What’s in this article and videos?
Introduction
I spoke to Bruce about career opportunities in the Public Sector a while back. I found that quite a few people were interested in exploring the topic of the Public Sector a little more, so I decided to chat to him again.
This time, we chatted about the differences in the accounting standards between the public and private sector. We know, (or may still be studying!) IFRS, but how many of us have looked at, or worked with IPSAS?
As I explored IPSAS, I’ve found some really fascinating concepts that I think you’ll find interesting, REGARDLESS of whether you ever plan to work in the public sector.
Thanks again to Bruce for his time and enthusiasm to share this with us.
(You can watch the full video here, or scroll down to see the breakdown of the different questions I asked him)
If you’d like me to chat to Bruce about something else related to the Public Sector, please leave a comment at the bottom of the page
The Public Sector has it's own Accounting Standards. Why?
The Public Sector uses IPSAS (International Public Sector Accounting Standards) as a basis for the preparation of Annual Financial Reporting Standards.
Most of us accountants and accounting students are more aware and comfortable with IFRS (International Financial Reporting Standards). So, why is IFRS not relevant for the public sector? Why would it need different accounting standards?
IPSAS Accounting Standards
Examples of the difference in treatment between IFRS and IPSAS
Bruce gives us some practical, pretty basic, examples of how the accounting treatment of an asset and revenue would differ when using IPSAS vs IFRS.
“Service potential vs economic benefit”
The accounting should match the objective
We sometimes forget that the accounting treatment should reflect the underlying objective of the organisation. In the public sector, the fundamental objective is completely different to the profit-driven organisations we’re used to thinking of with IFRS.
“The AFS are not the end-goal. The organisation’s objectives are the core of the business. The AFS should serve that”
What are the reporting entities?
We’re used to thinking of companies, or groups of companies, as the reporting entity.
Who is presenting the AFS in the public sector? Is the local police station a reporting entity? A hospital? A municipality?
Will an IFRS accountant make sense of IPSAS AFS?
Will an accountant who is used to working with IFRS be able to make sense of a set of AFS created using IPSAS?
Do we really think of the PURPOSE of AFS?
We’re so used to thinking in ‘accounting’ and focussing on what the AFS needs to look like, it’s easy to forget that the AFS needs to SERVE the objective of the organisation. As an accountant, do you see the AFS as ‘the purpose’?!
Who are the 'users' of the AFS in the public sector?
When we prepare IFRS AFS, we generally think of the ‘users’ as shareholders, potential investors, finance providers etc, and we understand what decisions they’re making based on these AFS.
Who are the ‘users’, and what decisions are being made using public sector AFS?
Consolidated General Report South Africa 2018-2019
Citizen’s Report South Africa 2018-2019
Basic differences in the Conceptual Framework of IPSAS vs IFRS
When I read the Conceptual Framework of IPSAS, I was struck by the fact that they state that the financial information alone cannot give the full picture of the performance of the organisation.
I think this is a great representation of the reality that numbers alone don’t really paint a full picture of how the organisation is doing.
Read: Preface – Introduction: Par 2 (Pg 4 of the PDF)
(Read just that one paragraph and think about the difference between just talking about the numbers)
IPSAS Conceptual Framework (PDF)
Advice: Always ask 'why' you're doing what you're doing
Whatever you’re doing or working with or studying, always keep in mind what value you can add with what you’re doing.
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