## _tnm1606 ## Source details **Canonical URL:** [_tnm1606](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/tnm/2016/_tnm1606.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/tnm/2016/_tnm1606.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/tnm/2016/_tnm1606.pdf.json) --- ### Preparing for adoption of accrual accounting (Box 1) - Background and gap analysis in Chile - In 2010, the General Controller of Chile (Contraloría General de la República, CGR) announced its intention to adopt accrual accounting in the public sector based on IPSAS by 2019. - Gap analysis compared existing government accounting practices with the requirements of IPSAS and categorized the 32 IPSAS into: - high priority: fixed assets, transfers, property investments, taxes, financial instruments and financial liabilities; - medium priority: revenue from exchange transactions, associates and joint ventures, provisions, intangible assets, contingent assets and liabilities, leases and concession arrangements; - low priority: financial statements, inventories, segment reporting, employee benefits, related party disclosures, effects of changes in foreign exchange rate, agriculture and accounting policies, changes in estimates and errors; and - not applicable standards: financial reporting in hyperinflationary economies and construction contracts. - Estimating reform costs (summary from Box 2) - Cost drivers: starting point, scope, ambition, speed of transition, relationship to other public financial management reforms. - Typical cost components: - investment in new IT systems; - training of finance and operational staff, politicians, auditors; and - consultancy fees. - Selected empirical estimates: - EU-wide estimate (EUROSTAT survey): between €1.2 and €6.9 billion, representing 0.009 to 0.053 percent of the EU GDP. - Austrian Federal Government transition (2009–2013): estimated cost €30 million (0.007 percent of GDP). - Switzerland (Federal Government level): estimated cost around €40 million (0.005 percent of GDP), with approximately 80 percent of this cost for the new IT system. - Caveats: - Estimates focus on advanced economies; costs likely higher in developing and low-income countries. - Costs may be shared with concurrent reforms (new fiscal rules, program and performance budgeting, audit improvements). - Largest single cost often IT upgrades; such replacements may be required irrespective of accrual reform. - Benefits (better asset maintenance incentives, avoidance of costly expenditure arrears, enhanced surveillance of fiscal risks) are difficult to quantify against costs. - Mechanisms for setting public sector accounting standards - Historical practice: MoF often sets standards, which may conflict with objectivity/independence needs. - Approaches used: - independent advisory boards (France, UK); - independent national standard-setting bodies (New Zealand, Australia, Canada, South Africa); - adopting international standard setter standards (Chile); - consulting supreme audit institutions before enacting standards (Austria). - Training, change management, and transition planning - Significant training required for preparers and users (ministers, MoF senior officials, parliamentarians, civil society, SAIs). - Modalities: lectures, hands-on/online tutorials, guidance notes, dedicated helpdesk. - SAIs likely need to broaden audit scope to financial audit, adopt ISSAI, and train auditors in risk-based audit approaches. - Action plan essentials: stages, responsibilities, timing, systems/process reforms, financial statement formats at each stage; consider pilots or parallel cash/accrual running. - IPSAS 33 provides guidance on first-time adoption, including voluntary exemptions (“reliefs”) during transition. ### Sequencing the transition and phased roadmap - Typical country timeframes: - three to five years for some (New Zealand, France, Austria); - more than ten years for others across whole public sector (Peru, United Kingdom); - phased or sub-national starts in other cases (China). - Three parallel dimensions of fiscal reporting reform: - Recording of stocks in the balance sheet, aiming for comprehensive balance sheet of financial and non-financial assets and liabilities valued to international standards. - Recognition of flows in the operating statement, aiming to record transactions when economic value transfers and other economic flows that affect net worth. - Consolidation of institutions, aiming to include all institutional units under effective government control in fiscal reports. - Transition roadmap: phased additions (summary) - Phase 0: Cash Accounting - Institutions: Budgetary Central Government - Balance sheet — Assets: Cash balances - Balance sheet — Liabilities: Bank overdrafts; Debt - Operating statement — Revenues: Cash receipts - Operating statement — Expenses: Cash payments - Other flows: None - Phase 1: Elementary Accrual Accounting - Institutions: Central Government - Balance sheet — Assets: Trade receivables; Prepayments - Balance sheet — Liabilities: Trade payables - Operating statement — Revenues: Accrued trade revenue - Operating statement — Expenses: Accrued expenses excluding depreciation - Other flows: None - Phase 2: Advanced Accrual Accounting - Institutions: General Government - Balance sheet — Assets: Equity investments; Other financial liabilities; Long-term liabilities (e.g., pensions); Accrued non-tax receivables - Balance sheet — Liabilities: Long-term liabilities (e.g., pensions) - Operating statement — Revenues: Accrued non-tax receivables - Operating statement — Expenses: Provisions - Other flows: Valuation changes in financial assets and liabilities - Phase 3: Full Accrual Accounting - Institutions: Public Sector - Balance sheet — Assets: Fixed and intangible assets; Inventories; Tax receivables; Monetary financial instruments - Balance sheet — Liabilities: Accrued receivables - Operating statement — Expenses: Depreciation - Other flows: Valuation changes in non-financial assets - Note: “operating statement” and “balance sheet” terminology used; IAS equivalents are “statement of financial performance” and “statement of financial position”. ### Phase 0: Cash Accounting — objectives, statements, presentation - Purpose: reliable and complete information on cash transactions, cash holdings, and short-term debt position of budgetary central government. - Expected statements: - Cash flow statement (required for both cash and accrual accounting). - Ideally an elementary balance sheet; if none, debt disclosed in notes. - Cash flow classification: - Operating, investing, financing activities to enable reconciliation with debt movements. - Cash flow example (Figure 2: YEAR N, YEAR N-1) - Cash Flow from Operating Activities - Taxation: 441 411 - Sales of goods and services: 3227 - Grants Received: 2327 - Dividends and interest received: 107 - Other receipts: 1112 - Salaries and wages: -288 -265 - Purchase of goods and services: -105 -89 - Grants and subsidies: -52 -43 - Interest and debt charges: -37 -31 - Other payments: -25 -19 - Net Cash Flows from Operating Activities: 10 37 - Cash Flow from Investing Activities - Purchase of property, plant and equipment: -49 -50 - Purchase of new investments: -30 -28 - Proceeds from sale of property, plant and equipment: 45 37 - Proceeds from sale of investments: 15 5 - Net Cash Flows from Investing Activities: -19 -36 - Cash Flow from Financing Activities - New borrowing: 27 10 - Repayment of borrowing: -11 -7 - Net Cash Flows from Financing Activities: 16 3 - Net increase/decrease in cash: 7 4 - Cash at the beginning of the period: 25 21 - Cash at the end of the period: 32 25 - Balance sheet example (Figure 3: YEAR N, YEAR N-1) - Current Assets - Cash and cash equivalents: 32 25 - Total Assets: 32 25 - Non-current Liabilities - Borrowing and financing: 767 741 - Current Liabilities - Borrowing and financing: 214 224 - Total Liabilities: 981 965 - Net Assets: -949 -940 - Notes and presentation policy options: - Inclusion of debt implies balance sheet and cash flow will not reconcile directly due to non-cash items; disclose reconciliation table. - Accounting policy options for cash flow statement: - IPSAS 2 classification (operating, investing, financing) — aligns with accrual financial statements. - Cash Basis IPSAS classification — aligns with budget presentation; governments may present both. ### Cash Basis IPSAS (Box 6) — overview and operational implications - Cash Basis IPSAS: - Covers required and recommended disclosures for pure cash accounting and recommends accruals-type disclosures (outstanding invoices, contingent liabilities, cash assets and fund balances). - Two main obstacles to full compliance: - mandatory consolidation of all government controlled entities (including public corporations); - requirement to include external assistance payments made by third parties directly to suppliers. - Recommendation: assess whether full compliance is achievable short term or pursue incremental adoption toward accrual IPSAS. - Recognition and measurement of cash and financing operations - Record transactions when cash is received or disbursed; report at cash value and stocks at face value. - Foreign currency: record in national currency at exchange rate on receipt/payment date; report gains/losses in notes. - Debt operations: recognized at nominal value; disclosures should show domestic and foreign currency debt; disclose arrears related to debt repayments, suppliers or third parties. - Operational implications - Treasury Single Account (TSA) eases cash capture; absence of TSA requires collating reconciled bank statements across government accounts. - Double-entry bookkeeping facilitates integrated cash accounts. - Comprehensive debt register required (currency, maturity, interest structure); integrate debt management with accounting system over time. - Institutional coverage and consolidation under Phase 0 - Coverage should match annual budget (budgetary central government). - Consolidate entities financed primarily through the budget; disclose consolidated institutions and treat third-party assets as custodial/agency with disclosures. ### Phase 1: Elementary Accrual Accounting — key features and operational tasks - Purpose: record in-transit receipts/expenses and recognize unpaid invoices/payables on the balance sheet; terminology shifts from “receipts/payments” to “revenue/expenses”. - Financial statements: Cash Flow Statement, more developed Balance Sheet, Operating Statement with notes; integrated and internally reconcilable. - Balance sheet additions (illustrative figures from Figure 4: YEAR N, YEAR N-1) - Current Assets 40 31 - Cash and cash equivalents 32 25 - Grants receivable 3 3 - Trade receivables 5 3 - Total Assets 40 31 - Non-current Liabilities 767 741 - Current Liabilities 241 247 - Borrowing and financing 214 224 - Salaries and wages payables 12 11 - Grants and subsidies payables 4 3 - Trade payables 11 9 - Total Liabilities 1,008 988 - Net Assets -968 -957 - Note: assumes no contributed capital and no minority interest. - Operating statement elements recorded in Phase 1 (Figure 5: YEAR N, YEAR N-1; ACCOUNTING BASIS preserved) - Revenues (selected): - Tax revenue from direct taxes 235 218 — Cash - Tax revenue from indirect taxes 159 151 — Cash - Tax revenue from local taxes 47 41 — Cash - Grants received 24 26 — Accrual - Revenue from sales of goods and services 37 32 — Accrual - Dividends and interest received 11 8 — Accrual - Proceeds from sale of investments 15 5 — Cash - Proceeds from sale of property, plant and equipment 45 37 — Cash - Total Revenue 581 527 - Expenses (selected): - Salaries 289 271 — Accrual - Purchase of goods and services 100 87 — Accrual - Grants and subsidies 56 45 — Accrual - Purchase of investments 30 28 — Cash - Purchase of property, plant and equipment 49 50 — Partial Accrual - Finance costs 37 31 — Cash - Total Expenses 593 547 - Surplus or Deficit -11 -18 - Accounting policies: payables and receivables - Recognition when obligation to pay is created; define triggering events consistently (delivery, service provision, valid claim, earned wages). - Transitional policies: delayed/indirect recognition (payment order or invoice receipt) where real-time triggers cannot be tracked. - Valuation: usually nominal; adjust for doubtful debt or write-off where recovery unlikely. - Institutional coverage and consolidation under Phase I - Consolidated central government including extra-budgetary agencies and funds financed primarily from their own non-commercial resources (earmarked taxes, fees). - Consolidation steps: harmonized policies, elimination of intra-central government transactions (identify, verify, eliminate). - Audit and credibility - Accrual statements should be audited; partial accrual accounts may receive qualified opinions. - Recommendation: “dry-run” audits and draft/shadow accrual statements in parallel with cash accounts. ### Expenditure chain, Chart of Accounts, opening balances and systems (Box 7) - Expenditure chain (seven stages): authorization, apportionment, reservation, commitment, verification, payment order, payment. - Verification (Liquidation) stage can serve as proxy for accrual recognition trigger. - Chart of Accounts - New chart needed to accommodate accrual equivalents, asset/liability classes, and non-cash transactions. - Example: Philippines “Unified Accounts Code Structure” (UACS) linking accounts to GFS. - Opening balances and inventories - Compile inventories of payables/receivables; survey suppliers; review post-period invoices; maintain source documentation. - Systems implications - Record transactions as they occur; ensure procedures capture dates/values/status across purchase order → receipt → invoice → payment. - IFMIS recommended; absent IFMIS, maintain manual records and internal audit; institute sanctions for non-recording. - Wages/salaries/grants recognition challenges - Interfaces needed between HR, payroll, accounting systems; initially accrue simpler items (salaries, short-term benefits, accumulated leave); pensions included later. - IPSASB consultation (July 2015) on “Recognition and Measurement of Social Benefits”. ### Dual-ledger and country experiences - Brazil (Box 7) - Dual ledger approach: parallel budgetary cash-based and accrual ledgers in SIAFI; automated postings keep ledgers integrated and consistent. - System produces IPSAS financial statements, budget reports, financial reports, cash flow, cost accounting, other control reports. - First IPSAS compliant financial statement published in April 2015. - United Kingdom (introduction of accrual budgeting) - Reform initiated in 1998; whole of government accounts (WGA) objective in Government Resources and Accounts Act 2000. - Three-stage implementation; first full audited WGA published on 29 November 2011. - Action plan improved data quality and addressed audit qualifications (2013-2014 improvements: consolidation of national rail network assets/liabilities; schools’ fixed assets valuations; faster WGA publication). - China (Box 10) - Objectives: improve fiscal management, identify fiscal risks at sub-national level, manage infrastructure assets, expand accounting function. - Pilots expanded from 11 provinces in 2011 to all 36 provinces and some cities/counties in 2013. - From 2014: departments required to record accrual transactions at transaction level except pension liabilities; new valuation instructions and financial statement formats. - France (Box 11) - Valuation framework distinguishes assets with determinable useful life (amortized) and assets without (market value or replacement/symbolic cost). - Transitional statistical estimations used for military/civil equipment; over time replaced by actual costs or market values. - Auditor’s 2013 report still qualified military equipment valuation; infrastructures under concession and PPPs represent more than 60 percent of infrastructure valuation reported. ### Phase 2: Advanced Accrual Accounting — scope, additions, and policies - Phase 2 scope: completes recognition of financial liabilities/assets, records valuation changes, extends institutional coverage to consolidated general government. - Additional balance sheet and operating statement elements (Table 4 and Figures) - Balance sheet (Figure 6: YEAR N, YEAR N-1) - Non-current Assets: 20 | 21 - Equity investments: 20 | 21 - Current Assets: 96 | 93 - Cash and cash equivalents: 32 | 25 - Grants receivable: 3 | 3 - Trade receivables: 5 | 3 - Equity investments held-for-sale: 56 | 62 - Total Assets: 116 | 114 - Non-current Liabilities: 2,505 | 2,484 - Borrowing and financing: 767 | 741 - Public service pensions: 1,357 | 1,256 - Post-employment and other social benefits: 258 | 235 - Other financial liabilities: 123 | 252 - Current Liabilities: 259 | 265 - Borrowing and financing: 214 | 224 - Salaries and wages payables: 12 | 11 - Grants and subsidies payables: 4 | 3 - Trade payables: 11 | 9 - Provisions: 18 | 18 - Total Liabilities: 2,764 | 2,749 - Net Assets: -2,648 | -2,635 - Operating statement (Figure 7: YEAR N, YEAR N-1) - Total Revenue: 571 | 520 - Total Expenses: 565 | 521 - Unrealized gain (or loss) on fair value of investments: -12 | 3 - Actuarial gain (or loss) on pension liabilities: -10 | -28 - Surplus or Deficit: -13 | -24 - Accounting policy areas highlighted - Post-employment benefits - Types: short-term benefits (phase one); post-employment benefits (pensions, medical); other long-term benefits; termination benefits. - Plan distinction: - Defined contribution: contributions recognized as liability when earned; valuation generally undiscounted. - Defined benefit: actuarial valuations with discounting required to measure obligation and expense. - IPSAS 25: Employee Benefits guidance applies. - Other social benefits: recording options (when eligibility met vs when paid); IPSASB drafting a standard to align with GFSM 2014. - PPPs and leases: recognize asset when risks/benefits indicate grantor control; recognize related financial liability; IPSAS 32 guidance. - Financial investments: classify held-for-sale vs longer-term; apply IPSAS 28–30 as appropriate; equity method for associates (IPSAS 36); consolidation where control exists (IPSAS 35). - Financial instruments: recognition when party to contractual provisions; measurement at fair value or amortized cost; transitional simplified methods may be necessary. - Provisions and contingent liabilities: provisions recorded when probable obligation exists; contingent liabilities disclosed in notes (IPSAS 19 guidance). - Operational tasks and capacity needs - Comprehensive inventory of financial instruments and complex items (derivatives, PPP debt). - Pilot ministries/agencies, standardized toolkits/checklists for contract accounting treatment. - Annual valuation of pension liabilities; consistent discount rate policy. - Contract experts for actuarial and market valuation tasks; new reporting systems for contingent liabilities. - Consolidation challenges for subnational governments: legal/accounting harmonization, capacity building, pilot exercises. - Institutional coverage in Phase Two - Consolidate in accordance with “general government” concept: central, state, local governments and social security funds (excludes public enterprises). - Consolidate entities engaged in non-market activities; focus on harmonization and pilots at subnational levels. ### Phase 3: Full Accrual Accounting — scope, balance sheet and operating statement - Phase 3 deliverables: - Full accrual-based financial statements including full balance sheet, operating statement, full disclosures; expand coverage to whole public sector. - Balance sheet elements added in Phase 3 (Figure 8: YEAR N | YEAR N-1) - Non-current Assets 5,160 5,310 - Property, plant and equipment 382 380 - Infrastructures 4,748 4,900 - Intangible assets 10 9 - Equity investments 20 21 - Current Assets 159 85 - Cash and cash equivalents 32 25 - Gold holdings 5 3 - Tax receivables 52 45 - Grants receivable 3 3 - Trade receivables 5 3 - Inventories 6 4 - Equity investments held-for-sale 56 2 - Total Assets 5,319 5,395 - Non-current Liabilities 2,505 2,484 - Current Liabilities 259 265 - Total Liabilities 2,764 2,749 - Net assets 2,555 2,646 - Operating statement elements added in Phase 3 (Figure 9: YEAR N | YEAR N-1 | ACCOUNTING BASIS) - Revenues (selected) - Tax revenue from direct taxes 240 225 Accrual - Tax revenue from indirect taxes 162 148 Accrual - Tax revenue from local taxes 51 44 Accrual - Total Revenue 547 486 - Expenses (selected) - Salaries 289 271 Accrual - Purchase of goods and services 100 87 Accrual - Depreciation and amortization of assets 89 78 Accrual - Impairment of assets 12 16 Accrual - Total Expenses 617 565 - Surplus or Deficit -91 -103 - Accounting policies — physical assets and inventories - Recognition: goods used over more than one financial year recorded as physical/intangible assets; stocked goods as inventories. - Valuation: normally at cost or current value; professional valuers used with frequency determined by asset nature. - Measurement models: cost model or revaluation model applied consistently by asset class. - Depreciation: systematic allocation over useful life; land not depreciated. - Disposal: recognize gain/loss in operating statement. - Practical policy design issues - Capitalization thresholds to exclude low-value items. - Disclosure detail: categorize infrastructure, buildings, equipment, natural resources, heritage assets (heritage optional under IPSAS). - Control principle: report assets controlled by government, not only owned; define control criteria. - Valuation methods: initial recognition at cost where possible; where not possible, allow simplified/statistical estimations (see Box 11 on France). ### Valuation and asset register practices (Box 11) - France experience: - Distinguish assets with determinable useful life (amortize) vs non-amortizable (market or replacement/symbolic cost). - Transitional statistical estimations used for military/civil equipment; later replaced with actual costs/market values. - Auditor in 2013 still qualified military equipment valuation. - Notable: concession arrangements and PPPs represent more than 60 percent of infrastructure valuation reported in France. - Recommended operational practices: - Establish and maintain asset registers; physical inventories; update registers for additions/disposals/damage; document valuations for audit; prioritize infrastructure and military equipment. ### Consolidation coverage: IPSAS vs GFSM2014 (Box 9) and phase sequencing - IPSAS consolidation based on “control” (IPSAS 35); may exclude local governments independent of central control. - GFSM2014 and ESA 2010 use economic activity to classify boundaries; encourage publication of consolidated public sector data as supplementary disclosure. - Suggested sequencing for institutional coverage: - Phase I: Central Government. - Phase II: General Government. - Phase III: Public Sector. - Consolidation processes: - Harmonize accounting policies, formats, reporting timeframes; use specialist consolidation software; materiality considerations determine consolidation scope. - Timeliness: address backlogs and establish opening balances where audited accounts missing; omission of material entities must be disclosed. ### IPSAS standards inventory and guidance for transition (Appendix I) - IPSAS Board has developed and issued 38 accrual standards and a cash basis standard since 1997. - Accrual-based IPSAS list includes IPSAS 1–32 (selected) and forthcoming accrual IPSASs anticipated in 2017: IPSAS 33–38. - Cash-based IPSAS: Cash Basis IPSAS Financial Reporting Under the Cash Basis of Accounting. - Trends in adoption: - More countries have adopted accrual concepts in fiscal statistics than in financial accounts. - “Underlying accrual based accounting system is important for ensuring the comprehensiveness and accuracy of accrual based fiscal statistics.” - Guidance: map phase-based financial statement elements to accrual fiscal statistics to support GFSM 2014 compliance. - Phase-based mapping highlights (items as listed) - Balance sheet: Net Worth; 61 Non-financial assets (611 Fixed assets; 612 Inventories; 613 Valuables; 614 Non-produced assets); 62 Financial assets (6201–6208); 63 Liabilities (6301–6308). - Statement of government operations: Revenue (taxes, social contributions, grants, other revenue); Expense (compensation, goods/services, consumption of fixed capital, interest, subsidies, grants, social benefits, other expense); Investment in non-financial assets (311 Fixed assets; 312 Inventories; 313 Valuables; 314 Non-produced assets); NLB Net lending / net borrowing (1-2M). - Statement of other economic flows: Change in NW due to holding gains/losses (HGL) and other changes in volume (OCV); includes separate lines for non-financial assets, financial assets other than tax, and liabilities. *Source: APPENDIX I. CURRENT LIST OF IPSAS STANDARDS; APPENDIX II. ACCRUAL BASIS FOR FISCAL STATISTICS (Technical Notes and Manuals 16/06 | 2016)* ### Box 1. Preparing for Adoption of Accrual Accounting in Chile ### Box 1. Preparing for Adoption of Accrual Accounting in Chile ### Background and gap analysis in Chile - In 2010, the General Controller of Chile (Contraloría General de la República, CGR) announced its intention to adopt accrual accounting in the public sector based on IPSAS by 2019. - A key preparatory task was a gap analysis comparing existing government accounting practices with the requirements of IPSAS. - The gap analysis categorized the 32 IPSAS into four categories to create a framework for studying and applying the new standards: - high priority: fixed assets, transfers, property investments, taxes, financial instruments and financial liabilities; - medium priority: revenue from exchange transactions, associates and joint ventures, provisions, intangible assets, contingent assets and liabilities, leases and concession arrangements; - low priority: financial statements, inventories, segment reporting, employee benefits, related party disclosures, effects of changes in foreign exchange rate, agriculture and accounting policies, changes in estimates and errors; and - not applicable standards: financial reporting in hyperinflationary economies and construction contracts. ### Estimating reform costs (summary from Box 2) - Reform costs depend on the starting point, scope, ambition, speed of transition, and relationship to other public financial management reforms. - Typical cost components include: - investment in new IT systems; - training of finance and operational staff, politicians, auditors; and - consultancy fees. - Selected empirical estimates: - EU-wide estimate (EUROSTAT survey): between €1.2 and €6.9 billion, representing 0.009 to 0.053 percent of the EU GDP. - Austrian Federal Government transition (2009–2013): estimated cost €30 million (0.007 percent of GDP). - Switzerland (Federal Government level): estimated cost around €40 million (0.005 percent of GDP), with approximately 80 percent of this cost for the new IT system. - Caveats and considerations: - These estimations focus on advanced economies; costs are likely to be higher in developing and low-income countries. - Implementation of accrual accounting is often concurrent with other reforms (new fiscal rules, program and performance budgeting, improvements in internal or external audit), so costs may be shared. - The largest single cost is often upgrading or replacing IT systems; however, such replacements may be required regardless of the reform. - Adoption of accrual accounting can yield benefits (better asset maintenance incentives, avoidance of costly expenditure arrears, enhanced surveillance of fiscal risks) that are difficult to measure against costs. ### Mechanisms for setting public sector accounting standards - Historical practice: accounting standards in the public sector have often been set by the MoF, which may conflict with needs for objectivity, independence, and integrity. - Approaches countries have used when introducing accrual accounting based on international accounting standards: - Establishing independent boards to advise the government on adoption or adaptation of international accounting standards (France, UK); - Vesting responsibility for determination of public sector accounting standards in an independent national body (New Zealand, Australia, Canada, South Africa); - Adopting standards developed by an international standard setter (Chile—see Box 1); - Consulting the supreme audit institutions before enacting new accounting standards in the public sector (Austria—see Box 3). ### Training, change management, and transition planning - Training and change management: - Significant training required for preparers of financial statements in new concepts, systems, and accounting methods. - Training should extend to users of financial statements including ministers and senior officials in the MoF, parliamentarians, civil society, and the supreme audit institution (SAI). - Modalities for training: lectures, hands-on or online tutorials, guidance notes, and a dedicated helpdesk facility. - SAIs will likely need to broaden audit scope from “compliance audit” to “financial audit,” adopt international audit standards (ISSAI), and train auditors in new auditing techniques (such as the risk-based audit approach). - Develop an action plan for the transition: - Transition is rarely a single step; a transition plan should set out key stages, responsibilities, timing for preparatory tasks, reforms to systems and processes, and format and content of financial statements at each stage. - The plan should consider pilot exercises or parallel running of cash and accrual systems. - IPSAS 33 provides guidance for when an entity first adopts accrual basis IPSASs, including voluntary exemptions (“reliefs”) during the transition period. ### Sequencing the transition and parallel reform dimensions - Transition timeframes have varied by country: three to five years for some (New Zealand, France, Austria), more than ten years for others implementing across the whole public sector (Peru, United Kingdom), and phased or sub-national starts in other cases (China). - Three parallel dimensions of fiscal reporting reform in a typical phasing: - Recording of stocks in the balance sheet, beginning with a financial balance sheet and with the ultimate goal of publishing a comprehensive balance sheet of the government’s financial and non-financial assets and liabilities valued in accordance with international standards; - Recognition of flows in the operating statement with the ultimate goal of recording all transactions at the time economic value is transferred (rather than at the point cash payments are made) and other economic flows that affect the government’s net worth (such as changes in the value of government asset holdings); - Consolidation of institutions with the ultimate goal of including all institutional units under the effective control of government in fiscal reports, regardless of their constitutional status or legal form. *Source: Cavanagh and Fernandez Benito (2015); Price Waterhouse Coopers (2014).* ### introduction of accrual budgeting occurred in two phases, with depreciation and provi- ### _tnm1606 - introduction of accrual budgeting occurred in two phases, with depreciation and provisions included in accrual budgets two years later than originally planned. ### Background and reform timeline - In 1998, HM Treasury and the National Audit Office initiated a joint study to examine the merits and feasibility of producing consolidated accrual-based accounts for the whole public sector (termed “whole of government accounts” or WGA). - The production of accrual-based WGA was adopted as the revised objective of the reform in the Government Resources and Accounts Act passed in 2000. - HM Treasury planned a three-stage implementation approach because of the expanded scope. - Stage one: production of an unaudited whole of government accounts based on statistical rather than accounting data. - Stage two: preparation of unaudited consolidated Central Government Accounts (CGA), incorporating accounts of all central government departments but excluding local government, trading funds, and some other non-departmental bodies. - Stage three: publication of full accrual-based audited WGA. - The first full set of audited WGA was published on 29 November 2011, more than a decade after the passage of the originating legislation. - An action plan was defined to raise data quality and address audit qualifications. Improvements in 2013-2014 included: - consolidation of the assets and liabilities of the national rail network, - improvements to schools’ valuation of fixed assets, and - faster WGA publication. *Source: 2007, Danny S.L. Chow et al. (2007), European Commission (2014), authors.* ### Phasing approach and considerations for sequencing reforms - The phasing recognizes two dimensions: (i) balance sheet coverage and (ii) institutional coverage; these dimensions do not have to develop in parallel. - Key considerations that determine sequencing: - The government’s starting point: completeness of cash-based reporting and extent to which accrual stocks and flows are already recorded. - The government’s objectives for accrual accounting (e.g., strengthen monitoring/control of expenditure arrears; clearer fiscal picture of public entities outside central government; better understanding of long-term sustainability). - The materiality of stocks, flows, and entities outside government accounts; focus on largest and most readily recognizable items. - The duration of each phase depends on commitment, available resources, systems maturity, and accounting/financial capacities across the public sector. - Preparatory work for later phases (for example, data collection, inventories of non-financial assets) may need to start earlier than the phase in which those elements are reported. - The proposed phasing is designed so that at each phase an integrated and internally consistent set of balance sheets and operating statements is produced to allow regular reconciliation of stocks and flows. ### Transition roadmap: summary of phased additions (as in Table 1) - Phase 0: Cash Accounting - Institutions: Budgetary Central Government - Balance sheet — Assets: Cash balances - Balance sheet — Liabilities: Bank overdrafts; Debt - Operating statement — Revenues: Cash receipts - Operating statement — Expenses: Cash payments - Other flows: None - Phase 1: Elementary Accrual Accounting - Institutions: Central Government - Balance sheet — Assets: Trade receivables; Prepayments - Balance sheet — Liabilities: Trade payables - Operating statement — Revenues: Accrued trade revenue - Operating statement — Expenses: Accrued expenses excluding depreciation - Other flows: None - Phase 2: Advanced Accrual Accounting - Institutions: General Government - Balance sheet — Assets: Equity investments; Other financial liabilities; Long-term liabilities (e.g., pensions); Accrued non-tax receivables - Balance sheet — Liabilities: Long-term liabilities (e.g., pensions) - Operating statement — Revenues: Accrued non-tax receivables - Operating statement — Expenses: Provisions - Other flows: Valuation changes in financial assets and liabilities - Phase 3: Full Accrual Accounting - Institutions: Public Sector - Balance sheet — Assets: Fixed and intangible assets; Inventories; Tax receivables; Monetary financial instruments - Balance sheet — Liabilities: Accrued receivables - Operating statement — Expenses: Depreciation - Other flows: Valuation changes in non-financial assets Note: For the purpose of the note, “operating statement” and “balance sheet” terminology is used; IAS terminology equivalents are “statement of financial performance” and “statement of financial position”. ### Phase 0 (Cash Accounting): objectives, statements, and presentation - Purpose: produce reliable and complete information on cash transactions, cash holdings, and short-term debt position of budgetary central government. - Benefits: relatively simple, easy to administer, appropriate for capacity-building; consistent with cash or modified cash budgets; enables assessment of voted budget execution and immediate solvency/liquidity by comparing cash balances with outstanding debt. A. Financial statements in Phase 0 - Expected statements: - Cash flow statement (required for both cash and accrual accounting). - Ideally an elementary balance sheet; where no balance sheet is produced, debt information should be disclosed in notes to the cash flow statement. - Cash flow statement should distinguish between operating, investing, and financing activities to enable reconciliation with incurrence and repayment of debt. - Cash flow statement in Phase 0 should show: - Cash receipts and payments relating to government operating activities classified according to national economic or line-item classification (e.g., taxes collected and invoices paid). - Cash flows relating to investing activities (purchases/sales of property, plant and equipment; financial assets such as loans, equity, debt instruments of government-owned entities). - Cash flows from financing activities (payments/receipts related to government’s stock of borrowing). - Reconciliation between opening cash balance, movements during the year, and closing cash balance. B. Cash flow example (Figure 2: YEAR N, YEAR N-1) - Cash Flow from Operating Activities - Taxation: 441 411 - Sales of goods and services: 3227 - Grants Received: 2327 - Dividends and interest received: 107 - Other receipts: 1112 - Salaries and wages: -288 -265 - Purchase of goods and services: -105 -89 - Grants and subsidies: -52 -43 - Interest and debt charges: -37 -31 - Other payments: -25 -19 - Net Cash Flows from Operating Activities: 10 37 - Cash Flow from Investing Activities - Purchase of property, plant and equipment: -49 -50 - Purchase of new investments: -30 -28 - Proceeds from sale of property, plant and equipment: 45 37 - Proceeds from sale of investments: 15 5 - Net Cash Flows from Investing Activities: -19 -36 - Cash Flow from Financing Activities - New borrowing: 27 10 - Repayment of borrowing: -11 -7 - Net Cash Flows from Financing Activities: 16 3 - Net increase/decrease in cash: 7 4 - Cash at the beginning of the period: 25 21 - Cash at the end of the period: 32 25 C. Balance sheet example (Figure 3: YEAR N, YEAR N-1) - Current Assets - Cash and cash equivalents: 32 25 - Total Assets: 32 25 - Non-current Liabilities - Borrowing and financing: 767 741 - Current Liabilities - Borrowing and financing: 214 224 - Total Liabilities: 981 965 - Net Assets: -949 -940 Notes from the text: - The balance sheet distinguishes “current” from “non-current” assets and liabilities; “current” crystallize within 12 months of the balance sheet date. Some asset/liability classes require splitting between current and non-current (especially debt). - Including debt in a Phase 0 balance sheet implies the balance sheet and cash flow statement will not reconcile directly because changes in debt include non-cash items (holding gains/losses due to currency fluctuations, renegotiation, forgiveness); a reconciliation table needs to be disclosed in notes. - Countries that do not establish a balance sheet under Phase 0 should at least report debt as a memorandum item until it is integrated into the accounts in Phase 1. D. Accounting policy for presentation of the cash flow statement - Two main options: - IPSAS 2: report cash flows by operating, investing, and financing activities (as in Figure 2). Advantage: aligns with eventual accrual-based financial statements; may not align with traditional budget presentation. - Cash basis IPSAS: allows presentation of cash flows using a classification appropriate to the entity’s operations, usually the same presentation as the budget to facilitate budget vs. actual comparison. - In practice, governments may present both formats to enable comparison with the national budget and with financial statements of other governments that apply international accounting standards. *Source: Authors.* ### Box 6. Cash Basis IPSAS ### Box 6. Cash Basis IPSAS ### Overview - Cash basis IPSAS covers required and recommended disclosures for entities accounting in pure cash terms and recommends accruals-type disclosures such as a statement of outstanding invoices, statement of contingent liabilities, and statement of cash assets and fund balances. - Cash basis IPSAS can be a goal in its own right but is often a first step toward accruals. - Two main obstacles to full compliance: - (i) the mandatory requirement to consolidate all government controlled entities (including public corporations); and - (ii) the requirement to include external assistance payments made by third parties directly to suppliers. - Significant work may be required to attain full compliance where reporting frameworks for public corporations are weak or non-compliant with IFRS; this may take several years. - IPSASB has published proposals to revise the cash basis IPSAS to address these issues. - Recommendation: assess during preparation whether full compliance with cash basis IPSAS is achievable short term, or whether an incremental approach to adoption of accrual basis IPSASs would provide more useful information during transition. *Source: IPSAS1 Presentation of financial statements; Authors.* ### Recognition and measurement of cash and financing operations - Accounting policies should prescribe that all government transactions be recorded as soon as cash is received or disbursed; transactions are usually reported at their cash value and stocks at face value. - Foreign currency transactions should be recorded in the national currency using the exchange rate at the date of the receipt or payment; gains and losses between acquisition and year-end should be reported in a note to reconcile cash at the beginning and end of the period. - Debt operations are typically recognized at nominal value and subsequently adjusted to reflect repayments or debt forgiveness. - Disclosures should show total domestic debt and total debt denominated in foreign currencies. - Arrears related to debt repayments, suppliers or other third parties should be disclosed in a note to the accounts. *Source: IPSAS1 Presentation of financial statements; Authors.* ### Operational Implications - Governments operating a Treasury Single Account (TSA), or a limited number of commercial bank accounts, will find it easier to capture all cash balances and transactions in their financial information system and statements. - Some cash balances and transactions may remain outside the TSA (donor-funded project accounts, overseas and locally-operated government accounts, extra-budgetary agencies, state-owned enterprises). - Where there is no TSA, establishing cash flow statements and year-end cash balances requires collation of reconciled bank statements for all government bank accounts. - A double-entry bookkeeping system greatly facilitates preparation of an integrated set of cash accounts; under cash basis, each transaction has a corresponding and opposite entry reflecting the cash receipt or payment and the corresponding change in cash or debt balance. - A comprehensive debt register is required to record outstanding stock and composition of debt liabilities, including currency denomination, maturity, and interest rate structure; debt management systems may need integration with the main accounting system over time. *Source: IPSAS1 Presentation of financial statements; Authors.* ### Institutional Coverage and Consolidation - During Phase 0, financial statements’ coverage should match the annual budget (budgetary central government). - Accounting policies should require consolidation of entities whose activities are financed primarily through the budget (central government ministries, departments, agencies). - Specialized boards, commissions, and agencies with significant own-source revenues are often outside the budgetary central government boundary; only transfers to/from them are included in budget and accounts. - Notes to the financial statements should disclose institutions consolidated in the accounts at each phase of the transition. - Third party assets administered in a custodial/agency capacity (courts’ funds, trust funds, guarantee or mutual funds) where the public body has no discretion or financial interest should be treated as third party assets, excluded from principal financial statements, disclosed in notes, and have separate published accounts. - Consolidation ease depends on automation and integration: IFMIS enables direct production; separate systems require manual consolidation and standard reporting templates from the MoF to identify and eliminate intra-governmental transactions and balances. - Cash basis IPSAS principle for consolidation: cash balances and cash transactions between consolidated entities should be fully eliminated; eliminations are usually fewer at this stage since inter-ministry cash transactions are limited. *Source: IPSAS1 Presentation of financial statements; Authors.* ### V. Phase One: Elementary Accrual Accounting — Key features - Purpose: record some “in transit” receipts and expenses in the operating statement and recognize unpaid invoices to suppliers as liabilities and unpaid bills issued to customers as assets on the balance sheet. - Terminology shift: “receipts”/“payments” become “revenue”/“expenses” once accrual elements are introduced. - Accounts begin to capture “other flows” for which there is no corresponding cash movement. ### Financial statements in Phase 1 - Statements include: Cash Flow Statement, a more developed Balance Sheet, and for the first time an Operating Statement with accompanying notes. - Statements should form an integrated set of accounts that are internally reconcilable. ### Balance sheet — additional elements in Phase 1 - Added items: - On the asset side: trade receivables and prepayments. - On the liabilities side: amounts payable to suppliers (accounts payable). - Bottom line impact: corresponding change in net assets. - Definitions: - Trade receivables: unpaid amounts owed to government by commercial sector or individuals from services, sale of goods, accrual of interest, royalties or dividends. - Accounts payable: unpaid invoices owed by government to commercial sector and other pending payments to third parties (e.g., tax refunds). - Illustrative figures from Figure 4 (YEAR N, YEAR N-1): - Current Assets 40 31 - Cash and cash equivalents 32 25 - Grants receivable 3 3 - Trade receivables 5 3 - Total Assets 40 31 - Non-current Liabilities 767 741 - Borrowing and financing 767 741 - Current Liabilities 241 247 - Borrowing and financing 214 224 - Salaries and wages payables 12 11 - Grants and subsidies payables 4 3 - Trade payables 11 9 - Total Liabilities 1,008 988 - Net Assets -968 -957 - Note: illustrative example assumes no contributed capital and no minority interest. *Source: IPSAS1 Presentation of financial statements; Authors.* ### Operating statement — elements recorded in Phase 1 - Revenue recognition in Phase 1: - Tax revenues (non-exchange revenues) shown on a cash basis. - Non-tax revenues (exchange revenues) shown on an accrual basis (sales of goods, fees and charges, capital receipts, investment revenues). - Expenditure recognition in Phase 1: - Wages and salaries, grants and subsidies, purchase of goods (including fixed assets), and purchase of services accounted on an accrual basis. - Amortization or depreciation not yet accounted for at this stage. - Summary aggregate shifts from “net change in cash” to “Surplus or deficit” under accrual accounting. - Illustrative operating statement figures from Figure 5 (YEAR N, YEAR N-1; ACCOUNTING BASIS): - Tax revenue from direct taxes 235 218 — Cash - Tax revenue from indirect taxes 159 151 — Cash - Tax revenue from local taxes 47 41 — Cash - Grants received 24 26 — Accrual - Revenue from sales of goods and services 37 32 — Accrual - Dividends and interest received 11 8 — Accrual - Proceeds from sale of investments 15 5 — Cash - Proceeds from sale of property, plant and equipment 45 37 — Cash - Other revenue 8 9 — Accrual - Total Revenue 581 527 - Salaries 289 271 — Accrual - Purchase of goods and services 100 87 — Accrual - Grants and subsidies 56 45 — Accrual - Purchase of investments 30 28 — Cash - Purchase of property, plant and equipment 49 50 — Partial Accrual - Finance costs 37 31 — Cash - Other expenses 32 35 — Accrual - Total Expenses 593 547 - Gain on foreign exchange transactions 1 2 — Cash - Other gain (or losses) 1 2 - Surplus or Deficit -11 -18 - Note: presentation formats may vary by country; international standards do not prescribe an exact format. *Source: IPSAS1 Presentation of financial statements; Authors.* ### B. Accounting policies (Payables and receivables) - Payables recognition principle: recognize in the balance sheet when an obligation to pay a third party is created; accounting policies must define triggering events consistent with this principle. - Common triggering events: - For goods and services: delivery of goods, provision of service, or fulfillment of a contract. - For grants and subsidies: existence of a valid claim when all requirements and conditions are satisfied by the third party. - For wages and salaries: when an employee earns an entitlement as specified in law or employment contract. - For trade receivables: when government is entitled to receive payment according to the contract. - Transitional policies: where systems cannot track triggering events in real time, delayed or indirect recognition may be used (e.g., payment order or receipt of invoice as delayed triggers). - Valuation policies: trade receivables and accounts payable usually recorded at nominal value; where full recovery is unlikely, an adjustment for doubtful debt should be made or the receivable written-off. *Source: IPSAS1 Presentation of financial statements; Authors.* ### Box 7. Expenditure Chain and Accrual Accounting ### Box 7. Expenditure Chain and Accrual Accounting ### Expenditure chain and proxy for accrual recognition - Expenses in Francophone and Latin countries follow a seven-stage expenditure chain: authorization, apportionment, reservation, commitment, verification, payment order and payment. - If stages are recorded reliably and timely, linking process steps to the triggering event for recognizing accrued expenses aids transition to accrual accounting. - The verification stage (Liquidation), where the administration acknowledges receipt of services or goods and a third party’s entitlement to payment, is analogous to the accrual recognition trigger (the occurrence of an economic event creating an obligation). - The verification stage can be considered a proxy for accruing an expense in the first phase of the transition to accrual accounting. ### C. Operational implications — Chart of Accounts and classification - Transition to accrual accounting usually requires a new Chart of Accounts to: - accommodate accrual equivalents of traditional cash transactions; - accommodate new classes for assets and liabilities; - incorporate non-cash transactions such as depreciation or provisions. - Example: Philippines produced a “Unified Accounts Code Structure” (UACS) linking financial accounts codes to GFS codes, enabling automatic mapping so both financial and fiscal reports can be generated from the same data; users enter the accounting code and cross-coding to GFS is done in the background. ### Opening balances, inventories of payables and receivables - To determine opening balances for trade payables, compile an inventory of all known accounts payable related to goods and services received and contracts let up to the balance sheet date. - Year-end inventories should be compiled to determine closing balances for accounts payable. - It is advisable to survey major suppliers or third parties (e.g., large local governments or public corporations receiving transfers) to confirm amounts outstanding. - Review invoices received post period-end to identify accounts payable that should have been recognized at the closing date. - Source documentation (delivery notes, invoices, contracts, confirmation letters from suppliers) should be systematically filed and available for audit. ### Recording transactions as they occur and systems implications - Better approach: record goods delivered and services received in accounts as transactions occur. - Accounting procedures and information systems should ensure expenses are recorded systematically from purchase order through receipt of goods to payment of the invoice, including dates at each stage, and capture equivalent data for trade receivables. - Risks arise where expenditure can be incurred without a purchase order or receivables registered without an invoice being issued (outside the ledger system), potentially causing incomplete or untimely recording of payables or receivables. - Systematic tracking often requires reconfiguration of existing information systems or purchase of an IFMIS to record date, value, and status of each invoice for goods and services. - Without an IFMIS, manual records should be maintained with regular internal audit to ensure all invoices presented for payment have been recorded timely. - An effective sanction regime for officials who fail to record all invoices should be instituted. ### Wages, salaries, grants, subsidies and recognition challenges - For wages and salaries and grants and subsidies, similar procedures are needed to establish opening and closing balances of payables. - Wage- and salary-related accruals present special challenges requiring interfaces between human resource, payroll, and accounting systems to monitor triggering events. - At an initial stage it may only be possible to accrue simpler elements such as salaries, short-term benefits and accumulated leave if these data are readily available; long-term benefits such as pensions will need to be included at a later stage. - Grants and subsidies (non-exchange items) are partly covered by IPSAS 23 and should obey general recognition rules: they become an asset (or liability, for the grantor) when a legally enforceable claim arises (i.e., when it is reasonably certain that the transfer of resources will occur, and its value can be reliably measured). - Ability to accrue for grants and subsidies depends on government systems for recording them; each type may merit different treatment. - Note: Long term employee benefits such as pensions represent specific challenges to be dealt with in Phase two. - Note: A July 2015 IPSASB consultation paper “Recognition and Measurement of Social Benefits” has proposed possible accounting treatments for social benefits. ### Audit, interim reporting and credibility - Accruals statements should be subject to audit, with the audit based on the accounting policies adopted to that point. - Partial accrual accounts will receive a qualified audit opinion until transition is complete. - Qualification because of uneven data quality or concerns about application of accounting standards would negatively affect credibility and fiscal confidence. - Recommendation: the SAI and government should make use of “dry-run” audits to familiarize the SAI with new account formats and provide feedback on accrual data quality before the first formal audit of the financial statements. - Alternative: governments may consider preparing new accruals statements in draft, shadow or trial run form, possibly unaudited, in parallel with cash accounts until full accruals reporting is possible. ### Box 8 (Brazil) — meeting cash budget reports and accrual accounting requirements - Brazil is part way through transition to accrual accounting based on IPSAS across all government bodies; accrual accounts are produced alongside traditional cash-based budgetary statements. - Federal level had a unified IT accounting system (SIAFI); state and local systems are similar but not identical. - Key approach: maintain two sets of accounting ledgers—one for budgetary cash-based accounting and another for accruals. - Postings for accruals and cash (where there is a cash effect) are generated automatically and in parallel; system maintains controls to ensure ledgers are integrated and consistent. - Dual ledger approach needed because one set of ledgers generally cannot support both cash and accrual accounting (example: purchase of a capital item treated differently under cash vs accrual). - Consistency between ledgers is assured by automatic reconciliation through accounting formulas. - System generates reports on IPSAS accounting financial statements (assets and liabilities on accruals), budget reports (cash), financial reports (cash), cash flow statement (cash), cost accounting (accruals), and other control reports. - The first IPSAS compliant financial statement was published in April 2015. ### D. Institutional coverage and consolidation under Phase I - Phase I institutional coverage: consolidated central government, bringing into financial statements extra-budgetary agencies and funds of the central government financed primarily from their own non-commercial resources (earmarked taxes, fees, charges). - Examples: regulatory authorities, revolving funds, autonomous agencies. - Consolidation policy: require that all entities controlled by the central government and engaged in non-market activities be consolidated. - Under Phase I, consolidation means presenting assets, liabilities, net assets/equity, revenue, expenses and cash flows of the central government and its controlled entities as if a single entity; consolidation combines their accounts line by line. - To effect consolidation, entities’ financial years ideally need to align with government and accounting policies; instructions should define elimination of internal transactions and balances. - Typical intra-central government transactions to be eliminated at this phase include transfers from government to agencies, and taxes paid by agencies to government. - Steps for elimination of internal transactions and balances: - identification by both parties of any intra-CG transactions that are to be eliminated; - verification that internal transactions and balances reported are the same amounts and classified similarly by both parties; and - elimination of the transactions and balances from both entities’ financial statements. *Source: Authors.* ### Box 9. Coverage of the Consolidated Financial Statements: IPSAS vs. GFSM ### Box 9. Coverage of the Consolidated Financial Statements: IPSAS vs. GFSM ### Comparison of coverage: IPSAS vs. GFSM2014 - IPSAS consolidation requirement is based on the concept of “control” (IPSAS 35: Consolidated Financial Statements). - An entity controls another when it is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature and amount of those benefits through its power over the other entity. - Under IPSAS this implies consolidation of central government ministries, agencies, extra-budgetary funds, and most enterprises in which central government owns a controlling stake or directs financial and operating policies. - Drawback: local governments and some other bodies may be independent of central government “control” and therefore excluded from consolidated central government financial statements. - IPSAS 22 Disclosure of information about the General Government sector provides for reporting on general government (consolidated central and local government), as defined according to GFSM2014, as part of “Segment Reporting”. - Some governments report on the whole public sector (or “Whole of Government”) as an economic and accounting entity in its own right (example: United Kingdom). - GFSM2014 and ESA 2010 also use control-based tests for inclusion/sector classification, but: - Boundaries of government are dictated by the economic nature of activities: public sector entities primarily engaged in market activity are deemed part of the corporate sector; those primarily engaged in “non-market” activity are part of the general government sector (the principal reporting entity under statistical standards). - GFSM2014 encourages publication of consolidated public sector data as a supplementary disclosure to standard general government financial statistics where possible. - Suggested sequencing for expanding institutional coverage of financial statements (for the purposes of this TNM): - Phase I: Central Government. - Phase II: General Government. - Phase III: Public Sector. - Rationale for consolidating whole public sector: - Captures all finances and risks attaching to the public purse and the taxpayer. - Past fiscal crises in various countries can be traced back to liabilities accumulated at subnational levels. - The UK approach to defining the accounting entity is cited as one way forward. ### Consolidation processes (general) - Requirements and practical steps: - Accounts of entities to be consolidated must use similar accounting policies, formats and reporting timeframes. - Ideally migrate all units/entities to a harmonized accounting framework and an integrated financial information system. - Extra-budgetary entities may need additional reports to restate accounts to the government chart of accounts and accounting policies (operating statement, balance sheet in MoF format, cash flow statement, disclosure information). - Information provided to the MoF should be fully reconcilable to the entity’s own audited financial statements for audit purposes. - Materiality: - Materiality considerations should determine consolidation scope. - Small bodies with little or no income except grants, and minimal assets or liabilities, may be consolidated later or excluded as immaterial (but listed in disclosure notes). - Attention to contingent liabilities of small entities is required. - Timeliness and completeness: - Some entities may be behind in producing audited financial statements; efforts needed to address backlogs or at least produce accounts for the first year to be consolidated. - In absence of previous years’ accounts, additional work to establish opening balances may be needed. - Omission of material entities must be disclosed in the statement of accounting policies and may lead to adverse audit opinions. - Systems: - Consolidation usually requires specialist accounting software or a custom-built consolidation system, with timetables and procedures to ensure timely data availability to the MoF. - Consolidated financial statements should ideally be published consistent with the annual cycle of accountability, with formal publication and discussion in the legislature. ### Phase Two: Advanced Accrual Accounting — scope and key additions - Phase description: - Completes recognition of financial liabilities and financial assets in the balance sheet. - Records changes in the value of those stocks in the operating statement. - Further extends institutional coverage to the consolidated general government. - Table 4: Additional elements reported in Phase 2 (categories preserved): - Balance sheet assets added: Equity Investments; other financial assets. - Balance sheet liabilities added: Other financial liabilities; Long-term liabilities (e.g., pensions); Provisions. - Operating statement: Accrued non-tax receivables; Valuation changes in financial assets and liabilities. - Institutions: General Government. - Purpose: - Provides a complete picture of the government financial balance sheet and Net Financial Worth (or Net Financial Wealth). - Recording financial liabilities (pensions, PPP-related debt) and disclosing financial contingent liabilities improves understanding of long-term financial impact of government decisions. ### Figures: development examples from Phase Two - Figure 6. Development of the Balance Sheet in Phase Two (YEAR N, YEAR N-1 — values preserved) - Non-current Assets: 20 | 21 - Equity investments: 20 | 21 - Current Assets: 96 | 93 - Cash and cash equivalents: 32 | 25 - Grants receivable: 3 | 3 - Trade receivables: 5 | 3 - Equity investments held-for-sale: 56 | 62 - Total Assets: 116 | 114 - Non-current Liabilities: 2,505 | 2,484 - Borrowing and financing: 767 | 741 - Public service pensions: 1,357 | 1,256 - Post-employment and other social benefits: 258 | 235 - Other financial liabilities: 123 | 252 - Current Liabilities: 259 | 265 - Borrowing and financing: 214 | 224 - Salaries and wages payables: 12 | 11 - Grants and subsidies payables: 4 | 3 - Trade payables: 11 | 9 - Provisions: 18 | 18 - Total Liabilities: 2,764 | 2,749 - Net Assets: -2,648 | -2,635 - Note: Elements on an accruals basis added in phase 2. - Figure 7. Development of the Operating Statement in Phase Two (YEAR N, YEAR N-1; accounting basis preserved) - Tax revenue from direct taxes: 235 | 218 (Cash) - Tax revenue from indirect taxes: 159 | 151 (Cash) - Tax revenue from local taxes: 47 | 41 (Cash) - Grants received: 24 | 26 (Accrual) - Revenue from sales of goods and services: 37 | 32 (Accrual) - Dividends and interest received: 11 | 8 (Accrual) - Gain (loss) on sale of investments: 5 | -2 (Accrual) - Proceeds from sale of property, plant and equipment: 45 | 37 (Cash) - Other revenue: 8 | 9 (Accrual) - Total Revenue: 571 | 520 - Salaries: 289 | 271 (Accrual) - Purchase of goods and services: 100 | 87 (Accrual) - Grants and subsidies: 56 | 45 (Accrual) - Purchase of property, plant and equipment: 49 | 50 (Cash) - Finance costs: 39 | 33 (Accrual) - Other expenses: 32 | 35 (Accrual) - Total Expenses: 565 | 521 - Gain (or loss) on foreign exchange transactions: 3 | 2 (Accrual) - Unrealized gain (or loss) on fair value of investments: -12 | 3 (Accrual) - Actuarial gain (or loss) on pension liabilities: -10 | -28 (Accrual) - Other gains (or losses): -19 | -23 - Surplus or Deficit: -13 | -24 - Note: Elements recorded on an accrual basis in phase 2. ### Accounting policies (key areas) - Post-Employment benefits - Types to be recorded include: - short-term employee benefits (wages, salaries, social security contributions, paid annual leave, sick leave, profit-sharing and bonuses, non-monetary benefits) — dealt with in phase one; - post-employment benefits (pensions, other retirement benefits, post-employment life insurance, post-employment medical care); - other long-term employee benefits (long-service leave, sabbatical leave, long-term disability, bonuses beyond 12 months); - termination benefits. - Distinction between plan types: - Defined contribution plan: entity obliged only to make contributions; financial risk rests with the employee; contributions payable recognized as a liability when earned and extinguished when paid; valuation generally at undiscounted (cash) value; no actuarial valuations needed. - Defined benefits plan: entity has long-term obligation to pay specified benefits; obligations may be funded, unfunded, or mixed; accounting requires actuarial valuations with discounting to measure obligation and associated expense. - Other long-term benefits: impacts of entitlement changes recognized in current year rather than spread. - Termination benefits: recognized as a liability and expense as soon as they are certain. - IPSAS 25: Employee Benefits provides guidance. - Other social benefits - For social security schemes, contributions from beneficiaries (if any) are recorded as revenue; benefits paid under eligibility criteria are recorded as transfers or expenses. - Governments may choose to record benefits when eligibility criteria are met or when benefits are paid. - Financial assets related to schemes should be recorded and valued per financial investments guidance. - IPSASB is working on a draft standard to align recording with GFSM 2014 statistical treatment. - Public-Private Partnerships (PPPs) and leases - Governments should recognize the asset created by arrangements where risks rest with the public entity, use is controlled/regulated by the public authority, and the public body has a residual interest at contract end. - Newly created asset should be recognized at fair value; obligation to pay contractor recognized as a financial liability. - Payments each period should differentiate reduction in liability, finance charges, and service charges in the operating statement. - IPSAS 32: Service Concession Arrangements: Grantor provides detailed guidance. - Financial investments - Distinguish investments held for sale/trading from longer-term investments. - Investments held with view to sale: accounted as current assets at fair market value and not consolidated. - For other investments, treatment depends on degree of ownership and control: - Government as minority stakeholder: covered by IPSAS 28, 29, 30 on Financial Instruments. - Government with control: consolidate line by line, showing minority interests (IPSAS 35). - Government interest in associates/joint ventures with significant influence but not control: accounted for using the equity method (IPSAS 36). - General policies on financial instruments - Recognition when the entity becomes party to contractual provisions of the instrument. - Measurement at fair value or amortized cost. - IPSAS 28, 29, 30 establish principles and disclosure requirements, including risk disclosures and sensitivity analysis. - Transitional/simplified measurement methods may be necessary during early years of transition. - Provisions and contingent liabilities - Liability: unconditional obligation from a past event; settlement expected to result in future outflow; recorded in balance sheet (Phase I). - Provision: probable obligation of uncertain amount or timing; best estimate recognized using present value techniques if spread over years; changes in provision recognized as expense. - Contingent liability: possible obligation confirmed only by future events; reported in notes to financial statements (e.g., loan guarantees). - IPSAS 19: Provisions, Contingent Liabilities and Contingent Assets provides guidance. ### Operational implications and practical tasks - Key tasks and capacity needs: - Comprehensive inventory of all financial instruments, including complex instruments (derivatives, PPP-related debt). - Coordination by MoF and data collection at line ministries and public agencies; pilot ministries/agencies recommended initially. - Practical tasks include: - Inventorying and classifying contracts with service providers; develop standardized toolkits/checklists to define accounting treatment of obligations. - Compiling and assessing service concession arrangements (PPPs) and leases to identify conditions related to control over the asset and define/disclose those where liabilities and assets are to be recognized. - Ensuring equity stakes in public corporations are recorded and regularly revalued; may require new laws/regulations and assignment of oversight responsibility. - Annual valuation of pension liabilities requiring data from fund managers and actuarial valuation; consistent policy on discount rate to be applied year to year. - Capacity development: - Establishing market value of financial instruments may need in-house capacity or contracted experts. - Contracting experts likely necessary for actuarial estimates of post-employment and other long-term benefits. - Identification and reporting of contingent liabilities may require new reporting systems to capture legal claims, guarantees, and other potential claims; systems should capture estimated financial effect unless disclosure would be severely prejudicial. - In countries where commitments are included within contingent liabilities, values of commitments should be available from IFMIS tracking expenditures. ### Institutional coverage, consolidation policies and processes in Phase Two - Institutional coverage: - Accounts should be consolidated in accordance with the statistical concept of “general government” — includes central, state and local government and social security funds but not public enterprises. - Provides comprehensive overview of public activities funded primarily through taxes and other compulsory levies and summary picture of sustainability of financial obligations including pension obligations and PPPs. - Consolidation policies: - Accounting policies should require consolidation of all entities engaged in non-market activities, including subnational governments and the local non-commercial entities they control (police authorities, schools, hospitals, park agencies, utility companies) and social security funds. - Consolidation processes and challenges: - Consolidating subnational governments may be lengthy due to: - Non-harmonized Constitution, laws, or regulations defining accountability and responsibilities of subnational governments. - Weaker accounting and systems capacity at subnational level. - Different accounting standards, bases, and charts of accounts at subnational level. - Different reporting cycles between subnational and central government. - Recommended actions: - Undertake gap analysis for subnational governments to identify differences between targeted and existing accounting frameworks. - Use gap analysis to define an action plan to close gaps; ideally done before transition starts but can be refined during Phase 1. - Conduct pilot exercises as early as possible at all levels of local government for consolidation. *Source: Australian Government (2015), HM Treasury (2014), and Authors.* ### Box 10 on China’s experience below). ### Box 10. Transition to Accrual Accounting at Local Government Level in China ### Objectives and Rationale - Objectives of the reform: - improving fiscal management and public accountability at all levels of government; - identifying and managing fiscal risks, particularly direct and contingent liabilities at the sub-national level; - improving the management of infrastructure assets; - greater prudence about new initiatives to ensure the right balance between maintenance expenditure and new investment; - expanding the accounting function to provide more diversified information to meet these objectives. - Decision to migrate to accruals reconfirmed at the Third Plenum of the 18th Central Committee of the Communist Party of China, in late 2013. ### Research Program and Preparatory Work by the Ministry of Finance - Components of the research program: - (i) a feasibility study of implementing a modified accrual-based accounting system based on the present status of government accounting in China, including policy recommendations and a basic implementation roadmap; - (ii) work to define the scope of the government reporting entity, based on analysis of Chinese political and governance structure and drawing on international standards and country practices; - (iii) preliminary work on establishing government accounting standards including content, phasing, and implementation plans; - (iv) work to design government financial statements including scope, content, compilation procedures, analysis and possible uses; - (v) a series of accrual accounting pilots. ### Pilots and Phasing - Pilot expansion: - 11 provinces in 2011; - expanded to 23 provinces in 2012; - expanded to all 36 provinces and some cities and county governments in 2013. - Pilot activities (2011–2014): - preparation of year-end financial statements on an accrual basis by adjusting and transposing cash-based statements with additional accrual information. - From 2014 onward: - government departments required to change bookkeeping and record accruals at transaction level for recognition of expenses, non-tax revenues, assets, liabilities (except pension liabilities) and equity; - new instructions covered valuation of non-financial assets and an improved format of financial statements. - Further planned steps: - preparation of a reform action plan; - extending the pilots at local level; - developing rules for consolidated reporting; - further work on accounting standards; - more work on classification of public bodies; - supporting measures on IT systems and capacity building. ### Phase Three: Full Accrual Accounting — Scope and Outputs - Phase 3 deliverables: - publish a complete set of accrual-based financial statements including a full balance sheet and operating statement; - provide a full set of disclosures in the financial statements; - expand institutional coverage of the financial statements to the whole of the public sector. - Expected result: comprehensive overview of public sector revenues, expenditures, assets, liabilities, and net worth for government, parliament, and citizens. ### Elements Added to the Balance Sheet in Phase 3 - Assets to be added: - Physical and intangible assets (infrastructure, land and buildings, military and civil equipment, computer software, possibly biological assets and natural resources; heritage assets optional under IPSAS and can be included at nominal value); - Inventories (material and supplies such as ammunition, maintenance material, medical supplies; for state-owned enterprises, inventories in process of production for sale); - Government-specific financial instruments (e.g., monetary gold and holdings of IMF Special Drawing Rights); - Tax receivables (payments outstanding or due from taxpayers). ### Balance Sheet — Development in Phase Three (Figure 8) - YEAR N | YEAR N-1 (values) - Non-current Assets 5,160 5,310 - Property, plant and equipment 382 380 - Infrastructures 4,748 4,900 - Intangible assets 10 9 - Equity investments 20 21 - Current Assets 159 85 - Cash and cash equivalents 32 25 - Gold holdings 5 3 - Tax receivables 52 45 - Grants receivable 3 3 - Trade receivables 5 3 - Inventories 6 4 - Equity investments held-for-sale 56 2 - Total Assets 5,319 5,395 - Non-current Liabilities 2,505 2,484 - Borrowing and financing 767 741 - Public service pensions 1,357 1,256 - Post-employment and other social benefits 258 235 - Other financial liabilities 123 252 - Current Liabilities 259 265 - Borrowing and financing 214 224 - Salaries and wages payables 12 11 - Grants and subsidies payables 4 3 - Trade payables 11 9 - Provisions 18 18 - Total Liabilities 2,764 2,749 - Net assets 2,555 2,646 ### Operating Statement — Elements Added in Phase 3 - Additional flows correspond to assets and liabilities recognized in the balance sheet, including: - Accrued tax revenue (amount of tax that will probably be collected in the year where reliably measurable, rather than amount collected under cash accounting); - Depreciation/amortization of intangible and tangible assets, inventories, and possible impairment charges. - Figure 9 — Development of the Operating Statement in Phase Three (YEAR N | YEAR N-1 | ACCOUNTING BASIS): - Tax revenue from direct taxes 240 225 Accrual - Tax revenue from indirect taxes 162 148 Accrual - Tax revenue from local taxes 51 44 Accrual - Grants received 24 26 Accrual - Revenue from sales of goods and services 37 32 Accrual - Dividends and interest received 11 8 - Gain (loss) on sale of investments 5 -2 Accrual - Gain (loss) on disposal of property, plant and equipment 9 -4 Accrual - Other revenue 8 9 Accrual - Total Revenue 547 486 - Salaries 289 271 Accrual - Purchase of goods and services 100 87 Accrual - Grants and subsidies 56 45 Accrual - Finance costs 39 33 Accrual - Depreciation and amortization of assets 89 78 Accrual - Impairment of assets 12 16 Accrual - Other expenses 32 35 Accrual - Total Expenses 617 565 - Gain (or loss) on foreign exchange transations 1 2 Accrual - Unrealized gain (or loss) on fair value of investments -12 3 Accrual - Actuarial gain (or loss) on pension liabilities -10 -28 Accrual - Other gains (or losses) -21 -23 - Surplus or Deficit -91 -103 - Note: As state-owned enterprises are consolidated under phase 3, revenue from sales and services could be more detailed in the balance sheet (e.g., sale of water and electricity, rendering of services, etc.). ### Accounting Policies — Physical Assets and Inventories - Recognition: - Goods used over more than one financial year should be recorded as physical or intangible assets; - Goods stocked to be consumed or distributed in rendering services or for sale should be recorded as inventories. - Valuation and measurement: - Physical assets normally evaluated at cost (including costs associated with acquisition and preparation for use) or at current value where possible; - Valuations normally carried out by professional valuers, frequency determined by asset nature and volatility (some annual, others 3 or 5-year cycles); - After valuation, assets depreciated over useful life using cost model or revaluation model. The same model must be applied to all assets in the same class: - cost model: carried at cost, less accumulated depreciation and impairment losses; - revaluation model: carried at revalued amount (current value at revaluation date), less subsequent depreciation and impairment losses. - Depreciation charged as expense over useful life using a systematic basis (e.g., straight line, unit of use/production, diminishing balance). Land is not depreciated. - Upon disposal or retirement, recognize gain or loss (difference between sale price and value in balance sheet) in operating statement. ### Practical Considerations and Policy Design Issues - Capitalization threshold: - Use a capitalization threshold for inclusion of physical and intangible assets to exclude low-value items that do not affect interpretation of asset balances. - Disclosure detail: - Balance sheet and disclosures should provide a complete and relevant picture; may involve identifying categories within infrastructure, buildings, equipment, natural resources (examples: roads, airports, schools, hospitals, prisons, office buildings, military equipment, national security equipment, agricultural products held by the government, proven oil or gas reserves). - Control principle: - Governments should report on assets they control, not just own; control defined as power to govern use and to benefit or bear risks from use. Accounting policies need to set control criteria or indicators for main asset categories. - Valuation methods: - Typical approach: initial recognition at cost, subsequent measurement at amortized cost, market value, or replacement cost; - For assets measured at amortized cost, determine useful life in accounting policies based on supplier/maintenance information; - Where initial recognition at cost or market value is not possible (lack of supporting information or observable market price), accounting policies may authorize simplified methods, such as statistical estimations (see Box 11 on France). *Source: Authors.* ### Box 11. Valuation of Tangible Assets in France ### Box 11. Valuation of Tangible Assets in France ### Valuation framework and methods used - French central government accounting distinguishes two broad categories of tangible assets based on (i) whether the useful life of the asset can be determined, and (ii) whether there is an active market for the asset. - Treatment by category: - Assets with a useful life are amortized. - Assets that cannot be amortized are measured at market value if possible. - If market value is not available, other methods are used: replacement cost or symbolic cost. - All of these valuation methods were used in preparing the opening balance sheet for the French central government. - Transitional provisions were authorized where reconstituting costs or establishing market value was considered impossible due to lack of information or time. ### Use of estimations and subsequent validation - Some military, civil equipment and buildings were initially evaluated using statistical estimations based on military capital expenses budgeted prior to the move to accrual accounting. - These statistical estimations have been replaced over time with actual costs or present market values as they became available. - Valuations should be supported by identifiable, documented sources (invoices, contracts, professional valuations) to provide an audit trail. ### Audit findings and remaining valuation issues - In 2013 — seven years after the first publication of the French central government financial statements — the auditor’s report still included a qualification on the valuation of military equipment. - The auditor noted: - Considerable progress had been made in recording and evaluating military assets. - Some equipment costs had not been reconstituted. - Physical inventories and the amounts reported in the general ledger could not be fully reconciled. ### Related technical guidance and valuation gaps - IPSAS 17 provides guidance on accounting treatment for tangible assets, but there is currently no IPSAS defining the treatment of heritage assets and natural resources; local-level accounting policies should be defined, ideally drawing on principles in standards such as GFSM2014. - Impairment guidance: IPSAS 21 (non-cash-generating assets) and IPSAS 26 (cash-generating assets) apply. - For some asset classes (e.g., public buildings or land) professional external valuers (real estate agents) may be used. ### Notable data point on infrastructure valuation in France - For France, the amount reported for infrastructures includes assets controlled by the government under concession arrangements and public private partnerships, which value represent more than 60 percent of the total amount reported for infrastructure. ### Operational implications and recommended practices - Establish and maintain asset registers (spreadsheet, database, or ideally an information system interfacing with the general ledger). - Undertake initial inventories (physical and intangible assets) with evidence of physical verification before or during transition to accrual accounting. - Update registers for all asset movements (addition, disposal, transfer) and record asset damage that may impair value. - Use internal sources (invoices, contracts) and external professional valuation where appropriate; ensure valuations are documented to support audit. - Prioritize identification, inventorying and valuation of infrastructure and military equipment, which are likely to be the most significant balance-sheet items. *Source: Government of France (2014), Authors.* ### APPENDIX I. CURRENT LIST OF IPSAS STANDARDS ### APPENDIX I. CURRENT LIST OF IPSAS STANDARDS ### IPSAS standards inventory - Since 1997, the IPSAS Board has developed and issued 38 accrual standards, and a cash basis standard for countries moving toward full accrual accounting. - Accrual-based IPSAS - IPSAS 1 Presentation of Financial Statements - IPSAS 2 Cash Flow Statements - IPSAS 3 Accounting Policies, Changes in Accounting Estimates and Errors - IPSAS 4 The Effects of Changes in Foreign Exchange Rates - IPSAS 5 Borrowing Costs - IPSAS 6 Consolidated and Separate Financial Statements - IPSAS 7 Investments in Associates - IPSAS 8 Interests in Joint Ventures - IPSAS 9 Revenue from Exchange Transactions - IPSAS 10 Financial Reporting in Hyperinflationary Economies - IPSAS 11 Construction Contracts - IPSAS 12 Inventories - IPSAS 13 Leases - IPSAS 14 Events after the Reporting Date - IPSAS 15 Financial Instruments: Disclosure and Presentation (superseded by IPSAS 28-30) - IPSAS 16 Investment Property - IPSAS 17 Property, Plant and Equipment - IPSAS 18 Segment Reporting - IPSAS 19 Provisions, Contingent Liabilities, Contingent Assets - IPSAS 20 Related Party Disclosures - IPSAS 21 Impairment of Non-cash generating Assets - IPSAS 22 Disclosure of Financial Information about the General Government Sector - IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and Transfers) - IPSAS 24 Presentation of Budget Information in Financial Statements - IPSAS 25 Employee Benefits - IPSAS 26 Impairment of Cash-Generating Assets - IPSAS 27 Agriculture - IPSAS 28 Financial Instruments: Presentation - IPSAS 29 Financial Instruments: Recognition and Measurement - IPSAS 30 Financial Instruments: Disclosures - IPSAS 31 Intangible Assets - IPSAS 32 Service Concession Arrangements: Grantor - Accrual IPSASs forthcoming in 2017: - IPSAS 33 First-time Adoption of Accrual Basis IPSAS - IPSAS 34 Separate Financial Statements - IPSAS 35 Consolidated Financial Statements - IPSAS 36 Investments in Associates and Joint Ventures - IPSAS 37 Joint Arrangements - IPSAS 38 Disclosure of Interests in Other Entities - Cash-based IPSAS - Cash Basis IPSAS Financial Reporting Under the Cash Basis of Accounting ### Trends in adoption of accrual accounting (summary points) - The appendix notes differing adoption rates between financial accounts (financial statements) and fiscal statistics; more countries have started reporting fiscal statistics on an accrual basis than have moved their financial accounts to accrual. - Fiscal statistics and financial statements are often produced by different offices; fiscal statistics can be produced on an accrual basis through ad-hoc adjustments to cash data, resulting in different fiscal reports with different bases of accounting. - The appendix states: "However, an underlying accrual based accounting system is important for ensuring the comprehensiveness and accuracy of accrual based fiscal statistics." - Figure A.1. Trends in Adopting the Accrual Concepts in Fiscal Statistics (numerical labels as presented in the source) - 20 - 49 - 115 - 2004 2011 2013 - 9 - 29 - 12 - 52 - 120 - 146 - 0 20 40 60 80 100 120 140 160 180 200 - Regional counts shown (as presented): North America and Carribean; South America; Europe; Asia and Oceania; Africa - Note in source: "Partial accrual includes countries that report transactions and other economic flows on an accrual basis but do not prepare a full balance sheet. Full accrual includes countries that record transactions and other economic flows on an accrual basis and publish a full balance sheet." ### Guidance for countries transitioning to accrual - The appendix encourages countries that will implement a transition to accrual accounting based on the phasing described in the TNM to reflect the accrual elements reported in their financial statements in their fiscal statistics, to help populate accrual based fiscal statistics in compliance with GFSM 2014. - The appendix provides phase-based mappings (PHASE 1 ELEMENTARY ACCRUAL; PHASE 2 ADVANCED ACCRUAL; PHASE 3 FULL ACCRUAL) showing which balance sheet, statement of government operations, and statement of other economic flows items should be disclosed or can be derived from financial statements to support accrual fiscal statistics. ### Phase-based mapping: Balance sheet (items listed in the source) - Net Worth - 61 Non-financial assets - 611 Fixed assets - 612 Inventories - 613 Valuables - 614 Non-produced assets - 62 Financial assets - 6201 Monetary gold and SDRs - 6202 Currency and deposits - 6203 Debt securities - 6204 Loans - 6205 Equity and investment fund shares - 6206 Insurance, pension and SGSs - 6207 Financial derivatives and ESOs - 6208 Other accounts receivabletrade-related onlyOther than tax - 63 Liabilities - 6301 SDRs - 6302 Currency and deposits - 6303 Debt securities - 6304 Loans - 6305 Equity and investment fund shares - 6306 Insurance, pension and SGSs - 6307 Financial derivatives and ESOs - 6308 Other accounts payable - Disclosure labels used in the mapping: Partial compliance; Full compliance; No disclosure ### Phase-based mapping: Statement of government operations (items listed in the source) - 1 Revenue - 11 Taxes — cash cash - 12 Social contributions — cash cash - 13 Grants - 14 Other revenue — cash except sales - 2 Expense - 21 Compensation of employees - 22 Use of goods and services - 23 Consumption of fixed capital - 24 Interest - 25 Subsidies - 26 Grants - 27 Social benefits - 28 Other expense - Operating balance (1-2) — gross gross - 31 Investment in non-financial assets — gross gross - 311 Fixed assets — gross gross - 312 Inventories - 313 Valuables - 314 Non-produced assets - 2M Expenditure (2+31) - NLB Net lending / net borrowing (1-2M) - 32 Net acquisition of financial assets - 33 Net incurrence of liabilities ### Phase-based mapping: Statement of other economic flows (items listed in the source) - 9 Change in NW due to OEFs (4+5) - 4 Change in NW due to HGL - 41 Non-financial assets - 42 Financial assets — Other than tax - 43 Liabilities - 5 Change in NW due to OCV - 51 Non-financial assets - 52 Financial assets — Other than tax - 53 Liabilities - The source explains: "Other economic flows (OEFs) in GFS refer to changes in the volume or value of assets and liabilities that do not result from interactions between institutional units by mutual agreement or through the operation of law. They include holding gains and losses (HGLs, resulting from changes in the level and structure of prices, e.g. revaluations) and other changes in volume (OCVs, e.g. write-offs, reclassification of units)." *Source: APPENDIX I. CURRENT LIST OF IPSAS STANDARDS; APPENDIX II. ACCRUAL BASIS FOR FISCAL STATISTICS (Technical Notes and Manuals 16/06 | 2016)* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/tnm/2016/_tnm1606.pdf_