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Introduction

The Cash Basis IPSAS was first issued in 2003 and modified in 2006 and 2007. In 2015 the
IPSASB issued ED 61, Amendments to Financial Reporting under the Cash Basis of
Accounting (the Cash Basis IPSAS) which was a limited scope project to remove obstacles to
adoption of the standard which included the requirement to prepare consolidated financial
statements and disclosure of information about external assistance and third party payments.
This revised Cash Basis IPSAS reflects the comments received to ED61.

Objective
The objective of public sector financial reporting is to provide information about the entity that
is useful to users for accountability and decision making purpose. In making and evaluating
decisions about the allocation of cash resources and the sustainability of the entity’s activities,
users require an understanding of the timing and certainty of cash receipts and cash payments.

Compliance with the requirements and encouragements of this standard will enhance
comprehensive and transparent financial reporting of the cash receipts, cash payments and cash
balances of the entity. It will also enhance the comparability among those that adopt cash basis
IPSAS.

Part one of Cash Basis IPSAS (CBI)


Part one of cash basis IPSAS is mandatory for all governmental entities that prepares general
purpose financial statements under cash basis of accounting.

Scope
This standard is applicable to all governmental entities (except government’s business
enterprises) which prepare their financial statements under cash basis of accounting. If any
government organization meets all the criteria of being a non-profit-motive entity, it shall
disclose that fact and then can adopt cash basis IPSAS.

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Definition & Explanation of special terms used in this standard

Cash basis of accounting


The cash basis of accounting recognizes transactions and events when cash is received or paid
by the entity. An accounting method in which income is recorded when cash is received, and
expenses are recorded when cash is paid out.

Cash basis accounting does not conform with the provisions of GAAP and is not considered a
good management tool because it leaves a time gap between recording the cause of an action
(sale or purchase) and its result (payment or receipt of money). It is, however, simpler than the
accrual basis accounting and quite suitable for small organizations that transact business mainly
in cash. Also called cash accounting.

Cash equivalents:
Cash equivalents are a short term, highly liquid investment that are readily convertible to
known amounts of cash and subjects to insignificant risk of changes in value.

Cash controlled by the reporting entity:


Cash is controlled by an entity when the entity can use the cash for the achievement of its own
objectives or otherwise benefit from the cash and exclude or regulate the access of others to
that benefit. Cash collected by, or appropriated or granted to, an entity which the entity can use
to find its operating objectives, obtain capital assets or repay its debt is controlled by the entity.

Control of an entity:
Governments and other public sector entities may control a large number of entities including
government department, agencies and commercial public sector entities. Financial statements
may be prepared in respect of a reporting entity that comprises an individual entity or a
controlling entity and all or some of its controlled entities.

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Financial statements:
A Statement of Cash Receipts and Payments which recognizes all cash receipts, payments and
balances controlled by the entity. It separately identifies payments made by 3rd parties on
behalf of the entity. Financial statements result from processing large quantities that are
structured by being aggregated into groups according to their nature and function. The final
stage in the process of aggregation and classification is the presentation of condensed and
classified data that form line items either on the face of the financial statements or in the notes.

If Budget is in public domain, comparison of actual to estimate to be presented in separate


column to the above statements or presented as an additional statement. If entity adopts
modified cash, transaction to accrual accounting, it will be disclosed along with the lists of
additional statements and disclosures in notes. It may present additional statements major fund
wise, disclose sources of burrowing and deployment, types of receipt/payments, budget and
actual comparison thereof.

Information to be presented in the statement of cash receipt and payments:


Payments and receipt be reported on net basis
 Taxes collected by one tier of govt., on behalf on another and transferred.
 Acceptance and repayment of demand deposits of a financial institutions.
 Funds held for customers by an investment or trust entity.
 Transfers by a government department to third parties consistent with legislation or
other government authority.
 Funds administered by a central entity under the “single account “basis for management
of government’s expenditure of different departments.

Items having quick turnover, large amount, short maturities


 Pass through the bank account of the entity as per law before transferred to ultimate
recipients.
 Short term borrowing having maturity less than three months

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Line items, Heading and Sub-Totals
Line items, Heading and Sub-Totals should be presented according to the rules and regulations.
Factors to be taken into consideration in determining which line items, headings and sub-totals
should be presented within each sub-classification in accordance with the requirements of
paragraph.

Accounting policies and explanatory notes


Structure of notes: the notes to the financial statements of an entity shall present information
about the basis of preparation of financial statements and specific accounting policies selected
and applied for the significant transactions

Selection and disclosure of accounting policies


Financial statements shall present information that is understandable and relevant to all
shareholders, timely and reliable (represents faithful, neutral and complete in all materiality)
Accounting policies section of the notes to the financial statements shall describe each specific
policy for the understanding of financial statements. The entity has applied any transitional
provision in this standard.
Inappropriate accounting treatments are not rectified /explain by disclosure of the accounting
policies used.

General considerations
Reporting period
The general purpose of financial statements shall be presented at least annually. In exceptional
case, period or long term or short-explain reasons and ability or otherwise of comparability
 Align with budget cycle-one-time shift
 Aligning with interim budget/ midyear assessment of entity’s finance-as and when
required
 52-week accounting cycle

Timelines
An entity should be in a position to issue the financial statements with in six month of the
reporting date.

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Authorization date
Authorization date for financial statements have received approval from the individuals or body
with the authority to finalize statements for issues, Authorizing Authority and if another can
amend the published financial statements. Parliament/a body of legislature may amend – It will
be another financial statements.

Information about the entity


An entity shall disclose the following in the notes to financial statements:
 The domicile, jurisdiction, legal form of the entity, legislation governing in operation
 Nature of the entity’s operation and principal activities
 Tiers of controlling entity of the economic entity

Restriction on cash balances and access to borrowings


An entity shall disclose in the notes to the financial statements together with a commentary,
the nature amount of:
 Significant cash balances that are not available for use by the entity, subject to external
restriction.
 Restriction on undrawn borrowings facilities available for future operation.
 Entity hold cash collected for other parties as an agent but not yet transferred those
parties.

Consistency of presentation and classification of items, unless changed


 Results in better position of events or transaction.
 Is required by a future amendment to this standard.

Entity amends presentation and classification of financial statements


 Reclassify in comparative information of previous years
 If impracticable to reclassify comparative amount, disclose reasons.
 E.G. major restructuring of service delivery arrangements; the creation of a new, or,
termination of a major existing, government entity; significant acquisition or disposal.

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Comparative information for all numerical information of the previous period
 With description, when required for understanding current financial statement.
 Not figures of financial statement for years prior to adoption of the standard.
 Unresolved legal dispute notes of previous financial statement to be reported with steps.

Identification of financial statements


 Financial statement distinguished from other information in GPFS
 Each component of financial statement clearly identified
 Highlights and repeats name of the reporting entity and whether the financial statements
is of individual or economic entity.
 Electronic accounting systems takes care of the requirements of this standard

Correction of Errors
1. Error of the previous period:
An adjustment has to be made with the beginning cash balance to offset the error. The
entity should disclose the following in relation to the error:
i) Nature of the error related to the previous period
ii) Amount of the correction
iii) Statement on previous year’s correction
2. Error of the current period:
Potential current period’s error discovered in the current period are corrected before the
financial statements are authorized for issue.

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Foreign Currency
Transections, borrowing / repayment, or purchasing goods and services in foreign currency
recorded in an entity’s reporting currency should be recorded at exchange rate as on date of the
receipts and payments. Cash receipts and cash payments of a foreign controlled entity should
be reported at exchange rate on the date of receipts and payments.

Cash balances held in a foreign currency should be reported using closing foreign exchange
rate. Unrealized gains and losses arising from changes in foreign currency exchange are not
cash receipts and payments. Exchange rate differences of two different reporting dates be
disclosed while reconciling items between opening and closing cash balances. In addition, the
entity should disclose if the reporting currency is different from the country’s currency.

Presentation of Budget information in Financial Statements

Approved Budget
An approved budget as defined by this standard reflects the anticipated revenues or receipts
expected to arise in the annual or multi-year budget period based on current plans and the
anticipated economic condition during the budget period and expense or expenditure approved
by a legislative body, being the legislature or other relevant authority. The authority of budget
means that the authority to withdraw funds from the government treasury or similar body for
agreed and identified purposes is provided by a higher authority for the specified items.

Original and Final Budget


The original budget may include residual appropriated amount automatically carried over from
prior years by law. It may be referred to as obligations or encumbrances and include
outstanding purchase orders and contracts where goods or services have not yet been received.

Actual Amount
Actual amount is used to describe the amounts that result from execution of the budget.

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Presentation of a comparison of Budget and Actual amount
Entity that publishes financial statements publicly shall have to provide a comparison either as
a separate additional financial statement or as an additional budget column in the statement of
cash receipt and payments. The comparison of budget and actual amounts shall present
separately for each level of legislative oversight:
 The original and final budget amount
 The actual amounts on a comparable basis
 Disclosures explaining the material differences known as variance in the notes to the
financial statements.
 Management discussion and analysis (MD&A) which provide a review of explanation
about material variances are often issued in conjunction with the financial statements.

Level of Aggregation
 Budget documents provide details about particular activities, programs or entities. On
the other hand, these details are often aggregated into broad classes under common
budget head for presentation or legislative purposes. Disclosure of budgeted and actual
information consistent with these broad categories will ensure that the comparison is
made in the level of legislative.
 In some cases, the detailed financial information included in the approved budget may
need to be aggregated for presentation purposes.
 Additional budget information like service achievement may be presented in documents
other than financial statements.

Changes from original to budget


An entity shall present an explanation of whether changes between the original and final budget
are a consequence of reallocations within the budget or other factors like note disclosure or a
report containing cross references to the notes.

Comparable Basis
All comparisons of budget and actual amounts shall be presented on a comparable basis to the
budget. The comparison of budget and actual amounts shall be presented on the same
accounting basis, same classification basis, and for the same entities and period as for the
approved budget.

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Multi-year Budget
Some governments approved multi-year budget comprising a series of annual budgets or
annual targets. In a multi-year budget government may take different approaches to determine
their original and final budget depending on how their budget is passed.

If there are some unused appropriations remain after the completion of the first year,
government may allow the reporting entity to use this unused amounts to the second year; doing
so will increase the level of appropriations of the second year. In this cases, the entity is
required to provide justification about reporting the increased amount of appropriations.

Disclosures of Budgetary Basis, Period and Scope


 An entity shall explain in notes to the financial statements the budgetary basis and
classification basis adopted in the approved budget.
 An entity shall disclose in notes to the financial statements the period of the approved
budget.
 An entity shall identify in notes to the financial statements the entities included in the
approved budget

Reconciliation of Actual amounts on a comparable basis and actual amounts in the financial
statements
If the actual amounts presented on a comparable basis to the budget are not prepared on a
comparable basis, a reconciliation shall have to make as following:
 Reconciliation of total cash receipts and total cash payments identifying separately any
basis, timing and entity differences.
 The reconciliation shall be disclosed on the face of the statement of comparison of
budget and actual amounts or in the notes to the financial statements.
 The disclosure of comparative information in respect of the previous period in
accordance with the requirements of this Standard is not required.
Effective Date:
 Entity that follows the cash basis IPSAS shall apply all of its provisions.
 An entity shall apply this standard from the beginning of January 2019. Earlier
adaptation is encouraged.

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External Assistance
Official Resources means all loans, grants, technical assistance, guarantees or other assistance
provided or committed under a binding agreement by multilateral or bilateral external
assistance agencies or by a government, or agencies of a government, other than to a recipient
of the same nation. Also it means all official resources which the recipient can use or otherwise
benefit from in pursuit of its objectives

Assistance provided by non-governmental organizations (NGOs) shall not come under official
resources, hence not under External Assistance- however assistance provided by NGOs under
binding agreement may be treated as External Assistance if so approved by Authority

Mode of EA
 Payment to the Entity upfront full/ in tranche as loan/ grant
 Reimbursement to the Entity for payment to third party as per T&C
 Payment to third party directly by EA Agency on clearance from Entity
 Goods and Services in kind

Disclosures
 Total cash and by significant class & currency (part 2) of EA in cash - on the face of
statement of cash

 Total EA and by significant class & currency (part 2) of EA paid by third parties to
directly settle obligations of the entity or purchase goods and services on behalf of the
entity, when third party or the recipient inform that such payment has been made, or
entity has verified the payment - on the face of statement of cash or notes to FS
 Third parties part of the Economic Entity (Treasury Single Account)
 Third parties not part of Economic Entity
 Loans & grants separately - on the face of statement of cash or notes to FS

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Part-02 of Cash Basis IPSAS

Encouraged Additional Disclosure


Part 2 of the Cash Basis IPSAS is very important. It gives guidance on non-mandatory areas of
additional disclosures that are encouraged in addition to the mandatory elements.

Future Economic Benefits or Service Potential

Asset which do not directly generate net cash inflows are often described as embodying
“service potential” and which generate net cash inflows are often described as embodying “future
economic benefits”.

Going Concern

 Those who are responsible for preparing financial statement are encouraged to make
an assesment of the entity’s ability to continue as a going concern.
 any uncertainties affecting the future should disclose
 Affects individual entities rather than the government as a whole
 need to write into account all information relevant to the “foreseeable future” defined
as 12 months
 includes assessment of expected performance potential restructuring, estimates of
receipts or likely continuation of government funding , potential sources of
replacement funding

Administered Transactions

 A key area of interest and potential confusion. Differs from questions on control.

 An entity is encouraged to disclose in the notes to the financial statements the amount
and nature of cash flows resulting from transactions administered by the entity as an
agent on behalf of others.

 A good example would be a Department of Taxation which collects taxes on behalf of


government. Such Departments only control monies that go into their own bank account
(or are paid on their behalf by others) and is used for the purpose of meeting their own
operating objectives. All other cash is administered rather than controlled by them.

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 However there may be occasions when transfer payments to a third party pass through
the entity’s bank account before being transferred. In such cases, cash receipts and cash
payments processed during the period should be included in their statement of receipts
and payments along with any cash balances remaining at the end of the period.

Disclosure of major classes of cash flows


 An analysis of total cash payments using a classification based on either the nature of
the payments of their function within the entity as appropriate and proceeds from
borrowing.
 Total cash payments and payments by third parties.
 Classification based on either the nature of the payments or their function
 Proceeds from borrowing types and sources of borrowing

Sub classification:
 Receipts from taxation
 Receipts from fees, fines, penalties and licenses
 Receipts from exchange transaction
 The purpose for which external assistances grants and loans are provided
 Receipts from other grants, transfer or budget appropriation
 Receipts from interest and dividends
 Receipts from gifts and donations

Related party disclosure


Related party transactions, including information about aggregate remuneration of key
management personnel shall be disclosed.

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Disclosure of Asset, Liabilities, Revenues, Expenses and Comparisons with
Budgets
An entity is encouraged to disclose information about asset, liability, revenue and expense.
Asset & Liability Disclosure:
 Classification of Asset
 Assets as receivables, investments, or property plant and equipment; and
 Liabilities as payables, borrowings by type or source and other liabilities.

If the entity does not make publicly available its approved budget, a comparison in notes to
the Financial Statements:
 Of actual with the budgeted amount for the reporting period, where the financial
statement and the budget are on the same basis of accounting.
 With separate columns for budgeted amounts and actual amounts
 Disclosure that the budgeted amount has not been exceeded.

Cross reference to the document (information on service achievement) in financial statement


have to provide to link budget and actual data to non-financial budget data and service
achievement.

Entities which adopt multi-period budgets have to provide additional notes about the
relationship between budget and actual amount during the budget period.

Consolidation
Economic entity:
The term economic entity is used in this standard to define a group of entities comprising the
controlling entity and controlled entities and also include social policy and commercial
objectives. It will need to made being regard to arrangements in a constitutional jurisdiction.

Scope of consolidated financial statements


A controlling entity should normally consolidated financial statements which consolidated all
controlled entities, foreign and domestic. It is a wholly owned controlled entity that need not
present consolidated financial statements, encouraged to prepare “intermediate level”.

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Consolidation procedure as follows:
Cash balances and transactions between the entities must be eliminate in full. If financial
statements consolidated are made up to different dates, then adjustment should be made for
different periods. Uniform policies shall be used for like transactions.

Consolidation disclosure:
A listing of significant controlled entities including the name and the jurisdiction. The reasons
for not consolidating a controlled entity. The proportion ownership interest in controlled
entities.

Joint Arrangement
An entity is encouraged to make disclosures about joint arrangements which are necessary for
a fair presentation of the cash receipts and payments of the entity during the period and the
balances of cash as at reporting date.
 Public sector entities establish joint venture to undertake certain activities ranging from
commercial undertaking to provisions of community services at no charge.
 Entities report on cash basis will report as:
 Cash payment in acquisition
 Disposal of an interest in joint venture or ongoing operation of joint venture.

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Financial Reporting in Hyperinflationary Economics:
Cumulative inflation in 3 yrs 100%,
 Restate its statement of cash and other FS in current rate of currency at the reporting
date
 Restate the comparative information for the previous period
 Use a general price index that reflects changes in general purchasing power
 Identity and level of the price index at the reporting date and the movement in the index
during the current and the previous reporting period
 Disclose that above measures are followed
 Restatement of the budgetary information where the public sector includes the related
budgetary information in their financial statements.

Financial statements of a controlled entity will be restated by applying general price index in
the currency of the country it reports before included in the Consolidated Financial Statement
when the statement of cash & other Financial statements are prepared on consistent basis. If
controlled entity is a foreign controlled entity, its restated Financial Statement are translated at
closing rate. All items (non-monetary/monetary) require to be restated into the measuring unit
current at the date of Consolidated Financial Statement if Financial Statement with different
reporting dates are consolidated.

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External Assistance
 Entity is encouraged to disclose assistance received from NGOs in the same way as
that received via External Assistance (costs v benefits rules apply).

 External Assistance: purposes for which External Assistance was received split
between grants and loans.

 Purposes for which External Assistance payments were made (e.g. Economic
Development/Emergency Relief/ Defense Objectives/Trading Activities).

 Analysis of each provider of External Assistance.

 Summary of repayment terms and conditions of outstanding External Assistance debt.

 Value of External Assistance received in the form of goods and services (may be
questions of how these are valued especially if e.g. second hand: „fair value‟ rules
may apply).

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Challenges and Success Factors in implementation of cash basis IPSAS in
Bangladesh:

Bangladesh applies cash basis IPSAS in its reporting after a period of public sector reform that
has taken place over several years. Individual departments and public sector entities do not
manage their own cash, which is held centrally by government.

Consequently, the Bangladesh accounting function consists of a consolidated fund and a


treasury single account. Parliament limits the financial authority provided through the annual
budget. Responsibility for setting the accounting framework as well as auditing the framework
lies with the Comptroller and Auditor-General.

A challenge for Bangladesh is with respect to the timeliness of reporting; that is the delayed
production of these documents which are submitted late to the relevant authorities; and the fact
that they are not made available to the public.

This is due at least in part to the lateness of information being supplied by the self-accounting
entities (SAE) such as Defense and Railways which delays the preparation of a consolidated
financial statement. SAEs report their financial transactions to Controller General of Accounts
(CGA) for eventual incorporation in both monthly central accounts and annual finance
accounts. However much of the delay in the production of these accounts is due to the delayed
reporting of their transactions to CGA.

In addition, the quality of their financial data is compromised by the limitations of their separate
accounting systems and adversely affects the overall quality of financial reporting by CGA and
the ability of Ministry of Finance to monitor budget implementation Government of the
People’s Republic of Bangladesh (2016) Public Finance Management (PFM) Reform Strategy
2016-2021. Bangladesh experiences IPSAS implementation challenges that will take a number
of years to overcome and the country will arguably find it difficult to achieve full compliance
with IPSAS (Hakeem, 2012).

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Recommendation to adopt cash basis IPSAS
It is to be mentioned here that Bangladeshi is in process to adopt the cash basis IPSAS but yet
it did not declare about the adaptation of it. To reduce the obstacles and overcome the
challenges, we recommend some issues to be followed to adopt all the provisions of cash basis
IPSAS in full.

 Bangladesh should try to reduce the timeliness problem to provide the financial
information in time.
 Self-accounting entities (SAE) like Defense & Bangladesh Railway should be
improved.
 Quality of accounting information should be enhanced so that the financial information
of the government can be compared globally.
 Reformation of strategy to adopt all the provisions of CBI as soon as possible.
 Should follow simpler accounting process to consolidate the approved budget for all
units and departments.
 Accounting professionals should be recruited as a Governmental Accountants.
 Benefits of the cash basis IPSAS have to be realized and try to be adopt this.

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