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Overview

IPSAS 9 is based on IAS 18 Revenue (Revised 1993).


IPSAS 9 prescribes the accounting requirements for when to recognize revenue from exchange transactions and events. In the public entity context the exchange of goods can be (i) the sale of goods, (ii) rendering of services (iii) interest, royalties, dividends and similar distributions. Revenue should be measured at fair value of the consideration received or receivable and recognised when prescribed criteria are satisfied, which depends on the nature of the revenue.


IPSAS 9 was issued in July 2001 and applies to annual periods beginning on or after 1 July 2002.



History of IPSAS 9







Effective date

Annual periods beginning on or after 1 July 2002.


Full text

Refer to IFAC website here


Summary of IPSAS 9 Revenue from Exchange Transactions

Objective


The objective of IPSAS 9 is to prescribe the accounting treatment for revenue arising from exchange transactions and events.



Scope

This standard applies to entities that prepare and present financial statements under the accrual basis of accounting [IPSAS 9.1]. IPSAS 9 applies to all public sector entities other than GBEs [IPSAS 9.2].

The standard is applicable for following types of revenue [IPSAS 9.1]:

• Rendering of services

• Sale of goods

• Interest, royalties, dividends and similar distributions


Following types of revenue are explicitly excluded:

• Revenue from non-exchange transactions, in the scope of IPSAS 23 [IPSAS 9.4]

• Revenue from lease agreements, in the scope of IPSAS 13 [IPSAS 9.10(a)]

• Dividends or similar distributions in the scope of IPSAS 7 [IPSAS 9.10(b)]

• Gains from the sale of PPE in the scope of IPSAS 17 [IPSAS 9.10(c)]

• Insurance contracts, in the scope of relevant international or national accounting standards [IPSAS 9.10(d)]

• Changes in the fair value of financial assets or liabilities or their disposal [IPSAS 9.10(e)]

• Changes in the value of other assets [IPSAS 9.10(f)]

• Biological assets and agricultural produce in the scope of IPSAS 27 [IPSAS 9.10(g)]

• Extraction of mineral ores [IPSAS 9.10(h)]


Key definitions

Exchange transactions: transactions in which an entity receives assets or services, or has liabilities extinguished, and directly gives approximately equal value (primarily in the form of cash, goods, services, or use of assets) to another entity in exchange

Fair value: the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction

Non-exchange transactions: transactions that are not exchange transactions. Transactions in which an entity either gives or receives value from another entity without directly receiving or giving approximately equal value in exchange

Revenue: The gross inflow of economic benefits or service potential during the reporting period when those inflows result in an increase in net assets/equity, other than increases relating to contributions from owners [IPSAS 1.7].

Measurement of revenue

Revenue should be measured at the fair value of the consideration received or receivable [IPSAS 9.14]. A swap of goods and services of a similar nature and value is not regarded as a transaction that generates revenue. When goods or services are exchanged for dissimilar items this is regarded as a revenue generating transaction [IPSAS 9.18].

When the receipt of cash or cash equivalents is deferred, the future receipts should be discounted and the fair value of the consideration receivable is less than the nominal amount of cash and cash equivalents to be received. The difference between the nominal amount and the fair value is recognized as interest revenue and based on market rates [IPSAS 9.16].


Recognition of revenue

Revenue is recognized when it is probable that:

(a) future economic benefits or service potential will flow to the entity

(b) these benefits can be measured reliably.


IPSAS 9 identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognized.


IPSAS 9 provides guidance for recognizing following specific categories of revenue:

• Rendering of services

• Sale of goods

• Interest, royalties, dividends and similar distributions


Rendering of services

Revenue arising from the rendering of services, provided that all of the following criteria are met, should be recognized by reference to the stage of completion of the transaction at the reporting date (the percentage-of-completion method) [IPSAS 9.19]:

• the amount of revenue can be measured reliably;

• it is probable that the economic benefits will flow to the entity;

• the stage of completion at the reporting date can be measured reliably; and

• the costs incurred or the costs that will be incurred to complete the transaction can be measured reliably.


If these criteria are not fulfilled and the revenue can not be reliably measured, revenue arising from the rendering of services should be recognized only to the extent of the recoverability of the expenses already  recognized (the "cost-recovery approach" [IPSAS 9.25]


Sale of goods

Revenue from the sale of goods should be recognized when all of the following criteria are met [IPSAS 9.28]:

• the entity has transferred the significant risks and rewards of ownership

• the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold

• the amount of revenue can be measured reliably

• it is probable that the economic benefits or service potential associated with the transaction will flow to the entity, and

• the costs incurred or to be incurred in respect of the transaction can be measured reliably


Interest, royalties, and dividends

For interest, royalties, dividends and similar distributions revenue should be recognized if [IPSAS 9.33]:

•  it is probable that the economic benefits or service potential will flow to the entity

•  the amount of revenue can be measured reliably


Following specific accounting treatments are applicable for the different types of revenue [IPSAS 9.34]:

• interest: on a time proportion basis that takes into account the effective yield of the asset

• royalties: as they are earned in accordance with the substance of the relevant agreement

• dividends or similar distributions: when the shareholder's or the entity’s right to receive payment is established


Disclosure [IPSAS 9.39]

The following disclosures are required:

• accounting policies for the recognition of revenue [IPSAS 9.39(a)]

• amount of each of the following types of revenue [IPSAS 9.39(b)]

o rendering of services

o sale of goods

o interest

o royalties

o dividends or similar distributions

• within each of the above categories, the amount of revenue from exchanges of goods or services [IPSAS 9.39(c)]


July 2001

IPSAS 9: Revenue from Exchange Transactions was issued

1 July 2002

Effective date of IPSAS 9

IPSAS 9 Revenue from Exchange Transactions