Presentation

to
UN Audit Teams
on

IPSAS
Y. N. Thakare
Pr AG (E&RSA), Gujarat
 Session Objectives
 Understand the UN Accounting Systems/ Standards:
UNSAS and IPSAS

 Know what the UN Management needs to do when they

switchover to IPSAS (& what we should verify)

 Understand the substance of all relevant IPSAS (25 out

of 31) and their impact on the Financial Statements

 Know how to verify compliance with each of these IPSAS

by the UN entity’s FS (Audit Checks)

2
 Presentation Outline
• What are UNSAS and IPSAS?
• Different Principles of two systems
• Benefits of IPSAS
• UN Policy Framework for IPSAS
• Accounting Assumptions and Policies
• First time adoption of IPSAS (Transitional Provisions)
• IPSAS Grouping:
– Presentation, Consolidation and Disclosure (5)
– Assets and Valuation (4)
– Expenses and Liabilities (2)
– Revenue (2)
– Financing and Financial Instruments (6)
– Misc Standards from above groups (6)
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 UNSAS and IPSAS
• UN had its own set of accounting standards known as UN System
Accounting Standards (UNSAS)

• In July 2006, the General Assembly approved adoption of

International Public Sector Accounting Standards (IPSAS)

• IPSAS are developed by an independent body – IPSAS Board and

generally follow IFRS principles

• UN Accounts are known as Volume I FS and Volume II FS (Vol II

pertains to PKO and Vol I the rest); additionally, there are several UN
System Organisations such as Unicef preparing the FS
independently of Vol I & II

• Vol II FS adopted IPSAS in 2013-14 (June year end) and Vol I FS in

2014 (Dec year end)

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Basis of Accounting

ACCOUNTING STANDARDS HAVE DIFFERENT ACCOUNTING BASIS

CASH
Transactions and events are
recognized when cash is
received or paid
ACCRUAL
(IPSAS)
Transactions and events are
recognized when goods
and services are delivered
All assets and liabilities are
included

HYBRIDS

Modified Cash - Modified Accrual

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UNSAS – IPSAS Differences

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 Differences: UNSAS & IPSAS
 Expense Recognition – Delivery Principle

 Revenue Recognition – Assessment of Contributions

 Asset Accounting – Depiction and Depreciation

 Liabilities Accounting and Recognition

Parallels in Indian System

UNSAS = Our Government Accounting System
IPSAS = Our Government Companies Accounting System
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Timing of Expense ‘Recognition’

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 Expense Recognition for Goods and Services

 Expenses will be recognized following the ‘Delivery Principle”

UNSAS - Recognition of expenses for 2-year services contract

Y1 Y2

Expenditure (Obligation) recognized $6,000 -

Issue of purchase order Period of Performance

Under UNSAS Expenditures are recognized when obligation is created

IPSAS - Recognition of expenses for 2-year services contract

Y1 Y2

Expense recognized $3,000 $3,000

Period of Performance

Under IPSAS expenses are recognized when services are delivered

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 Revenue Recognition

 Revenue will be recognized when:

 For Assessed contributions: when assessments are issued
 For Voluntary Contributions:
• Unconditional: when the pledges are accepted
• Conditional: when conditions are met

UNSAS - Recognition of revenue when cash is received Y1 Y2

Event Grantor Pledge Acceptance by Cash received

Date UN
Record revenue - - $11,000

Revenue is recognized when cash is received

IPSAS - Recognition of revenue when pledge is accepted by Y1 Y2

the UN
Event Grantor Pledge Acceptance by Cash received
Date UN
Record revenue $11,000

Revenue is recognized when pledge is accepted by the UN and an Account Receivable is created
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 Asset Accounting

UNSAS: No recognition of Asset and no Depreciation: Fully ‘expensed’

Y1 Y2 Y3 Y4 Y5 Y6

No asset recognized; cost of vehicle $ 60,000 - - - - -

recorded as expenditures
Full cost charged on purchase Useful life of vehicle

Expenditure recorded when purchase order is issued.

IPSAS: Expenditure distributed over life of asset

Y1 Y2 Y3 Y4 Y5 Y6

Asset recognition $60,000 - - - -

Annual depreciation expense $10,000 $10,000 $10,000 $10,000 $10,000 $10,000

Useful life of vehicle

Cost of the asset is spread-out as depreciation, over the asset’s useful life

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Liabilities Accounting

 Employee Benefits Liabilities (e.g. ASHI)

 The majority of these liabilities have been
recognized in advance under UNSAS as part of the
progressive IPSAS implementation. Disclosure was
sufficient under UNSAS.
 Provisions
 Will replace the concept “Unliquidated
Obligations” based on the change to the “Delivery
Principle”

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 Liability Recognition

UNSAS - Recognition of liability for staff repatriation benefit

Y1 Y2 Y3 Y4 Y5 Y6

No liability recognized; expenditure - - - - - $48,000

recognized when staff leaves the
Organization
Period of Performance after staff becomes eligible

Expenditures are recognized upon separation

IPSAS – Liability recognized as it arises

Y1 Y2 Y3 Y4 Y5 Y6

Liability recognized when staff becomes $34,812 $36,726 $38,746 $40,877 $45,498 $48,000
eligible, using actuarial assumptions
Period of Performance after staff becomes eligible

Liability is recognized when staff has earned the benefit; *$48,000 discounted at 5.5% for 6yrs.
Liability is adjusted every year. Values are adjusted for discount rate assuming that all actuarial assumptions remain
the same

7/23/2015 13
 Benefits of IPSAS

What kind of system was UNSAS?

Cash basis or Accrual basis or a mix of
both cash and accrual?

What are the benefits of IPSAS?

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 IPSAS Benefits
• More frequent and detailed
accounting and reporting
requirements will increase
transparency.
• More in-depth and frequent
external auditing will compel
greater internal controls to ensure
'unqualified audit opinion' on
financial statements.
Improved
consistency and
comparability
• More stringent accounting and
reporting requirements will
improve consistency in reporting
across fiscal years.
• More harmonious application of
standards will improve
comparability of financial
statements across the UN system.
• Part of ongoing efforts to align UN
system with internationally
recognized best practices.
Improved Alignment • Basis for increased confidence
transparency with best and recognition in the
international community.
drives stronger practices
• Application of credible,
internal controls independently developed
accounting standards, based on
'accrual' accounting.
Improved
stewardship of
assets &
liabilities
More • Enhanced reporting relating to
assets (property, plant,
comprehensive equipment, intangibles,
inventory) will improve quality of
information on record-keeping and compel
costs better management of assets.
• Comprehensive reporting on
liabilities (e.g. employee benefit
obligations) will improve the
• Accounting for contributions in kind (goods and services) will more truly management of such liabilities.
reflect the costs of services provided.
• Full reporting on employee benefit obligations (e.g. annual leave,
repatriation grants, health insurance) will aid better cost management.
• Non-cash expenses such as depreciation, impairment of assets, etc. will 15
better reflect the true costs of operations.
Why IPSAS?

Really?

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 UN Policy Framework for IPSAS
• July 2006: GA approved adoption of IPSAS for UN

• Necessitated revision to Fin Regulations & Rules

• Revised FRR promulgated to take effect from July 2013; FR 6.1

requires UN FS to comply with IPSAS

• UN PF for IPSAS was circulated in December 2013

• UN PF for IPSAS outlines the standards and provides guidance for

applying the standard. It also guides in making the transition to
IPSAS.

• In case of conflict, IPSAS standard shall prevail.

• FS do not comply with IPSAS unless they comply with all the
requirements of IPSAS.

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 General Principles of Accounting under
IPSAS
• Accrual basis of recording transactions and events

• Going concern (periodical statements)

• Consistency – accounting rules are followed continuously (important

from comparability point of view)

• Materiality – if omissions / misstatements may influence decisions

• Understandability, Relevance, Reliability, Comparability, Fair

presentation, Prudence, Substance over form

• Several attributes; Turn to time tested Accounting Assumptions and

Principles Governing Selection of an Accounting Policy

• These are same under UNSAS and Indian Accounting Standards

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 Accounting Assumptions and
Policies
Accounting Assumptions
• Going concern
• Consistency
• Accrual basis of accounting

Selection of accounting policies

• Prudence
• Substance over form
• Materiality
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 A set of UN FS
• Statement of financial position
• Statement of financial performance
• Statement of changes in net assets equity
• Statement of cash flows
• Statement of comparison of budget with actuals
• Notes to FS (summary of significant accounting policies
and explanatory notes)

FS do not comply with IPSAS unless they comply with all

the requirements of IPSAS.

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 PKO FS 2013-14
Field Units
Sun/Umoja Galileo
----------------------- ---------------------------
Assets & Liabilities PPE & Inventory
Income/Expense
Fund Balance
Final
Trial Balance
UN HQ
IMIS
------------------------ IMIS Parallel
Assets & Liabilities
Income/Expense ------------------
Fund Balance A&L
I&E Financial
Statements
UN HQ ------------------------
Additional
Umoja Info/Notes
-----------------------
HQ Transactions

(Umoja to replace all other systems eventually)

PKO managed funds appear in Vol. I FS
 First Time Adoption of IPSAS
• Frame suitable accounting policies; transitional provs
• Modify opening balances; recast accounts
• Identify and bring all PPE, inventory to book (Dep)
• Adjust unliquidated obligations
• Get actuarial valuation of liabilities done – particularly
employee benefits
• Make adjustments in r/o contributions and write offs
• Eliminate inter-departmental dealings; consolidation
• Train people; have IT support systems in place
• Consult external audit

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 IPSAS Grouping

• Presentation, Consolidation and Disclosure (5)

• Assets and Valuation (4)

• Expenses and Liabilities (2)

• Revenue (2)

• Financing and Financial Instruments (6)

• Misc Standards from above groups (6)

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 Presentation, Consolidation &
Disclosure (5)
• IPSAS 1: Presentation of Financial Statements

• IPSAS 18: Segment Reporting

• IPSAS 3: Accounting Policies, Changes in Accounting

Estimates and Errors

• IPSAS 2: Cash Flow Statements

• IPSAS 24: Presentation of Budget Information in FS

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 Assets and Valuation (4)

 IPSAS 17: Property, Plant and Equipment

 IPSAS 31: Intangible Assets

 IPSAS 12: Inventories

 IPSAS 21: Impairment of non-cash-generating assets

25
 Expenses and Liabilities (2)

 IPSAS 19: Provisions, Contingent Liabilities & Contingent

Assets

 IPSAS 25: Employee Benefits

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 Revenue (2)

 IPSAS 23: Revenue from Non-exchange Transactions

 IPSAS 9: Revenue from Exchange Transactions

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 Financing & Fin Instruments (6)

 IPSAS 13: Leases

 IPSAS 28, 29 and 30: Financial Instruments:

Presentation, Recognition, Measurement and Disclosure

 IPSAS 5: Borrowing Costs

 IPSAS 4: Effects of Changes in Foreign Exchange Rates

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 Misc Standards (6)
 IPSAS 6: Consolidated & Separate Financial Statements

 IPSAS 7: Investments in Associates

 IPSAS 8: Interest in Joint Ventures

 IPSAS 14: Events after the Reporting Date

 IPSAS 16: Investment Property

 IPSAS 20: Related Party Disclosures

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PLANNING FOR THE AUDIT
CONDUCT OF AUDIT
REPORTING TIPS
PKO in perspective
UN Expenditure $ 20B
(All entities)
PKO Expenditure $ 8B
PKO represents 40% of UN activities
15 active missions, 31 closed
UNLB (Logistic Base), Brindisi
Support A/c
PRF
ASHI
PKO Set-up/support
DPKO/DFS (headed by USG)
 Most of the work with DFS

 OPPBA

 PKO Financing Division

 Finance Accounting & Contribution Division

 OHRM (HR)

 Office of Central Support Services (OCSS) – Procurement

 Umoja
Planning for the Audit
Financial Audit
 FS show significant areas of revenue & expenditure
and assets & liabilities
 Link them with Accounting policies and IPSAS; see
whether there are past issues (previous
management letters)
 Financial Audit is expected to deal with policy issues

 Very little will be found in arithmetical balancing

 Study of accounting policies may throw up some

points
 You need to prepare management letter; need to
have points
 Some points may still persist
 Budget statement presentation (not budget line wise)

 Segment wise presentation

 Assessed contribution: Credits why not through

statement of financial presentation
 Assets with zero balance but economic value

 Review of useful life/impairment etc.

 In the same manner, HQ management issues may be

identified (Past management letter, previous records and
study of accounts)
Planning
 Prepare an audit plan with areas
 Prepare for an entry conference in the afternoon – state
clearly what you want
 Get nodal officers (focal points) appointed; some may be
useful – others do postman’s job; set a limit for reply – 2/3
days.
 Get passes, e-mail IDs and access to the systems
Conduct of Audit
 Mostly work through e-mails
 Need to discuss with many office bearers - seek
appointments through e-mail/telephonic conversation
 Send reminders, raise level
 Audit query is used to solicit additional information; Audit
observation to communicate observations. Using two helps
– some points got clarified in reply to audit queries. But
takes time.
Reporting
 Start preparing reports (management letter) simultaneously – may not
have enough time later
 PPT may be prepared for exit stating Audit Observation, Management
Response and Recommendation
 Follow the prescribed format; see the previous management letter
 May face argument over wordings – be specific; avoid generalizations
such as the ‘System was found defective ….’ The entire system can’t be
defective – mention specific areas (such as – in respect of …………..)
 There are no internal controls - The internal controls are not fully
effective.
 You are expected to tell the fate of past recommendations. You are not
the authority – Board decides. Tell them that we have seen the
compliance & accordingly report to the BoA. (May tell them informally)
 Avoid loose talk; they are very particular about the words that we use.
ANY FURTHER INFORMATION ?