosures are required by IPSAS 1.149 if not disclosed elsewhere in information published with the financial statements:
• domicile and legal form of the entity, and the jurisdiction in which it operates
• description of the entity's operations and principal activities
• reference to relevant legislation governing the entity’s operationbs
• name of the controlling entity and the ultimate controlling entity (if applicable)
• information about the length of its life when the entity is a limited life entity
Disclosures about dividends
In addition to the distributions information in the statement of changes in equity (see above), the following must be disclosed in the notes [IPSAS 1.149]: "the amount of dividends, or similar distributions, proposed or declared before the financial statements were authorised for issue, but not recognised as a distribution to owners during the period, and the related amount per share” and "the amount of any cumulative preference dividends, or similar distributions, not recognized”.
An entity should disclose information about its objectives, policies and processes for managing capital [IPSAS 1.148A]. To comply with requirement, the disclosures include: [IPSAS 1.148B]
• qualitative information about the entity's objectives, policies and processes for managing capital, including
o description of what it manages as capital
o nature of external capital requirements, if any
o how it is meeting its objectives
• quantitative data about what the entity regards as capital
• changes from one period to another
• whether the entity has complied with any external capital requirements and
• if it has not complied, the consequences of such non-compliance.
Disclosures about puttable financial instruments
IPSAS 1.148D requires the following additional disclosures if an entity has a puttable instrument that is classified as an equity instrument:
• summary quantitative data about the amount classified as net assets / equity
• the entity's objectives, policies and processes for managing its obligation to repurchase or redeem the instruments when required to do so by the instrument holders, including any changes from the previous period
• the expected cash outflow on redemption or repurchase of that class of financial instruments and
• information about how the expected cash outflow on redemption or repurchase was determined.
IPSAS 1 Presentation of Financial Statements issued
1 December 2006
Revised IPSAS 1 (2006) issued
1 January 2008
Effective date of IPSAS 1
1 January 2011
Effective date of Improvements to IPSASs (issued January 2010)
1 January 2012
Effective date of Improvements to IPSASs (issued November 2010)
1 January 2013
Amendments from IPSAS 28 (issued January 2010) - earlier application if IPSAS 28 is earlier applied
1 January 2013
Amendments from IPSAS 30 (issued January 2010) - earlier application if IPSAS 30 is earlier applied