THE UNITED REPUBLIC OF TANZANIAgwftool.tamisemi.go.tz/storage/images/doc/Xt5VSSx4QuDF4...2.2.1 Roles for Ministry responsible for Local Government..... 40 2.2.2 Council’s Roles

THE UNITED REPUBLIC OF TANZANIA

PRESIDENT’S OFFICEREGIONAL ADMINISTRATION AND LOCAL GOVERNMENT

LOCAL AUTHORITIES ACCOUNTING MANUAL

JUNE, 2019

LOCAL AUTHORITIES ACCOUNTING MANUAL 2

Table of Contents Foreword ............................................................................................................................................. 21

Preface ................................................................................................................................................. 23

Abbreviations .................................................................................................................................... 24

SECTION ONE .................................................................................................................................. 35

1.0 Introduction ............................................................................................................................ 35

1.1 Objectives of the LAAM ................................................................................................... 35

1.2 The Drivers for Change ..................................................................................................... 35

1.3 Aim for review of LAAM .................................................................................................. 36

1.4 Objective of Financial Reporting at Councils ................................................................ 36

1.5 The Value of Financial Information at the Councils ..................................................... 37

1.6 Roles and Responsibilities ............................................................................................... 37

SECTION TWO ................................................................................................................................. 40

2.0 Financial Management .......................................................................................................... 40

2.1 Objectives of Financial Management Systems............................................................... 40

2.2 Implementation of Accounting Manual at Councils ............................................. 40

2.2.1 Roles for Ministry responsible for Local Government ......................................... 40

2.2.2 Council’s Roles ........................................................................................................... 41

2.2.3 Role of Ministry of Finance and Planning and Ministry responsible for Local Government ................................................................................................................. 41

2.3 Accounting Policies, Estimates and Errors ...................................................................... 41

2.4 Accrual Principle ................................................................................................................ 42

2.5 Accounting Records ........................................................................................................... 42

2.5.1 Double-Entry Accounting System ............................................................................ 42

2.5.2 Source Documents ...................................................................................................... 43

2.5.3 Recording Data ........................................................................................................... 43

2.5.4 Backup of Accounting System .................................................................................. 43

2.5.5 Chart of Accounts ....................................................................................................... 43

2.6 Foreign Currencies ............................................................................................................. 46

2.7 Accounting for Payments .................................................................................................. 46

SECTION THREE ............................................................................................................................. 47

3.0 Accounting Policies, Estimates and Errors ......................................................................... 47

3.1 Universality of Accounting Policies, Estimates and Adjustments ............................... 47

1.7 Effective Date ..................................................................................................................... 38

LOCAL AUTHORITIES ACCOUNTING MANUAL3

3.2 In the Absence of a Specific Accounting Policy in the LAAM ..................................... 47

3.3 Change in Accounting Policy and Disclosure ................................................................ 48

3.4 Application of a New Standard ........................................................................................ 48

3.5 Disclosure of Changes in Estimates ................................................................................. 49

3.6 Disclosure of Prior Period Errors ..................................................................................... 49

SECTION FOUR................................................................................................................................ 50

4.0 ICT Guidelines for Council Reporting ............................................................................... 50

4.1 Aim of the Council ICT Guidelines................................................................................. 50

4.2 Driver for Success in Council Reporting ........................................................................ 50

4.2.1 People........................................................................................................................... 50

4.2.2 Process.......................................................................................................................... 51

4.2.3 Technology .................................................................................................................. 51

4.3 ICT Strategic Planning at Councils .................................................................................. 52

4.3.1 Components of an ICT strategic plan ...................................................................... 52

4.4 Data Retention at Councils ............................................................................................... 53

4.5 Disaster Recovery at Councils .......................................................................................... 53

4.6 The Council ICT Infrastructure ........................................................................................ 53

4.7 Technical Support for LGA Financial Management Systems .......................................... 53

4.8 ICT Policies and Guidelines ............................................................................................. 54

4.9 General Security and Compliance ................................................................................... 54

4.9.1 The General Security and Compliance Dos for LGA Staff ................................... 54

4.9.2 The General Security and Compliance Don’ts for LGA Staff .............................. 55

SECTION FIVE .................................................................................................................................. 56

5.0 Organizational Setup of the Council Reporting Framework ........................................... 56

5.1 Office Prerequisites ........................................................................................................... 56

5.2 Management of the Field Archives .................................................................................. 56

5.2.1 Definitions Document Categories ............................................................................ 56

5.2.3 Management Modalities ............................................................................................ 57

5.2.4 Archive Storage........................................................................................................... 57

5.3 Basic Accounting Documents ........................................................................................... 58

5.3.1 Receipts ........................................................................................................................ 58

5.3.2 The Payment Voucher ................................................................................................ 58

5.3.3 Authorization Sheet ................................................................................................... 59

Table of Contents Foreword ............................................................................................................................................. 21

Preface ................................................................................................................................................. 23

Abbreviations .................................................................................................................................... 24

SECTION ONE .................................................................................................................................. 35

1.0 Introduction ............................................................................................................................ 35

1.1 Objectives of the LAAM ................................................................................................... 35

1.2 The Drivers for Change ..................................................................................................... 35

1.3 Aim for review of LAAM .................................................................................................. 36

1.4 Objective of Financial Reporting at Councils ................................................................ 36

1.5 The Value of Financial Information at the Councils ..................................................... 37

1.6 Roles and Responsibilities ............................................................................................... 37

SECTION TWO ................................................................................................................................. 40

2.0 Financial Management .......................................................................................................... 40

2.1 Objectives of Financial Management Systems............................................................... 40

2.2 Implementation of Accounting Manual at Councils ............................................. 40

2.2.1 Roles for Ministry responsible for Local Government ......................................... 40

2.2.2 Council’s Roles ........................................................................................................... 41

2.2.3 Role of Ministry of Finance and Planning and Ministry responsible for Local Government ................................................................................................................................ 41

2.3 Accounting Policies, Estimates and Errors ...................................................................... 41

2.4 Accrual Principle ................................................................................................................ 42

2.5 Accounting Records ........................................................................................................... 42

2.5.1 Double-Entry Accounting System ............................................................................ 42

2.5.2 Source Documents ...................................................................................................... 43

2.5.3 Recording Data ........................................................................................................... 43

2.5.4 Backup of Accounting System .................................................................................. 43

2.5.5 Chart of Accounts ....................................................................................................... 43

2.6 Foreign Currencies ............................................................................................................. 46

2.7 Accounting for Payments .................................................................................................. 46

SECTION THREE ............................................................................................................................. 47

3.0 Accounting Policies, Estimates and Errors ......................................................................... 47

3.1 Universality of Accounting Policies, Estimates and Adjustments ............................... 47


5.3.4 Bank Account Overview ............................................................................................ 59

5.3.5 Bank Account Control Sheet ..................................................................................... 59

5.3.6 Bank Reconciliation Statement ................................................................................. 60

5.3.7 Standard Journal Voucher ......................................................................................... 60

5.3.8 Petty Cash Voucher .................................................................................................... 60

5.3.9 Cash Reconciliation Statement ................................................................................. 61

5.3.10 Cash Advance Application Form .............................................................................. 62

5.3.11 Cash Advance Retirement Form ............................................................................... 62

5.3.12 Monthly Time Sheet for Time based payments ..................................................... 63

5.3.13 Non-current (Fixed) Assets Register ........................................................................ 63

5.3.14 Pay List......................................................................................................................... 64

5.3.15 Contract Register ........................................................................................................ 64

5.3.16 Contractors’ Payments Calculation .......................................................................... 65

5.3.17 Certificate of Payment ............................................................................................... 65

5.3.18 Certificate of Completion .......................................................................................... 66

5.3.19 Final Inspection Report ............................................................................................. 67

5.3.20 Cash Advance Request Form .................................................................................... 67

5.3.21 Purchase Requisition Form ....................................................................................... 67

5.3.22 Planning and Progress Review Form ....................................................................... 68

5.3.23 Advance Control Register ......................................................................................... 68

5.3.24 Council Asset/Document Loss Report ..................................................................... 69

5.3.25 Council Financial Reports ......................................................................................... 70

5.3.26 LLG/SPF Payment Approval Form ........................................................................... 71

5.3.27 Review of Audit Process and Report Form ............................................................. 72

5.3.28 Internal Control System Form .................................................................................. 72

5.3.29 Council Financial Overview Report ......................................................................... 73

SECTION SIX .................................................................................................................................... 74

6.0 Internal Control System (ICS), Risk Management and Fraud Management ................. 74

6.1 Aim of ICS, Risk Management and Fraud Management in Councils ......................... 74

6.2 Definition of Internal Control System ............................................................................ 74

6.3 Responsibility .................................................................................................................... 75

6.3.1 Oversight Bodies ........................................................................................................ 75

6.3.2 Council Director ......................................................................................................... 75


6.3.3 Council Treasurers and Heads of Department ....................................................... 75

6.4 Principles............................................................................................................................. 75

6.4.1 Authorisation .............................................................................................................. 76

6.4.2 Misappropriation of Council Funds, Prevention and Settlement ........................ 76

6.5 Bank Accounts .................................................................................................................... 76

6.5.1 Foreign Currency and Local Currency Account ...................................................... 76

6.5.2 Four Eye Principle, Double Signature ..................................................................... 76

6.5.3 Bank/Cash Book Reconciliation Statement ............................................................. 77

6.5 Forms used in the Accounting System ............................................................................ 79

6.6 Issuing Receipts ................................................................................................................. 80

6.7 Payment Procedures ........................................................................................................... 81

6.7.1 General Information .................................................................................................. 81

6.7.2 Preparation and Authorization of Payment Vouchers ........................................... 81

6.7.3 Payments Made at the Council ................................................................................. 83

6.7.4 Description of Procedure for Petty Cash Payments ............................................... 89

6.7.5 Description of Procedures for Petty Cash Receipts ................................................ 91


6.7.7 Cash Advances and Imprest ...................................................................................... 92

6.8 Staff imprest and travel advances .................................................................................... 93

6.9 Reporting............................................................................................................................. 97

6.9.1 Responsibility ............................................................................................................. 97

6.9.2 Template for preparation of Council Financial Statements .................................. 97

6.9.3 Reports to be prepared ............................................................................................... 98

6.9.4 Audit ............................................................................................................................ 99

6.10 Implementation of CAG recommendations ................................................................... 99

6.11 Accountable documents/Instruments .............................................................................. 99

6.11.1 The documents ......................................................................................................... 100

6.11.2 Supply of documents .............................................................................................. 100

6.11.3 Accountable document register ............................................................................. 101

6.11.4 Issue of accountable documents/instruments ...................................................... 101

6.11.5 Procedures for used documents / counterfoils ..................................................... 101

6.11.6 Return of unused documents ................................................................................. 102

6.11.7 Obsolete Documents ............................................................................................... 102

5.3.4 Bank Account Overview ............................................................................................ 59

5.3.5 Bank Account Control Sheet ..................................................................................... 59

5.3.6 Bank Reconciliation Statement ................................................................................. 60

5.3.7 Standard Journal Voucher ......................................................................................... 60

5.3.8 Petty Cash Voucher .................................................................................................... 60


5.3.10 Cash Advance Application Form .............................................................................. 62

5.3.11 Cash Advance Retirement Form ............................................................................... 62

5.3.12 Monthly Time Sheet for Time based payments ..................................................... 63

5.3.13 Non-current (Fixed) Assets Register ........................................................................ 63

5.3.14 Pay List......................................................................................................................... 64

5.3.15 Contract Register ........................................................................................................ 64

5.3.16 Contractors’ Payments Calculation .......................................................................... 65

5.3.17 Certificate of Payment ............................................................................................... 65

5.3.18 Certificate of Completion .......................................................................................... 66

5.3.19 Final Inspection Report ............................................................................................. 67

5.3.20 Cash Advance Request Form .................................................................................... 67

5.3.21 Purchase Requisition Form ....................................................................................... 67

5.3.22 Planning and Progress Review Form ....................................................................... 68

5.3.23 Advance Control Register ......................................................................................... 68

5.3.24 Council Asset/Document Loss Report ..................................................................... 69

5.3.25 Council Financial Reports ......................................................................................... 70

5.3.26 LLG/SPF Payment Approval Form ........................................................................... 71

5.3.27 Review of Audit Process and Report Form ............................................................. 72

5.3.28 Internal Control System Form .................................................................................. 72

5.3.29 Council Financial Overview Report ......................................................................... 73

SECTION SIX .................................................................................................................................... 74

6.0 Internal Control System (ICS), Risk Management and Fraud Management ................. 74

6.1 Aim of ICS, Risk Management and Fraud Management in Councils ......................... 74

6.2 Definition of Internal Control System ............................................................................ 74

6.3 Responsibility .................................................................................................................... 75

6.3.1 Oversight Bodies ........................................................................................................ 75

6.3.2 Council Director ......................................................................................................... 75


6.11.8 Lost documents ........................................................................................................ 102

6.11.9 Handing over procedures ....................................................................................... 103

6.11.10 Dishonored cheques register – cheques received by the Council .................. 103

6.11.11 Dishonored cheques register – issued by LLG and SPFs ................................ 103

6.11.12 Registers of sums due .......................................................................................... 104

6.11.13 Salary Advances Register .................................................................................... 107

6.11.14 Revenue collector’s cash book for cash collection ............................................ 107

6.11.15 Register of sums received in the post................................................................. 108

SECTION SEVEN ........................................................................................................................... 110

7.0 Payroll ................................................................................................................................... 110

7.1 Responsibility .................................................................................................................. 110

7.2 Monthly Preparation of Payroll ..................................................................................... 110

7.3 Description of Payroll Procedures ..................................................................................... 110

7.4 Preparation Procedures.................................................................................................... 111

7.4.1 Introduction .............................................................................................................. 111

7.4.2 First appointment ..................................................................................................... 111

7.4.3 Payroll amendment .................................................................................................. 112

7.4.4 Payment of salary to employees ............................................................................. 112

7.4.5 Unclaimed Salaries ................................................................................................... 113

7.4.6 Payroll deductions .................................................................................................... 113

7.4.7 Casual Labourers ...................................................................................................... 114

7.4.8 Deleting an employee from the payroll ................................................................. 114

7.4.9 Transfer of an employee to another Council......................................................... 115

7.5 Payroll Preparation .......................................................................................................... 115

7.6 Recording the Payroll ...................................................................................................... 116

7.7 Treatment of Unclaimed salaries ................................................................................... 117

SECTION EIGHT ............................................................................................................................ 118

8.0 Revenue ................................................................................................................................. 118

8.1 General Provisions ........................................................................................................... 118

8.1 Revenue from Exchange Transactions ........................................................................... 118

8.1.1 Measurement of Revenue ........................................................................................ 118

8.1.2 Rendering of Services .............................................................................................. 120

8.1.3 Disclosure .................................................................................................................. 121


8.2 Revenue from Non-exchange Transactions .................................................................. 121

8.2.1 Taxes .......................................................................................................................... 121

8.2.2 Fines ........................................................................................................................... 122

8.2.3 Transfers .................................................................................................................... 122

8.2.4 Recognition of Non-exchange Transactions ......................................................... 122

8.3 Disclosures .................................................................................................................... 123

8.4 Grant .................................................................................................................................. 124

8.4.1 Cash Grants ............................................................................................................... 124

8.4.2 Non-cash Grants ....................................................................................................... 125

8.5 Disclosures ........................................................................................................................ 125

8.5.1 Revenue ..................................................................................................................... 126

8.5.2 Deferred Grant .......................................................................................................... 126

SECTION NINE .............................................................................................................................. 128

9 Property, Plant and Equipment .............................................................................................. 128

9.1 Definition of Non-current (Fixed) Assets ..................................................................... 128

9.2 Responsibility .................................................................................................................. 128

9.3 Registration of non-current (fixed) assets ..................................................................... 128

9.4 Categories of Non-current (Fixed) Asset ....................................................................... 129

9.5 Acquisitions ...................................................................................................................... 129

9.6 Initial Recognition ........................................................................................................... 130

9.6.1 Examples of directly attributable costs .................................................................. 131

9.6.2 Cessation of Costs Recognition .............................................................................. 131

9.6.3 Deferred Payments ................................................................................................... 131

9.6.4 Non-cash Grants ....................................................................................................... 132

9.6.5 One Asset Exchanged For another Asset ............................................................... 132

9.6.6 Heritage Assets ......................................................................................................... 133

9.7 Subsequent Measurements ............................................................................................. 133

9.7.1 Depreciation .............................................................................................................. 133

9.7.2 Depreciation Amount and Depreciation Period ................................................... 136

9.7.3 Depreciation Method ............................................................................................... 137

9.7.4 Impairment ................................................................................................................ 137

9.8 De-recognition .................................................................................................................. 138

9.8.1 General Provisions ................................................................................................... 138

6.11.8 Lost documents ........................................................................................................ 102

6.11.9 Handing over procedures ....................................................................................... 103

6.11.10 Dishonored cheques register – cheques received by the Council .................. 103

6.11.11 Dishonored cheques register – issued by LLG and SPFs ................................ 103

6.11.12 Registers of sums due .......................................................................................... 104

6.11.13 Salary Advances Register .................................................................................... 107

6.11.14 Revenue collector’s cash book for cash collection ............................................ 107

6.11.15 Register of sums received in the post................................................................. 108

SECTION SEVEN ........................................................................................................................... 110

7.0 Payroll ................................................................................................................................... 110

7.1 Responsibility .................................................................................................................. 110

7.2 Monthly Preparation of Payroll ..................................................................................... 110

7.3 Description of Payroll Procedures ..................................................................................... 110

7.4 Preparation Procedures.................................................................................................... 111

7.4.1 Introduction .............................................................................................................. 111

7.4.2 First appointment ..................................................................................................... 111

7.4.3 Payroll amendment .................................................................................................. 112

7.4.4 Payment of salary to employees ............................................................................. 112

7.4.5 Unclaimed Salaries ................................................................................................... 113

7.4.6 Payroll deductions .................................................................................................... 113

7.4.7 Casual Labourers ...................................................................................................... 114

7.4.8 Deleting an employee from the payroll ................................................................. 114

7.4.9 Transfer of an employee to another Council......................................................... 115

7.5 Payroll Preparation .......................................................................................................... 115

7.6 Recording the Payroll ...................................................................................................... 116

7.7 Treatment of Unclaimed salaries ................................................................................... 117

SECTION EIGHT ............................................................................................................................ 118

8.0 Revenue ................................................................................................................................. 118

8.1 General Provisions ........................................................................................................... 118

8.1 Revenue from Exchange Transactions ........................................................................... 118

8.1.1 Measurement of Revenue ........................................................................................ 118

8.1.2 Rendering of Services .............................................................................................. 120

8.1.3 Disclosure .................................................................................................................. 121


9.8.2 Assets to be Disposed .............................................................................................. 138

9.9 Disclosures ........................................................................................................................ 140

9.9.1 Assets ......................................................................................................................... 140

9.9.2 Impairment of Non-cash Generating Assets ......................................................... 141

SECTION TEN................................................................................................................................. 143

10.0 Investment Property ................................................................................................................ 143

10.1 Recognition ....................................................................................................................... 143

10.2 Measurement at Recognition .......................................................................................... 143

10.2.1 Purchased Investment Property .............................................................................. 143

10.2.2 Self-constructed Investment Property .................................................................. 144

10.2.3 Investment Property Acquired Through Non-exchange Transaction ................ 144

10.3 Investment Property held under a Finance Lease ........................................................ 144

10.4 Measurement after Recognition-Accounting Policy .................................................... 145

10.4.1 Cost Model ..................................................................................................................... 145

10.4.2 Fair Value Model ...................................................................................................... 145

10.5 Transfers............................................................................................................................ 146

10.6 Disposals ........................................................................................................................... 146

10.7 Disclosure ......................................................................................................................... 147

10.7.1 Fair Value Model and Cost Model ......................................................................... 147

10.7.2 Fair Value Model ...................................................................................................... 148

10.7.3 Cost Model ................................................................................................................ 148

SECTION ELEVEN ......................................................................................................................... 151

11.0 Inventory................................................................................................................................... 151

11.1 Measurement of Inventories ........................................................................................... 151

11.1.1 Cost of Inventories ................................................................................................... 152

11.2 Cost Formulas ................................................................................................................... 154

11.3 Recognition of Inventory as an Expense ....................................................................... 155

11.4 Disclosure ......................................................................................................................... 155

SECTION TWELVE ................................................................................................................................ 157

12.0 Intangible Assets ................................................................................................................. 157

12.1 Recognition ....................................................................................................................... 157

12.1.1 Internally Generated Goodwill .............................................................................. 157

12.1.2 Research Phase ......................................................................................................... 157


12.1.3 Recognition of an Expense ...................................................................................... 158

12.1.4 Past Expenses not to be recognized as an Asset ................................................... 158

12.1.5 Development Phase ................................................................................................. 158

12.2 Measurement .................................................................................................................... 158

12.3 Subsequent Measurement .............................................................................................. 159

12.3.1 Amortization ............................................................................................................. 159

12.3.2 Useful Life ................................................................................................................. 159

12.3.3 Intangible Assets with Finite Useful Lives: Amortization Period and Method 160

12.3.4 Residual Value ......................................................................................................... 160

12.3.5 Review of Amortization Period and Method ....................................................... 161

12.3.6 Intangible Assets with Indefinite useful lives .................................................... 161

12.3.7 Review of Useful Life Assessment ......................................................................... 161

12.3.8 Recoverability of the Carrying Amount—Impairment Losses ........................... 161

12.3.9 Retirements and Disposals ...................................................................................... 162

12.4 Disclosure ......................................................................................................................... 162

12.4.1 General ...................................................................................................................... 162

12.4.2 Research and Development Expenditure .............................................................. 164

12.4.3 Other Information .................................................................................................... 164

SECTION THIRTEEN .................................................................................................................... 165

13.0 Borrowing Costs....................................................................................................................... 165

13.1 Borrowing Costs ............................................................................................................... 165

13.2 Disclosure ......................................................................................................................... 165

SECTION FOURTEEN ................................................................................................................... 166

14.0 Provisions, Contingent Liabilities and Contingent Assets ................................................ 166

14.1 Provisions and Other Liabilities .................................................................................... 166

14.2 Recognition ....................................................................................................................... 166

14.2.1 Provisions .................................................................................................................. 166

14.2.2 Present Obligation ................................................................................................... 167

14.2.3 Reliable Estimate of the Obligation ....................................................................... 167

14.3 Contingent Liabilities ...................................................................................................... 167

14.4 Contingent Assets ............................................................................................................ 168

14.5 Measurement .................................................................................................................... 168

14.5.1 Best Estimate ............................................................................................................. 168

9.8.2 Assets to be Disposed .............................................................................................. 138

9.9 Disclosures ........................................................................................................................ 140

9.9.1 Assets ......................................................................................................................... 140

9.9.2 Impairment of Non-cash Generating Assets ......................................................... 141

SECTION TEN................................................................................................................................. 143

10.0 Investment Property ................................................................................................................ 143

10.1 Recognition ....................................................................................................................... 143

10.2 Measurement at Recognition .......................................................................................... 143

10.2.1 Purchased Investment Property .............................................................................. 143

10.2.2 Self-constructed Investment Property .................................................................. 144

10.2.3 Investment Property Acquired Through Non-exchange Transaction ................ 144

10.3 Investment Property held under a Finance Lease ........................................................ 144

10.4 Measurement after Recognition-Accounting Policy .................................................... 145

10.4.1 Cost Model ..................................................................................................................... 145

10.4.2 Fair Value Model ...................................................................................................... 145

10.5 Transfers............................................................................................................................ 146

10.6 Disposals ........................................................................................................................... 146

10.7 Disclosure ......................................................................................................................... 147

10.7.1 Fair Value Model and Cost Model ......................................................................... 147

10.7.2 Fair Value Model ...................................................................................................... 148

10.7.3 Cost Model ................................................................................................................ 148

SECTION ELEVEN ......................................................................................................................... 151

11.0 Inventory................................................................................................................................... 151

11.1 Measurement of Inventories ........................................................................................... 151

11.1.1 Cost of Inventories ................................................................................................... 152

11.2 Cost Formulas ................................................................................................................... 154

11.3 Recognition of Inventory as an Expense ....................................................................... 155

11.4 Disclosure ......................................................................................................................... 155

SECTION TWELVE ................................................................................................................................ 157

12.0 Intangible Assets ................................................................................................................. 157

12.1 Recognition ....................................................................................................................... 157

12.1.1 Internally Generated Goodwill .............................................................................. 157

12.1.2 Research Phase ......................................................................................................... 157


14.5.2 Risks and Uncertainties .......................................................................................... 169

14.5.3 Present Value ............................................................................................................ 169

14.5.4 Future Events ............................................................................................................ 169

14.5.5 Expected Disposal of Assets.................................................................................... 169

14.5.6 Reimbursements ....................................................................................................... 169

14.6 Changes in Provisions ..................................................................................................... 170

14.7 Use of Provisions.............................................................................................................. 170

14.8 Application of the Recognition and Measurement rules ............................................ 170

14.8.1 Future Operating Net Deficits ................................................................................ 170

14.8.2 Onerous Contracts ................................................................................................... 170

14.9 Disclosure ......................................................................................................................... 171

SECTION FIFTEEN ........................................................................................................................ 173

15.0 EMPLOYEE BENEFITS ....................................................................................................... 173

15.1 Objective ........................................................................................................................... 173

15.2 The Benefits ...................................................................................................................... 173

15.3 Short-Term Employee Benefits ...................................................................................... 174

15.3.1 Recognition and measurement ............................................................................... 175

15.3.2 Disclosure .................................................................................................................. 177

15.4 Post-employment Benefits – Contribution Plans ......................................................... 177

15.5 Accounting for Defined Contribution Plans ................................................................ 178

15.6 Recognition and Measurement ...................................................................................... 179

15.7 The Discount Rate ............................................................................................................ 179

15.8 Disclosure ......................................................................................................................... 180

15.9 Other Long-Term Employee Benefits ............................................................................ 180

15.9.1 Recognition and Measurement ............................................................................... 180

15.9.2 Disclosure .................................................................................................................. 181

15.10 Termination Benefits ................................................................................................... 181

15.10.1Recognition ................................................................................................................... 182

15.10.2Measurement ................................................................................................................ 183

15.10.3Disclosure ...................................................................................................................... 184

SECTION SIXTEEN ........................................................................................................................ 185

16.0 CASH FLOW STATEMENTS ............................................................................................ 185

16.1 Reporting Cash Flows from Operating Activities ........................................................ 185


16.1.1 Operating Activities ................................................................................................. 185

16.2 Reporting Cash Flows from Investing and Financing Activities ............................... 187

16.2.1 Investing Activities .................................................................................................. 187

16.2.2 Financing Activities ................................................................................................. 188

16.3 Foreign Currency Cash Flows ......................................................................................... 188

16.4 Interest and Dividends .................................................................................................... 188

SECTION SEVENTEEN ................................................................................................................. 189

17.0 FINANCIAL INSTRUMENTS ........................................................................................... 189

17.1 Objective ........................................................................................................................... 189

17.2 Recognition and De-recognition .................................................................................... 189

17.2.1 Initial Recognition ................................................................................................... 189

17.2.2 De-recognition of a Financial Liability ................................................................. 191

17.3 Classification .................................................................................................................... 192

17.3.1 Classification of Financial Assets ........................................................................... 192

17.3.2 Classification of Financial Liabilities .................................................................... 193

17.4 Re-classification ............................................................................................................... 194

17.5 Measurement .................................................................................................................... 194

17.5.1 Initial Measurement of Financial Assets and Financial Liabilities.................... 194

17.5.2 Subsequent Measurement of Financial Assets ..................................................... 194

17.5.3 Subsequent Measurement of Financial Liabilities .............................................. 195

17.6 Impairment ....................................................................................................................... 196

17.7 Expected Credit Loss (ECL) Provisioning ..................................................................... 196

17.7.1 Council Management Responsibilities ................................................................. 196

17.7.2 Sound ECL Methodologies .................................................................................... 197

17.7.3 Credit Risk Rating Process and Grouping ........................................................... 198

17.7.4 Adequacy of the Allowance .................................................................................... 199

17.7.5 ECL Model Validation .................................................................................................. 199

17.7.6 Experienced Credit Judgment ...................................................................................... 199

17.7.7 Common Data ................................................................................................................ 200

17.7.8 Disclosure....................................................................................................................... 200

17.8 Classification and Measurement .................................................................................... 201

17.9 Impairment ....................................................................................................................... 201

17.9.1 Staging ....................................................................................................................... 201

14.5.2 Risks and Uncertainties .......................................................................................... 169

14.5.3 Present Value ............................................................................................................ 169

14.5.4 Future Events ............................................................................................................ 169

14.5.5 Expected Disposal of Assets.................................................................................... 169

14.5.6 Reimbursements ....................................................................................................... 169

14.6 Changes in Provisions ..................................................................................................... 170

14.7 Use of Provisions.............................................................................................................. 170

14.8 Application of the Recognition and Measurement rules ............................................ 170

14.8.1 Future Operating Net Deficits ................................................................................ 170

14.8.2 Onerous Contracts ................................................................................................... 170

14.9 Disclosure ......................................................................................................................... 171

SECTION FIFTEEN ........................................................................................................................ 173

15.0 EMPLOYEE BENEFITS ....................................................................................................... 173

15.1 Objective ........................................................................................................................... 173

15.2 The Benefits ...................................................................................................................... 173

15.3 Short-Term Employee Benefits ...................................................................................... 174

15.3.1 Recognition and measurement ............................................................................... 175

15.3.2 Disclosure .................................................................................................................. 177

15.4 Post-employment Benefits – Contribution Plans ......................................................... 177

15.5 Accounting for Defined Contribution Plans ................................................................ 178


15.7 The Discount Rate ............................................................................................................ 179

15.8 Disclosure ......................................................................................................................... 180

15.9 Other Long-Term Employee Benefits ............................................................................ 180


15.9.2 Disclosure .................................................................................................................. 181

15.10 Termination Benefits ................................................................................................... 181

15.10.1Recognition ................................................................................................................... 182

15.10.2Measurement ................................................................................................................ 183

15.10.3Disclosure ...................................................................................................................... 184

SECTION SIXTEEN ........................................................................................................................ 185

16.0 CASH FLOW STATEMENTS ............................................................................................ 185

16.1 Reporting Cash Flows from Operating Activities ........................................................ 185


17.9.2 Impairment Calculation........................................................................................... 202

17.9.3 Assessment of credit risks ....................................................................................... 202

17.9.4ECL Parameters .............................................................................................................. 202

17.9.5Probability of Default.................................................................................................... 203

17.9.6 Loss Given Default................................................................................................... 203

17.9.7 Exposure at Default .................................................................................................. 204

17.9.8 Discount Factor ......................................................................................................... 204

17.9.9 The Expected Loss (EL) ............................................................................................ 204

SECTION EIGHTEEN .................................................................................................................... 205

18.0 Impairment ........................................................................................................................... 205

18.1 Impairment of Non-cash Generating Assets ................................................................ 205

18.1.1 External sources of information .............................................................................. 205

18.1.2 Internal sources of information .............................................................................. 205

18.2 Measuring Recoverable Service Amount ...................................................................... 206

18.2.1 Fair Value less Costs to Sell .................................................................................... 206

18.2.2 Value in Use .............................................................................................................. 207

18.2.4 Restoration Cost Approach ..................................................................................... 208

18.2.5 Service Units Approach ........................................................................................... 208

18.2.6 Application of Approaches ..................................................................................... 209

18.2.7 Recognizing and Measuring an Impairment Loss ..................................................... 209

18.3 Reversing an Impairment Loss ....................................................................................... 210



18.4 Re-designation of Assets ................................................................................................. 211

18.5 Disclosure ......................................................................................................................... 212

SECTION NINETEEN .................................................................................................................... 214

19 PRIMARY BOOKS OF ACCOUNT .................................................................................. 214

19.1 Introduction ...................................................................................................................... 214

19.2 Financial Reporting Tool ................................................................................................ 214

19.3 Coding of Accounts.......................................................................................................... 214

19.4 Subsidiary Records .......................................................................................................... 215

SECTION TWENTY ........................................................................................................................ 216

20.0 RESERVE PROVISION AND HOLDING ACCOUNTS ................................................... 216


20.1 Reserves ............................................................................................................................. 216

20.2 Accounting for Reserves ................................................................................................. 216

20.3 Minimum Compulsory Reserve ..................................................................................... 216

20.4 Investment of Reserves ................................................................................................... 216

20.5 MCR Borrowing Entitlement .......................................................................................... 217

20.6 Interest on MCR Deposits ........................................................................................... 217

20.7 Renewals funds ................................................................................................................ 218

20.7.1 Accounting for Renewals Funds............................................................................. 218

20.7.2 Investment of Renewals Funds .............................................................................. 219

20.7.3 Interest on Renewals funds ......................................................................................... 219

20.8 Maintenance funds .......................................................................................................... 220

20.8.1 Maintenance Costs ................................................................................................... 220

20.8.2 Separation of funds ....................................................................................................... 221

20.9 Holding Account ................................................................................................................ 221

SECTION TWENTY ONE .............................................................................................................. 222

21.0 PLANNING AND BUDGETING ...................................................................................... 222

21.1 Strategic Planning ............................................................................................................ 222

21.1.1 Strategy ...................................................................................................................... 223

21.1.2 Purpose of Strategic Planning ..................................................................................... 223

21.1.3 Qualities of a Good Strategic Plan .............................................................................. 224

21.2 Medium Term Expenditure Framework (MTEF) ......................................................... 225

21.3 Budgeting .............................................................................................................................. 226

21.4 Council Budget ................................................................................................................. 227

21.5 Budget Period ................................................................................................................... 227

21.6 Budget compilation .......................................................................................................... 228

21.6.1 Revenue (Income) Budget ....................................................................................... 228

21.6.2 The Personnel Budget .............................................................................................. 228

21.6.3 Recurrent Budget (other charges) ........................................................................... 229

21.6.4 Development Budget ............................................................................................... 229

21.6.5 Treatment of Unspent Balance of Development Fund in the Budget ................ 230

21.6.6 Budgeting for a Surplus........................................................................................... 231

21.6.7 Reserves .................................................................................................................... 231

21.7 Budget format and contents ............................................................................................ 231

17.9.2 Impairment Calculation........................................................................................... 202

17.9.3 Assessment of credit risks ....................................................................................... 202

17.9.4ECL Parameters .............................................................................................................. 202

17.9.5Probability of Default.................................................................................................... 203

17.9.6 Loss Given Default................................................................................................... 203

17.9.7 Exposure at Default .................................................................................................. 204

17.9.8 Discount Factor ......................................................................................................... 204

17.9.9 The Expected Loss (EL) ............................................................................................ 204

SECTION EIGHTEEN .................................................................................................................... 205

18.0 Impairment ........................................................................................................................... 205

18.1 Impairment of Non-cash Generating Assets ................................................................ 205



18.2 Measuring Recoverable Service Amount ...................................................................... 206

18.2.1 Fair Value less Costs to Sell .................................................................................... 206

18.2.2 Value in Use .............................................................................................................. 207

18.2.4 Restoration Cost Approach ..................................................................................... 208

18.2.5 Service Units Approach ........................................................................................... 208

18.2.6 Application of Approaches ..................................................................................... 209

18.2.7 Recognizing and Measuring an Impairment Loss ..................................................... 209

18.3 Reversing an Impairment Loss ....................................................................................... 210



18.4 Re-designation of Assets ................................................................................................. 211

18.5 Disclosure ......................................................................................................................... 212

SECTION NINETEEN .................................................................................................................... 214

19 PRIMARY BOOKS OF ACCOUNT .................................................................................. 214

19.1 Introduction ...................................................................................................................... 214

19.2 Financial Reporting Tool ................................................................................................ 214

19.3 Coding of Accounts.......................................................................................................... 214

19.4 Subsidiary Records .......................................................................................................... 215

SECTION TWENTY ........................................................................................................................ 216

20.0 RESERVE PROVISION AND HOLDING ACCOUNTS ................................................... 216


21.8 Reallocation (Virement) .................................................................................................. 231

21.9 Budget Monitoring, Control and Management ............................................................ 232

SECTION TWENTY TWO ............................................................................................................. 233

22.0 AGRICULTURE ................................................................................................................... 233

22.1 Agricultural Activity ........................................................................................................ 233


22.3 Measurement Initially and Subsequently .................................................................... 234

22.4 Basis for Determining Fair Value .................................................................................. 234

22.4 Cost as Proxy for Fair Value ............................................................................................ 235

22.5 Fair Value of Combined Assets ...................................................................................... 235

22.6 Gains and Losses .............................................................................................................. 236

22.7 Inability to Measure Fair Value Reliably ...................................................................... 236

22.8 Disclosures ........................................................................................................................ 236

22.8.1 General ...................................................................................................................... 236

22.8.2 Additional Disclosures for Biological Assets where Fair Value cannot be measured reliably .................................................................................................................... 238

SECTION TWENTY THREE.......................................................................................................... 240

23.0 SEPARATE FINANCIAL STATEMENTS ........................................................................ 240

23.1 Objective ........................................................................................................................... 240

23.2 Separate Financial Statements ........................................................................................ 240

23.3 Preparation of Separate Financial Statements .............................................................. 241

23.4 Disclosure ......................................................................................................................... 243

23.5 Transitional Provisions ................................................................................................... 245

SECTION TWENTY FOUR ............................................................................................................ 247

24.0 CONSOLIDATED FINANCIAL STATEMENT .............................................................. 247

24.1 Objective ........................................................................................................................... 247

24.2 Requirements................................................................................................................... 247

24.3 Presentation of Consolidated Financial Statements .................................................... 247

24.4 Government Business Enterprises ................................................................................. 249

24.5 Control ............................................................................................................................... 249

24.6 Power ................................................................................................................................. 250

24.7 Benefits .............................................................................................................................. 251

24.8 Link between Power and Benefits ................................................................................. 252


24.9 Accounting Requirements .............................................................................................. 253

24.10 Consolidation Procedures ........................................................................................... 253

24.11 Uniform Accounting Policies ...................................................................................... 254

24.12 Measurement ................................................................................................................ 254

24.13 Potential Voting Rights ............................................................................................... 254

24.14 Reporting Dates ............................................................................................................ 255

24.15 Non-Controlling Interests ........................................................................................... 255

24.16 Loss of Control.............................................................................................................. 256

24.17 Investment Entities: Fair Value Requirement .......................................................... 258

24.18 Determining Whether a Council is an Investment Council .................................... 258

24.19 Judgments and Assumptions ...................................................................................... 259

24.20 Accounting for a Change in Investment Entity Status ............................................ 259

24.21 Transitional Provisions ............................................................................................... 260

SECTION TWENTY FIVE .............................................................................................................. 264

25.0 INVESTMENT IN ASSOCIATES AND JOINT VENTURES ........................................ 264

25.1 Objective ........................................................................................................................... 264

25.2 Binding Arrangement ...................................................................................................... 265

25.3 Significant Influence ....................................................................................................... 265

25.4 Equity Method .................................................................................................................. 266

25.5 Application of the Equity Method ................................................................................. 268

25.6 Exemptions from Applying the Equity Method........................................................... 269

25.7 Discontinuing the Use of the Equity Method .............................................................. 270

25.8 Changes in Ownership Interest...................................................................................... 271

25.9 Equity Method Procedures ............................................................................................. 271

25.10 Impairment Losses ....................................................................................................... 274

25.11 Separate Financial Statements .................................................................................... 275

SECTION TWENTY SIX ................................................................................................................ 276

26.0 JOINT ARRANGEMENTS ................................................................................................. 276

26.1 Objective ........................................................................................................................... 276

26.2 Joint Control ..................................................................................................................... 276

26.3 Types of Joint Arrangement ........................................................................................... 277

26.4 Financial Statements of Parties to a Joint Arrangement .............................................. 277

26.4.1 Joint Operations........................................................................................................ 277

21.8 Reallocation (Virement) .................................................................................................. 231

21.9 Budget Monitoring, Control and Management ............................................................ 232

SECTION TWENTY TWO ............................................................................................................. 233

22.0 AGRICULTURE ................................................................................................................... 233

22.1 Agricultural Activity ........................................................................................................ 233


22.3 Measurement Initially and Subsequently .................................................................... 234

22.4 Basis for Determining Fair Value .................................................................................. 234

22.4 Cost as Proxy for Fair Value ............................................................................................ 235

22.5 Fair Value of Combined Assets ...................................................................................... 235

22.6 Gains and Losses .............................................................................................................. 236

22.7 Inability to Measure Fair Value Reliably ...................................................................... 236

22.8 Disclosures ........................................................................................................................ 236

22.8.1 General ...................................................................................................................... 236

22.8.2 Additional Disclosures for Biological Assets where Fair Value cannot be measured reliably .................................................................................................................... 238

SECTION TWENTY THREE.......................................................................................................... 240

23.0 SEPARATE FINANCIAL STATEMENTS ........................................................................ 240

23.1 Objective ........................................................................................................................... 240


23.3 Preparation of Separate Financial Statements .............................................................. 241

23.4 Disclosure ......................................................................................................................... 243


SECTION TWENTY FOUR ............................................................................................................ 247

24.0 CONSOLIDATED FINANCIAL STATEMENT .............................................................. 247

24.1 Objective ........................................................................................................................... 247

24.2 Requirements................................................................................................................... 247

24.3 Presentation of Consolidated Financial Statements .................................................... 247

24.4 Government Business Enterprises ................................................................................. 249

24.5 Control ............................................................................................................................... 249

24.6 Power ................................................................................................................................. 250

24.7 Benefits .............................................................................................................................. 251

24.8 Link between Power and Benefits ................................................................................. 252


26.4.2 Accounting for Sales or Contributions of Assets to a Joint Operation .............. 278

26.4.3 Accounting for Purchases of Assets from a Joint Operation ............................... 278

26.5 Joint Ventures ................................................................................................................... 278


26.7 Joint Ventures—Transition from Proportionate Consolidation to the Equity Method 279

26.8 Joint Operations—Transition from the Equity Method to Accounting for Assets and Liabilities ...................................................................................................................................... 280

SECTION TWENTY SEVEN.......................................................................................................... 282

27.0 DISCLOSURE OF INTERESTS IN OTHER ENTITIES ................................................. 282

27.1 Objective ........................................................................................................................... 282

27.2 Disclosing Information about Interests in Other Entities .......................................... 282

27.3 Significant Judgments and Assumptions ..................................................................... 284

27.4 Investment Entity Status ................................................................................................. 284

27.5 Interests in Controlled Entities ...................................................................................... 285

27.6 The Interest that Non-controlling Interests have in the Economic Entity’s Activities and Cash Flows ............................................................................................................................ 286

27.7 The Nature and Extent of Significant Restrictions ...................................................... 286

27.8 Nature of the Risks Associated with a Council’s Interests in Consolidated Structured Entities ....................................................................................................................... 287

27.9 Consequences of Changes in a Controlling Council’s Ownership Interest in a Controlled Entity that do not Result in a Loss of Control ...................................................... 288

27.10 Consequences of Losing Control of a Controlled Entity During the Reporting Period 288

27.11 Interests in Unconsolidated Controlled Entities (Investment Entities) ................ 288

27.12 Interests in Joint Arrangements and Associates ....................................................... 290

27.13 Nature, Extent and Financial Effects of a Council’s Interests in Joint Arrangements and Associates .............................................................................................................................. 291

27.14 Risks Associated with a Council’s Interests in Joint Ventures and Associates .... 294

27.15 Interests in Structured Entities that are not Consolidated ...................................... 295

27.16 Nature of Interests ........................................................................................................ 295

27.17 Nature of Risks ............................................................................................................. 296

27.18 Non-quantifiable Ownership Interests ..................................................................... 297

27.19 Controlling Interests Acquired with the Intention of Disposal ............................. 297

SECTION TWENTY EIGHT .......................................................................................................... 299


28.0 PUBLIC SECTOR COMBINATIONS ............................................................................... 299

28.1 Objective ........................................................................................................................... 299

28.2 Identifying a public sector combination ....................................................................... 299

28.3 Classification of public sector combinations................................................................ 300

28.4 Accounting for amalgamations ...................................................................................... 300

28.4.1 Classifying or designating assets and liabilities in an amalgamation............... 301

28.4.2 Measurement principle ............................................................................................ 301

28.4.3 Recognizing and measuring components of net assets/equity arising as a result of an amalgamation ................................................................................................................. 302

28.4.4 Measurement period ................................................................................................ 302

28.4.5 Presentation of financial statements ...................................................................... 303

28.4.6 Disclosures ................................................................................................................ 304

28.5 Accounting for acquisitions ............................................................................................ 306

28.5.1 Recognizing and measuring goodwill or a gain from a bargain purchase ........ 308

28.5.2An acquisition achieved in stages ................................................................................ 308

28.5.3 Measurement period ................................................................................................ 309

28.5.4 Determining what is part of the acquisition transaction ..................................... 309

28.5.5 Subsequent measurement and accounting ............................................................ 310

28.5.6 Disclosures ................................................................................................................ 310

28.6 Transition .......................................................................................................................... 316

SECTION TWENTY NINE ............................................................................................................ 317

29.0 SOCIAL BENEFITS ............................................................................................................. 317

29.1 Objective ........................................................................................................................... 317

29.2 General Approach ............................................................................................................ 317

29.2.1 Recognition of a Liability for a Social Benefit Scheme ....................................... 317

29.2.2 Outflow of Resources .............................................................................................. 318

29.2.3 Past Event .................................................................................................................. 318

29.3 Recognition of an Expense for a Social Benefit Scheme ............................................. 318

29.4 Measurement of a Liability for a Social Benefit Scheme ............................................ 318

29.4.1 Initial Measurement of the Liability ...................................................................... 318

29.4.2 Subsequent Measurement ....................................................................................... 319

29.4.3 Discount Rate ............................................................................................................ 319

29.5 Measurement of an Expense for a Social Benefit Scheme .......................................... 319

26.4.2 Accounting for Sales or Contributions of Assets to a Joint Operation .............. 278

26.4.3 Accounting for Purchases of Assets from a Joint Operation ............................... 278

26.5 Joint Ventures ................................................................................................................... 278


26.7 Joint Ventures—Transition from Proportionate Consolidation to the Equity Method 279

26.8 Joint Operations—Transition from the Equity Method to Accounting for Assets and Liabilities ...................................................................................................................................... 280

SECTION TWENTY SEVEN.......................................................................................................... 282

27.0 DISCLOSURE OF INTERESTS IN OTHER ENTITIES ................................................. 282

27.1 Objective ........................................................................................................................... 282

27.2 Disclosing Information about Interests in Other Entities .......................................... 282

27.3 Significant Judgments and Assumptions ..................................................................... 284

27.4 Investment Entity Status ................................................................................................. 284

27.5 Interests in Controlled Entities ...................................................................................... 285

27.6 The Interest that Non-controlling Interests have in the Economic Entity’s Activities and Cash Flows ............................................................................................................................ 286

27.7 The Nature and Extent of Significant Restrictions ...................................................... 286

27.8 Nature of the Risks Associated with a Council’s Interests in Consolidated Structured Entities ....................................................................................................................... 287

27.9 Consequences of Changes in a Controlling Council’s Ownership Interest in a Controlled Entity that do not Result in a Loss of Control ...................................................... 288

27.10 Consequences of Losing Control of a Controlled Entity During the Reporting Period 288

27.11 Interests in Unconsolidated Controlled Entities (Investment Entities) ................ 288

27.12 Interests in Joint Arrangements and Associates ....................................................... 290

27.13 Nature, Extent and Financial Effects of a Council’s Interests in Joint Arrangements and Associates .............................................................................................................................. 291

27.14 Risks Associated with a Council’s Interests in Joint Ventures and Associates .... 294

27.15 Interests in Structured Entities that are not Consolidated ...................................... 295

27.16 Nature of Interests ........................................................................................................ 295

27.17 Nature of Risks ............................................................................................................. 296

27.18 Non-quantifiable Ownership Interests ..................................................................... 297

27.19 Controlling Interests Acquired with the Intention of Disposal ............................. 297

SECTION TWENTY EIGHT .......................................................................................................... 299


29.6 Disclosure ......................................................................................................................... 320

29.7 Insurance Approach ......................................................................................................... 321


29.7.2 Disclosure .................................................................................................................. 322

29.8 Reporting on the Long-Term Sustainability of a Council’s Finances ....................... 323


29.9.1 General Approach .................................................................................................... 323

29.9.2 Insurance Approach ................................................................................................. 324

SECTION THIRTY.......................................................................................................................... 325

30.0 FIRST-TIME ADOPTION OF ACCRUAL BASIS INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSASs) ................................................................... 325

30.1 Objective ........................................................................................................................... 325

30.2 Date of Adoption of IPSASs ........................................................................................... 325

30.3 First IPSAS Financial Statements................................................................................... 326

30.3.1 Previous Basis of Accounting ................................................................................. 326

30.3.2 Transitional IPSAS Financial Statements ............................................................. 326


30.4.1 Opening Statement of Financial Position on Adoption of IPSASs .................... 327

30.4.2 Accounting Policies .................................................................................................. 327

30.4.3 Exceptions to the Retrospective Application of IPSASs ...................................... 328

30.5 Fair Presentation and Compliance with IPSASs .......................................................... 329

30.6 Permitted Exemptions ..................................................................................................... 330

30.6.1 Using Deemed Cost to Measure Assets and/or Liabilities .................................. 330

30.6.2 Comparative Information ........................................................................................ 332

30.6.3 IPSAS 5, Borrowing Costs ....................................................................................... 333

30.6.4 IPSAS 13, Leases ....................................................................................................... 333

30.6.5 IPSAS 21, Impairment of Non-Cash-Generating Assets ..................................... 334

30.6.6 IPSAS 25, Employee Benefits.................................................................................. 334

30.6.7 IPSAS 26, Impairment of Cash-Generating Assets .............................................. 334

30.6.8 IPSAS 28, Financial Instruments ............................................................................ 334

30.6.9 IPSAS 31, Intangible Assets .................................................................................... 335

30.6.10 IPSAS 32, Service Concession Arrangements ................................................... 336


30.6.11 IPSAS 34, Separate Financial Statements, IPSAS 35, Consolidated Financial Statements and IPSAS 36, Investments in Associates and Joint Ventures ....................... 336

30.6.12 IPSAS 35, Consolidated Financial Statements .................................................. 337

30.6.13 IPSAS 37, Joint Arrangements ............................................................................ 337

30.7 Disclosures ........................................................................................................................ 338

30.7.1 Explanation of Transition to IPSASs ..................................................................... 339

30.7.2 Reconciliations.......................................................................................................... 339

30.7.3 Disclosures where Deemed Cost is Used for Inventory, Investment Property, Property, Plant and Equipment, Intangible Assets, Financial Instruments or Service Concession Assets.................................................................................................................... 340

30.7.4 Disclosures Where Deemed Cost is Used for Investments in Controlled Entities, Joint Ventures or Associates ................................................................................................... 340

APPENDIX 1: FORM 5.3.2 PAYMENT VOUCHER............................................................... 341

APPENDIX 2: FORM 5.3.3 AUTHORIZATION SHEET ....................................................... 342

APPENDIX 3: FORM 5.3.4 BANK ACCOUNTS REVIEW ................................................... 343

APPENDIX 4: FORM 5.3.5 BANK ACCOUNT CONTROL SHEET .................................... 344

APPENDIX 5: FORM 5.3.6 BANK RECONCILIATION STATEMENT ............................. 345

APPENDIX 6: FORM 5.3.7 JOURNAL VOUCHER ............................................................... 346

APPENDIX 7: FORM 5.3.8 PETTY CASH VOUCHER .......................................................... 347

APPENDIX 8: FORM 5.3.9 CASH RECONCILIATION STATEMENT .............................. 348

APPENDIX 9: FORM 5.3.10 APPLICATION FOR CASH ADVANCE ............................... 349

APPENDIX 10: FORM 5.3.11 CASH ADVANCE RETIREMENT .......................................... 350

APPENDIX 11: FORM 5.3.12 TIME SHEET .............................................................................. 351

APPENDIX 12: FORM 5.3.13 FIXED ASSET REGISTER ........................................................ 352

APPENDIX 13: FORM 5.3.14 COUNCILBANK PAY LIST ..................................................... 353

APPENDIX 14: FORM 5.3.15 CONTRACT REGISTER .......................................................... 354

APPENDIX 15: FORM 5.3.16 CONTRACT PAYMENTS’ CALCULATOR .......................... 356

APPENDIX 16: FORM 5.3.17 STATEMENT OF INTERIM PAYMENT CERTIFICATE .... 357

APPENDIX 17: FORM 5.3.18 SUBSTANTIAL COMPLETION CERTIFICATE .................. 358

APPENDIX 18: FORM 5.3.19 FINAL INSPECTION REPORT ............................................... 359

APPENDIX 19: FORM 5.3.20 CASH ADVANCE REQUISITION FORMS .......................... 361

APPENDIX 20: FORM 5.3.21 PURCHASE REQUISITION FORM ....................................... 363

APPENDIX 21: FORM 5.3.22 PLANNING AND PROGRESS REVIEW............................... 364

APPENDIX 22: FORM 5.3.23 ADVANCE CONTROL REGISTER........................................ 375

29.6 Disclosure ......................................................................................................................... 320

29.7 Insurance Approach ......................................................................................................... 321


29.7.2 Disclosure .................................................................................................................. 322

29.8 Reporting on the Long-Term Sustainability of a Council’s Finances ....................... 323


29.9.1 General Approach .................................................................................................... 323

29.9.2 Insurance Approach ................................................................................................. 324

SECTION THIRTY.......................................................................................................................... 325

30.0 FIRST-TIME ADOPTION OF ACCRUAL BASIS INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSASs) ................................................................... 325

30.1 Objective ........................................................................................................................... 325

30.2 Date of Adoption of IPSASs ........................................................................................... 325

30.3 First IPSAS Financial Statements................................................................................... 326

30.3.1 Previous Basis of Accounting ................................................................................. 326

30.3.2 Transitional IPSAS Financial Statements ............................................................. 326


30.4.1 Opening Statement of Financial Position on Adoption of IPSASs .................... 327

30.4.2 Accounting Policies .................................................................................................. 327

30.4.3 Exceptions to the Retrospective Application of IPSASs ...................................... 328

30.5 Fair Presentation and Compliance with IPSASs .......................................................... 329

30.6 Permitted Exemptions ..................................................................................................... 330

30.6.1 Using Deemed Cost to Measure Assets and/or Liabilities .................................. 330

30.6.2 Comparative Information ........................................................................................ 332

30.6.3 IPSAS 5, Borrowing Costs ....................................................................................... 333

30.6.4 IPSAS 13, Leases ....................................................................................................... 333

30.6.5 IPSAS 21, Impairment of Non-Cash-Generating Assets ..................................... 334

30.6.6 IPSAS 25, Employee Benefits.................................................................................. 334

30.6.7 IPSAS 26, Impairment of Cash-Generating Assets .............................................. 334

30.6.8 IPSAS 28, Financial Instruments ............................................................................ 334

30.6.9 IPSAS 31, Intangible Assets .................................................................................... 335

30.6.10 IPSAS 32, Service Concession Arrangements ................................................... 336


APPENDIX 23: FORM 5.3.24 COUNCIL ASSET LOSS REPORT ......................................... 376

APPENDIX 24: FORM 5.3.25 COUNCIL FINANCIAL STATEMENTS ............................... 377

APPENDIX 25: FORM 5.3.26LLG/SPF PAYMENT APPROVAL ........................................... 381

APPENDIX 26: FORM 5.3.27 REVIEW OF AUDIT PROCESS AND REPORT ................... 382

APPENDIX 27: FORM 5.3.28 INTERNAL CONTROL SYSTEM ........................................... 385

APPENDIX 28: FORM 5.3.29 COUNCIL FINANCIAL OVERVIEW REPORT .................... 386

INDEX ............................................................................................................................................... 387


Foreword

The re-establishment of the Local Government Authorities (Councils) in 1984 revived and cemented the previous objectives of the former Councils of maintaining, facilitating the maintenance of peace, order and good governance, promoting social welfare and economic development of all persons within their area of jurisdiction. Core to their day-to-day responsibilities is to provide services to the people. Change is nature! Many events have occurred, both locally and internationally, since the print of the first and second editions came out in 1992 and 2010 necessitating important changes and issuing of a third edition of Local Authority Accounting Manual, particularly the adoption of the International Public Sector Accounting Standards (IPSAS) and the computerization of accounting and financial management functions by Local Government. This edition of the Local Authorities Accounting Manual (LAAM) is fully compliant with the International Public Sectors Accounting Standards (IPSAS). Financial management in relation to Councils activities is of utmost importance: ensuring that public resources received by the Councils are utilized strictly in accordance with laws, regulations, rules, directives, and only for the purpose for which they were intended. For that reason, every individual involved in the management of Councils resources must have a clear understanding of Local Government accounting procedures. Sound Local Government financial management can only be realized if there are clear guidelines. The primary objectives of this Accounting Manual are to: -

(a) Ensure that all transactions that give rise to receipts and payments of Income and Expenditure, Assets and Liabilities are accurately and properly recognized, measured, and presented.

(b) Provide Councils with relevant and timely information for managerial decision making.

(c) Provide a sound framework for financial controls to Councils. Apart from implementing the law, which demands uniform accounting system for all the Councils, the manual will serve as a handy working document for those involved in the management and accounting of the Councils’ resources. The procedures, documents and books described herein, are the new guidelines for the management of Councils’ finances. All

APPENDIX 23: FORM 5.3.24 COUNCIL ASSET LOSS REPORT ......................................... 376

APPENDIX 24: FORM 5.3.25 COUNCIL FINANCIAL STATEMENTS ............................... 377

APPENDIX 25: FORM 5.3.26LLG/SPF PAYMENT APPROVAL ........................................... 381

APPENDIX 26: FORM 5.3.27 REVIEW OF AUDIT PROCESS AND REPORT ................... 382

APPENDIX 27: FORM 5.3.28 INTERNAL CONTROL SYSTEM ........................................... 385

APPENDIX 28: FORM 5.3.29 COUNCIL FINANCIAL OVERVIEW REPORT .................... 386

INDEX ............................................................................................................................................... 387


officials vested with such duties must strictly adhere to them in the performance of their duties. Councils’ Mayor/Chairperson has a primary responsibility to ensure all necessary precautions and controls are instituted and function properly. The Mayor/Chairperson should strive to advocate highest standards of accountability and transparency of the Councils’ operations and reporting. By virtue of powers conferred upon me by section 45 of CAP 290, I hereby authorize this publication as the third edition of Local Authorities Accounting Manual, which shall be used by all Councils.

Selemani Saidi Jafo (MP) MINISTER OF STATE

PRESIDENT’S OFFICE REGIONAL ADMINISTRATION AND LOCAL GOVERNMENT

JUNE, 2019

(MP)


Preface

Local Government Finance Act, Cap. 290, and its amendments, provides that written instructions and regulation procedures will be issued by the Minister responsible for Local Government for the better control and management of financial resources of the Local Government Authorities (LGAs). The revised Local Authority Accounting Manual (LAAM) has been developed in fulfilment of this requirement.

The evolving of and massive development in accounting functions of the LGAs, including automation of accounting processes and the adoption of international public sector accounting standards (IPSAS) among many other reasons, has necessitated the revision of the LAAM. Moreover, Controller and Auditor General (CAG) and Public Procurement Regulatory Authority (PPRA) reports on LGAs’ financial statements and procurements have recommended on strengthening internal control systems and integrating risk management in LGAs’ activities and procurement, respectively.

The revised edition of LAAM has been developed to bridge the gap between the old editions of LAAM and the current practices of professional financial management in LGAs as recommended by oversight and regulatory bodies. This edition not only strengthens the control environment, by fully adopting IPSAS and tracking all computerized accounting systems, but also amplifies the scope of LGAs on financial management aspect. It lays down clear guidance on accounting for foreign exchange transactions and investments through Joint ventures and Public Private Partnerships (PPP). It gives a large magnitude of LGAs on dealing with acquiring, spending and reporting of public resources.

The revised LAAM aligns with Government legislations, standards and circulars and all LGAs should strictly adhere to the LAAM as an integral part of the financial management systems of LGAs.

Eng. Joseph M. Nyamhanga PERMANENT SECRETARY


officials vested with such duties must strictly adhere to them in the performance of their duties. Councils’ Mayor/Chairperson has a primary responsibility to ensure all necessary precautions and controls are instituted and function properly. The Mayor/Chairperson should strive to advocate highest standards of accountability and transparency of the Councils’ operations and reporting. By virtue of powers conferred upon me by section 45 of CAP 290, I hereby authorize this publication as the third edition of Local Authorities Accounting Manual, which shall be used by all Councils.

Selemani Saidi Jafo (MP) MINISTER OF STATE


JUNE, 2019


Abbreviations

CAG Controller and Auditor General

CD Council Director

CPPDS Computer Processing Data Sheet

CT Council Treasurer

CWT Chama cha Walimu Tanzania

DHCP Dynamic Host Configuration Protocol

ECL Expected Credit Loss

FFARS Facility Financial Accounting and Reporting System

FIFO First In, First Out

GAAP General Accepted Accounting Principles

GFS Government Financial Statistic

HLG Higher Level Government

HOD Head Of Departments

ICS Internal Control System

ICT Information and Communication Technology

IFMS Integrated Financial Management System

IFRS International Financial Reporting Standards

IPPF International Professional Practices Framework

IPSAS International Public Sector Accounting Standards

ISO International Standards Organization

LAAM Local Authority Accounting Manual

LGLB Local Government Loans Board

LLG Lower Level Government


LPO Local Purchase Order

MCR Minimum Compulsory Reserve

MLP Minimum Lease Payment

MoFP Ministry of Finance and Planning

MPD Marginal Possibility of Default

NAS Network Attached Storage

O & OD Opportunities and Obstacles for Development

PAYE Payment As You Earn

PO-RALG President’s Office-Regional Administration and Local Government

POS Point Of Sale

PPP Public Private Partnership

PSE Public Sector Entity

RS Regional Secretary

SPF Service Provision Facility

SWOT Strengths Weaknesses Opportunities and Threats

UPS Uninterruptible Power Supply

VAT Value Added Tax

WADU Weka Akiba Daima Upatavyo

WDC Ward Development Council

WLAN Wide-Local Area Network

Abbreviations

CAG Controller and Auditor General

CD Council Director

CPPDS Computer Processing Data Sheet

CT Council Treasurer

CWT Chama cha Walimu Tanzania

DHCP Dynamic Host Configuration Protocol

ECL Expected Credit Loss

FFARS Facility Financial Accounting and Reporting System

FIFO First In, First Out

GAAP General Accepted Accounting Principles

GFS Government Financial Statistic

HLG Higher Level Government

HOD Head Of Departments

ICS Internal Control System

ICT Information and Communication Technology

IFMS Integrated Financial Management System

IFRS International Financial Reporting Standards

IPPF International Professional Practices Framework

IPSAS International Public Sector Accounting Standards

ISO International Standards Organization

LAAM Local Authority Accounting Manual

LGLB Local Government Loans Board

LLG Lower Level Government


Definitions The following terms are used in this manual with the meanings specified:

A controlled entity An entity that is controlled by another entity. A controlling entity An entity that controls one or more entities. A decision-maker An entity with decision-making rights that is either a

principal or an agent for other parties. A joint arrangement An arrangement of which two or more parties have

joint control. A joint venture Is a joint arrangement whereby the parties that have

joint control of the arrangement have rights to the net assets of the arrangement.

A joint venturer Is a party to a joint venture that has joint control of that joint venture.

A non-controlling interest The net assets/equity in a controlled entity not attributable, directly or indirectly, to a controlling entity.

Accounting codes Characters used to classify budget centres, revenue, expenditure, assets and chart of accounts.

Accounting Officer Means any officer appointed by the Paymaster General and charged with the duty of accounting for any service in respect of which money have been appropriated by the National Assembly or any person to whom issues are made from the Consolidated Fund.

Accounting Policies Specific principles, basis, conventions, rules and practices selected and consistently followed by the Council as being in its opinion; appropriate to its circumstances best suited to present fairly its productivity and financial position.

Accounting Principles Rules that guide the measurement, classification and interpretation of economic information and communication of results through the medium of financial statements.


Accruals basis Accrual basis means a basis of accounting where the effects of transactions and other events are recognized when they occur (and not when cash or cash equivalent is paid or received) and they are recorded in the accounting records and reported in the financial statements of the period which they relate.

An associate An entity over which the investor has significant influence.

An economic entity A controlling entity and its controlled entities.

An investment entity An entity that: • Measures and evaluates the performance of

substantially all of its investments on a fair value basis;

• Obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;

• Has the purpose of investing funds solely for returns from capital appreciation, investment revenue, or both; and

A separate vehicle Is a separately identifiable financial structure,

including separate legal entities or entities recognized by statute, regardless of whether those entities have a legal personality.

Assets Resources controlled by the Council, LLG or SPF as a result of past events and from which future economic benefits or service potential are expected to flow to the Council, LLG or SPF.

Benefits The advantages an entity obtains from its involvement with other entities. Benefits may be financial or non-financial. The actual impact of an entity’s involvement with another entity can have positive or negative aspects.

Definitions The following terms are used in this manual with the meanings specified:

A controlled entity An entity that is controlled by another entity. A controlling entity An entity that controls one or more entities. A decision-maker An entity with decision-making rights that is either a

principal or an agent for other parties. A joint arrangement An arrangement of which two or more parties have

joint control. A joint venture Is a joint arrangement whereby the parties that have

joint control of the arrangement have rights to the net assets of the arrangement.

A joint venturer Is a party to a joint venture that has joint control of that joint venture.

A non-controlling interest The net assets/equity in a controlled entity not attributable, directly or indirectly, to a controlling entity.

Accounting codes Characters used to classify budget centres, revenue, expenditure, assets and chart of accounts.

Accounting Officer Means any officer appointed by the Paymaster General and charged with the duty of accounting for any service in respect of which money have been appropriated by the National Assembly or any person to whom issues are made from the Consolidated Fund.

Accounting Policies Specific principles, basis, conventions, rules and practices selected and consistently followed by the Council as being in its opinion; appropriate to its circumstances best suited to present fairly its productivity and financial position.

Accounting Principles Rules that guide the measurement, classification and interpretation of economic information and communication of results through the medium of financial statements.


Binding arrangement For the purposes of this LAAM, a binding arrangement is an arrangement that confers enforceable rights and obligations on the parties to it as if it were in the form of a contract. It includes rights from contracts or other legal rights. Binding arrangements can be evidenced in several ways. A binding arrangement is often, but not always, in writing, in the form of a contract or documented discussions between the parties. Statutory mechanisms such as legislative or executive authority can also create enforceable arrangements, similar to contractual arrangements, either on their own or in conjunction with contracts between the parties.

Budget Quantification of an Council‘s future plans for the next financial period in monetary units.

Capital Expenditure Means expenditure on the acquisition and installation of capital assets such as a building or motor vehicle.

Carrying amount Is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses.

Class of property, Means a grouping of assets of a similar nature or plant and equipment function in an entity’s operations that is shown as a

single item for the purpose of disclosure in the financial statements.

Consolidated Financial The financial statements of an economic entity in Statements which the assets, liabilities, net assets/equity,

revenue, expenses and cash flows of the controlling entity and its controlled entities are presented as those of a single economic entity.

Control An entity controls another entity when the entity is

exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability


to affect the nature or amount of those benefits through its power over the other entity.

Cost The fair amount used to acquire the asset plus all cost incurred necessary for the asset to be in place and condition for intended use.

Depreciable amount The difference between the initially recognized cost and the expected residual value of an asset.

Economic entity Is used in this LAAM to define, for financial reporting purposes, a group of entities comprising the controlling entity and any controlled entities. Other terms sometimes used to refer to an economic entity include administrative entity, financial entity, consolidated entity, and group. An economic entity may include entities with both social policy and commercial objectives.

Equity (Net assets) Assets minus liabilities

Expenses Decreases in economic benefits during period from outflows or depletions of assets or incurrence of liabilities from decreases in equity, other than distributions to equity.

Financial Period A period of time for which financial statements are prepared. Council’s financial period start from 1st July to 30th June.

Financial Statement The term covers the Council’s reports which include statement of financial position, statement of financial performance, cash flow statement, statement of changes in equity, notes and other statements and explanatory material which are identified as being part of the financial statements.

Grants Any form of assistance from donors in the form of cash or transfers of assets to the Council in return for past or future compliance with certain conditions relating to the Council operations.

Binding arrangement For the purposes of this LAAM, a binding arrangement is an arrangement that confers enforceable rights and obligations on the parties to it as if it were in the form of a contract. It includes rights from contracts or other legal rights. Binding arrangements can be evidenced in several ways. A binding arrangement is often, but not always, in writing, in the form of a contract or documented discussions between the parties. Statutory mechanisms such as legislative or executive authority can also create enforceable arrangements, similar to contractual arrangements, either on their own or in conjunction with contracts between the parties.

Budget Quantification of an Council‘s future plans for the next financial period in monetary units.

Capital Expenditure Means expenditure on the acquisition and installation of capital assets such as a building or motor vehicle.

Carrying amount Is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses.

Class of property, Means a grouping of assets of a similar nature or plant and equipment function in an entity’s operations that is shown as a

single item for the purpose of disclosure in the financial statements.

Consolidated Financial The financial statements of an economic entity in Statements which the assets, liabilities, net assets/equity,

revenue, expenses and cash flows of the controlling entity and its controlled entities are presented as those of a single economic entity.

Control An entity controls another entity when the entity is

exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability


Income Increases in economic benefits during period from inflows or enhancements of assets or decreases of liabilities from increases in equity, other than contributions from equity.

Joint control Is the agreed sharing of control of an arrangement by way of a binding arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Liability Present obligation arising from past events, the settlement of which is expected to result in outflow of resources embodying economic benefits.

Material (Materiality) Describes information; the omission, non- disclosure or misstatement of which would mislead users of financial statements when making evaluations or decisions.

Power consists of existing rights that give the current ability to direct the relevant activities of another entity.

Prepayments Refers to amounts paid in advance for expenses, which will relate to the revenue and expenses statement after the balance sheet date.

Protective rights Are rights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate.

Prudence The inclusion of degree of caution in the exercise of the judgments needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.

Relevant activities For the purpose of this LAAM, relevant activities are activities of the potentially controlled entity that significantly affect the nature or amount of the benefits that an entity receives from its involvement with that other entity.

Removal rights Are rights to deprive the decision maker of its decision-making authority.


Reserves Appropriations of the revenue account surplus into the main reserve account known as the General Reserve Fund.

Risk Management The establishment of policies, procedures and practices to identify analyse, quantify, monitor, and control financial and other exposures

Separate Financial Those presented by an entity, in which the entity Statements could elect, subject to the requirements in this

LAAM, to account for its investments in controlled entities, joint ventures and associates either at cost, in accordance with IPSAS 29, Financial Instruments: Recognition and Measurement or using the equity method as described in IPSAS 36, Investments in Associates and Joint Ventures.

Significant influence Is the power to participate in the financial and operating policy decisions of another entity but is not control or joint control of those policies.

Social benefits Are cash transfers provided to: (a) Specific individuals and/or households who

meet eligibility criteria; (b) Mitigate the effect of social risks; and (c) Address the needs of society as a whole.

Social risks Are events or circumstances that: (a) Relate to the characteristics of individuals

and/or households – for example, age, health, poverty and employment status; and

(b) May adversely affect the welfare of individuals and/or households, either by imposing additional demands on their resources or by reducing their income.

Statement of Financial A financial statement which shows the assets, Position liabilities and accumulated surplus of an entity on a

particular date, normally at the end of a financial period.

The equity method A method of accounting whereby the investment is initially recognized at cost and adjusted thereafter

Income Increases in economic benefits during period from inflows or enhancements of assets or decreases of liabilities from increases in equity, other than contributions from equity.

Joint control Is the agreed sharing of control of an arrangement by way of a binding arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Liability Present obligation arising from past events, the settlement of which is expected to result in outflow of resources embodying economic benefits.

Material (Materiality) Describes information; the omission, non- disclosure or misstatement of which would mislead users of financial statements when making evaluations or decisions.

Power consists of existing rights that give the current ability to direct the relevant activities of another entity.

Prepayments Refers to amounts paid in advance for expenses, which will relate to the revenue and expenses statement after the balance sheet date.

Protective rights Are rights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate.

Prudence The inclusion of degree of caution in the exercise of the judgments needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.

Relevant activities For the purpose of this LAAM, relevant activities are activities of the potentially controlled entity that significantly affect the nature or amount of the benefits that an entity receives from its involvement with that other entity.

Removal rights Are rights to deprive the decision maker of its decision-making authority.


for the post-acquisition change in the investor’s share of the investee’s net assets/equity of the associate or joint venture. The investor’s surplus or deficit includes its share of the investee’s surplus or deficit and the investor’s net assets/equity includes its share of changes in the investee’s net assets/equity that have not been recognized in the investee’s surplus or deficit.

Trial Balance A list of the balances on accounts in the general ledger extracted to ensure that the total debt balances are equal to the total credit balances.

Employee benefits All forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment.

Short-term employee Are employee benefits (other than termination benefits benefits) that are due to be settled wholly before

twelve months after the end of the reporting period in which the employees render the related service.

Post-employment Are employee benefits (other than termination benefits benefits and short-term employee benefits) that are

payable after the completion of employment. Other long-term Are all employee benefits other than short-term employee benefits employee benefits, post-employment benefits and

termination benefits. Termination benefits Are employee benefits provided in exchange for the

termination of an employee’s employment as a result of either: (a) An entity’s decision to terminate an employee’s employment before the normal retirement date; or (b) An employee’s decision to accept an offer of benefits in exchange for the termination of employment.

Post-employment Are formal or informal arrangements under which benefit plans an entity provides post-employment benefits for one

or more employees. Defined contribution Are post-employment benefit plans under which an plans entity pays fixed contributions into a separate entity

(a fund) and will have no legal or constructive


obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

Defined benefit plans Are post-employment benefit plans other than defined contribution plans.

Multi-employer plans Are defined contribution plans (other than state plans) or defined benefit plans (other than state plans) that: (a) Pool the assets contributed by various entities that are not under common control; and (b) Use those assets to provide benefits to employees of more than one entity, on the basis that contribution and benefit levels are determined without regard to the identity of the entity that employs the employees.

State plans Are plans established by legislation that operate as if they are multi-employer plans for all entities in economic categories laid down in legislation.

The net defined Is the deficit or surplus, adjusted for any effect of benefit liability (asset) limiting a net defined benefit asset to the asset

ceiling. The deficit or surplus is: (a) The present value of the defined benefit obligation less (b) The fair value of plan assets (if any).

The asset ceiling Is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

The present value of Is the present value, without deducting any plan a defined benefit assets, of expected future payments required to settle obligation the obligation resulting from employee service in the

current and prior periods. Plan assets comprise: (a) Assets held by a long-term employee benefit

fund; and (b) Qualifying insurance policies.

Assets held by a long- Are assets (other than non-transferable financial term employee benefit instruments issued by the reporting entity) that:

for the post-acquisition change in the investor’s share of the investee’s net assets/equity of the associate or joint venture. The investor’s surplus or deficit includes its share of the investee’s surplus or deficit and the investor’s net assets/equity includes its share of changes in the investee’s net assets/equity that have not been recognized in the investee’s surplus or deficit.

Trial Balance A list of the balances on accounts in the general ledger extracted to ensure that the total debt balances are equal to the total credit balances.

Employee benefits All forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment.

Short-term employee Are employee benefits (other than termination benefits benefits) that are due to be settled wholly before

twelve months after the end of the reporting period in which the employees render the related service.

Post-employment Are employee benefits (other than termination benefits benefits and short-term employee benefits) that are

payable after the completion of employment. Other long-term Are all employee benefits other than short-term employee benefits employee benefits, post-employment benefits and

termination benefits. Termination benefits Are employee benefits provided in exchange for the

termination of an employee’s employment as a result of either: (a) An entity’s decision to terminate an employee’s employment before the normal retirement date; or (b) An employee’s decision to accept an offer of benefits in exchange for the termination of employment.

Post-employment Are formal or informal arrangements under which benefit plans an entity provides post-employment benefits for one

or more employees. Defined contribution Are post-employment benefit plans under which an plans entity pays fixed contributions into a separate entity

(a fund) and will have no legal or constructive


fund (a) Are held by an entity (a fund) that is legally separate from the reporting entity and exists solely to pay or fund employee benefits; and (b) Are available to be used only to pay or fund employee benefits, are not available to the reporting entity’s own creditors (even in bankruptcy), and cannot be returned to the reporting entity, unless either: (i) The remaining assets of the fund are sufficient to meet all the related employee benefit obligations of the plan or the reporting entity; or (ii) The assets are returned to the reporting entity to reimburse it for employee benefits already paid.

A settlement Is a transaction that eliminates all further legal or constructive obligations for part or all of the benefits provided under a defined benefit plan, other than a payment of benefits to, or on behalf of, employees that is set out in the terms of the plan and included in the actuarial assumptions.


SECTION ONE

1.0 Introduction

This is the third edition of the Local Authority Accounting Manual (LAAM). In order to achieve its objective, any manual should narrate in detail step by step the operational procedures and technicalities of the system it intends to operate. This manual, like the earlier 1992 and 2010 editions, intends to achieve this objective by clarifying the step by step accounting functions in the Local Government Authorities.

1.1 Objectives of the LAAM

This Manual seeks to:

(1) Achieve strategic alignment in planning, accounting, management and reporting of the Council financial and other resources.

(2) Promote integrity in Councils’ employees when managing and reporting Councils financial and other resources.

(3) Build future capability of Councils in developing, creating and delivering services.

(4) Achieve cost-effectiveness in the long run of Council service delivery.

1.2 The Drivers for Change

The first version of LAAM was prepared in 1992 being quite a long time for a living profession such as the Local Government Finances and Public Sector Accounting in general. During that period many changes have taken place including the:-

(1) Changes of Legislations (2) Adoption of IPSAS for all Local Authorities in 2009. (3) Technological changes including adoption of accounting

packages, such as Epicor implementation, in Local Government Authorities.

(4) Adoption of planning and reporting systems such as Plan Rep. (5) Introduction of various reporting formats such as Council

Financial Report (CFR) and Council Development Report (CDR).

fund (a) Are held by an entity (a fund) that is legally separate from the reporting entity and exists solely to pay or fund employee benefits; and (b) Are available to be used only to pay or fund employee benefits, are not available to the reporting entity’s own creditors (even in bankruptcy), and cannot be returned to the reporting entity, unless either: (i) The remaining assets of the fund are sufficient to meet all the related employee benefit obligations of the plan or the reporting entity; or (ii) The assets are returned to the reporting entity to reimburse it for employee benefits already paid.

A settlement Is a transaction that eliminates all further legal or constructive obligations for part or all of the benefits provided under a defined benefit plan, other than a payment of benefits to, or on behalf of, employees that is set out in the terms of the plan and included in the actuarial assumptions.


(6) Adoption of Government Financial Statistics (GFS) codes in the Local Authorities Accounting.

1.3 Aim for review of LAAM

The review of the LAAM is intended to achieve the:-

(a) Use of accounting policies for Councils. (b) Fully application of IPSAS. (c) Improve on the quality of the reporting and information at the

Councils.

1.4 Objective of Financial Reporting at Councils

(a) Councils shall provide financial information that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to a Council. When assessing financial information due assessment should be made of the following areas:- (1) Going concern prospects. (2) Current and expected future growth. (3) Cash flows in the areas of: amounts, direction, timing,

uncertainty of (the prospects for) future net cash inflows, currency, ability of generation, ability of retention, and restrictions.

(4) Cost of funds to the Council. (b) To a greater extent the financial reporting at the Councils should give

information about the:- (1) Financial and other resources of the Council; (2) Claims against the Council; and (3) How efficiently and effectively the Council's management and

governing board (Full Council) have discharged their responsibilities to use the Council's resources – including protecting the Council's resources from unfavourable effects of economic factors such as price and technological changes, existence of various policy documents such as risk management policies, delegation of authority, etc.


1.5 The Value of Financial Information at the Councils

Councils shall present financial information that is useful; relevant and faithfully representing what it purports to represent (the fundamental qualities). Hence, it is imperative that Councils’ financial information shall capture both relevance and faithful representation. The usefulness of financial information at the Councils is enhanced if it is comparable, verifiable, timely and understandable.

1.6 Roles and Responsibilities

Roles and responsibilities of key parties at Council level have been clearly stated in the Local Authority Financial Memorandum. The table below outlines some main roles and responsibilities of Council key stakeholders in relation to Accounting and Finance of LGAs.

The table below describes roles and responsibilities of various parties:-

Ministry responsible for Local Government

(a) Responsible for setting policies and guidelines. (b) Responsible for ensuring that there is proper

Accounting & Financial Administration in Local Government Authorities.

(c) Responsible for Management and Maintenance of Financial and Accounting software used by Councils.

(d) Responsible for liaising with MoFP to ensure that any changes in accounting policies and changes in legislation are communicated timely to Councils.

(e) Responsible for revision of the LAAM whenever necessary.

(6) Adoption of Government Financial Statistics (GFS) codes in the Local Authorities Accounting.

1.3 Aim for review of LAAM

The review of the LAAM is intended to achieve the:-

(a) Use of accounting policies for Councils. (b) Fully application of IPSAS. (c) Improve on the quality of the reporting and information at the

Councils.

1.4 Objective of Financial Reporting at Councils

(a) Councils shall provide financial information that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to a Council. When assessing financial information due assessment should be made of the following areas:- (1) Going concern prospects. (2) Current and expected future growth. (3) Cash flows in the areas of: amounts, direction, timing,

uncertainty of (the prospects for) future net cash inflows, currency, ability of generation, ability of retention, and restrictions.

(4) Cost of funds to the Council. (b) To a greater extent the financial reporting at the Councils should give

information about the:- (1) Financial and other resources of the Council; (2) Claims against the Council; and (3) How efficiently and effectively the Council's management and

governing board (Full Council) have discharged their responsibilities to use the Council's resources – including protecting the Council's resources from unfavourable effects of economic factors such as price and technological changes, existence of various policy documents such as risk management policies, delegation of authority, etc.


Ministry of Finance and Planning

(a) Facilitate and coordinate capacity building on financial management at Government levels for uniformity

(b) Determine, manage and maintain accounting software to be used by Councils.

(c) Establish and provide policies, circulars and guidelines related to financial matters and budgeting.

(d) Facilitate preparation, review and management of accounting and financial laws & regulations.

(e) Consolidation of Councils’ Annual Financial Reports.

Regional Secretariat

It is an extended arm of the Ministries (a) Key Council advisors on matters related to

Accounting and Finance (b) Ensure Councils implement policies, laws,

regulations and guidelines related to accounting, financial matters and budgeting.

Council Director

An accounting officer for the Council. (a) Overall supervisor of accounting and financial

management in the Council. (b) Responsible for ensuring proper availability of

skilled and competent accounting/finance personnel.

1.7 Effective DateThis manual shall be in operation with effect from July, 2019


Internal Auditor

Provide assurance and consulting activities in relation to management of internal control systems, risk and Council governance.

Council Treasurer

Chief Financial advisor for all Council financial matters: (a) Implements policies, laws, regulations and

guidelines related to accounting and financial matters at Council level as provided by responsible Ministries

(b) Ensures all Financial Accounting software are fully and appropriately utilized.

Ministry of Finance and Planning

(a) Facilitate and coordinate capacity building on financial management at Government levels for uniformity

(b) Determine, manage and maintain accounting software to be used by Councils.

(c) Establish and provide policies, circulars and guidelines related to financial matters and budgeting.

(d) Facilitate preparation, review and management of accounting and financial laws & regulations.

(e) Consolidation of Councils’ Annual Financial Reports.

Regional Secretariat

It is an extended arm of the Ministries (a) Key Council advisors on matters related to

Accounting and Finance (b) Ensure Councils implement policies, laws,

regulations and guidelines related to accounting, financial matters and budgeting.

Council Director

An accounting officer for the Council. (a) Overall supervisor of accounting and financial

management in the Council. (b) Responsible for ensuring proper availability of

skilled and competent accounting/finance personnel.


SECTION TWO

2.0 Financial Management

The Government plans are to roll out more administrative delegation to the Councils, however, this measure calls for the Councils to assume more responsibility towards managing their affairs. For many years Councils have been facing challenges on management of Council resources. The Government (under the Ministry responsible for Local Government) strives for better and improved financial reporting and management of financial and other resources at the disposal of the Councils. The Government wishes to give emphasis to financial management of Councils’ accounts and development project accounts as the sole responsibility of the Councils. Under the current application of Integrated Financial Management Information Systems (IFMIS), PO-RALG and Regional Secretariats shall have specific roles to play. It shall be the responsibility of the Council to ensure that all funds generated, received or used are properly accounted for, i.e. properly recorded and documented. This part of the LAAM lays down the guiding principles of Council financial accounting and management. 2.1 Objectives of Financial Management Systems

(a) Translate council and the overall Government strategy into decisions and action.

(b) Inform council and Governmental decision making. (c) Encourage state sector to be responsive, efficient and constantly

enhanced.

2.2 Implementation of Accounting Manual at Councils

All Council Departments, LLGs and SPFs shall individually receive the approved accounting manual, adopt it into their operations and implement the key structural elements (budgeting, appropriation process and also accrual reporting).

2.2.1 Roles for Ministry responsible for Local Government

(a) Specify the broad classes of outputs which will be used as basis for accrual based appropriations.


(b) Develop accrual accounting system to provide basis of periodic reporting to Ministry, Treasury and reporting to the Parliament.

(c) Develop cost allocation systems to enable allocation of input costs to outputs which include overhead costs, depreciation and capital charge.

2.2.2 Council’s Roles

(a) Councils shall develop system of cash management and opening of Council bank accounts.

(b) Council Directors shall take full responsibility of financial management and ensure integrity of information provided to ministers and treasury

2.2.3 Role of Ministry of Finance and Planning and Ministry responsible for Local Government

(a) Communicate to Councils the on-going reforms on Public Financial Management.

(b) Develop accounting policy parameters/guidelines to constrain development of Council accounting policies –based on GAAP

(c) Approve readiness of Councils, LLGs and SPFs to move to new accounting systems with Financial Management Assurance terms.

2.3 Accounting Policies, Estimates and Errors

(a) In Tanzania, Councils fall under the Public Sector Entities (PSE) and hence shall comply fully with and use the accrual IPSAS (International Public Sector Accounting Standards). Local Government Authorities (LGA) adopted IPSAS since 2008.

(b) These standards require organisations to set and disclose accounting policies, estimates and judgements used in the preparation of financial statements.

(c) The Government (under the Ministry responsible for Local Government ) strives for comparability of Council financial reporting – comparability is about comparing like with like – as such the Government seeks for universality of accounting policies, judgments and estimates applied by Councils.

(d) Council reporting, in the end, shall conform to the Ministry responsible for Local Government as well as general Government reporting requirements.

SECTION TWO

2.0 Financial Management

The Government plans are to roll out more administrative delegation to the Councils, however, this measure calls for the Councils to assume more responsibility towards managing their affairs. For many years Councils have been facing challenges on management of Council resources. The Government (under the Ministry responsible for Local Government) strives for better and improved financial reporting and management of financial and other resources at the disposal of the Councils. The Government wishes to give emphasis to financial management of Councils’ accounts and development project accounts as the sole responsibility of the Councils. Under the current application of Integrated Financial Management Information Systems (IFMIS), PO-RALG and Regional Secretariats shall have specific roles to play. It shall be the responsibility of the Council to ensure that all funds generated, received or used are properly accounted for, i.e. properly recorded and documented. This part of the LAAM lays down the guiding principles of Council financial accounting and management. 2.1 Objectives of Financial Management Systems

(a) Translate council and the overall Government strategy into decisions and action.

(b) Inform council and Governmental decision making. (c) Encourage state sector to be responsive, efficient and constantly

enhanced.

2.2 Implementation of Accounting Manual at Councils

All Council Departments, LLGs and SPFs shall individually receive the approved accounting manual, adopt it into their operations and implement the key structural elements (budgeting, appropriation process and also accrual reporting).

2.2.1 Roles for Ministry responsible for Local Government

(a) Specify the broad classes of outputs which will be used as basis for accrual based appropriations.


(e) As provided by section 45 of CAP 290 the Ministry responsible for Local Government shall pronounce the procedures and measurements to be applied in the preparations of financial reports which shall include accounting policies, judgements and treatments of estimates and errors by Councils.

(f) This LAAM describes the main accounting policies, estimates and judgements to be applied in accounting for Council revenues, expenditures, assets and liabilities.

(g) Councils shall apply the accounting policy or policies provided by this LAAM to transactions, events or conditions.

2.4 Accrual Principle

(a) Councils shall apply an accrual accounting system in accounting for transactions, events and conditions arising from activities.

(b) System of accounting based on 'accrual principle' is where elements (assets, liabilities, net assets/equity, revenue and expenses) are recognized when they meet the definition and recognition criteria, which is, the element should probably lead to a flow of economic benefits into/out of the Council in future and has cost or fair value that can be measured reliably.

(c) Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements in the periods to which they relate.

2.5 Accounting Records

Councils shall keep proper and appropriate accounting records as required by the laws of the country in a good order and shall use these records to prepare financial and other necessary reports.

2.5.1 Double-Entry Accounting System

(a) Councils shall process each individual transaction using double-entry accounting system through an Approved Applicable Accounting Software supported by the necessary and appropriate accountable document Ministry responsible for Local Government will determine and approve the applicable accounting software as shall be appropriate.

(b) Councils shall prepare and generate the required financial reports using the accounting system in a required IPSAS format and any


periodic reports as required by the Ministry responsible for Local Government and Treasury.

(c) In addition to keep an electronic record of all Council accounts, the accounting journals, LPOs, Bank Pay-in Slips, and payment vouchers shall be committed to paper to accompany the periodic (monthly/quarterly/semi-annual/annual/Phase) financial reports. Furthermore, LLGs and SPFs shall also keep cheque books, cheque leaves, requisition notes, receipts and tickets of any kind.

(d) The Council Treasurer shall be responsible for the safe custody of the Councils’ accountable documents/instruments.

(e) This provides full accountability of the Council’s financial transactions verifiable by the actual transaction documentation filed securely as required in cabinets/strong rooms.

(f) All financial records and documentation shall be archived securely and shall be disposed off following conditions set forth under the Local Government Financial Memorandum.

2.5.2 Source Documents (a) Councils shall record every transaction that takes place on a source

document. (b) Source documents include requisition forms, tax invoices, cash

receipts, petty cash vouchers, service agreements, letters, memos and all other documents that are used to originate or initiate a financial transaction.

2.5.3 Recording Data (a) Councils shall record the relevant details from source documents in

the respective accounting systems in a chronological order. (b) The Council Treasurer must verify if a transaction has been properly

approved before importing the same into the accounting system. (c) LLG and SPFs shall adhere to LLG and FFARS guidelines respectively. 2.5.4 Backup of Accounting System (a) Councils shall back up the IT-based accounting system daily. (b) The location of the storage media shall be different from the Council

Office. (c) Data Files of Council accounting software shall be saved automatically

to the Ministry responsible for Local Government main server. 2.5.5 Chart of Accounts The Chart of Account currently in use has 8 Segment with 30 characters

(e) As provided by section 45 of CAP 290 the Ministry responsible for Local Government shall pronounce the procedures and measurements to be applied in the preparations of financial reports which shall include accounting policies, judgements and treatments of estimates and errors by Councils.

(f) This LAAM describes the main accounting policies, estimates and judgements to be applied in accounting for Council revenues, expenditures, assets and liabilities.

(g) Councils shall apply the accounting policy or policies provided by this LAAM to transactions, events or conditions.

2.4 Accrual Principle

(a) Councils shall apply an accrual accounting system in accounting for transactions, events and conditions arising from activities.

(b) System of accounting based on 'accrual principle' is where elements (assets, liabilities, net assets/equity, revenue and expenses) are recognized when they meet the definition and recognition criteria, which is, the element should probably lead to a flow of economic benefits into/out of the Council in future and has cost or fair value that can be measured reliably.

(c) Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements in the periods to which they relate.

2.5 Accounting Records

Councils shall keep proper and appropriate accounting records as required by the laws of the country in a good order and shall use these records to prepare financial and other necessary reports.

2.5.1 Double-Entry Accounting System

(a) Councils shall process each individual transaction using double-entry accounting system through an Approved Applicable Accounting Software supported by the necessary and appropriate accountable document Ministry responsible for Local Government will determine and approve the applicable accounting software as shall be appropriate.

(b) Councils shall prepare and generate the required financial reports using the accounting system in a required IPSAS format and any


excluding separators. This chart of Account is a unified chart of account which allows the Council to use them in order to simplify comparability.

Segment. No

Segment Components

Character

Description

Clarification

1 Vote 2 Vote A code representing the Region as provided by MoFP. Eg. 72 stand for Dodoma Region

2 Council sub vote

4 Council Each council has its own code as provided by MoFP. e.g. 2003- Dodoma City Council

3 Cost Center 4 Cost center A code representing a sub-vote with a section/department. Eg 507B stand for Primary Education

4 Fund Type 1 Fund Type It is an accounting classification regarding the nature of expenditure, Recurrent and Non-recurrent. E.g 1 stand for Recurrent and 2 for Development

5 Fund Source 1 Fund Source Narrate the provider of funds. Eg. F represent NMSF, Z represent Health Basket Fund


6 Project 4 Project National Projects (e.g Road rehabilitation, construction of irrigation schemes,

7 Activity 6 Activity Activity codes are generated for each target in MTEF on which inputs are identified. It is combination of Objective, Target, Target type and Activity. E.g. B01S03

8 GFS Codes 8 GFS Codes Government Financial Statistic (GFS) Codes. e.g. 22010105 –Per diem domestic

Total 30

72–2003-527B–2–F–5492-A01S01–22010105 Per diem domestic

Interpretation of accounting codes v 72 Represent Dodoma Region v 2003 Represent Dodoma City Council v 508 Represent Health v 2 Represent Development Expenditure v F Represent Funder ( NMSF) v 5492 Represent Tanzania MultSectoral Aids Project v A01S01 Represent Activities v 22010105 Per diem domestic

Councils shall use the Government Financial Statistics code provided by the Ministry of Finance and Planning until directed otherwise by the Ministry responsible for Local Government.

excluding separators. This chart of Account is a unified chart of account which allows the Council to use them in order to simplify comparability.

Segment. No

Segment Components

Character

Description

Clarification

1 Vote 2 Vote A code representing the Region as provided by MoFP. Eg. 72 stand for Dodoma Region

2 Council sub vote

4 Council Each council has its own code as provided by MoFP. e.g. 2003- Dodoma City Council

3 Cost Center 4 Cost center A code representing a sub-vote with a section/department. Eg 507B stand for Primary Education

4 Fund Type 1 Fund Type It is an accounting classification regarding the nature of expenditure, Recurrent and Non-recurrent. E.g 1 stand for Recurrent and 2 for Development

5 Fund Source 1 Fund Source Narrate the provider of funds. Eg. F represent NMSF, Z represent Health Basket Fund


2.6 Foreign Currencies

(a) Undeniably, Councils have various foreign currency transactions including receiving and paying in foreign currency.

(b) Amounts of cash in foreign currency received by the Councils shall be converted into the functional currency of the Councils at the exchange rate ruling on the day the amount is received into the banking system in Tanzania.

(c) The functional currency is the currency unit used for the Councils, which shall be the Tanzania shilling (TZS).

(d) Transactions entered in foreign currency in the course of day-to-day operations shall be translated based on exchange rates ruling on the dates of such transactions.

(e) Exchange differences arising on each transaction shall be recognized in Statement of Financial Performance.

(f) Foreign currency balances at the Council at the reporting date shall be translated into the functional currency (local currency) at the rate of exchange ruling at the reporting date.

(g) Exchange difference arising from translation of the foreign currency balances at the reporting date shall be recognized in the Statement of Financial Performance.

(h) The exchange rate for all other currencies can be obtained from the Bank of Tanzania website.

2.7 Accounting for Payments

(a) Councils shall follow a strict regime of set down procedures and guidelines when making payments to any person.

(b) Details of the procedures and controls for making payments have been elaborated in Section 6 and 7.


SECTION THREE

3.0 Accounting Policies, Estimates and Errors

The main objective in Council financial accounting and management is to achieve comparability in Council reporting. Comparability is achieved when accounting policies and processes of making estimates and judgments and treatment of errors are streamlined and the same for all Councils. 3.1 Universality of Accounting Policies, Estimates and Adjustments

(a) The Government (under the Ministry responsible for Local Government) strives for uniformity in Council financial reporting.

(b) Council reporting, in the end, shall conform to the Ministry responsible for Local Government as well as general Government reporting requirements.

(c) This LAAM describes the main accounting policies, estimates and judgements to be applied in accounting for Council revenues, expenditures, assets and liabilities.

(d) Councils shall apply the accounting policy or policies provided by this LAAM to a transaction, other event or condition.

3.2 In the Absence of a Specific Accounting Policy in the LAAM

(a) As per Local Government Finance Act, CAP 290 the Ministry responsible for Local Government shall pronounce the procedures and measurements to be applied in the preparations of financial reports.

(b) The procedures and measurements in (a) above shall include accounting policies, judgements and treatments of estimates and errors by Councils.

(c) Council management in consultation with Ministry responsible for Local Government shall, in the absence of a specific policy in this LAAM that apply to a transaction, other event or condition, use judgment in developing and applying an accounting policy that results in information that is: (1) Relevant to the decision-making needs of the Council; and (2) Reliable, in that the financial statements of the Council:

(i) Represent faithfully the financial position, financial performance and cash flows of the Council;

(ii) Reflect the economic substance of transactions, other

2.6 Foreign Currencies

(a) Undeniably, Councils have various foreign currency transactions including receiving and paying in foreign currency.

(b) Amounts of cash in foreign currency received by the Councils shall be converted into the functional currency of the Councils at the exchange rate ruling on the day the amount is received into the banking system in Tanzania.

(c) The functional currency is the currency unit used for the Councils, which shall be the Tanzania shilling (TZS).

(d) Transactions entered in foreign currency in the course of day-to-day operations shall be translated based on exchange rates ruling on the dates of such transactions.

(e) Exchange differences arising on each transaction shall be recognized in Statement of Financial Performance.

(f) Foreign currency balances at the Council at the reporting date shall be translated into the functional currency (local currency) at the rate of exchange ruling at the reporting date.

(g) Exchange difference arising from translation of the foreign currency balances at the reporting date shall be recognized in the Statement of Financial Performance.

(h) The exchange rate for all other currencies can be obtained from the Bank of Tanzania website.

2.7 Accounting for Payments

(a) Councils shall follow a strict regime of set down procedures and guidelines when making payments to any person.

(b) Details of the procedures and controls for making payments have been elaborated in Section 6 and 7.


events and conditions and not merely the legal form; (iii) Are neutral i.e., free from bias; (iv) Are prudent; and (v) Are complete in all material aspects.

3.3 Change in Accounting Policy and Disclosure

(a) Council shall not change any accounting policy contained in this LAAM unless that change is required by a new IPSAS.

(b) Any change in accounting policy, (a) above notwithstanding, shall only be made after consultation with the Ministry responsible for Local Government.

(c) The Ministry responsible for Local Government shall issue a new accounting policy or amend an existing accounting policy and avail the same to Councils.

3.4 Application of a New Standard

(a) New IPSAS issued shall automatically be part of this LAAM and Councils shall apply them prospectively (see (b) (6) and (7) below).

(b) When an initial application of an IPSAS has an effect on the current period or any prior period, would have such an effect except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, Council shall disclose: (1) The title of the Standard; (2) When applicable, the change in accounting policy made in

accordance with its transitional provisions; (3) The nature of the change in accounting policy; (4) When applicable, a description of the transitional provisions; (5) When applicable, the transitional provisions that might have an

effect on future periods; (6) For the current period and each prior period presented (a) above

notwithstanding, to the extent practicable, the amount of the adjustment for each financial statement line item affected;

(7) The amount of the adjustment relating to periods before those presented (a) above notwithstanding, to the extent practicable. Provided that: If retrospective application required by this paragraph is impracticable for a particular prior period, or for periods before those presented, a Council shall disclose the circumstances that


led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

(c) Financial statements of subsequent periods need not repeat these disclosures.

3.5 Disclosure of Changes in Estimates

(a) A Council shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect on future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect.

(b) A Council shall disclose the fact that the amount of the effect in future periods is not disclosed because it is impracticable to estimate the amount of the effect.

3.6 Disclosure of Prior Period Errors

(a) A Council shall disclose the following with respect to Retrospective Correction of Prior Period Errors:

(1) The nature of the prior period error; (2) For each prior period presented, to the extent practicable, the

amount of the correction for each financial statement line item affected;

(3) The amount of the correction at the beginning of the earliest prior period presented. Provided that: If retrospective restatement is impracticable for a particular prior period, a Council shall disclose the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected.

(b) Financial statements of subsequent periods need not repeat these disclosures.

events and conditions and not merely the legal form; (iii) Are neutral i.e., free from bias; (iv) Are prudent; and (v) Are complete in all material aspects.

3.3 Change in Accounting Policy and Disclosure

(a) Council shall not change any accounting policy contained in this LAAM unless that change is required by a new IPSAS.

(b) Any change in accounting policy, (a) above notwithstanding, shall only be made after consultation with the Ministry responsible for Local Government.

(c) The Ministry responsible for Local Government shall issue a new accounting policy or amend an existing accounting policy and avail the same to Councils.

3.4 Application of a New Standard

(a) New IPSAS issued shall automatically be part of this LAAM and Councils shall apply them prospectively (see (b) (6) and (7) below).

(b) When an initial application of an IPSAS has an effect on the current period or any prior period, would have such an effect except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, Council shall disclose: (1) The title of the Standard; (2) When applicable, the change in accounting policy made in

accordance with its transitional provisions; (3) The nature of the change in accounting policy; (4) When applicable, a description of the transitional provisions; (5) When applicable, the transitional provisions that might have an

effect on future periods; (6) For the current period and each prior period presented (a) above

notwithstanding, to the extent practicable, the amount of the adjustment for each financial statement line item affected;

(7) The amount of the adjustment relating to periods before those presented (a) above notwithstanding, to the extent practicable. Provided that: If retrospective application required by this paragraph is impracticable for a particular prior period, or for periods before those presented, a Council shall disclose the circumstances that


SECTION FOUR

4.0 ICT Guidelines for Council Reporting

The long term objective of the government is to have all management information systems computerized to improve the timing and quality of information flow, lower the cost of service provision and, improve decision making processes at all government levels, ensure transparency, facilitating internal controls and enforcing risk management strategies. To achieve these objectives, proper guidelines and directives must be in place to provide direction on best practice to manage the available systems. 4.1 Aim of the Council ICT Guidelines

The aims of LGAs ICT guidelines for Council Reporting are:- (a) To achieve a strategic alignment between ICT and business objectives

of LGAs. (b) To enhance integrity of the derived and reported financial

management information and reporting for better and informed decision-making.

(c) To enhance uniformity in managing and administering financial management systems at LGAs.

(d) To foster confidentiality and availability of Information Systems at all levels of Ministry responsible for Local Government.

(e) To improve efficiency in all business processes.

4.2 Driver for Success in Council Reporting

Any information system success and failure depend on three key drivers. The drivers for success are People, Process and Technology – the tool is only as good as the Processes that wrap around it, and the Processes are only as good as the People that use them.

4.2.1 People

(a) People take central role for success or failure of Information Systems hence, accounting and reporting systems at the LGAs need people with qualification, experience, right attitude, innovation capability and those who are able to work as a team.


(b) Moreover, without senior management buy-in, coordination and commitment, proven technology and mature processes will fail.

4.2.2 Process

(a) The processes refer to business goals or needs that must be considered to help drive successful changes in business.

(b) Well-defined financial accounting and reporting processes at LGAs are needed to achieve mature financial accounting, reporting and accountability of financial data.

(c) Mature financial accounting processes needs to be aligned and mapped with technology supporting them and LGA staff who control both technology and these processes.

(d) The financial accounting and reporting process includes operations and guidelines, activities and work instructions, roles and performance measure definitions to mention a few.

4.2.3 Technology

Technology act as an enabler of business processes and contributes towards the success of Financial Accounting and Reporting Information Systems at LGAs.

| pg 53 PO-RALG

10%

70%

20%

PROCESS

PEOPLE

TECHNOLOGY

§  Technology – Database, Network, Infrastructure, Data mining and Analysis, Automation Standards

§  Process – Workflows, Plans and Budget, Policies and Standard

§  People – Att i tudes, Sharing, Innovation, Skills, Team work, M o t i v a t i o n , S u p p o r t a n d Communication, coordination

SUCCESSOFICTSYSTEM

SECTION FOUR

4.0 ICT Guidelines for Council Reporting

The long term objective of the government is to have all management information systems computerized to improve the timing and quality of information flow, lower the cost of service provision and, improve decision making processes at all government levels, ensure transparency, facilitating internal controls and enforcing risk management strategies. To achieve these objectives, proper guidelines and directives must be in place to provide direction on best practice to manage the available systems. 4.1 Aim of the Council ICT Guidelines

The aims of LGAs ICT guidelines for Council Reporting are:- (a) To achieve a strategic alignment between ICT and business objectives

of LGAs. (b) To enhance integrity of the derived and reported financial

management information and reporting for better and informed decision-making.

(c) To enhance uniformity in managing and administering financial management systems at LGAs.

(d) To foster confidentiality and availability of Information Systems at all levels of Ministry responsible for Local Government.

(e) To improve efficiency in all business processes.

4.2 Driver for Success in Council Reporting

Any information system success and failure depend on three key drivers. The drivers for success are People, Process and Technology – the tool is only as good as the Processes that wrap around it, and the Processes are only as good as the People that use them.

4.2.1 People

(a) People take central role for success or failure of Information Systems hence, accounting and reporting systems at the LGAs need people with qualification, experience, right attitude, innovation capability and those who are able to work as a team.


4.3 ICT Strategic Planning at Councils

(a) Councils shall formulate and operate ICT strategic plans that are aligned with main ICT strategic plan of the Ministry responsible for Local Government.

(b) An information technology strategic plan at Councils is a document that details the comprehensive technology-enabled business management processes a Council shall use to guide operations, serving as a guide to ICT-related decision making, with ICT tasks prioritized and implemented using the plan as a framework.

(c) Councils shall use ICT strategic plan as roadmap to help them implement the ICT strategies focused on best use of technology resources that will help them succeed in delivering services to their constituencies.

(d) Councils shall align their ICT strategic plans with their goals and missions, but make them pliable enough to accommodate new Council priorities and technologies that have potential for driving Council service delivery.

(e) Councils ICT teams shall know the Council priorities and shall identify the ICT projects that Councils should invest in, with the ICT strategic plans delineating what has to be done, in what priority and how the plan’s success will be measured.

4.3.1 Components of an ICT strategic plan

(a) Council ICT strategic plan shall outline a mission statement stating how the ICT strategy relates to Council’s overall objectives.

(b) Council ICT strategic plan shall review the Council’s strategic plan identifying the areas where the use of technology can improve operations.

(c) Council ICT strategic plan shall include a SWOT analysis of Council strengths, weaknesses, opportunities and threats to identify both internal and external factors that can affect ICT’s ability to contribute to the Council’s success – this process will also help analyze the gap between where the ICT department currently is in achieving its goals and what it wants to achieve, and identify the barriers and resources needed to bridge the gap.

(d) Council ICT strategic plan shall be clear about its ultimate goals, including a list of technology investments that the ICT department


deems a priority to contribute to the Council’s success, evaluating the Council’s ICT budget and allocate project-specific resources and responsibilities within the ICT department to meet the objectives.

4.4 Data Retention at Councils

(a) Councils shall store or retain all financial data as stipulated in Local Government Finance Act Cap. 290.

(b) Councils shall make backups of financial data on a daily, weekly, monthly and yearly basis as per Council Disaster Recovery Plan.

(c) Notwithstanding (a) and (b) above, the backup of financial data shall be maintained by the Ministry responsible for Local Government for the case of centrally installed accounting system and the Council for the case of locally installed accounting system.

4.5 Disaster Recovery at Councils

(a) The Ministry responsible for Local Government shall develop and implement a Disaster Recovery Plan to ensure business continuity in case of partial or total system failure, including having an operational Disaster Recovery Site for the case where the accounting system is centrally deployed.

(b) Councils shall be responsible to develop and implement a Disaster Recovery Plan to ensure business continuity in case of partial or total system failure, including having an operational Disaster Recovery Site, for the case where the accounting system is locally deployed.

4.6 The Council ICT Infrastructure

(a) A Council ICT infrastructure shall consist of Local Area Network (LAN), Router, Switches, Firewall, Workstations and UPS, Printers and supporting operating systems and software.

(b) A Council ICT infrastructure shall be installed as per standards provided by the Ministry responsible for Local Government to ensure reliability, maintainability and uniformity across Councils.

4.7 Technical Support for LGA Financial Management Systems

(a) Technical support aims at offering resolve to Local Authorities users of IT systems managed by Ministry responsible for Local Government.

4.3 ICT Strategic Planning at Councils

(a) Councils shall formulate and operate ICT strategic plans that are aligned with main ICT strategic plan of the Ministry responsible for Local Government.

(b) An information technology strategic plan at Councils is a document that details the comprehensive technology-enabled business management processes a Council shall use to guide operations, serving as a guide to ICT-related decision making, with ICT tasks prioritized and implemented using the plan as a framework.

(c) Councils shall use ICT strategic plan as roadmap to help them implement the ICT strategies focused on best use of technology resources that will help them succeed in delivering services to their constituencies.

(d) Councils shall align their ICT strategic plans with their goals and missions, but make them pliable enough to accommodate new Council priorities and technologies that have potential for driving Council service delivery.

(e) Councils ICT teams shall know the Council priorities and shall identify the ICT projects that Councils should invest in, with the ICT strategic plans delineating what has to be done, in what priority and how the plan’s success will be measured.

4.3.1 Components of an ICT strategic plan

(a) Council ICT strategic plan shall outline a mission statement stating how the ICT strategy relates to Council’s overall objectives.

(b) Council ICT strategic plan shall review the Council’s strategic plan identifying the areas where the use of technology can improve operations.

(c) Council ICT strategic plan shall include a SWOT analysis of Council strengths, weaknesses, opportunities and threats to identify both internal and external factors that can affect ICT’s ability to contribute to the Council’s success – this process will also help analyze the gap between where the ICT department currently is in achieving its goals and what it wants to achieve, and identify the barriers and resources needed to bridge the gap.

(d) Council ICT strategic plan shall be clear about its ultimate goals, including a list of technology investments that the ICT department


(b) Ministry responsible for Local Government systems support is divided into two categories known as Technical and Application Support.

(c) Within each category of support there shall be three support levels named level 1, level 2 and level 3 mapped in accordance to the way the three tier of the Ministry responsible for Local Government.

(d) The reason for providing a multi-tiered support system instead of one general support group is to provide the best possible service in the most efficient possible manner.

(e) Level 1 support shall be provided at LGA level, level 2 support at Regional Secretariat level and level 3 at Ministry responsible for Local Government HQ.

(f) Requests for support in financial management systems will be initiated at level 1 before channelled to level 2 and escalated to level 3 as the final stage of support.

4.8 ICT Policies and Guidelines

(a) Councils shall adopt or adapt the ICT policies and guidelines from the Ministry responsible for Local Government to ensure uniformity and interoperability of ICT infrastructure and systems across Councils and the Ministry responsible for Local Government.

(b) Councils shall be provided with an electronic or hard copy of an ISO handbook (Ministry responsible for Local Government ICT Procedures, Guidelines & Policies).

(c) Councils are responsible to go through, understand and ensure that the policies, guidelines and procedures are distributed and understood by all Council staff.

4.9 General Security and Compliance

Overall management of IFMIS must be adhered to national and international ICT security standards, policies, and procedures. The LAAM ICT chapter should be ready and implemented together with above decrees.

4.9.1 The General Security and Compliance Dos for LGA Staff

(a) Council shall grant access to IFMIS basing on provided official request, IS policies, and user matrix of a particular system.

(b) Council shall, where applicable, grant access to IFMIS individuals with privilege to access IFMIS on a need to know basis.

(c) Council shall review access to IFMIS from time to time.


(d) Council staff have primary responsibility for management of network infrastructure that provide access to IFMS.

(e) Council IFMIS users must log off from their connection sessions or turn off their PCs when they plan to be away from their terminals.

(f) Council IFMIS users must create passwords that are a minimum of eight (8) characters in length, and be comprised of letters, numbers, and special characters to the extent possible.

(g) Council staff must take a backup copy of data for systems hosted at their area of responsibilities.

4.9.2 The General Security and Compliance Don’ts for LGA Staff (a) Council Staff shall not use the available Ministry responsible for Local

Government WAN infrastructure for non-official use. (b) Council computers that are used to access IFMS shall not be connected

to the Internet unless it is a requirement. (c) Council hard drives of computers that are used to access IFMS shall

not be used as storage for movies, software and all that are not related to their intended purpose.

(d) Council shall not allow the installation of non-authorised software on computers accessing IFMS.

(e) Council Staff shall not connect removable storages that contains viruses in IFMS network infrastructure knowingly.

(f) Council staff with access to IFMIS shall not share User Accounts with anybody.

(g) Individuals who are not employees of LGAs are prohibited to access ICT equipment that facilitate accessibility of financial management systems. When they do so, they must be accompanied by LGA staff.

(b) Ministry responsible for Local Government systems support is divided into two categories known as Technical and Application Support.

(c) Within each category of support there shall be three support levels named level 1, level 2 and level 3 mapped in accordance to the way the three tier of the Ministry responsible for Local Government.

(d) The reason for providing a multi-tiered support system instead of one general support group is to provide the best possible service in the most efficient possible manner.

(e) Level 1 support shall be provided at LGA level, level 2 support at Regional Secretariat level and level 3 at Ministry responsible for Local Government HQ.

(f) Requests for support in financial management systems will be initiated at level 1 before channelled to level 2 and escalated to level 3 as the final stage of support.

4.8 ICT Policies and Guidelines

(a) Councils shall adopt or adapt the ICT policies and guidelines from the Ministry responsible for Local Government to ensure uniformity and interoperability of ICT infrastructure and systems across Councils and the Ministry responsible for Local Government.

(b) Councils shall be provided with an electronic or hard copy of an ISO handbook (Ministry responsible for Local Government ICT Procedures, Guidelines & Policies).

(c) Councils are responsible to go through, understand and ensure that the policies, guidelines and procedures are distributed and understood by all Council staff.

4.9 General Security and Compliance

Overall management of IFMIS must be adhered to national and international ICT security standards, policies, and procedures. The LAAM ICT chapter should be ready and implemented together with above decrees.

4.9.1 The General Security and Compliance Dos for LGA Staff

(a) Council shall grant access to IFMIS basing on provided official request, IS policies, and user matrix of a particular system.

(b) Council shall, where applicable, grant access to IFMIS individuals with privilege to access IFMIS on a need to know basis.

(c) Council shall review access to IFMIS from time to time.


SECTION FIVE

5.0 Organizational Setup of the Council Reporting Framework

(a) The Council Director shall become single point of contact between the Council and the Ministry responsible for Local Government.

(b) The Council Treasurer shall be responsible in setting-up the staffing of Finance and Trade Department.

5.1 Office Prerequisites

At the minimum Councils are expected to have the following:

(a) Internet Connection. (b) Safe (c) Electricity back-up system, either generator or solar panels. (d) Security services.

5.2 Management of the Field Archives

(a) During its life the Council will generate documents in various forms. (b) It is imperative that the Council ensures that the principles and

guidelines contained in this manual are equally applied to all the documents generated and stored by the Council.

(c) The term Field Archives is defined as the sum of all documents collected on-site by the Councils during their entire existence.

5.2.1 Definitions Document Categories

(a) Documents concerning the organisation and the functioning of the Council: procedures, norms, manuals, administrative guidelines, official agreements regulating the Council and any other related documents.

(b) Contractual and legal documents signed at Council: works and supply contracts, employment contracts, lease contracts, service contracts (telephone, electricity and various services), insurances and other related contract.

(c) Accounting documents and all documents justifying Council expenses: Cheque books, accountancy books and documents, all bills and supporting documents, budgets, inventories, etc.


(d) Administrative documents linked to tasks and activities: mail, tenders for works, supply and services contracts, etc.

(e) Files in electronic format. (f) Technical documents linked to tasks and activities of the Council:

technical files (including plans, etc.), consultants’ reports, mission reports, photographic files, etc.

(g) Reference documents: information documents, prospectus, documentation about the institutions, etc.

(h) Over all Council documentation : all documents produced and established during the existence of the Council.

5.2.3 Management Modalities

(a) All financial records and documentation shall be archived securely and shall be disposed off following conditions set forth under the Local Government Financial Memorandum/Regulation.

(b) In case documents cannot be stored at the Council, they have to be archived at the Regional Commissioner’s Office or the Ministry responsible for Local Government/National Archive.

(c) A good sorting of the archives to eliminate rough drafts, surplus copies, mail or any other kind of document which has no direct relation with the Council itself (invitations, convocations, circulars, transmission files, etc.) is essential before any decision is taken concerning the transfer of the archives.

(d) Electronic files shall be transferred after sorting and their content stored on CDs or any other floppy devices.

(e) Alternative options in the handling of archives have to be discussed. Whatever the method chosen, a short inventory of the archives (which indicate their location) has to be established and kept at the Council when applicable.

(f) A copy of this inventory shall be sent to the Ministry responsible for Local Government before proceeding to the actual archiving.

(g) Based on this, the Ministry responsible for Local Government can ensure that the documents deemed indispensable shall stay in its possession.

5.2.4 Archive Storage

(a) Council shall ensure that they have access to specific and suitable premises for the safekeeping of archives when required.

(b) Council shall in particular make sure that storage conditions are

SECTION FIVE

5.0 Organizational Setup of the Council Reporting Framework

(a) The Council Director shall become single point of contact between the Council and the Ministry responsible for Local Government.

(b) The Council Treasurer shall be responsible in setting-up the staffing of Finance and Trade Department.

5.1 Office Prerequisites

At the minimum Councils are expected to have the following:

(a) Internet Connection. (b) Safe (c) Electricity back-up system, either generator or solar panels. (d) Security services.

5.2 Management of the Field Archives

(a) During its life the Council will generate documents in various forms. (b) It is imperative that the Council ensures that the principles and

guidelines contained in this manual are equally applied to all the documents generated and stored by the Council.

(c) The term Field Archives is defined as the sum of all documents collected on-site by the Councils during their entire existence.

5.2.1 Definitions Document Categories

(a) Documents concerning the organisation and the functioning of the Council: procedures, norms, manuals, administrative guidelines, official agreements regulating the Council and any other related documents.

(b) Contractual and legal documents signed at Council: works and supply contracts, employment contracts, lease contracts, service contracts (telephone, electricity and various services), insurances and other related contract.

(c) Accounting documents and all documents justifying Council expenses: Cheque books, accountancy books and documents, all bills and supporting documents, budgets, inventories, etc.


suitable (proper protection against humidity, theft, insects and other nuisances).

(c) Council shall also investigate the local recycling possibilities for the final disposal of the archives.

(d) Council shall agree with the Ministry responsible for Local Government on all aspects of storage and transfer of archives.

5.3 Basic Accounting Documents

(a) Basic accounting documents in Councils are those which form the basis for initiating most accounting transactions.

(b) These documents fall under three categories; receipts, payments documents and order forms.

(c) The forms shall be supported within, generated and worked within the IFMIS.

5.3.1 Receipts

(a) A receipt is an official acknowledgement of money received. (b) As a matter of principle every acceptance of public money must be

acknowledged by means of an appropriate and approved receipt. (c) All Councils are required to issue electronic receipts in acknowledging

of all monies received. (d) The term “receipt” includes all formal receipts, licenses, tickets,

stickers and any other official document used in connection with the collection of public money and issued upon the authority of the Council/Central Government.

(e) All sources of revenue shall be coded appropriately to assist in identification, analysis and proper accounting of revenue collected.

(f) All receipts shall be generated automatically within Council IFMIS.

5.3.2 The Payment Voucher

(a) A voucher is any document that serves as evidence of authority to pay cash or as evidence that cash has been paid, used as an action sheet for processing payment.

(b) Payment vouchers must contain adequate explanation of the payments being made, and the authority on which they are paid, e.g. references of payment orders, minutes, and files carrying relevant


correspondence. Source documents such as LPOs, Invoices, and goods received notes should be attached.

(c) All vouchers shall be prepared and automatically generated from the accounting system (IFMIS).

(d) The voucher shall have the following information: (1) Name of the paying organization (Council, Village, School,

Hospital, Health Facilities). (2) A unique reference number. (3) The voucher date. (4) The payee name and address. (5) Description of payment. (6) Name, signature and date of the preparer, originator and person

authorizing payment. (7) Mode of payment (if by cheque, or direct electronic transfer). (8) The bank account to be credited. (9) Column for total amount in figures and words. (10) The vote, sub vote and item number.

5.3.3 Authorization Sheet

(a) Councils shall list all the people at the Council allowed to authorize payments and their limits.

(b) This list shall be made available to all persons involved in making payments.

5.3.4 Bank Account Overview

(a) Councils shall prepare a summary for all their bank accounts. (b) The summary shall show the details of the bank accounts and

approved signatories. 5.3.5 Bank Account Control Sheet

(a) Councils shall prepare a bank account control sheet for each bank account they have.

(b) Councils shall show all transactions, debit and credit, made into the bank account for the reporting month.

(c) In the end the balance in the Bank Account Control sheet shall be the

suitable (proper protection against humidity, theft, insects and other nuisances).

(c) Council shall also investigate the local recycling possibilities for the final disposal of the archives.

(d) Council shall agree with the Ministry responsible for Local Government on all aspects of storage and transfer of archives.

5.3 Basic Accounting Documents

(a) Basic accounting documents in Councils are those which form the basis for initiating most accounting transactions.

(b) These documents fall under three categories; receipts, payments documents and order forms.

(c) The forms shall be supported within, generated and worked within the IFMIS.

5.3.1 Receipts

(a) A receipt is an official acknowledgement of money received. (b) As a matter of principle every acceptance of public money must be

acknowledged by means of an appropriate and approved receipt. (c) All Councils are required to issue electronic receipts in acknowledging

of all monies received. (d) The term “receipt” includes all formal receipts, licenses, tickets,

stickers and any other official document used in connection with the collection of public money and issued upon the authority of the Council/Central Government.

(e) All sources of revenue shall be coded appropriately to assist in identification, analysis and proper accounting of revenue collected.

(f) All receipts shall be generated automatically within Council IFMIS.

5.3.2 The Payment Voucher

(a) A voucher is any document that serves as evidence of authority to pay cash or as evidence that cash has been paid, used as an action sheet for processing payment.

(b) Payment vouchers must contain adequate explanation of the payments being made, and the authority on which they are paid, e.g. references of payment orders, minutes, and files carrying relevant


same as the balances in the IFMIS and Bank Statement. (d) The Bank Account Control sheet shall be printed signed by Accountant

who prepared it together with Council Treasurer, and attached to the bank reconciliation statement for the month.

5.3.6 Bank Reconciliation Statement

(a) A bank reconciliation statement reconciles cash at bank balance at the end of the month as reported in the accounting system with the cash at bank balance in the bank statement.

(b) A bank reconciliation statement is available in the IFMIS and is prepared after carrying out a reconciliation of the bank balance in the accounting system and bank balance in the bank statement.

5.3.7 Standard Journal Voucher

(a) All corrections and adjusting entries at the Council shall be passed through a standard Journal Voucher.

(b) At the minimum the standard journal voucher shall have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facility). (2) Name of the voucher: Journal Voucher. (3) The voucher number filled in automatically by the IFMIS. (4) Date filled in automatically by the IFMIS. (5) A column for serial numbers filled in automatically by the IFMIS. (6) A column for entering description/particulars of the accounts. (7) A column for account codes. (8) A column for debit entries. (9) A column for credit entries. (10) A space for entering the narration of the transaction. (11) Name, signature and date of the preparer, Council Treasurer and

Council Director. 5.3.8 Petty Cash Voucher

(a) All payments made in cash shall be recorded on petty cash vouchers. (b) All supporting documents, such as receipts, shall be attached on the

voucher.


(c) The vouchers shall be dated and serially numbered automatically by the IFMIS.

(d) At the minimum the petty cash voucher shall have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities). (2) Name of the voucher: Petty Cash Voucher. (3) The voucher number. (4) Date of the voucher. (5) Payee to the amount on the voucher. (6) Amount that is being paid in figures. (7) Amount that is being in words. (8) Description of the nature of the expenditure(s) being made. (9) Account/budget code of the expenditure(s). (10) Name of the Cashier/authorizing person and signature. (11) Name of the payee and signature.

5.3.9 Cash Reconciliation Statement

(a) A cash reconciliation statement reconciles cash in hand balance in the system and physical balance in the cash box.

(b) A cash reconciliation statement is prepared at the start of the first day of each month before any operations have taken place.

(c) A cash reconciliation statement is stamped and filed with other monthly reports.

(d) A cash reconciliation statement shall have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities) (2) The month and year it covers (3) The balance of cash as per accounting system (4) The balance of cash as per physical count (5) The difference (if any), which should be explained (6) A column for denomination of cash in the till box (7) A column for quantity of each denomination in the till box (8) A column for value of each denomination in the till box (9) Total value of cash in the till box as per physical count (10) Name, signature and date of the preparer, Council Treasurer and

Council Director.

same as the balances in the IFMIS and Bank Statement. (d) The Bank Account Control sheet shall be printed signed by Accountant

who prepared it together with Council Treasurer, and attached to the bank reconciliation statement for the month.

5.3.6 Bank Reconciliation Statement

(a) A bank reconciliation statement reconciles cash at bank balance at the end of the month as reported in the accounting system with the cash at bank balance in the bank statement.

(b) A bank reconciliation statement is available in the IFMIS and is prepared after carrying out a reconciliation of the bank balance in the accounting system and bank balance in the bank statement.

5.3.7 Standard Journal Voucher

(a) All corrections and adjusting entries at the Council shall be passed through a standard Journal Voucher.

(b) At the minimum the standard journal voucher shall have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facility). (2) Name of the voucher: Journal Voucher. (3) The voucher number filled in automatically by the IFMIS. (4) Date filled in automatically by the IFMIS. (5) A column for serial numbers filled in automatically by the IFMIS. (6) A column for entering description/particulars of the accounts. (7) A column for account codes. (8) A column for debit entries. (9) A column for credit entries. (10) A space for entering the narration of the transaction. (11) Name, signature and date of the preparer, Council Treasurer and

Council Director. 5.3.8 Petty Cash Voucher

(a) All payments made in cash shall be recorded on petty cash vouchers. (b) All supporting documents, such as receipts, shall be attached on the

voucher.


5.3.10 Cash Advance Application Form

(a) A cash advance application form is filled by Council staff when applying for cash advance or imprest.

(b) This summarizes information that is contained in the Cash Advance Request Form (Form 5.3.20) or Requisition Form (Form 5.3.21).

(c) At the minimum advance/imprest application form will have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities) (2) Name of the Staff (3) Date of cash advance request (4) Amount requested in figures (5) Amount requested in words (6) Words to the effect that the staff has no unretired previous cash

advances or imprest (7) Signature of the CT to the effect of the words in (5) above. (8) Signature of the requesting staff. (9) Signature of the CD approving the request.

5.3.11 Cash Advance Retirement Form

(a) A cash advance retirement form is filled by Council staff when accounting for cash advance or imprest given.

(b) It shall be attached with all supporting documents. (c) At the minimum advance/imprest retirement form will have the

following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities) (2) Name of the Staff (3) Place of accounted activity (4) Dates covered by the activity (5) Functions accounted for by the staff (6) A column for the days of said activity (7) A column for place where the activity took place (8) Columns for expenses, which will be used to pass entries into the

IFMIS (9) Column for the totals for each day and for the whole period


(10) Name, signature and date of the staff (11) Name, signature of the approving Council officer

5.3.12 Monthly Time Sheet for Time based payments

(a) A monthly time sheet is a form that controls the use of time for payment.

(b) The time sheet is filled by the supervisor for each working day. (c) At the minimum a time sheet will have the following information:

(1) Name of the organization (Council, Village, School, Hospital, Health Facilities)

(2) Name of the supervisor (3) Position of the supervisor at the Council (4) Name of the staff and position (5) Days of the month of reporting (6) Functions to be reported by the supervisor (7) Total of the hours worked for each day, function, and week (8) Name, signature and date of the approving Council officer

5.3.13 Non-current (Fixed) Assets Register

(a) A non-current (fixed) asset register is a record of all non-current (fixed) assets that the Council owns during any reporting period.

(b) Record the following details on a Non-current (Fixed) Asset Register: (i) Description, make, model, serial number. (ii) Supplier/Donor details. (iii) Economic life as determined by Ministry responsible for Local

Government from time to time. (iv) Cost in foreign currency and local currency, including

installation and trial run expenses. (v) Location. (vi) Date and year of Purchase. (vii) Disposal details. (viii) Additions during the year (ix) Depreciation during the year (x) Accumulated Depreciation (xi) Impairment Loss during the year (xii) Accumulated Impairment Loss

5.3.10 Cash Advance Application Form

(a) A cash advance application form is filled by Council staff when applying for cash advance or imprest.

(b) This summarizes information that is contained in the Cash Advance Request Form (Form 5.3.20) or Requisition Form (Form 5.3.21).

(c) At the minimum advance/imprest application form will have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities) (2) Name of the Staff (3) Date of cash advance request (4) Amount requested in figures (5) Amount requested in words (6) Words to the effect that the staff has no unretired previous cash

advances or imprest (7) Signature of the CT to the effect of the words in (5) above. (8) Signature of the requesting staff. (9) Signature of the CD approving the request.

5.3.11 Cash Advance Retirement Form

(a) A cash advance retirement form is filled by Council staff when accounting for cash advance or imprest given.

(b) It shall be attached with all supporting documents. (c) At the minimum advance/imprest retirement form will have the

following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities) (2) Name of the Staff (3) Place of accounted activity (4) Dates covered by the activity (5) Functions accounted for by the staff (6) A column for the days of said activity (7) A column for place where the activity took place (8) Columns for expenses, which will be used to pass entries into the

IFMIS (9) Column for the totals for each day and for the whole period


(xiii) Carrying amount of asset at end of reporting period 5.3.14 Pay List

(a) The bank pay list will list all payments to be made through the banking system through cheques.

(b) The list shall show: (1) The name of Council/LLG/SPF (2) The date the list is prepared (3) The name of payee (4) The amount to be paid (5) The number of the cheque (6) The reason for payment (7) Date cheque is taken and signature

5.3.15 Contract Register

(a) Councils shall maintain contract registers within IFMIS and the responsible officer shall be the Head of Procurement Management Unit.

(b) All contracts, construction, consultancy, leasing, etc., shall be managed within the Contract Register.

(c) The register shall have the following information: (1) Contract Year. (2) Type of contract. (3) Contract Number. (4) Description of the contract. (5) Contractor. (6) Contract (signed) date. (7) Contract start date and Contract end date. (8) Contract sum and currency (stating if VAT inclusive or

otherwise). (9) Commentary (stating how much is VAT exclusive price and

what is the amount of VAT). (10) Amendments – additions and deductions. (11) Amounts paid and dates paid. (12) Balance remaining unpaid.


5.3.16 Contractors’ Payments Calculation

(a) Councils shall maintain contractors’ payments calculator within IFMIS and the responsible officer shall be the Head of Procurement Management Unit (HoPMU).

(b) Before any payment to a contractor the HoPMU shall calculate how much shall be payable on the contract and match that to the amount in the Certificate of Work Certified presented by the supervising engineer.

(c) The following general information shall be displayed: (1) Description of the contract, where it is being implemented and

number. (2) Name of Contractor. (3) The description of the payment, if advance, first payment,

second payment, etc. (4) Contractor’s invoice value submitted to the Council, which shall

be the amount in the Certificate of Work Certified, inclusive of VAT.

(5) Amount payable by the Council exclusive of VAT. (6) Amount of VAT in the payment. (7) Liquidated damages on the contract. (8) Balance on the contract, inclusive and exclusive of VAT (9) Balance of VAT on the contract.

(d) The calculator shall have the following information: (1) Value of work done certified as at the date of calculation. (2) Retention money on the payment. (3) All previous payments made on the contract. (4) Amount of advance on the contract recovered. (5) Amount that shall be paid.

5.3.17 Certificate of Payment

(e) Supervising engineers shall prepare this form on the basis of approved calculations and their own works analyses.

(f) The supervising engineer shall submit to the HoPMU the value of work certified to that date in order to calculate the amount to be paid at that stage.

(g) After checking the calculation the supervising engineer shall inform the contractor who shall submit invoice to that amount.

(xiii) Carrying amount of asset at end of reporting period 5.3.14 Pay List

(a) The bank pay list will list all payments to be made through the banking system through cheques.

(b) The list shall show: (1) The name of Council/LLG/SPF (2) The date the list is prepared (3) The name of payee (4) The amount to be paid (5) The number of the cheque (6) The reason for payment (7) Date cheque is taken and signature

5.3.15 Contract Register

(a) Councils shall maintain contract registers within IFMIS and the responsible officer shall be the Head of Procurement Management Unit.

(b) All contracts, construction, consultancy, leasing, etc., shall be managed within the Contract Register.

(c) The register shall have the following information: (1) Contract Year. (2) Type of contract. (3) Contract Number. (4) Description of the contract. (5) Contractor. (6) Contract (signed) date. (7) Contract start date and Contract end date. (8) Contract sum and currency (stating if VAT inclusive or

otherwise). (9) Commentary (stating how much is VAT exclusive price and

what is the amount of VAT). (10) Amendments – additions and deductions. (11) Amounts paid and dates paid. (12) Balance remaining unpaid.


(h) The supervising engineer shall then prepare the certificate of payment which on the minimum shall have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities) (2) Title of the document: Certificate of Payment (3) Contract number and description of the contract (4) Number of instalment on the contract and date of requisition (5) Value of the contract (both with and without VAT) (6) Amount of retention money on the work done (7) Any previous payments on the contract (8) Any liquidated damages on the contract (9) Amount of cash to be paid on the certificate (10) Signatures and dates of signing of supervising engineer, senior

engineer, HoPMU and CD (i) One copy is given to contractor, one copy to TRA, one copy filed in the

contract file, and one copy given to Council finance department for attaching to the payment voucher.

5.3.18 Certificate of Completion

(a) Supervising engineers shall prepare this certificate on satisfactory completion of a contract

(b) The certificate, on the minimum, shall have the following information:


(2) Title of the document: Certificate of Completion (3) Contract number and description of the contract (4) Value of the contract (both with and without VAT) (5) All payments made on the contract (6) Liquidated damages on the contract (if any) (7) A statement to the effect that the contract was completed to the

satisfaction of the Council (8) Signatures and dates of signing of supervising engineer, senior

engineer, HoPMU and CD (c) One copy is given to contractor, one copy is sent to TRA, and one copy

retained by the Council in the contract file.


5.3.19 Final Inspection Report

(a) This report is prepared by the supervising engineer when the contract is ended and the Council wants to make the last payment on the contract.

(b) The report is signed by the supervising engineer then forwarded to the senior engineer for approval.

(c) Once senior engineer approves the report then final certificate of payment shall be prepared by the supervising engineer attaching the report as evidence.

5.3.20 Cash Advance Request Form

(a) The cash advance request form is prepared when a Council staff requires imprest.

(b) The form shall be filled by the staff requesting the imprest detailing the nature of imprest request.

(c) If more staff will be going for the same duty travel then the senior Council staff shall fill the form listing all the staff who will be requiring imprest.

(d) The form shall detail the number of days and night staff will be on duty.

(e) The form shall summarize the amounts required for per diem, fuel, stationeries, etc., and total given to each staff, and the total amount altogether.

(f) The amounts in the form shall be the basis of amounts to be entered into the Advance/Imprest Control Register.

5.3.21 Purchase Requisition Form

(a) Council staff shall fill in a requisition form whenever they want to buy or order any item.

(b) The form shall be filled on-line within IFMIS (c) The requisition form shall have the following information at the

minimum:- (1) Name of the organization (Council, Village, School, Hospital,

(h) The supervising engineer shall then prepare the certificate of payment which on the minimum shall have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities) (2) Title of the document: Certificate of Payment (3) Contract number and description of the contract (4) Number of instalment on the contract and date of requisition (5) Value of the contract (both with and without VAT) (6) Amount of retention money on the work done (7) Any previous payments on the contract (8) Any liquidated damages on the contract (9) Amount of cash to be paid on the certificate (10) Signatures and dates of signing of supervising engineer, senior

engineer, HoPMU and CD (i) One copy is given to contractor, one copy to TRA, one copy filed in the

contract file, and one copy given to Council finance department for attaching to the payment voucher.

5.3.18 Certificate of Completion

(a) Supervising engineers shall prepare this certificate on satisfactory completion of a contract

(b) The certificate, on the minimum, shall have the following information:


(2) Title of the document: Certificate of Completion (3) Contract number and description of the contract (4) Value of the contract (both with and without VAT) (5) All payments made on the contract (6) Liquidated damages on the contract (if any) (7) A statement to the effect that the contract was completed to the

satisfaction of the Council (8) Signatures and dates of signing of supervising engineer, senior

engineer, HoPMU and CD (c) One copy is given to contractor, one copy is sent to TRA, and one copy

retained by the Council in the contract file.


Health Facilities) (2) Name of the Staff requisitioning (3) Date of requisition (4) Serial number (5) Description of items required and quantity (6) Value of the items being requisitioned (7) Name and signature of the staff requisitioning and date of

signing the form (8) Name and signature of the person approving the requisition and

date of approval 5.3.22 Planning and Progress Review Form

(a) The form shall be given to each staff at the beginning of the reporting period.

(b) Each staff shall plan for what he/she wants to achieve for that reporting period, detailing how he/she will achieve those objectives.

(c) The plan shall be reviewed by Head of Department for junior staff and CD for senior staff and signed by both staff and HoD/CD.

(d) At the end of each quarter the CD/HoD shall sit with the staff and review and adjust the plan.

(e) At the end of the reporting period the staff will make a review of period and assess how he/she has achieved the objectives set at the start of the period.

(f) The CD/HoD will sit with the staff to go through the Progress Plan and give a rating which will be the basis of any salary increase or promotion.

(g) At the minimum the Personnel Progress Plan Review Form shall have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities) (2) Name of the Staff requisitioning (3) Name and signature of the approving officer

5.3.23 Advance Control Register

(a) Councils shall maintain within IFMIS a register to control advances/imprest given to Council staff.


(b) When a Council gives an advance or imprest to Council staff the following information shall be entered into the register: (1) Date advance or imprest given. (2) Name of staff given advance or imprest (each staff shall be

entered separately in the register). (3) Reason for taking the advance or imprest. (4) Payment voucher number written to authorize the advance or

imprest. (5) The amount disbursed to the Council staff.

(c) When the Council staff retires the amount of advance or imprest given the following information shall be entered into the register (against the name of the Council staff): (1) The advance retiring voucher number. (2) Analysis of amount retired under various expense headings. (3) Amount of advance not used Note: The amount retired by the Council Staff, the amount not yet retired and amount of advance or imprest used will be automatically calculated.

(d) The Council shall maintain a summary of amount of advance or imprest taken by each individual Council staff and amount not yet retired by each staff.

5.3.24 Council Asset/Document Loss Report

(a) A Council shall have this form within the IFMIS. (b) When Council staff loses a Council asset, equipment or document

shall download the form and fill it online. (c) After signing the form the Council staff who lost Council asset,

equipment or document shall forward the form to the Council Director for further action.

(d) The Council Director may demand further explanation as to the circumstances that led to Council asset, equipment or document loss and might demand for disciplinary action taken on the Council staff, if appropriate.

Health Facilities) (2) Name of the Staff requisitioning (3) Date of requisition (4) Serial number (5) Description of items required and quantity (6) Value of the items being requisitioned (7) Name and signature of the staff requisitioning and date of

signing the form (8) Name and signature of the person approving the requisition and

date of approval 5.3.22 Planning and Progress Review Form

(a) The form shall be given to each staff at the beginning of the reporting period.

(b) Each staff shall plan for what he/she wants to achieve for that reporting period, detailing how he/she will achieve those objectives.

(c) The plan shall be reviewed by Head of Department for junior staff and CD for senior staff and signed by both staff and HoD/CD.

(d) At the end of each quarter the CD/HoD shall sit with the staff and review and adjust the plan.

(e) At the end of the reporting period the staff will make a review of period and assess how he/she has achieved the objectives set at the start of the period.

(f) The CD/HoD will sit with the staff to go through the Progress Plan and give a rating which will be the basis of any salary increase or promotion.

(g) At the minimum the Personnel Progress Plan Review Form shall have the following information: (1) Name of the organization (Council, Village, School, Hospital,

Health Facilities) (2) Name of the Staff requisitioning (3) Name and signature of the approving officer

5.3.23 Advance Control Register

(a) Councils shall maintain within IFMIS a register to control advances/imprest given to Council staff.


(e) The form that has been reviewed by the Council Director shall then be filed in the Council staff personal file as well as on the on-line administration.

5.3.25 Council Financial Reports

(a) A Council shall prepare annual financial reports. (b) The annual financial reports shall be in the form of and following

order: (1) Statement of Financial Position. (2) Statement of Financial Performance. (3) Statement of Changes in Net Assets/Equity (4) Statement of Comparison between Budget and Actual (5) Statement of Cash Flows (6) Notes

(c) The notes to the financial reports shall be presented for each statement in the order in which they are presented.

(d) The notes to the financial reports shall be presented for each line item in those reports in the order in which they appear in the reports.

(e) The notes to the financial reports shall be in the following order: (1) Statement of compliance with IPSAS which shall contain the

following: (i) Statement of unreserved compliance with IPSAS. (ii) Standards used in preparation of financial reports. (iii) Standards not used in the preparation of financial reports. (iv) Standards issued and not yet effective but may have

impact on the financial reports of the Council. (v) Judgments and Estimations used in preparation of the

financial reports. (vi) Basis of preparation of the financial reports.

(2) Description of significant accounting policies adopted in the preparation of the financial reports.

(3) Notes to the items appearing in the Statement of Financial Position

(4) Notes to the items in the Statement of Financial Performance or by whatever name it is known.


(5) Notes to the items in the Statement of Changes in Net assets/Equity.

(6) Notes to the items in the Statement of Cash Flows (f) The operations of the Council including the annual financial reports

shall be audited at the end of each accounting period as stated in the Local Government Finance act, CAP. 290.

5.3.26 LLG/SPF Payment Approval Form

(a) A Council shall ensure the principle of ‘cash against approved reports’ functions properly.

(b) An LLG/SPF requesting funds from a Council shall fill the LLG/SPF Payment Approval Form within the IFMIS.

(c) The form shall be sent to the Council Financial Accountant together with Financial Report for the period detailing the use of previously given money and a forecast of funds required for the next period (3 months or 6 months period).

(d) The Council Financial Accountant shall review the Financial Report against the LLG/SPF budget and either approve or reject the report.

(e) The Council Financial Accountant shall then forward the form to the Council Treasurer who shall call LLG/SPF Officers for further clarification on reasons why their report was rejected and how to correct the anomalies.

(f) The Council Treasurer shall forward an approved Financial report and LLG/SPF Payment Approval Form to the Council Director who shall approve the payment to be made to the LLG/SPF.

(g) The LLG/SPF Payment Approval Form shall have the following information: (1) Date the form is filled. (2) Amount requested. (3) Currency of denomination, which is the Tanzania shilling. (4) Instalment number. (5) Payment to be made to which organization and type of

organization. (6) Attachments that come with the Form.

(e) The form that has been reviewed by the Council Director shall then be filed in the Council staff personal file as well as on the on-line administration.

5.3.25 Council Financial Reports

(a) A Council shall prepare annual financial reports. (b) The annual financial reports shall be in the form of and following

order: (1) Statement of Financial Position. (2) Statement of Financial Performance. (3) Statement of Changes in Net Assets/Equity (4) Statement of Comparison between Budget and Actual (5) Statement of Cash Flows (6) Notes

(c) The notes to the financial reports shall be presented for each statement in the order in which they are presented.

(d) The notes to the financial reports shall be presented for each line item in those reports in the order in which they appear in the reports.

(e) The notes to the financial reports shall be in the following order: (1) Statement of compliance with IPSAS which shall contain the

following: (i) Statement of unreserved compliance with IPSAS. (ii) Standards used in preparation of financial reports. (iii) Standards not used in the preparation of financial reports. (iv) Standards issued and not yet effective but may have

impact on the financial reports of the Council. (v) Judgments and Estimations used in preparation of the

financial reports. (vi) Basis of preparation of the financial reports.

(2) Description of significant accounting policies adopted in the preparation of the financial reports.

(3) Notes to the items appearing in the Statement of Financial Position

(4) Notes to the items in the Statement of Financial Performance or by whatever name it is known.


(7) Description of the payment. (8) Approval which shall be in the form of Council Accountant

signature, Council Treasurer signature and Council Director signature.

5.3.27 Review of Audit Process and Report Form

(a) A Council shall plan for the annual audit. (b) The Review of Audit Process and Report is a form that will assist the

Council in planning for the annual audit. (c) The Review of Audit Process and Report shall have four parts as

follows: (1) Review of Audit Terms of Reference. (2) Auditor selection, if the audit relates to a donor funded project

managed by the Council. (3) Review of the Audit report. (4) Follow-up on Audit findings.

5.3.28 Internal Control System Form

(a) A Council shall take inventory of its risks and institute proper internal controls to ensure they are either eliminated or reduced.

(b) The Internal Control System form assists a Council in identifying common risks faced by the Council.

(c) The Internal Control System form contains the following information: (1) Council risks, their descriptions and possible causes. (2) Significant assertions such as:

(i) Existence (ii) Completeness (iii) Valuation or Allocation (iv) Rights and Obligations (v) Presentation and Disclosure

(3) Controls and its descriptions. (4) Person responsible for controlling the risk. (5) Frequency for risk control. (6) Type of control required such as:

(i) Manual or Automated.


(ii) Preventive or Detective.

5.3.29 Council Financial Overview Report (a) This report shall show the approved budget per line, the monthly

actual expenditure per budget line, and the budget balance in amount and percentage.

(b) The report shall be reviewed and updated each time Council makes payments.

(7) Description of the payment. (8) Approval which shall be in the form of Council Accountant

signature, Council Treasurer signature and Council Director signature.

5.3.27 Review of Audit Process and Report Form

(a) A Council shall plan for the annual audit. (b) The Review of Audit Process and Report is a form that will assist the

Council in planning for the annual audit. (c) The Review of Audit Process and Report shall have four parts as

follows: (1) Review of Audit Terms of Reference. (2) Auditor selection, if the audit relates to a donor funded project

managed by the Council. (3) Review of the Audit report. (4) Follow-up on Audit findings.

5.3.28 Internal Control System Form

(a) A Council shall take inventory of its risks and institute proper internal controls to ensure they are either eliminated or reduced.

(b) The Internal Control System form assists a Council in identifying common risks faced by the Council.

(c) The Internal Control System form contains the following information: (1) Council risks, their descriptions and possible causes. (2) Significant assertions such as:

(i) Existence (ii) Completeness (iii) Valuation or Allocation (iv) Rights and Obligations (v) Presentation and Disclosure

(3) Controls and its descriptions. (4) Person responsible for controlling the risk. (5) Frequency for risk control. (6) Type of control required such as:

(i) Manual or Automated.


SECTION SIX

6.0 Internal Control System (ICS), Risk Management and Fraud Management

(a) Clear procedures and segregation of duties in the preparation, documentation and storage of accounting information from reliable data and documents has a possibility of reducing the occurrence of fraud and risks related to financial information.

(b) Councils in strengthening their Internal Controls and management of Risk and Fraud should adhere to Local Government Financial Memorandum, Risk and Fraud Management Guidelines issued by Ministry of Finance and Planning.

(c) Councils shall utilize Internal Control System form (5.3.28) in planning for internal control procedures at Councils, and LLG/SPF.

6.1 Aim of ICS, Risk Management and Fraud Management in Councils

(a) To ensure the internal control systems at the Local Government level work properly.

(b) To ensure that legislations and policies for effective ICS at Councils are functioning appropriately.

(c) To remove any gap between the designed system and its implementation.

(d) To ensure that socio-economic development projects at Councils achieve value for money.

(e) To guard against misuse and mismanagement of public funds and corrupt practices in Councils.

6.2 Definition of Internal Control System

(a) Internal Control System is understood as all procedures, methods and measures implemented by the management and others responsible for leadership with a purpose to assure effectiveness and operational efficiency.

(b) Councils’ measures of internal controls shall be integrated into operational work flow.

(c) Councils’ measures of internal control shall comply with IPPF.


6.3 Responsibility

6.3.1 Oversight Bodies

The following shall facilitate and provide guidance and oversight on internal controls, risk management and fraud risk management:-

(a) Ministry responsible for Local Government. (b) The Regional Secretariat (c) The Full Council. (d) The Finance Committee. (e) The Audit Committee.

6.3.2 Council Director

(a) The Council Director has overall responsibility for designing and implementing effective internal control system.

(b) The Council Director shall also ensure that the Council LLG and SPFs institutes proper internal control procedures for all finance related activities.

(c) More than any other individual, he/she sets the "tone at the top" that affects integrity and ethics and other factors of a positive control environment.

6.3.3 Council Treasurers and Heads of Department

(a) Of particular significance Council Treasurers are responsible for ensuring an effective operation of internal control systems including writing and subsequent revision of detailed financial procedures.

(b) Nevertheless, Heads of Department and all staff in general are responsible for executing the defined internal controls.

6.4 Principles

(a) The Council has to ensure the four-eye principle is in operation – this means that all financial decisions and transactions at the Council need approval at least from two persons in order to have a controlling mechanism in place.

(b) The up-to-date principle requires keeping all accounting records up-to-date as it:

SECTION SIX

6.0 Internal Control System (ICS), Risk Management and Fraud Management

(a) Clear procedures and segregation of duties in the preparation, documentation and storage of accounting information from reliable data and documents has a possibility of reducing the occurrence of fraud and risks related to financial information.

(b) Councils in strengthening their Internal Controls and management of Risk and Fraud should adhere to Local Government Financial Memorandum, Risk and Fraud Management Guidelines issued by Ministry of Finance and Planning.

(c) Councils shall utilize Internal Control System form (5.3.28) in planning for internal control procedures at Councils, and LLG/SPF.

6.1 Aim of ICS, Risk Management and Fraud Management in Councils

(a) To ensure the internal control systems at the Local Government level work properly.

(b) To ensure that legislations and policies for effective ICS at Councils are functioning appropriately.

(c) To remove any gap between the designed system and its implementation.

(d) To ensure that socio-economic development projects at Councils achieve value for money.

(e) To guard against misuse and mismanagement of public funds and corrupt practices in Councils.

6.2 Definition of Internal Control System

(a) Internal Control System is understood as all procedures, methods and measures implemented by the management and others responsible for leadership with a purpose to assure effectiveness and operational efficiency.

(b) Councils’ measures of internal controls shall be integrated into operational work flow.

(c) Councils’ measures of internal control shall comply with IPPF.


(1) Minimises the risk of errors. (2) Enables errors to be discovered and corrected more easily. (3) Reduces the likelihood of loss or theft.

6.4.1 Authorisation

(a) All financial transactions need to be authorised by the responsible person as provided by Financial Regulations/Memorandum.

(b) The Council Director has assigning power as will be determined by the Full Council from time to time within the approved annual budget.

(c) Procurement Act, Cap. 410 and its Regulations have to be complied with.

(d) Expenditures upper ceilings will also be determined by the Full Council and expenditures for non-budgeted items need to be approved by the Full Council.

6.4.2 Misappropriation of Council Funds, Prevention and Settlement

(a) Every employee of the Council is therefore under obligation to make every appropriate effort to prevent the misappropriation of funds and assets.

(b) The management and monitoring of all activities require the implementation of adequate processes and instruments for controlling purposes.

6.5 Bank Accounts

6.5.1 Foreign Currency and Local Currency Account

(a) Ministry of Finance and Planning is responsible for opening and maintaining any Government Bank Account.

(b) Councils should request approval for opening and closing Bank Accounts from MoFP via Ministry responsible for Local Government.

(c) LLG and SPFs will send their requests to Council Director who shall submit the same to Finance Committee for approval.

(d) The Council Director should ensure that LLG and SPFs use computerized accounting and revenue systems in their daily operations.

6.5.2 Four Eye Principle, Double Signature

(a) All Council payments should be made through electronic money


transfer payment systems. (b) All necessary procedures for verification and approval of payments

must adhere to Four Eye Principle, Double Signature for Council and LLG and SPFs.

(c) For LLG and SPFs authorised signatories shall not sign blank cheques under any circumstances.

(d) It must be borne in mind that the authorising officers must review all supporting documents ensuring proper payment process has been followed before taking action.

6.5.3 Bank/Cash Book Reconciliation Statement

(a) The Council Treasurer is responsible for preparation of all bank/cash reconciliation reports.

(b) All reconciliation reports shall be approved by the Council Director. (c) Councils shall regularly liaise with the Ministry responsible for Local

Government on account of all transactions made through the identified Joint Accounts maintained by BOT, preparation of the bank reconciliation statement and extraction year-end account balances.

(d) LLG and SPFs shall instruct Commercial Banks to provide monthly bank statements on the first working day of the following month and submit the same to Council Headquarter.

(e) Council Treasurer shall identify all correct items that were passed into the bank account by the bank (but not by the Council) and prepare the necessary adjusting journal entries and pass them in the system:

Debit: Surplus or Deficit (expenses) XXX

Credit: Cash XXX

Debit: Cash XXX

Credit: Surplus or Deficit (revenue) XXX

(f) Council Treasurer shall identify all items that were passed erroneously into the bank account by the bank (but not by the Council) and shall inform the bank in writing of the items and demand them to be corrected – the CT shall make a follow up to ensure that the bank has corrected the items identified.

(1) Minimises the risk of errors. (2) Enables errors to be discovered and corrected more easily. (3) Reduces the likelihood of loss or theft.

6.4.1 Authorisation

(a) All financial transactions need to be authorised by the responsible person as provided by Financial Regulations/Memorandum.

(b) The Council Director has assigning power as will be determined by the Full Council from time to time within the approved annual budget.

(c) Procurement Act, Cap. 410 and its Regulations have to be complied with.

(d) Expenditures upper ceilings will also be determined by the Full Council and expenditures for non-budgeted items need to be approved by the Full Council.

6.4.2 Misappropriation of Council Funds, Prevention and Settlement

(a) Every employee of the Council is therefore under obligation to make every appropriate effort to prevent the misappropriation of funds and assets.

(b) The management and monitoring of all activities require the implementation of adequate processes and instruments for controlling purposes.

6.5 Bank Accounts

6.5.1 Foreign Currency and Local Currency Account

(a) Ministry of Finance and Planning is responsible for opening and maintaining any Government Bank Account.

(b) Councils should request approval for opening and closing Bank Accounts from MoFP via Ministry responsible for Local Government.

(c) LLG and SPFs will send their requests to Council Director who shall submit the same to Finance Committee for approval.

(d) The Council Director should ensure that LLG and SPFs use computerized accounting and revenue systems in their daily operations.

6.5.2 Four Eye Principle, Double Signature

(a) All Council payments should be made through electronic money


(g) The bank/cash book reconciliation shall provide the Council with the amount of adjusted cash balance at the end of the month – this is the amount of cash available to the Council and shall be signed by: (1) The Accountant who prepared the statement. (2) The Council Treasurer who verifies the statement. (3) The Council Director who approves and authorizes the

statement. (h) Council shall prepare bank/cash book reconciliation statements in

triplicate: (1) One copy shall be filed at the Council. (2) One copy sent to Regional Secretariat within 10 days after the

end of a reporting month. (3) One copy of year end bank/cash book reconciliation statement

should be sent to Ministry responsible for Local Government within 10 days after financial year end.

(i) LLG and SPFs shall prepare monthly bank reconciliation that will be consolidated by the Council Treasurer, who shall also receive the Statement of Receipts and Payments from LLG and SPFs.

(j) The bank reconciliation statement shall be verified and authorized by appropriate personnel.

(k) One approved copy of the bank reconciliation statement shall be sent to LLG and SPFs and one copy shall remain with the Council.

(l) Responsibilities in relation to preparation of Bank/Cash book Reconciliation.

Step Responsible Task

1.

Council Accountant

Accountant prepares bank/cash book reconciliation statements every month immediately after the month end.

Accountant identifies all debit entries for the charges/commissions and all credit entries for interest and other receipts passed in the bank statement by the bank and passing same on Council cash book.


All items have to be crosschecked with those in the bank statement. The outstanding items are identified and age listed and the balances agreed. Action must be taken to ensure that outstanding items are cleared in the following month.

Any unknown entries in the bank statement should be followed up with the bank officers in writing. Responses on the same shall be part of the attachments to the reconciliation statement for the given month.

2.

Council Treasurer

Council Treasurer reviews the bank/ cash book reconciliation statement and investigates any items remaining outstanding for an unreasonable period of time

3.

Council Director

Shall send to the Regional Secretariat not later than 10 days after the end of the month and to Ministry responsible for Local Government within 10 days after financial year end concerned:

• Signed Reconciliation Statements attached with monthly bank statements (Form 5.3.6 and 5.3.9).

• Print out of the bank account control sheet (Form 5.3.5).

A copy is chronologically filed in a separate file at the Council.

6.5 Forms used in the Accounting System (a) The manual contains specimen forms which can be used and

eventually adapted by Councils, LLG and SPFs.

(g) The bank/cash book reconciliation shall provide the Council with the amount of adjusted cash balance at the end of the month – this is the amount of cash available to the Council and shall be signed by: (1) The Accountant who prepared the statement. (2) The Council Treasurer who verifies the statement. (3) The Council Director who approves and authorizes the

statement. (h) Council shall prepare bank/cash book reconciliation statements in

triplicate: (1) One copy shall be filed at the Council. (2) One copy sent to Regional Secretariat within 10 days after the

end of a reporting month. (3) One copy of year end bank/cash book reconciliation statement

should be sent to Ministry responsible for Local Government within 10 days after financial year end.

(i) LLG and SPFs shall prepare monthly bank reconciliation that will be consolidated by the Council Treasurer, who shall also receive the Statement of Receipts and Payments from LLG and SPFs.

(j) The bank reconciliation statement shall be verified and authorized by appropriate personnel.

(k) One approved copy of the bank reconciliation statement shall be sent to LLG and SPFs and one copy shall remain with the Council.

(l) Responsibilities in relation to preparation of Bank/Cash book Reconciliation.


1.

Council Accountant

Accountant prepares bank/cash book reconciliation statements every month immediately after the month end.

Accountant identifies all debit entries for the charges/commissions and all credit entries for interest and other receipts passed in the bank statement by the bank and passing same on Council cash book.


(b) The forms are configured within the IFMIS: (1) 5.3.1 FORM Receipts (2) 5.3.2 FORM Payment Voucher (3) 5.3.3 FORM Authorisation Sheet.xls (4) 5.3.4 FORM Bank Account Overview.xls (5) 5.3.5 FORM Bank Account Control Sheet.xls (6) 5.3.6 FORM Bank Reconciliation Statement.xls (7) 5.3.7 FORM Journal Voucher.xls (8) 5.3.8 FORM Petty Cash Voucher.xls (9) 5.3.9 FORM Cash Reconciliation Statement.xls (10) 5.3.10 FORM Cash Advance Application.xls (11) 5.3.11 FORM Cash Advance Retirement.xls (12) 5.3.12 FORM Monthly Timesheet.xls (13) 5.3.13 FORM Non-current (Fixed) Assets Register.xls (14) 5.3.14 FORM Pay list (15) 5.3.15 FORM Contract Register (16) 5.3.16 FORM Contractors’ Payments Calculations.xls (17) 5.3.17 FORM Certificate of Payment.xls (18) 5.3.18 FORM Certificate of Completion.xls (19) 5.3.19 FORM Final Inspection Report (20) 5.3.20 FORM Cash Advance Request Form.xls (21) 5.3.21 FORM Purchase Requisition Form (22) 5.3.22 FORM Planning and Progress Review Form (23) 5.3.23 FORM Advance Control Register.xls (24) 5.3.24 FORM Council Loss Report (25) 5.3.25 FORM Financial Reports (26) 5.3.26 FORM LLG/SPF Payment Approval Form (27) 5.3.27 FORM Review of Audit Process and Report (28) 5.3.28 FORM Internal Control System (29) 5.3.29 FORM Council Financial Overview Report

6.6 Issuing Receipts

(a) A Council shall issue, generated within the IFMIS, a receipt (Form 5.3.1) for each amount of cash received.

(b) A Council shall ensure the following when issuing receipts:-


(1) The receipts shall be serially numbered and issued – serial number of each receipt or license issued for money received must be entered into the system (entry in the visual Cash Book).

(2) Receipts must be properly completed and must contain an adequate explanation of the payment made to the Council.

(3) If a mistake is made in writing out a receipt, the receipt must be cancelled, the Council shall retain the cancelled receipts in the system for audit purposes – the Council Treasurer shall authorize all such cancellations.

(4) When the Council receives cheques shall record their serial numbers in the system.

(5) The Council shall give original copy of the receipt to the payer. (6) In case of contra entries a copy of the receipt shall be attached to

the payment voucher.

6.7 Payment Procedures

The CD is in charge of managing the system of internal controls to ensure the smooth running of Council operations and that all instituted internal controls are effective. The following procedures shall be followed all the time when payments are made:-

6.7.1 General Information

(a) All payments shall be initiated after receiving an invoice or any other ‘request for payment’ document from the supplier or creditor.

(b) All payments made must be duly verified and authorized. (c) All payments must be fully supported. (d) Where appropriate, payments shall be made net of withholding taxes

on labour or otherwise as per Income Tax requirements. (e) Payments shall be made after ensuring there are sufficient funds to

make the payment – it is unethical to authorize payments when there are no sufficient funds in the bank accounts.

6.7.2 Preparation and Authorization of Payment Vouchers

(a) Payment vouchers (FORM 5.3.2) shall be numbered serially. (b) Payments to gangs of labourers must be supported by a muster roll

certified by the supervisor – muster rolls should be checked before

(b) The forms are configured within the IFMIS: (1) 5.3.1 FORM Receipts (2) 5.3.2 FORM Payment Voucher (3) 5.3.3 FORM Authorisation Sheet.xls (4) 5.3.4 FORM Bank Account Overview.xls (5) 5.3.5 FORM Bank Account Control Sheet.xls (6) 5.3.6 FORM Bank Reconciliation Statement.xls (7) 5.3.7 FORM Journal Voucher.xls (8) 5.3.8 FORM Petty Cash Voucher.xls (9) 5.3.9 FORM Cash Reconciliation Statement.xls (10) 5.3.10 FORM Cash Advance Application.xls (11) 5.3.11 FORM Cash Advance Retirement.xls (12) 5.3.12 FORM Monthly Timesheet.xls (13) 5.3.13 FORM Non-current (Fixed) Assets Register.xls (14) 5.3.14 FORM Pay list (15) 5.3.15 FORM Contract Register (16) 5.3.16 FORM Contractors’ Payments Calculations.xls (17) 5.3.17 FORM Certificate of Payment.xls (18) 5.3.18 FORM Certificate of Completion.xls (19) 5.3.19 FORM Final Inspection Report (20) 5.3.20 FORM Cash Advance Request Form.xls (21) 5.3.21 FORM Purchase Requisition Form (22) 5.3.22 FORM Planning and Progress Review Form (23) 5.3.23 FORM Advance Control Register.xls (24) 5.3.24 FORM Council Loss Report (25) 5.3.25 FORM Financial Reports (26) 5.3.26 FORM LLG/SPF Payment Approval Form (27) 5.3.27 FORM Review of Audit Process and Report (28) 5.3.28 FORM Internal Control System (29) 5.3.29 FORM Council Financial Overview Report

6.6 Issuing Receipts

(a) A Council shall issue, generated within the IFMIS, a receipt (Form 5.3.1) for each amount of cash received.

(b) A Council shall ensure the following when issuing receipts:-


payment is made. (c) Payment vouchers for stores will be correctly filled in Local Purchase

Order (LPO) attached. (d) Payment Vouchers in respect of contracts must bear a certificate signed

by the engineer that the work has been satisfactorily completed (FORM 5.3.17) and dully approved by the CD or appropriate Accounting Officer.

(e) All Payment Vouchers shall carry adequate explanations of the payments made, and in particular, show rates of payment where appropriate.

(f) Where appropriate, payment vouchers will have the invoices and other supporting documents attached to them - when a duplicate invoice is attached, because the original has been lost, this should be recorded on the payment voucher and it should be certified by Head of Department or other Authorized Officer that no double payment has occurred.

(g) Any alteration on a payment voucher shall be initialed by the person making it and no alteration affecting the amount of payment voucher shall be made after it has passed through the system – errors discovered after that shall be corrected by issue of another payment voucher in the case of an under-payment or general receipt in the case of overpayments.

(h) Payment vouchers shall be prepared by Accountant in the Finance department – the accountant shall attach an invoice to the payment voucher; complete the details on the payee and description of payment; also obtain any order numbers or contract numbers relevant to the payment; code the expenditure to vote, sub-vote and item; and make the initial check on rates charged.

(i) Heads of Departments and CT shall double check the payment voucher, sign the voucher and then forward it to CD for approval–checks to be made on the payment voucher before a electronic payment is effected or cheque is drawn include the following: (1) Invoice details have been correctly entered onto the payment

voucher, name and address, invoice number, date and amount. (2) Vote, sub-vote and item codes have been completed, are valid

codes and appear appropriate. (3) Relevant correspondence, Local Purchase Order (LPO) or

contract number is quoted.


(4) Calculations are correct. (5) The payment voucher is originated by the Head of Department

and authorized by the CD (or Accounting Officer).

6.7.3 Payments Made at the Council

(a) The Council shall make all payments electronically and direct to the bank accounts of the payee – under no circumstance shall Council pay by cheque or cash.

(b) A Council shall prepare, generated from IFMIS, a payment voucher (Form 5.3.2) for all payments made at the Council.

6.7.3.1 Payments to Construction Contractors

(a) All payments shall be initiated by supervising engineers after receiving contractor’s claim and evaluate work done by a contractor.

(b) The CD or appropriate Accounting Officer shall appoint Council Inspection Team before issuing any payment certificate (FORM 5.3.17) for any contract work so as to check value for money for the work to be paid for.

(c) The supervising engineer shall countercheck with the Head of Procurement Management Unit managing the Contract Register to verify calculations and amounts paid/unpaid in consultation with the Council Treasurer.

(d) The supervising engineer shall then prepare a Certificate of Payment (FORM 5.3.17) attaching Contractor’s claim and all supporting documents.

(e) The Certificate of Payment shall be signed by the supervising engineer and contractor, then sent to HoD Works for verification, Council Treasurer and finally approved by the Council Director.

(f) The Council Accountant shall then raise and prepare a payment voucher (FORM 5.3.2) within the IFMIS, sign and forward it to Council Treasurer attaching the following documents: (1) Contractor’s claim; (2) Measurement sheet; (3) Certificate of payment showing the amount payable and

structure of payments and (4) Electronic copy of the updated contract registers.

(g) In case of final retention money payments, supervising engineers shall do a final inspection and write a report (FORM 5.3.19) to the senior

payment is made. (c) Payment vouchers for stores will be correctly filled in Local Purchase

Order (LPO) attached. (d) Payment Vouchers in respect of contracts must bear a certificate signed

by the engineer that the work has been satisfactorily completed (FORM 5.3.17) and dully approved by the CD or appropriate Accounting Officer.

(e) All Payment Vouchers shall carry adequate explanations of the payments made, and in particular, show rates of payment where appropriate.

(f) Where appropriate, payment vouchers will have the invoices and other supporting documents attached to them - when a duplicate invoice is attached, because the original has been lost, this should be recorded on the payment voucher and it should be certified by Head of Department or other Authorized Officer that no double payment has occurred.

(g) Any alteration on a payment voucher shall be initialed by the person making it and no alteration affecting the amount of payment voucher shall be made after it has passed through the system – errors discovered after that shall be corrected by issue of another payment voucher in the case of an under-payment or general receipt in the case of overpayments.

(h) Payment vouchers shall be prepared by Accountant in the Finance department – the accountant shall attach an invoice to the payment voucher; complete the details on the payee and description of payment; also obtain any order numbers or contract numbers relevant to the payment; code the expenditure to vote, sub-vote and item; and make the initial check on rates charged.

(i) Heads of Departments and CT shall double check the payment voucher, sign the voucher and then forward it to CD for approval–checks to be made on the payment voucher before a electronic payment is effected or cheque is drawn include the following: (1) Invoice details have been correctly entered onto the payment

voucher, name and address, invoice number, date and amount. (2) Vote, sub-vote and item codes have been completed, are valid

codes and appear appropriate. (3) Relevant correspondence, Local Purchase Order (LPO) or

contract number is quoted.


engineer – if the report is approved then supervising engineer shall prepare a Certificate of Completion (FORM 5.3.18).

(h) Council Treasurer shall verify the payment voucher with all the supporting documents and ensure that there are sufficient funds to make the impending payment – if satisfied shall sign the voucher and forward it to Council Director for approval.

(i) Council Director shall authorize the payment after verifying all supporting documents and any comments made by the Council Treasurer.

(j) The Accountant shall stamp the voucher and all supporting documents ‘PAID’ and file the voucher in the payment voucher file.

6.7.3.2 Payments to Consultants

(a) All payments shall be initiated by consultants who will bring invoices for payment.

(b) The supervising unit shall countercheck with CT to verify calculations and amounts to be paid in case of contract works the Engineer shall be involved.

(c) When all amounts have been verified then the supervising unit/engineer shall inform the contractor who shall prepare an invoice to the amount agreed.

(d) The Accountant shall then prepare a payment voucher within IFMIS, sign and forward it to the CT attaching the following documents: (1) Consultant’s invoice (2) A copy of the contract, particularly the page showing the

payment schedule under the contract (3) CT’s comments showing that conditions in the consultancy have

been fulfilled. (e) Council Heads of Department shall verify the payment voucher and

send it to the CT to counter check the payment voucher with all the supporting documents and ensure that there are sufficient funds to make the impending payment – if satisfied shall approve the payment voucher into IFMIS, and forward it to the CD for authorization.

(f) CD shall authorize the payment after verifying all supporting documents and any comments made by the CT.

(g) The Accountant shall stamp the voucher and all supporting documents ‘PAID’ and file the voucher in the payment voucher file.


6.7.3.3 Payments made at LLG and SPFs

(a) LLGs and SPFs shall also refer to FFARS Guideline for procedures when making payments.

(b) All payments made at LLG and SPFs shall be subject to similar procedures and processes to those applied at the Councils.

(c) All LLGs and SPFs’ payments, except for those through petty cash, shall be payable by Electronic Money Transfer Payment systems or cheque – cheques shall only be issued on the strength of an authorized payment voucher.

(d) The cheque number and payment code must be quoted on the payment voucher.

(e) Cheques shall be issued serially and used in that order. (f) A person who writes cheques shall not be a signatory. (g) The cheque, after preparation, shall be signed by two officers from the

list of authorized signatories, after checking that a properly authorized payment voucher exists:

(1) Signatories at Mtaa/Village level: (i) Group A:

1. Village/Mtaa resident appointed by Village/Mtaa General Meeting.

2. Village/Mtaa resident appointed by Village/Mtaa General Meeting.

(ii) Group B: 1. Village/Mtaa Executive Officer. 2. Any Government Officer working at Village/Mtaa

level.

(2) Signatories at Ward level: (i) Group A:

1. Ward Executive Officer. 2. Any Government Officer working at Ward level

appointed by WDC (ii) Group B:

1. Village/Mtaa Executive Officer appointed by WDC. 2. Village/Mtaa Executive Officer appointed by WDC.

(3) Signatories at Council Affiliated Entities: (i) Group A:

engineer – if the report is approved then supervising engineer shall prepare a Certificate of Completion (FORM 5.3.18).

(h) Council Treasurer shall verify the payment voucher with all the supporting documents and ensure that there are sufficient funds to make the impending payment – if satisfied shall sign the voucher and forward it to Council Director for approval.

(i) Council Director shall authorize the payment after verifying all supporting documents and any comments made by the Council Treasurer.

(j) The Accountant shall stamp the voucher and all supporting documents ‘PAID’ and file the voucher in the payment voucher file.

6.7.3.2 Payments to Consultants

(a) All payments shall be initiated by consultants who will bring invoices for payment.

(b) The supervising unit shall countercheck with CT to verify calculations and amounts to be paid in case of contract works the Engineer shall be involved.

(c) When all amounts have been verified then the supervising unit/engineer shall inform the contractor who shall prepare an invoice to the amount agreed.

(d) The Accountant shall then prepare a payment voucher within IFMIS, sign and forward it to the CT attaching the following documents: (1) Consultant’s invoice (2) A copy of the contract, particularly the page showing the

payment schedule under the contract (3) CT’s comments showing that conditions in the consultancy have

been fulfilled. (e) Council Heads of Department shall verify the payment voucher and

send it to the CT to counter check the payment voucher with all the supporting documents and ensure that there are sufficient funds to make the impending payment – if satisfied shall approve the payment voucher into IFMIS, and forward it to the CD for authorization.

(f) CD shall authorize the payment after verifying all supporting documents and any comments made by the CT.

(g) The Accountant shall stamp the voucher and all supporting documents ‘PAID’ and file the voucher in the payment voucher file.


1. Head of the Affiliated Council. 2. Any Government Officer working at affiliated

Council appointed by Committee. (ii) Group B:

1. Chairperson of the affiliated Council Committee. 2. Any other member of affiliated Council appointed

by Committee. (h) Members of the same group/category are not allowed to sign

cheques. (i) Accountant/person responsible for preparation of payment shall

make a copy of the cheque and attach it to the payment voucher. (j) It is in any circumstances forbidden to sign blank cheques or to accept

forged signatures on cheques. (k) It is also forbidden to write a cheque when knowing that there are no

funds in the bank account. (l) All cheques paid to suppliers/contractors or personal cheques shall

be crossed and shall not be opened under any circumstance. (m) All paid cheques returned by the bank shall be recorded into a cheque

register under the bank account for which it was made. (n) All cheques issued shall be recorded serially in the Cheque Register. (o) Cancelled cheques must be kept in safe custody for audit purposes. (p) A dispatch book for signed cheques must be maintained for each

account. (q) Cheque books must be kept in the strong room.

6.7.3.4 Accounting for cheques

(a) All cheques shall be entered on the credit side of the cash book as they are written out.

(b) After signature they shall be recorded in a dispatch book, which will be signed by the person collecting the cheque.

(c) Cheque register shall be signed for by the officer posting the cheque. (d) All payment vouchers, with the supporting documentation should be

carefully filed in payment voucher order number after they have been paid and posted to the relevant books of account – any missing numbers in the sequence should be investigated.


(e) Cheque is an accountable document which must be strictly controlled from the time they are ordered until they have been delivered to the correct payee.

6.7.3.5 Cashing Cheques

(a) The practice of LLGs and SPFs issuing a cheque to a creditor and then cashing it at the creditor’s cash office is unacceptable.

(b) All cheques shall be presented to the bank where the signatures may be verified independently of the LLG and SPFs’officials and cleared, together with other presented cheques, when funds are available.

6.7.3.6 Description of Procedures for Payments made by cheque

Step

Responsible

Task

1.

Accountant/officer responsible for preparation of payment

• Prepare the Cheque Payment Voucher showing the invoice or other primary records due for payment. He/she certifies on the supporting documents that he/she has checked the arithmetic calculations.

• Attaches all the supporting documents and passes them to the Head of the Council Affiliated Council/Ward/Mtaa/Village Executive Officer.

2.

Head of the Council Affiliated Council/Ward/Mtaa/Village Executive Officer

Scrutinise validity and accounts coding. He/she verifies payment and signs the Cheque Payment Voucher.

3.

Accountant/Officer responsible for preparation of payment

After receiving the approved Cheque Payment Voucher, draw a Cheque and stamps all supporting documents with a ´PAID’ stamp.

1. Head of the Affiliated Council. 2. Any Government Officer working at affiliated

Council appointed by Committee. (ii) Group B:

1. Chairperson of the affiliated Council Committee. 2. Any other member of affiliated Council appointed

by Committee. (h) Members of the same group/category are not allowed to sign

cheques. (i) Accountant/person responsible for preparation of payment shall

make a copy of the cheque and attach it to the payment voucher. (j) It is in any circumstances forbidden to sign blank cheques or to accept

forged signatures on cheques. (k) It is also forbidden to write a cheque when knowing that there are no

funds in the bank account. (l) All cheques paid to suppliers/contractors or personal cheques shall

be crossed and shall not be opened under any circumstance. (m) All paid cheques returned by the bank shall be recorded into a cheque

register under the bank account for which it was made. (n) All cheques issued shall be recorded serially in the Cheque Register. (o) Cancelled cheques must be kept in safe custody for audit purposes. (p) A dispatch book for signed cheques must be maintained for each

account. (q) Cheque books must be kept in the strong room.

6.7.3.4 Accounting for cheques

(a) All cheques shall be entered on the credit side of the cash book as they are written out.

(b) After signature they shall be recorded in a dispatch book, which will be signed by the person collecting the cheque.

(c) Cheque register shall be signed for by the officer posting the cheque. (d) All payment vouchers, with the supporting documentation should be

carefully filed in payment voucher order number after they have been paid and posted to the relevant books of account – any missing numbers in the sequence should be investigated.


Completes all the necessary information.

4.


Sign the Cheque and registers the Cheque on the bank account control sheet.

5. Second category Signatories

Scrutinise recipient, amount, date and signature written on the cheque; and he/she counter signs the cheque.

6.


He/she presents the Cheque together with the supporting payment voucher to the Council Executive Director if payment limit exceed.

7.


• After receiving signed cheques, dispatches them immediately. The recipient has to countersign on the Cheque Payment Voucher. The Cheque Payment Voucher together with all the relevant documents are to be filed in the payment vouchers file in numerical order.

• All cheque payments are registered in the corresponding Bank Account Control Sheet. The sheet is designed to show both receipts and payments effected by cheque, draft and transfer.


Storage of Cash and Cheque Books


1.

Council Treasurer

Store cash and cheque books in a safe place and safe. Maximum limits for cash handlings on premises shall be agreed upon by the Council and shall not be exceeded without express permission.

6.7.4 Description of Procedure for Petty Cash Payments

(a) Councils shall maintain petty cash funds to the amount approved by the Full Council.

(b) Petty cash shall be maintained by Council/LLG/SPF cashier separate from the duties of Council/LLG/SPF accountant.

(c) All petty cash payments shall be made on the basis of approved Petty Cash Vouchers (Form 5.3.8).

(d) Petty cash payments shall be restricted to small payments not exceeding TZS 300,000.00 – large payment in excess of the established limit should be by electronic transfer/cheque unless specifically authorised by the Council Director.

(e) All cash shall be kept locked in a safe/strong room. (f) The Cashier shall count the cash on hand daily each morning before

work basis to ensure that the amount of cash in hand agrees with the book balances – any differences shall be reported to the Council management and corrective action taken.

(g) At the beginning of each new month, before any work starts, the cashier and the Council Treasurer shall count the cash on hand and fill in the Cash Reconciliation Statement (Form 5.3.9) – the cashier and the Council Treasurer shall then both sign the form.

(h) Any cash differences shall be reported for further management action: (1) Any wilful cash losses shall be refunded by the cashier and

disciplinary action taken on the cashier, including removal from the position.

(2) Any other cash differences shall be accounted for as follows: Cash under: All cash under shall be expensed and shown in the Statement of Financial Performance under Financial

Completes all the necessary information.

4.


Sign the Cheque and registers the Cheque on the bank account control sheet.

5. Second category Signatories

Scrutinise recipient, amount, date and signature written on the cheque; and he/she counter signs the cheque.

6.


He/she presents the Cheque together with the supporting payment voucher to the Council Executive Director if payment limit exceed.

7.


• After receiving signed cheques, dispatches them immediately. The recipient has to countersign on the Cheque Payment Voucher. The Cheque Payment Voucher together with all the relevant documents are to be filed in the payment vouchers file in numerical order.

• All cheque payments are registered in the corresponding Bank Account Control Sheet. The sheet is designed to show both receipts and payments effected by cheque, draft and transfer.


Costs: Debit: Statement of Financial Performance xxx Credit: Cash xxx Cash over: All cash over shall be shown in the Statement of Financial Performance and reduce Financial Costs: Debit: Cash xxx Credit: Statement of Financial Performance xxx

(i) The Council Treasurer shall conduct frequent surprise checks. Step Responsible Task

1

Cashier

Prepare Petty Cash Vouchers on the base of authorised and approved basic documents. Ensures that amounts shown are correctly calculated, with agreed supporting documentation and duly authorised. NB: Petty Cash Vouchers are numbered. Filing has to be complete. In all cases the Cash Payment Voucher must be accompanied with the relevant supporting documents.

2

Payee

Before payment is made the payee shall have to sign the Petty Cash Voucher for the receipt of the money.

3

Cashier

Stamp all the documents with a "Paid" stamp and pay out cash. NB: If the cash is an advance / imprest for expenditures incurred, the amount is held against the claimant as his/her personal liability until he/she has produced evidence that he/she spent the money for the intended purpose.


4

Cashier

All cash payments are registered in the corresponding Petty Cash book with sufficient details to identify the transaction. The Petty Cash book is designed to show both receipts and payments effected in cash. NB: The Petty Cash book is to be closed monthly.

5

Cashier

Confirms the Cash/Petty Cash Payment Voucher, together with all relevant documents, are filed in the corresponding Cash Payment Voucher file in numerical order.

6.7.5 Description of Procedures for Petty Cash Receipts

Cash receipts are received either through direct payments to the Cash box/Petty Cash box or through cheque payments.


1 Cashier Issue receipts and enter the detail in the cash book or the internal bank statement.

2 Cashier The original of the receipt is given to the individual who pays. The copy is filed in the "Receipts"-File with all the supporting documents. All cash receipts must be accounted for by number, whether cancelled or issued.

3 Payee Before payment is made the payee shall have to sign the Petty Cash Voucher for the receipt of money.

6.7.6 Cash Reconciliation Statement

(a) The petty cash shall be replenished at the beginning of each month or whenever it runs out.

(b) At the end of each month after closing the Petty Cash Book, the Cashier must prepare a supporting reconciliation statement (FORM 5.3.9) – eventual differences have to be explained and after approval

Costs: Debit: Statement of Financial Performance xxx Credit: Cash xxx Cash over: All cash over shall be shown in the Statement of Financial Performance and reduce Financial Costs: Debit: Cash xxx Credit: Statement of Financial Performance xxx

(i) The Council Treasurer shall conduct frequent surprise checks. Step Responsible Task

1

Cashier

Prepare Petty Cash Vouchers on the base of authorised and approved basic documents. Ensures that amounts shown are correctly calculated, with agreed supporting documentation and duly authorised. NB: Petty Cash Vouchers are numbered. Filing has to be complete. In all cases the Cash Payment Voucher must be accompanied with the relevant supporting documents.

2

Payee

Before payment is made the payee shall have to sign the Petty Cash Voucher for the receipt of the money.

3

Cashier

Stamp all the documents with a "Paid" stamp and pay out cash. NB: If the cash is an advance / imprest for expenditures incurred, the amount is held against the claimant as his/her personal liability until he/she has produced evidence that he/she spent the money for the intended purpose.


by the Council Director entered in the accounting system. (c) A copy of the Cash Reconciliation statement shall be filed by the CT. Cash Reconciliation Statement procedures


1 Cashier Count cash on a daily basis

2 Cashier Establish the cash reconciliation statement

3 Council Treasurer

Conduct unannounced cash checks (at least once in a quarter).

6.7.7 Cash Advances and Imprest

(a) It should be noted that maintaining large balances of cash, handling and carrying large amounts of cash poses a serious safety risk for all concerned and alternatives should always be considered, like making payments by direct bank transfers/cheque, wherever possible before authorizing large cash payments and advances.

(b) Advance/Imprest Management shall comply with Local Authority Financial Memorandum.

(c) When it becomes necessary for an employee to be issued a cash advance (other than those related to salaries) for transacting business (mission) on behalf of the Council, the following rules shall be adapted: (1) An employee requiring cash advance shall fill a ‘Cash Advance

Authorization Form’ (Form 5.3.10) and a ‘Cash Advance Request Form’(Form 5.3.20) and submit them to the Head of Department/Project Coordinator for authorisation and then forwarded to the Accountant managing the Advance/Imprest Control Register (FORM 5.3.23) for checking.

(2) The Accountant maintaining Advance/Imprest Control Register(FORM 5.3.23) shall check the authorization (authorized reason for cash advance), calculations made, amounts, and if the employee owed any previous unretired cash advances.

(3) If the employee owed previous unretired cash advances the Accountant maintaining Advance Payment Register shall refuse


the request there and then. (4) If the employee has no unretired balances, and all requirements

are okay, the Accountant maintaining Advance/Imprest Control Register shall comment on the request form (FORM 5.3.10 and FORM 5.3.20), sign, and forward the form to Council Treasurer who shall verify, sign and then forward it to Council Director for approval.

(5) Council Treasurer shall check the cash advance request form for all the required documentation and comment by the Accountant maintaining Advance Payment Register– if satisfied then will sign the form and forward it to the Council Director.

(6) The Council Director shall check the cash advance request form for all the necessary documentation and comments, approve the request and return the form to Council Treasurer for payment

(7) Payment of the cash advance shall be made by a direct bank transfer of the amount, unless it is a small amount that can be paid out of petty cash

(8) Employee receiving cash advance shall account for the funds by filling in a Cash Advance Retirement Form (FORM 5.3.11) and submitting vouchers and surrendering any cash balance immediately after completion of the transaction but at the latest within four working days.

(9) The Accountant shall then prepare a Journal Voucher (FORM 5.3.7) attaching the Cash Advance retirement form and all the supporting documents.

(10) The Cashier shall deposit all cash returned immediately on the same banking day or next immediate banking day.

(d) The Accountant managing the Advance/Imprest Control Register shall not forward any request of new advance/imprest for staff with outstanding advance/imprest – this restriction has also been accommodated in the IFMIS.

6.8 Staff imprest and travel advances

(a) The requests for work advances or imprest must be provided within the framework of a detailed activity plan with clear terms of reference and reflect the Council’s plan of operations.

by the Council Director entered in the accounting system. (c) A copy of the Cash Reconciliation statement shall be filed by the CT. Cash Reconciliation Statement procedures


1 Cashier Count cash on a daily basis

2 Cashier Establish the cash reconciliation statement

3 Council Treasurer

Conduct unannounced cash checks (at least once in a quarter).

6.7.7 Cash Advances and Imprest

(a) It should be noted that maintaining large balances of cash, handling and carrying large amounts of cash poses a serious safety risk for all concerned and alternatives should always be considered, like making payments by direct bank transfers/cheque, wherever possible before authorizing large cash payments and advances.

(b) Advance/Imprest Management shall comply with Local Authority Financial Memorandum.

(c) When it becomes necessary for an employee to be issued a cash advance (other than those related to salaries) for transacting business (mission) on behalf of the Council, the following rules shall be adapted: (1) An employee requiring cash advance shall fill a ‘Cash Advance

Authorization Form’ (Form 5.3.10) and a ‘Cash Advance Request Form’(Form 5.3.20) and submit them to the Head of Department/Project Coordinator for authorisation and then forwarded to the Accountant managing the Advance/Imprest Control Register (FORM 5.3.23) for checking.

(2) The Accountant maintaining Advance/Imprest Control Register(FORM 5.3.23) shall check the authorization (authorized reason for cash advance), calculations made, amounts, and if the employee owed any previous unretired cash advances.

(3) If the employee owed previous unretired cash advances the Accountant maintaining Advance Payment Register shall refuse


(b) All requests for funds must also be accompanied by a detailed budget indicating the budget lines and corresponding account codes for the expenses to be incurred.

(c) It is the obligation of the requesting officer to confirm with the accountant that sufficient funds remain in the corresponding budget for the planned activities before approval – The plan and budget shall stipulate clearly who is to receive which amounts for which budgeted purposes.

(d) Any works and goods to be procured under the requested imprest shall be subject to the procurement guidelines and limits stipulated in Chapter 22 Stores Procedures and Public Procurement Guidelines.

(e) The templates for requesting funds are Purchase Requisition Form (FORM 5.3.21).

(f) Any imprest or work advance received, for which all or part of the activities have been delayed, must be returned within 5 (five) work day limit – if the activities will be undertaken, then a fresh imprest request shall be initiated for approval.

(g) Retirements of any advance or imprest shall be made using the same formats as for the request– the retirement shall include a short report according to the terms of reference, plus all the receipts and documentation of expenditure incurred according to budget line and account code.

(h) The Council Treasurer shall produce a monthly imprest/advance age report indicating outstanding imprest and from which dates (available within FORM 5.3.23) – these reports shall trigger the required management response of the Council Director to recover any overdue funds immediately through the subsequent monthly salary payment and any other employee benefits.

(i) No new advances or imprest shall be authorized or paid until any previous, still outstanding imprest or advance granted to the applicant is refunded in full. Any work advance or imprest which has not been retired in full within 14 (fourteen) days after returning from duty travel or completion of the activities shall trigger a note of personal debt to be issued to the employee, subject to full recovery from the next salary payment and any other employee benefits.

(j) Retirement for work travel advances or request for refunds of expenses incurred during work travel as previously authorized shall be made additionally to the retirement procedure outlined above in, using the


work travel retirement form (FORM 5.3.11 Cash Advance Retirement Form).

(k) Any receipts which are not refundable but which verify the employee’s presence in the location of work shall be provided – in addition, bus tickets, boarding passes, fuel receipts and vehicle log-book entries shall be used to support the verification of presence in the agreed location.

(l) With further reference to the work time records in Section 5.3.12 Timesheets, the employee shall indicate in the monthly timesheet the location for each day of work travel – this monthly time sheet when signed and submitted as required shall explicitly confirm that the work travel was carried out as approved and indicated in the time-sheet, as well as all the other information contained in it.

Staff imprest and travel advances procedures

(b) All requests for funds must also be accompanied by a detailed budget indicating the budget lines and corresponding account codes for the expenses to be incurred.

(c) It is the obligation of the requesting officer to confirm with the accountant that sufficient funds remain in the corresponding budget for the planned activities before approval – The plan and budget shall stipulate clearly who is to receive which amounts for which budgeted purposes.

(d) Any works and goods to be procured under the requested imprest shall be subject to the procurement guidelines and limits stipulated in Chapter 22 Stores Procedures and Public Procurement Guidelines.

(e) The templates for requesting funds are Purchase Requisition Form (FORM 5.3.21).

(f) Any imprest or work advance received, for which all or part of the activities have been delayed, must be returned within 5 (five) work day limit – if the activities will be undertaken, then a fresh imprest request shall be initiated for approval.

(g) Retirements of any advance or imprest shall be made using the same formats as for the request– the retirement shall include a short report according to the terms of reference, plus all the receipts and documentation of expenditure incurred according to budget line and account code.

(h) The Council Treasurer shall produce a monthly imprest/advance age report indicating outstanding imprest and from which dates (available within FORM 5.3.23) – these reports shall trigger the required management response of the Council Director to recover any overdue funds immediately through the subsequent monthly salary payment and any other employee benefits.

(i) No new advances or imprest shall be authorized or paid until any previous, still outstanding imprest or advance granted to the applicant is refunded in full. Any work advance or imprest which has not been retired in full within 14 (fourteen) days after returning from duty travel or completion of the activities shall trigger a note of personal debt to be issued to the employee, subject to full recovery from the next salary payment and any other employee benefits.

(j) Retirement for work travel advances or request for refunds of expenses incurred during work travel as previously authorized shall be made additionally to the retirement procedure outlined above in, using the



1 Employee Fill in and sign a Cash Advance Form.

2 Council Treasurer

Confirms that the employee does not have an outstanding cash advance. A new cash advance shall not be issued unless the previous one had been retired.

3 Cashier Check the documents and issue a receipt for the cash returned, if any.

4 Accountant Cash advances are debited in the statement of financial position in the holder account until a cash advance is retired.

5 Employee Upon a retirement of a cash advance, the responsible employee must fill in the Travel Expenses and Allowance forms, attach all the supporting documents and hand over the completed form to the Accountant for verification and settlement.

6 Accountant The Cash Advance Retirement Form, together with the relevant documents, shall be attached to a standard Journal Voucher and filed in the relevant file. The amount is transferred from the employee´s cash advance account to the relevant expenses accounts.



7 Accountant An up to date list of all outstanding imprests shall be maintained and filled monthly with financial reports. This list shall also serve to inform authorizing officers of any overdue outstanding imprest and advances. Any over – due outstanding balances shall be recovered from the employee´s next monthly salary or any other benefits.

8

Employee Should the activities for which a working advance/imprest has been issued be delayed, the respective advance shall be returned and a new advance shall be requested when needed. This can also take the form of a partial retirement of already expensed funds.

6.9 Reporting 6.9.1 Responsibility (a) The Council Director is responsible for submitting the monthly and

quarterly Financial Reports of HLG, LLG and SPF to Finance Committee on a monthly/quarterly basis after of the reporting month/quarter.

(b) The Council Treasurer shall monthly receive reports from the LLGs and SPFs and review them and report to the Council Director on compliance with regulations – and shall apply the “exchange report against money principle”.

(c) Council Director is also responsible for ensuring that Annual Council Financial Statements (FORM 5.3.25 Council Financial Reports) are properly prepared and submitted to RS and Ministry responsible for Local Government for review before submitting them to the Audit Committee, the Finance Committee and the Full Council for approval – Thereafter, same reports shall be submitted to CAG for auditing within three month after end of the financial year.

6.9.2 Template for preparation of Council Financial Statements

(a) Templates for the Financial Report shall be established by Ministry responsible for Local Government.


1 Employee Fill in and sign a Cash Advance Form.

2 Council Treasurer

Confirms that the employee does not have an outstanding cash advance. A new cash advance shall not be issued unless the previous one had been retired.

3 Cashier Check the documents and issue a receipt for the cash returned, if any.

4 Accountant Cash advances are debited in the statement of financial position in the holder account until a cash advance is retired.

5 Employee Upon a retirement of a cash advance, the responsible employee must fill in the Travel Expenses and Allowance forms, attach all the supporting documents and hand over the completed form to the Accountant for verification and settlement.

6 Accountant The Cash Advance Retirement Form, together with the relevant documents, shall be attached to a standard Journal Voucher and filed in the relevant file. The amount is transferred from the employee´s cash advance account to the relevant expenses accounts.


(b) The Financial Report contains; • The Councillors’ Report, • Statement of Financial Position, • Statement of Financial Performance, • Statement of Changes in Net Assets, • Cash Flow Statement, • Statement of Comparison with Budget, and • Notes.

(c) The statements shall appear in the order stated in this paragraph. (d) Notes shall be in the following order as required by IPSAS:

(1) Statement of compliance with IPSAS (2) Accounting Policies used in preparation of the financial

statements (3) Notes to the items apperaing in the Statement of Financial

Position in order as they are shown in the Statement (4) Notes to the items appearing in the Statement of Financial

Performance in the order as they are shown in the Statement. (5) Notes to the items in the Statement of Changes in Net Assets in

the order in which they appear in the Statement. (6) Notes to the items in the Cash Flow Statement in the order as

they appear in the Statement. (e) The template for the Financial Report shall be adjusted according to

changes in IPSAS and statutory requirements. (see 5.3.25 Financial Reports and also Guidelines for Financial Disclosures in Local Government Authorities)

6.9.3 Reports to be prepared

Council have to obtain, prepare and file the following documents no later than 15 days after the end of the reporting month: (a) Monthly Revenue and Expenditure reports (b) Monthly Own Source Revenue Performance report (analysis of main

revenue sources) (c) Quarterly Council Performance reports (d) Quarterly Council Financial Reports (CFR)


(e) Quarterly Council Development Reports (CDR) (f) Quarterly Key Finance Staff reports

6.9.4 Audit

(a) Financial statements of the Council shall be audited both by Internal and External Auditors.

(b) The External Auditors for Councils shall be the Controller and Auditor General pursuant to section 143 of the Constitution of the United Republic of Tanzania.

(c) Councils shall review the audit process and report (Form 5.3.27). (d) CAG after conducting audit will issue Management letter and Audit

report that will be addressed to Council Chairman and Council Director. Management responses for Management Letter should be submitted to CAG within twenty one days after receiving a management letter as per Public Audit Act.

(e) Council Management is responsible for ensuring that CAG audit report and Management responses are discussed by Audit Committee, Finance Committee and Full Council and there after submitted to CAG.

6.10 Implementation of CAG recommendations

(a) Responsibility of implementing CAG Audit recommendations vests on Council Management.

(b) According to Public Audit Act, the Government is required to submit to the National Assembly a report on responses and action plan for implementation of CAG recommendations concurrently when the CAG report is laid before the National Assembly.

(c) Ministry responsible for Local Government and RS shall be responsible for scrutinizing the Council Management responses and action plan to be laid before the National Assembly.

6.11 Accountable documents/Instruments

(a) Accountable documents/instruments are those Council documents which if misused, mislaid or stolen could cause financial loss to the Council, LLG or SPF.

(b) In order to avoid such losses, the storage, receipt and issue of such documents must be controlled – All documents, when not in use,

(b) The Financial Report contains; • The Councillors’ Report, • Statement of Financial Position, • Statement of Financial Performance, • Statement of Changes in Net Assets, • Cash Flow Statement, • Statement of Comparison with Budget, and • Notes.

(c) The statements shall appear in the order stated in this paragraph. (d) Notes shall be in the following order as required by IPSAS:

(1) Statement of compliance with IPSAS (2) Accounting Policies used in preparation of the financial

statements (3) Notes to the items apperaing in the Statement of Financial

Position in order as they are shown in the Statement (4) Notes to the items appearing in the Statement of Financial

Performance in the order as they are shown in the Statement. (5) Notes to the items in the Statement of Changes in Net Assets in

the order in which they appear in the Statement. (6) Notes to the items in the Cash Flow Statement in the order as

they appear in the Statement. (e) The template for the Financial Report shall be adjusted according to

changes in IPSAS and statutory requirements. (see 5.3.25 Financial Reports and also Guidelines for Financial Disclosures in Local Government Authorities)

6.9.3 Reports to be prepared

Council have to obtain, prepare and file the following documents no later than 15 days after the end of the reporting month: (a) Monthly Revenue and Expenditure reports (b) Monthly Own Source Revenue Performance report (analysis of main

revenue sources) (c) Quarterly Council Performance reports (d) Quarterly Council Financial Reports (CFR)


should be securely held under lock and key in a safe or strong room. (c) The Council Treasurer is responsible for the safe custody of all

accountable documents/instruments. (d) The Council Treasurer shall ensure that a register is maintained of all

accountable documents/instruments and issue voucher is provided to every officer to whom an issue is made.

(e) All officers issued with POS must render a return of used and unused receipts at the end of every month in a prescribed form.

6.11.1 The documents

Examples of accountable documents/instruments of the Councils that must be controlled are: (a) Receipt books/ Point of Sale machine (POS) (b) Receipt forms, including licenses, permits, health fees, stickers (c) Local purchase orders (LPOs) (d) Cheque books (e) Stores requisitions (f) Invoices (g) Revenue collectors cash books (h) Revenue stamps (i) Delivery notes

6.11.2 Supply of documents

(a) All Council revenue receipts and other accountable documents/instruments specifications shall be obtained from Ministry responsible for Local Government.

(b) Councils should give first priority to Government Printers and its subsidiaries on ordering accountable documents.

(c) Cheque books are purchased from the authorized bank by completing a debit note which is attached in the cheque book.

(d) Business licenses are supplied by the Ministry of Trade, Industries and Markets. Other licenses and permits are supplied by Ministries responsible such as Fishing, Hunting and Forests.

(e) When documents are received, they should be thoroughly checked in the presence of the supplier to confirm that the forms are serially numbered and consecutive.


(f) The documents shall be received by the relevant stores officer in order to put the documents on record, and be immediately issued to the Council Treasurer who shall keep the documents under lock and key in the strong room/safes, under the responsibility of the chief cashier.

(g) If any form is missing or defective, the following action shall be taken: (1) Announce to all Local Authorities and news media the invalidity

of the missing form. (2) The matter shall be reported to the Director/Treasurer who shall

return the book to the supplier and request another complete book.

(h) If it is necessary to transfer documents from one accounting unit to another, the Treasurer must authorize the transfer.

6.11.3 Accountable document register

(a) Every Council shall maintain a register of all receipts and issues of accountable documents/instruments – a separate register shall be maintained for each different type of document.

(b) The details recorded must be sufficient to enable the location, and the responsible Officer, for each document to be identified.

6.11.4 Issue of accountable documents/instruments

(a) Documents must be issued in consecutive order, and only to authorized officials.

(b) The Council Treasury must ensure that numbers issued are not excessive.

(c) A signature must be obtained from the receiving officer, accepting responsibility for the documents/instruments issued.

6.11.5 Procedures for used documents / counterfoils

(a) When the documents have been used, the officer shall return the counterfoil, used books, etc. to the Council Treasurer or a senior officer appointed – the counterfoils will then be checked against the collections deposited with the cashier or bank and if satisfied the

should be securely held under lock and key in a safe or strong room. (c) The Council Treasurer is responsible for the safe custody of all

accountable documents/instruments. (d) The Council Treasurer shall ensure that a register is maintained of all

accountable documents/instruments and issue voucher is provided to every officer to whom an issue is made.

(e) All officers issued with POS must render a return of used and unused receipts at the end of every month in a prescribed form.

6.11.1 The documents

Examples of accountable documents/instruments of the Councils that must be controlled are: (a) Receipt books/ Point of Sale machine (POS) (b) Receipt forms, including licenses, permits, health fees, stickers (c) Local purchase orders (LPOs) (d) Cheque books (e) Stores requisitions (f) Invoices (g) Revenue collectors cash books (h) Revenue stamps (i) Delivery notes

6.11.2 Supply of documents

(a) All Council revenue receipts and other accountable documents/instruments specifications shall be obtained from Ministry responsible for Local Government.

(b) Councils should give first priority to Government Printers and its subsidiaries on ordering accountable documents.

(c) Cheque books are purchased from the authorized bank by completing a debit note which is attached in the cheque book.

(d) Business licenses are supplied by the Ministry of Trade, Industries and Markets. Other licenses and permits are supplied by Ministries responsible such as Fishing, Hunting and Forests.

(e) When documents are received, they should be thoroughly checked in the presence of the supplier to confirm that the forms are serially numbered and consecutive.


receiving officer shall insert the date the documents have been returned.

(b) These shall be kept under lock and key in the strong room for at least 5 (FIVE) years after the finalization of audited accounts for the year in which they were used – under no circumstances shall the documents be destroyed before an approval is obtained from the CAG.

6.11.6 Return of unused documents The register must be completed, showing clearly the documents that have been returned unused – unused documents must be re-issued and accounted for as usual. 6.11.7 Obsolete Documents

(a) When documents become obsolete, for example development levy receipts which are issued for a particular year, their disposal must be controlled.

(b) The Full Council shall be informed of the intention to destroy the documents and approval sought from the CAG – the Full Council must consent before destruction is affected.

(c) The destruction shall be witnessed by two senior officers and a destruction certificate shall be prepared showing the type and serial number of the forms destroyed.

(d) The certificate shall be distributed as follows: (1) Original to the Controller and Auditor General (2) Duplicate to the Council Treasurer (3) Triplicate filed.

6.11.8 Lost documents

(a) Should an accountable document/instrument be lost; a loss report shall be written and communicated to the Council Director.

(b) A copy of the report shall be sent to the CAG. (c) The Council Director shall report the loss to the police and publicize

the invalidity of the document/instrument.


6.11.9 Handing over procedures

When it is necessary to hand over the control of accountable documents/instruments to another officer the following procedure shall be followed:

(1) Both officers shall physically count the documents and verify the numbers with the balance shown in the register of counter folio receipts.

(2) A hand over certificate shall be prepared by the handing over officer and signed by both officers.

6.11.10 Dishonored cheques register – cheques received by the Council (a) The purpose of this register is to provide a record of cheques received

by the Council, which for some reason are returned unpaid by the Bank, and in order to facilitate the follow-up for replacement cheques.

(b) The register shall contain the following minimum information: (1) Date received (2) Cheque number (3) Amount of the cheque dishonored (4) Drawer (5) Replacement cheque number (6) Amount (7) Receipt issued (8) Date (9) Remarks

6.11.11 Dishonored cheques register – issued by LLG and SPFs

(a) The purpose of this register is to provide a record of cheques issued by the LLG and SPFs which for one reason or another have been returned unpaid by the bank.

(b) It is ruled in the same manner as the register of dishonored cheques received by the Council.

(c) The items in 6.10.10 above are shown in the register, subject to the following changes:- (1) Date issued (2) Payee (3) Payment voucher number

receiving officer shall insert the date the documents have been returned.

(b) These shall be kept under lock and key in the strong room for at least 5 (FIVE) years after the finalization of audited accounts for the year in which they were used – under no circumstances shall the documents be destroyed before an approval is obtained from the CAG.

6.11.6 Return of unused documents The register must be completed, showing clearly the documents that have been returned unused – unused documents must be re-issued and accounted for as usual. 6.11.7 Obsolete Documents

(a) When documents become obsolete, for example development levy receipts which are issued for a particular year, their disposal must be controlled.

(b) The Full Council shall be informed of the intention to destroy the documents and approval sought from the CAG – the Full Council must consent before destruction is affected.

(c) The destruction shall be witnessed by two senior officers and a destruction certificate shall be prepared showing the type and serial number of the forms destroyed.

(d) The certificate shall be distributed as follows: (1) Original to the Controller and Auditor General (2) Duplicate to the Council Treasurer (3) Triplicate filed.

6.11.8 Lost documents

(a) Should an accountable document/instrument be lost; a loss report shall be written and communicated to the Council Director.

(b) A copy of the report shall be sent to the CAG. (c) The Council Director shall report the loss to the police and publicize

the invalidity of the document/instrument.


6.11.12 Registers of sums due

(a) Revenue collected by Councils is assessable in advance against individuals.

(b) Special registers shall be maintained in the accounting system, each for a certain type of revenue, to show the amount due, the name of the person liable to pay, to determine the amount payable and facilitate collection, namely:

(1) Rent Receivable Register

(i) Where councils provide residential quarters for their staff, have public housing and other rental properties, a Rent Receivable Register contains the following minimum information: a) Property reference number. b) Location. c) Grade of quarters. d) Use of property Commercial/Residential. e) Name of tenant. f) Amount of rent payable per month. g) Date due and receipt number. h) Total rent receivable per month from all tenants. i) Date of commencement and termination of tenancy.

(iii) Whenever there is a variation in collection in any month,

the register should indicate clearly the reason therefore.

(2) Market Fees Register (i) Markets are a major source of revenue for Councils. (ii) To ensure that all revenue due from those hiring stalls is

identified, a record of stall holders is maintained. (iii) The market Rents Register contains the following

minimum information. a) Stall or room number b) Grade of stall c) Name of tenant


d) Amount due e) Date due and receipt number f) Date of commencement and termination of tenancy.

(iv) It is important to define the type of trading to be conducted

in the markets to ensure that the rate of fees chargeable is properly determined.

(v) Local authorities should advertise annually the letting of market stalls in order to maximize income from this source.

(3) School Fees register

To make sure that revenue from this source is properly accounted for a school fees Register should contain the following minimum information: (i) Name of the student (ii) Class (iii) Fees Payable (iv) Date due (v) Receipt number, amount and date paid (vi) A column for “Remarks” to record the formal remission of

fees.

(4) Trade and Intoxicating Liquor Licenses Register This register contains the following minimum information:- (i) The name of the business. (ii) Location and address. (iii) Type of trade license. (iv) Amount payable. (v) Due date. (vi) Date of commencement and expiration.

(5) Property Tax Register

This register contains the values of all ratable property chargeable to property tax and shows the following minimum information: (i) Reference number of property. (ii) Address and Location.

6.11.12 Registers of sums due

(a) Revenue collected by Councils is assessable in advance against individuals.

(b) Special registers shall be maintained in the accounting system, each for a certain type of revenue, to show the amount due, the name of the person liable to pay, to determine the amount payable and facilitate collection, namely:

(1) Rent Receivable Register

(i) Where councils provide residential quarters for their staff, have public housing and other rental properties, a Rent Receivable Register contains the following minimum information: a) Property reference number. b) Location. c) Grade of quarters. d) Use of property Commercial/Residential. e) Name of tenant. f) Amount of rent payable per month. g) Date due and receipt number. h) Total rent receivable per month from all tenants. i) Date of commencement and termination of tenancy.

(iii) Whenever there is a variation in collection in any month,

the register should indicate clearly the reason therefore.

(2) Market Fees Register (i) Markets are a major source of revenue for Councils. (ii) To ensure that all revenue due from those hiring stalls is

identified, a record of stall holders is maintained. (iii) The market Rents Register contains the following

minimum information. a) Stall or room number b) Grade of stall c) Name of tenant


(iii) Owner’s name. (iv) Valuation. (v) Date of valuation. (vi) Date of occupancy. (vii) Balance b/f. (viii) Adjustments. (ix) Total amount due. (x) Amounts paid. (xi) Receipt No. and date. (xii) Write – offs, voids. (xiii) Balance c/f.

(6) Sales of service register

(i) Where a Local Authority sells materials or renders services on a scale which does not justify the operation of a proper trading undertaking, e.g. the sale of seedlings or provision of vehicle repairs, a register is maintained to control such income sources.

(ii) When payment is made, the number and the date of the receipt is posted in the register against the customer’s name.

(iii) Ideally, the provision of goods or services should be on a pro-forma basis.

(iv) Local authorities undertaking large scale trading operations should use commercial accounting principles for such activities.

(7) Service Levy

(i) Is the register used to record revenue data from corporate and non-corporate institutions.

(ii) The register contains the following information: a) Name of the company. b) Type of business. c) Location and address. d) Assessed returns. e) Amount payable. f) Date of assessment.


(8) Hotel Levy

(i) Is the register used to record revenue data from hotel and guest houses.

(ii) It contains the following information: a) Name of the hotel. b) Location. c) Number of rooms. d) Category of the hotel. e) Rate per room.

(iii) Any other revenue source registers to be established and

maintained by the Council depending on the needs.

6.11.13 Salary Advances Register

(a) Councils approve salary advances to their staff for a variety of reasons. (b) Councils shall maintain memorandum record in order to ensure

efficient and effective recovery of such. (c) The Salary Advances Register shall show the following information:

(1) Month and year the salary advance is granted. (2) Name of employee. (3) Personal file number. (4) Payment voucher number.

6.11.14 Revenue collector’s cash book for cash collection

Details of information recorded in the Revenue collector’s cash book or LGCIRS are summarized below: (a) All collectors of revenue e.g. market masters, head teachers etc., should

be in possession of a Revenue collectors Cash Book and the official receipts for the types of revenue and other money that they are authorized to collect.

(b) All receipts should be entered individually on the debit side of the Revenue Collector’s Cash Book as they occur and their serial number recorded alongside

(c) Receipts and licenses and any other type of receipt in the hands of collectors must be checked regularly.

(iii) Owner’s name. (iv) Valuation. (v) Date of valuation. (vi) Date of occupancy. (vii) Balance b/f. (viii) Adjustments. (ix) Total amount due. (x) Amounts paid. (xi) Receipt No. and date. (xii) Write – offs, voids. (xiii) Balance c/f.

(6) Sales of service register

(i) Where a Local Authority sells materials or renders services on a scale which does not justify the operation of a proper trading undertaking, e.g. the sale of seedlings or provision of vehicle repairs, a register is maintained to control such income sources.

(ii) When payment is made, the number and the date of the receipt is posted in the register against the customer’s name.

(iii) Ideally, the provision of goods or services should be on a pro-forma basis.

(iv) Local authorities undertaking large scale trading operations should use commercial accounting principles for such activities.

(7) Service Levy

(i) Is the register used to record revenue data from corporate and non-corporate institutions.

(ii) The register contains the following information: a) Name of the company. b) Type of business. c) Location and address. d) Assessed returns. e) Amount payable. f) Date of assessment.


(d) The Treasurer, or his/her authorized representative, shall satisfy himself that: (1) All receipt books issued to the collectors have been recorded in

the collector’s Receipt Book Register and that they are produced for inspection

(2) All receipts issued have been brought to account and their serial numbers and their dates of issue entered in the Collector’s Cash Book.

(3) The cash in hand agrees with the balance shown in the Collector’s Cash Book.

(e) When the Treasurer is satisfied that all collections have been properly brought to account he will issue a General Receipt for the total collected.

(f) If more than one head of revenue is concerned the reverse side of the General Receipt will be used to show the details of the revenue sources.

(g) The receipt must show clearly: (1) The type of receipts issued (2) Their serial number (3) The amounts collected (4) The revenue head and sub-head to be credited

(h) When checking the receipts in the hands of the collector, the Treasurer will initial and date the counterfoil of the last receipt or license issued from each counterfoil book or records the number and date of the last receipt issued, together with his initials and the date, on the Collector’s Cash Book.

6.11.15 Register of sums received in the post

This register records the following information: (a) A register of cheques postal orders and cash received through the post

shall be maintained by the clerk responsible for the receipt and distribution of correspondence

(b) The numbers of registered slips must be entered in the register before they are signed.

(c) Other particulars that should be entered in the register are serial numbers of every cheque, postal orders etc., the name of the payer and the amount


(d) The register together with the cash, cheques, postal orders etc., shall be passed to the cashier who will verify the accuracy of the entries, issue the necessary receipts, enter the numbers and dates in the register and sign it.

(e) The number of the receipt issued will be endorsed on each cheque received, whether through the post or otherwise.

(d) The Treasurer, or his/her authorized representative, shall satisfy himself that: (1) All receipt books issued to the collectors have been recorded in

the collector’s Receipt Book Register and that they are produced for inspection

(2) All receipts issued have been brought to account and their serial numbers and their dates of issue entered in the Collector’s Cash Book.

(3) The cash in hand agrees with the balance shown in the Collector’s Cash Book.

(e) When the Treasurer is satisfied that all collections have been properly brought to account he will issue a General Receipt for the total collected.

(f) If more than one head of revenue is concerned the reverse side of the General Receipt will be used to show the details of the revenue sources.

(g) The receipt must show clearly: (1) The type of receipts issued (2) Their serial number (3) The amounts collected (4) The revenue head and sub-head to be credited

(h) When checking the receipts in the hands of the collector, the Treasurer will initial and date the counterfoil of the last receipt or license issued from each counterfoil book or records the number and date of the last receipt issued, together with his initials and the date, on the Collector’s Cash Book.

6.11.15 Register of sums received in the post

This register records the following information: (a) A register of cheques postal orders and cash received through the post

shall be maintained by the clerk responsible for the receipt and distribution of correspondence

(b) The numbers of registered slips must be entered in the register before they are signed.

(c) Other particulars that should be entered in the register are serial numbers of every cheque, postal orders etc., the name of the payer and the amount


SECTION SEVEN

7.0 Payroll 7.1 Responsibility (a) The Council Director is responsible for the proper implementation of

the relevant accounting procedures, the control of disbursements and for ensuring that proper records of employees are maintained.

(b) The Council Human Resource Officer and Salaries Accountant are responsible for establishing the monthly payroll and the individual payslips, controlling the outstanding imprest and advances, and recovering them from the salary – preparing the monthly income tax, pension funds, insurances etc. and returns.

(c) The Council Human Resource Officer and Council Treasurer shall make sure that the affiliated entities are complying with all the statutory requirements relating to their staffs payroll.

7.2 Monthly Preparation of Payroll (a) Salaries shall be paid before the end of each month – if, for any reason

the salaries and wages could not be paid within the month, they shall be payable in the immediate following month.

(b) All labourers are supposed to hand over the weekly time sheets (Form 5.3.12 Form Monthly Time Sheet) at the latest on the 5th of the following month.

(c) Council labourers shall hand over timesheets to the Human Resource Officer, who will sign and archive the timesheets.

7.3 Description of Payroll Procedures


1 Human Resource Officer and Salaries Accountant

Collects time sheets of collaborators and ensures that time sheets are duly signed



2 Human Resource Officer

Includes new staff members in the payroll sheet and removes members who left the office

3 Human Resource Officer

Prepares Payroll with income tax, pension funds, returns, etc.

4 Heads of Department

Checks if salaries are consistent with personnel records (especially contracts) Checks if staff members on payroll have been working at the Council in the reporting period.

5 CD, CT , HRO Signs the monthly payroll sheet.

6 Salaries Accountant

Records expenses in accurate reporting period.

7.4 Preparation Procedures

7.4.1 Introduction

(a) Payroll computations involve many repetitive calculations for large numbers of employees.

(b) Councils have their payroll prepared centrally at the Treasury with the use of computers by Government Salary Payment Platform.

(c) The task of the Local Authorities is to provide the MoFP-Treasury with prompt, accurate and up to date data for each employee to enable the preparation of payroll – these data are supplied by filling forms designated Computer Processed Payroll Data Sheets.

7.4.2 First appointment

(a) Whenever an employee is engaged for the first time, the Human Resources Department should open a file in the Registry – this file should contain, among other things, the full name of the employee,

SECTION SEVEN

7.0 Payroll 7.1 Responsibility (a) The Council Director is responsible for the proper implementation of

the relevant accounting procedures, the control of disbursements and for ensuring that proper records of employees are maintained.

(b) The Council Human Resource Officer and Salaries Accountant are responsible for establishing the monthly payroll and the individual payslips, controlling the outstanding imprest and advances, and recovering them from the salary – preparing the monthly income tax, pension funds, insurances etc. and returns.

(c) The Council Human Resource Officer and Council Treasurer shall make sure that the affiliated entities are complying with all the statutory requirements relating to their staffs payroll.

7.2 Monthly Preparation of Payroll (a) Salaries shall be paid before the end of each month – if, for any reason

the salaries and wages could not be paid within the month, they shall be payable in the immediate following month.

(b) All labourers are supposed to hand over the weekly time sheets (Form 5.3.12 Form Monthly Time Sheet) at the latest on the 5th of the following month.

(c) Council labourers shall hand over timesheets to the Human Resource Officer, who will sign and archive the timesheets.

7.3 Description of Payroll Procedures


1 Human Resource Officer and Salaries Accountant

Collects time sheets of collaborators and ensures that time sheets are duly signed


monthly salary, date of employment, month of annual increment, and amount of annual increment.

(b) The file shall then be sent to payroll section who shall extract the necessary data from the file and complete the Computer Processed Payroll Data Sheet which shall be sent to MoFP-Treasury for inclusion of the new employee in the payroll – the computer output from the Treasury will contain, in addition, an identification number (also called the check number) which is permanent and personal to the employee.

(c) It should be noted that all such input data should be sent to MoFP-Treasury before the 5th day of the month for which the payroll is being prepared for inclusion in the payroll – in the case that first appointment is effected after input data has been sent to MoFP-Treasury, the new employee's first salary should be paid by the Council through a payment voucher.

(d) A list of all employees whose salaries are paid through a payment voucher should be prepared and submitted to Treasury by the 5th day of the subsequent month for reimbursement.

7.4.3 Payroll amendment

(a) The payroll data of an employee will not remain the same throughout the term of employment with the Council - changes may occur in respect of monthly salary, allowances, deductions, etc.

(b) All changes, whenever they occur, must be communicated by the Council to the MoFP-Treasury before the 5th day of the month for which the payroll is being prepared via a completed CPPDS - these are the forms designed to record all amendments, changes or corrections of errors in connection with an employee's payroll data.

7.4.4 Payment of salary to employees

(a) The Council shall wait notification from the MoFP-Treasury that the payroll is ready – it is, however, the responsibility of the Council to keep on inquiring whether or not the MoFP-Treasury has completed the preparation of payroll.


(b) When the payroll is ready, the Council shall receive from the MoFP-Treasury the payroll output, including the payroll sheets, payroll summary and, schedules of deductions.

(c) The Council shall then receive, through the banking system, the amount of net salary of the employees whose salaries are paid by the Treasury and amount of the deductions withheld from the employees' salaries.

(d) On confirming that amounts of salary and deductions have been received through the banking system the Council shall sort the payroll sheets by department, and a reconciliation of the payroll summary with the net salary payable shall be done – all salary advances shall be adjusted, and paid to the Council, before salary is deposited into the employee’s bank account.

(e) When proofreading and reconciliation is completed, payroll vouchers are prepared for each department, indicating the amount of salary payable at each paying station.

7.4.5 Unclaimed Salaries

(a) A register shall be maintained detailing the names of all employees who have not claimed their salaries, their check numbers, and the departments to which they belong.

(b) The employee who did not receive his/her salary during the pay days will be required to write a letter asking for the same, detailing the reasons which made him/her unable to collect the salary at the material time.

(c) If the request is approved, then a payment voucher will be written and a payment be affected into the employee‘s bank account.

7.4.6 Payroll deductions

(a) It is a usual practice for Councils to make some deductions from their employees' salaries.

(b) Such deductions could be statutory e.g. income tax or voluntary and consented by the employee concerned e.g. insurance premium.

(c) The most common deductions applicable to Local Authority employees

monthly salary, date of employment, month of annual increment, and amount of annual increment.

(b) The file shall then be sent to payroll section who shall extract the necessary data from the file and complete the Computer Processed Payroll Data Sheet which shall be sent to MoFP-Treasury for inclusion of the new employee in the payroll – the computer output from the Treasury will contain, in addition, an identification number (also called the check number) which is permanent and personal to the employee.

(c) It should be noted that all such input data should be sent to MoFP-Treasury before the 5th day of the month for which the payroll is being prepared for inclusion in the payroll – in the case that first appointment is effected after input data has been sent to MoFP-Treasury, the new employee's first salary should be paid by the Council through a payment voucher.

(d) A list of all employees whose salaries are paid through a payment voucher should be prepared and submitted to Treasury by the 5th day of the subsequent month for reimbursement.

7.4.3 Payroll amendment

(a) The payroll data of an employee will not remain the same throughout the term of employment with the Council - changes may occur in respect of monthly salary, allowances, deductions, etc.

(b) All changes, whenever they occur, must be communicated by the Council to the MoFP-Treasury before the 5th day of the month for which the payroll is being prepared via a completed CPPDS - these are the forms designed to record all amendments, changes or corrections of errors in connection with an employee's payroll data.

7.4.4 Payment of salary to employees

(a) The Council shall wait notification from the MoFP-Treasury that the payroll is ready – it is, however, the responsibility of the Council to keep on inquiring whether or not the MoFP-Treasury has completed the preparation of payroll.


include Income Tax, Social Security Contributions and Subscriptions to Credit Societies, Trade Unions and Insurance Premiums.

(d) The council shall prepare payment vouchers and make direct bank transfers to the institutions to which the deductions are to be paid.

7.4.7 Casual Labourers

(a) Occasionally, some jobs may arise in a Council which are temporary in nature and thus, the need for temporary workers.

(b) The maximum term of employment for casual labourers is normally 3 months although the term can be renewed whenever necessary.

(c) Casual labourers must be adequately supervised - the supervisor must maintain a daily attendance register in which each casual worker must sign in the morning on reporting for work and in the afternoon when leaving the work place.

(d) Payment to casual labourers involve listing the workers and having the Council HRO reviewing and approving the list before actual payment – the cashier should effect payment of wages to the casual labourers against the names and the amount due to each one of them.

7.4.8 Deleting an employee from the payroll

(a) A Council shall remove its employee(s) from the payroll under such circumstances as death, retirement, termination, transfer, etc. – it is important that information flows promptly and accurately from the Human Resources Department to the Payroll Section.

(b) Applications for burial and terminal benefits, or letters of transfer should prompt deletions from payroll.

(c) The Council shall notify the MoFP-Treasury of such deletion by completing the CPPDS.

(d) If the deleted employee had an outstanding loan, imprest, etc. payable to the Council, this amount shall be recovered from the terminal benefits if it is not a case of transfer.

(e) In the event the outstanding amount cannot be fully recovered from the terminal benefit, the balance shall remain in the Council's records until a proper Authority as per the Financial


Regulations/Memorandum to write it off is obtained.

7.4.9 Transfer of an employee to another Council

(a) It is a usual practice for Council employees to be transferred from one Council to another.

(b) The salary particulars of the transferred employee will be removed from the former Council and taken to the new Council in the following procedure:- (1) CPPDS will be completed by the former Council and sent to the

MoFP-Treasury requiring it to remove the name of such employee from its payroll.

(2) The former Council shall also send the completed CPPDS to the Council to which the employee has been transferred.

(3) The new Council should fill in a CPPDS in respect of the employee and send it to the MoFP-Treasury so that his/her salary will be included in the payroll of that Council.

(4) If the employee had outstanding imprests, loans, etc. payable to the former Council, this shall be indicated in the completed CPPDS which will be sent to the receiving Council – the latter shall receive all such deductions from the MoFP-Treasury and send them to the former Council on a monthly basis.

(5) Where the Council receives the transferred employee(s) after the 5th day of a month, the salary payments should be made through a payment voucher for that particular month – a list of all employees paid via payment vouchers shall be prepared and sent to the MoFP-Treasury for reimbursement.

7.5 Payroll Preparation

a) The payroll is a schedule showing Gross Pay, Deductions and Net Pay. In effect the payroll is a Journal Voucher in Summary Form.

b) In completing the payroll, one line is used for each employee. c) When all the details for all employees are entered in the payroll the

amount columns are totaled – the next step is to prove the accuracy of the Payroll by ensuring that:-

include Income Tax, Social Security Contributions and Subscriptions to Credit Societies, Trade Unions and Insurance Premiums.

(d) The council shall prepare payment vouchers and make direct bank transfers to the institutions to which the deductions are to be paid.

7.4.7 Casual Labourers

(a) Occasionally, some jobs may arise in a Council which are temporary in nature and thus, the need for temporary workers.

(b) The maximum term of employment for casual labourers is normally 3 months although the term can be renewed whenever necessary.

(c) Casual labourers must be adequately supervised - the supervisor must maintain a daily attendance register in which each casual worker must sign in the morning on reporting for work and in the afternoon when leaving the work place.

(d) Payment to casual labourers involve listing the workers and having the Council HRO reviewing and approving the list before actual payment – the cashier should effect payment of wages to the casual labourers against the names and the amount due to each one of them.

7.4.8 Deleting an employee from the payroll

(a) A Council shall remove its employee(s) from the payroll under such circumstances as death, retirement, termination, transfer, etc. – it is important that information flows promptly and accurately from the Human Resources Department to the Payroll Section.

(b) Applications for burial and terminal benefits, or letters of transfer should prompt deletions from payroll.

(c) The Council shall notify the MoFP-Treasury of such deletion by completing the CPPDS.

(d) If the deleted employee had an outstanding loan, imprest, etc. payable to the Council, this amount shall be recovered from the terminal benefits if it is not a case of transfer.

(e) In the event the outstanding amount cannot be fully recovered from the terminal benefit, the balance shall remain in the Council's records until a proper Authority as per the Financial


(1) Basic Pay + Allowances + Overtime + Others = Gross Pay Column.

(2) Social security deductions have been made correctly. (3) PAYE calculations have been made correctly. (4) The sum of all deductions = Total deductions column (5) The Gross Pay Column – the total deductions column = Net pay

column

7.6 Recording the Payroll

(a) When the column totals have been verified, it is necessary to record the payroll accounting entries into the EPICOR.

(b) There are several entries to make which should cover: (1) Recording the pay-roll summary figures from the payroll (2) Recording the employer’s liability in respect of:

(i) PAYE } (ii) CWT } (iii) Social Security contributions } Third Party dues (iv) Trade Union contribution } (v) WADU }

(c) In preparing the entry to recognize the salaries and wages expense the Council shall be aware that these are paid by MoFP-Treasury as such shall pass the following entry to recognize both salaries and wages expense and Grant Revenue: Debit: Salaries and Wages Expense Account XXX Debit: Social Security Contributions XXX Debit: PAYE XXX Debit: CWT XXX Debit: Trade Union Contributions XXX Debit: WADU XXX Credit: Grant Revenue XXX

(d) Where the Council pays salaries and wages or makes a contribution

from its own funds then the cost shall be journalized as follows: Debit: Salaries and Wages Expense Account XXX Debit: Social Security Contributions XXX Debit: PAYE XXX Debit: CWT XXX


Debit: Trade Union Contributions XXX Debit: WADU XXX Credit: Bank Account XXX

7.7 Treatment of Unclaimed salaries

(a) Salaries may remain uncollected for some time. (b) The Council shall determine reason(s) why the salaries remain

uncollected. (c) Regulations require salaries remaining uncollected for a week or more

for whatever reasons to be re-banked and the name of the person against whom salaries remain uncollected shall be struck off in register and payroll list

(d) The entries for salaries in respect of the person(s) shall be reversed in EPICOR.

(1) Basic Pay + Allowances + Overtime + Others = Gross Pay Column.

(2) Social security deductions have been made correctly. (3) PAYE calculations have been made correctly. (4) The sum of all deductions = Total deductions column (5) The Gross Pay Column – the total deductions column = Net pay

column

7.6 Recording the Payroll

(a) When the column totals have been verified, it is necessary to record the payroll accounting entries into the EPICOR.

(b) There are several entries to make which should cover: (1) Recording the pay-roll summary figures from the payroll (2) Recording the employer’s liability in respect of:

(i) PAYE } (ii) CWT } (iii) Social Security contributions } Third Party dues (iv) Trade Union contribution } (v) WADU }

(c) In preparing the entry to recognize the salaries and wages expense the Council shall be aware that these are paid by MoFP-Treasury as such shall pass the following entry to recognize both salaries and wages expense and Grant Revenue: Debit: Salaries and Wages Expense Account XXX Debit: Social Security Contributions XXX Debit: PAYE XXX Debit: CWT XXX Debit: Trade Union Contributions XXX Debit: WADU XXX Credit: Grant Revenue XXX

(d) Where the Council pays salaries and wages or makes a contribution

from its own funds then the cost shall be journalized as follows: Debit: Salaries and Wages Expense Account XXX Debit: Social Security Contributions XXX Debit: PAYE XXX Debit: CWT XXX


SECTION EIGHT

8.0 Revenue

8.1 General Provisions

(a) A Council shall recognize (record) revenue when earned. (b) Totals of revenues are shown in the financial statements (prepared at

the end of an accounting period), whether or not cash was received in that period.

(c) A Council shall measure revenue at the fair value of the consideration received or receivable.

8.1 Revenue from Exchange Transactions

(a) A Council shall record and report an exchange transaction when the Council receives assets or services, or has liabilities extinguished, and directly gives approximately equal value (primarily in the form of goods, services or use of assets) to the other party in exchange.

(b) A Council shall apply the following principles in accounting for revenue arising from the following exchange transactions and events: (1) The rendering of services; (2) The sale of goods; and (3) The use by others of Council assets yielding interest, royalties

and dividends. 8.1.1 Measurement of Revenue

(a) A Council shall measure revenue at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the Council.

(b) A Council shall usually determine the amount of revenue arising on a transaction by agreement between the Council and the purchaser or user of the asset or service.

8.1.1.1 Rendering of Services

(a) A Council shall recognize revenue associated with a transaction, when the outcome of a transaction involving the rendering of services can be estimated reliably, by reference to the stage of completion of the transaction at the reporting date.

(b) A Council shall estimate the outcome of a transaction reliably when all


the following conditions are satisfied: (1) The amount of revenue can be measured reliably; (2) It is probable that the economic benefits or service potential

associated with the transaction will flow to the Council; (3) The stage of completion of the transaction at the reporting date

can be measured reliably; and (4) The costs incurred for the transaction and the costs to complete

the transaction can be measured reliably. (c) A Council shall recognize as an expense rather than as an adjustment

of the amount of revenue originally recognized the uncollectable amount, or the amount in respect of which recovery has ceased to be probable, when an uncertainty arises about the collectability of an amount already included in revenue. Debit: Uncollectible Expense-Statement of F/Performance xxx Credit: Receivables xxx

(d) A Council shall recognize revenue only to the extent of the expenses recognized that are recoverable when the outcome of the transaction involving the rendering of services cannot be estimated reliably.

8.1.1.2 Sale of Goods

A Council shall recognize revenue from the sale of goods when all the following conditions have been satisfied: (a) The Council has transferred to the purchaser the significant risks and

rewards of ownership of the goods; (b) The Council retains neither continuing managerial involvement to the

degree usually associated with ownership nor effective control over the goods sold;

(c) The amount of revenue can be measured reliably; (d) It is probable that the economic benefits or service potential associated

with the transaction will flow to the Council; and (e) The costs incurred or to be incurred in respect of the transaction can be

measured reliably. 8.1.1.3 Interest, Royalties and Dividends

(a) A Council shall recognize revenue arising from the use by others of Council assets yielding interest, royalties and dividends using the accounting treatments set out in paragraph below when it is probable that the economic benefits or service potential associated with the

SECTION EIGHT

8.0 Revenue

8.1 General Provisions

(a) A Council shall recognize (record) revenue when earned. (b) Totals of revenues are shown in the financial statements (prepared at

the end of an accounting period), whether or not cash was received in that period.

(c) A Council shall measure revenue at the fair value of the consideration received or receivable.

8.1 Revenue from Exchange Transactions

(a) A Council shall record and report an exchange transaction when the Council receives assets or services, or has liabilities extinguished, and directly gives approximately equal value (primarily in the form of goods, services or use of assets) to the other party in exchange.

(b) A Council shall apply the following principles in accounting for revenue arising from the following exchange transactions and events: (1) The rendering of services; (2) The sale of goods; and (3) The use by others of Council assets yielding interest, royalties

and dividends. 8.1.1 Measurement of Revenue

(a) A Council shall measure revenue at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the Council.

(b) A Council shall usually determine the amount of revenue arising on a transaction by agreement between the Council and the purchaser or user of the asset or service.

8.1.1.1 Rendering of Services

(a) A Council shall recognize revenue associated with a transaction, when the outcome of a transaction involving the rendering of services can be estimated reliably, by reference to the stage of completion of the transaction at the reporting date.

(b) A Council shall estimate the outcome of a transaction reliably when all


transaction will flow to the Council and the amount of the revenue can be measured reliably.

(b) A Council shall recognize revenue using the following accounting treatments: (1) Interest should be recognized on a time proportion basis that

takes into account the effective yield on the asset; (2) Royalties should be recognized as they are earned in accordance

with the substance of the relevant agreement; and (3) Dividends or their equivalents should be recognized when the

shareholder’s or the Council’s right to receive payment is established.

(c) The effective yield on an asset is the rate of interest required to discount the stream of future cash receipts expected over the life of the asset to equate to the initial carrying amount of the asset – interest revenue includes the amount of amortization of any discount, premium or other difference between the initial carrying amount of a debt security and its amount at maturity.

(d) A Council shall recognize only the post-acquisition portion as revenue when unpaid interest has accrued before the acquisition of an interest bearing investment and the subsequent receipt of interest is allocated between pre-acquisition and post-acquisition periods.

(e) A Council shall deduct from the cost of the securities dividends on equity securities declared from pre-acquisition net surplus – if it is difficult to make such an allocation except on an arbitrary basis, dividends are recognized as revenue unless they clearly represent a recovery of part of the cost of the equity securities.

8.1.2 Rendering of Services

(a) A Council shall recognize rental income from the provision of housing as the income is earned in accordance with the terms of tenancy agreement.

(b) A Council shall recognize revenues from fares to charge passengers from the provision of school transport when transport is provided.

(c) A Council shall recognize revenue from the management of toll roads as it is earned, based on the usage of the roads.

(d) A Council shall recognize revenue from the processing of court cases based on the periods during which the courts are in session.


8.1.3 Disclosure

A Council should disclose: (a) The accounting policies adopted for the recognition of revenue

including the methods adopted to determine the stage of completion of transactions involving the rendering of services;

(b) The amount of each significant category of revenue recognized during the period including revenue arising from: (1) The rendering of services; (2) The sale of goods; (3) Interest; (4) Royalties; and (5) Dividends or their equivalents; and

(c) The amount of revenue arising from exchanges of goods or services included in each significant category of revenue.

8.2 Revenue from Non-exchange Transactions

(a) Non-exchange transactions are transactions in which the Council either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange.

(b) The majority of revenue of Councils is typically derived from non-exchange transactions such as: (i) Taxes; and (ii) Transfers (whether cash or noncash), including grants, debt

forgiveness, fines, bequests, gifts, donations, and goods and services

8.2.1 Taxes

(a) Taxes are economic benefits or service potential compulsorily paid or payable to public sector entities, in accordance with laws and or regulations, established to provide revenue to the government excluding fines or other penalties imposed for breaches of the law.

(b) Taxes are the major source of revenue for many governments and other public sector entities.

transaction will flow to the Council and the amount of the revenue can be measured reliably.

(b) A Council shall recognize revenue using the following accounting treatments: (1) Interest should be recognized on a time proportion basis that

takes into account the effective yield on the asset; (2) Royalties should be recognized as they are earned in accordance

with the substance of the relevant agreement; and (3) Dividends or their equivalents should be recognized when the

shareholder’s or the Council’s right to receive payment is established.

(c) The effective yield on an asset is the rate of interest required to discount the stream of future cash receipts expected over the life of the asset to equate to the initial carrying amount of the asset – interest revenue includes the amount of amortization of any discount, premium or other difference between the initial carrying amount of a debt security and its amount at maturity.

(d) A Council shall recognize only the post-acquisition portion as revenue when unpaid interest has accrued before the acquisition of an interest bearing investment and the subsequent receipt of interest is allocated between pre-acquisition and post-acquisition periods.

(e) A Council shall deduct from the cost of the securities dividends on equity securities declared from pre-acquisition net surplus – if it is difficult to make such an allocation except on an arbitrary basis, dividends are recognized as revenue unless they clearly represent a recovery of part of the cost of the equity securities.

8.1.2 Rendering of Services

(a) A Council shall recognize rental income from the provision of housing as the income is earned in accordance with the terms of tenancy agreement.

(b) A Council shall recognize revenues from fares to charge passengers from the provision of school transport when transport is provided.

(c) A Council shall recognize revenue from the management of toll roads as it is earned, based on the usage of the roads.

(d) A Council shall recognize revenue from the processing of court cases based on the periods during which the courts are in session.


(c) A government levies taxation on individuals and other entities, known as taxpayers, within its jurisdiction by use of its sovereign powers.

(d) Tax laws and regulations establish a government’s right to collect the tax, identify the basis on which the tax is calculated, and establish procedures to administer the tax, that is, procedures to calculate the tax receivable and ensure payment is received.

(e) Tax laws and regulations often require taxpayers to file periodic returns to the government agency that administers a particular tax. The taxpayer generally provides details and evidence of the level of activity subject to tax, and the amount of tax receivable by the government is calculated.

(f) Arrangements for receipt of taxes vary widely but are normally designed to ensure that the government receives payments on a regular basis without resorting to legal action. Tax laws are usually rigorously enforced and often impose severe penalties on individuals or other entities breaching the law.

(g) A Council shall recognize an asset in respect of taxes when the taxable event occurs and the asset recognition criteria are met.

(h) A Council shall analyze the taxation law in its own jurisdiction to determine what the taxable event is for the various taxes levied.

8.2.2 Fines

Fines are economic benefits or service potential received or receivable by public sector entities, as determined by a court or other law enforcement body, as a consequence of the breach of laws or regulations.

8.2.3 Transfers

Transfers are inflows of future economic benefits or service potential from non-exchange transactions, other than taxes.

8.2.4 Recognition of Non-exchange Transactions

(a) A Council will recognize an asset arising from a non-exchange transaction when it gains control of resources that meet the definition of an asset and satisfy the recognition criteria and a corresponding revenue when all of the present obligations related to the inflow have been satisfied. Debit: Asset (normally cash) XXX


Credit: Revenue (tax, fine, etc.) XXX (b) In certain circumstances, such as when a creditor forgives a liability, a

decrease in the carrying amount of a previously recognized liability may arise – In these cases, instead of recognizing an asset, the entity decreases the carrying amount of the liability. Debit: Liability (forgiven) XXX Credit: Revenue XXX

(c) In some cases, gaining control of the asset may also carry with it obligations that the entity will recognize as a liability. (see 8.4)

(d) Taxation revenue shall be determined at a gross amount.

8.3 Disclosures

(a) A Council shall disclose either on the face of, or in the notes to, the financial statements: (1) The amount of revenue from non-exchange transactions

recognized during the period by major classes showing separately: (i) Taxes, showing separately major classes of taxes; and (ii) Transfers, showing separately major classes of transfer

revenue. (2) The amount of receivables recognized in respect of non-

exchange revenue; (3) The amount of liabilities recognized in respect of transferred

assets subject to conditions; (4) The amount of assets recognized that are subject to restrictions

and the nature of those restrictions; (5) The existence and amounts of any advance receipts in respect of

non-exchange transactions; and (6) The amount of any liabilities forgiven.

(b) A Council shall disclose in the notes to the financial statements: (1) The accounting policies adopted for the recognition of revenue

from non-exchange transactions; (2) For major classes of revenue from non-exchange transactions,

the basis on which the fair value of inflowing resources was measured;

(3) For major classes of taxation revenue which the entity cannot measure reliably during the period in which the taxable event occurs, information about the nature of the tax; and

(c) A government levies taxation on individuals and other entities, known as taxpayers, within its jurisdiction by use of its sovereign powers.

(d) Tax laws and regulations establish a government’s right to collect the tax, identify the basis on which the tax is calculated, and establish procedures to administer the tax, that is, procedures to calculate the tax receivable and ensure payment is received.

(e) Tax laws and regulations often require taxpayers to file periodic returns to the government agency that administers a particular tax. The taxpayer generally provides details and evidence of the level of activity subject to tax, and the amount of tax receivable by the government is calculated.

(f) Arrangements for receipt of taxes vary widely but are normally designed to ensure that the government receives payments on a regular basis without resorting to legal action. Tax laws are usually rigorously enforced and often impose severe penalties on individuals or other entities breaching the law.

(g) A Council shall recognize an asset in respect of taxes when the taxable event occurs and the asset recognition criteria are met.

(h) A Council shall analyze the taxation law in its own jurisdiction to determine what the taxable event is for the various taxes levied.

8.2.2 Fines

Fines are economic benefits or service potential received or receivable by public sector entities, as determined by a court or other law enforcement body, as a consequence of the breach of laws or regulations.

8.2.3 Transfers

Transfers are inflows of future economic benefits or service potential from non-exchange transactions, other than taxes.

8.2.4 Recognition of Non-exchange Transactions

(a) A Council will recognize an asset arising from a non-exchange transaction when it gains control of resources that meet the definition of an asset and satisfy the recognition criteria and a corresponding revenue when all of the present obligations related to the inflow have been satisfied. Debit: Asset (normally cash) XXX


(4) The nature and type of major classes of bequests, gifts, donations showing separately major classes of goods in-kind received.

8.4 Grant

(a) A Council shall record and report a non-exchange transaction (grant) when the Council receives assets or services, or has liabilities extinguished, without directly giving approximately equal value (primarily in the form of goods, services or use of assets) to the other party in exchange.

(b) A Council may receive grants in two forms: cash and non-cash assets and may be attached with stipulations – conditions or restrictions.

(c) A restriction is a stipulation that does not require the Council to return the asset in the grant to the benefactor if the grant is utilized by the Council in a manner different to that intended by the benefactor, and shall be recognized as revenue in the period it is utilized.

(d) A condition is a stipulation that will require the Council to return the asset in the grant to the benefactor if the grant is utilized by the Council in a manner different to that intended by the benefactor and shall be recognized as a liability when received.

(e) Most cash grants received by Councils are grants with stipulations. (f) Most grants received by Councils in non-cash assets will be grants with

conditions. (g) A Council shall measure grants at the fair value of cash or non-cash

asset received. 8.4.1 Cash Grants

(a) A Council may receive cash grant to meet operating expenses, to meet recurring Council payments or for acquiring capital assets.

(b) A Council shall pass the following entry when cash grant is received: Debit: Cash XXX Credit: Grant XXX

(c) A Council shall recognize cash grant as revenue in the reporting period in which it is received when all the stipulations have been met and it is probable that there shall be an outflow of economic resources from the Council.

(d) A Council shall pass the following entry when it recognizes cash grant as revenue: Debit: Grant XXX


Credit: Grant Revenue XXX (e) Otherwise, a Council shall recognize a liability – Deferred Grant:

Statement of Financial Position Extract Current Liabilities: Deferred Operating Grant XXX

8.4.2 Non-cash Grants

(a) A Council receiving/acquiring an asset through a non-exchange transaction shall measure its cost at its fair value as at the date of acquisition.

(b) A Council shall recognize an asset and a related liability when grant is received in non-cash asset and shall pass the following entry: Debit: Non-cash Asset XXX Credit: Deferred Grant XXX

(c) A Council shall apportion the liability to revenue at the end of each reporting period, until it is completely amortized, at equal amounts on the basis of the useful life of the non-current asset.

(d) A Council shall pass the following entry: Debit: Deferred Grant XXX Credit: Grant Revenue XXX

(e) A Council shall not offset the asset and the deferred liability.

Statement of Financial Position Extract: Non-Current Assets: Grant Asset XXX

Non-Current Liabilities Deferred Grant XXX

8.5 Disclosures

The following disclosures shall be made with respect to:


8.4 Grant

(a) A Council shall record and report a non-exchange transaction (grant) when the Council receives assets or services, or has liabilities extinguished, without directly giving approximately equal value (primarily in the form of goods, services or use of assets) to the other party in exchange.

(b) A Council may receive grants in two forms: cash and non-cash assets and may be attached with stipulations – conditions or restrictions.

(c) A restriction is a stipulation that does not require the Council to return the asset in the grant to the benefactor if the grant is utilized by the Council in a manner different to that intended by the benefactor, and shall be recognized as revenue in the period it is utilized.

(d) A condition is a stipulation that will require the Council to return the asset in the grant to the benefactor if the grant is utilized by the Council in a manner different to that intended by the benefactor and shall be recognized as a liability when received.

(e) Most cash grants received by Councils are grants with stipulations. (f) Most grants received by Councils in non-cash assets will be grants with

conditions. (g) A Council shall measure grants at the fair value of cash or non-cash

asset received. 8.4.1 Cash Grants

(a) A Council may receive cash grant to meet operating expenses, to meet recurring Council payments or for acquiring capital assets.

(b) A Council shall pass the following entry when cash grant is received: Debit: Cash XXX Credit: Grant XXX

(c) A Council shall recognize cash grant as revenue in the reporting period in which it is received when all the stipulations have been met and it is probable that there shall be an outflow of economic resources from the Council.

(d) A Council shall pass the following entry when it recognizes cash grant as revenue: Debit: Grant XXX


8.5.1 Revenue

(a) A Council shall disclose either on the face of, or in the notes to, the general purpose financial statements: (1) The amount of revenue from non-exchange transactions







(b) A Council shall disclose in the notes to the general purpose financial

statements: (1) The accounting policies adopted for the recognition of revenue



(3) For major classes of taxation revenue which the Council cannot measure reliably during the period in which the taxable event occurs, information about the nature of the tax; and


8.5.2 Deferred Grant

The Council shall disclose either on the face of, or in the notes to, the general purpose financial statements: (a) The amount of liabilities recognized in respect of transferred assets

subject to conditions;


(b) The amount of assets recognized that are subject to restrictions and the nature of those restrictions;

(c) The existence and amounts of any advance receipts in respect of non-exchange transactions; and

(d) The amount of any liabilities forgiven.

8.5.1 Revenue

(a) A Council shall disclose either on the face of, or in the notes to, the general purpose financial statements: (1) The amount of revenue from non-exchange transactions







(b) A Council shall disclose in the notes to the general purpose financial

statements: (1) The accounting policies adopted for the recognition of revenue



(3) For major classes of taxation revenue which the Council cannot measure reliably during the period in which the taxable event occurs, information about the nature of the tax; and


8.5.2 Deferred Grant

The Council shall disclose either on the face of, or in the notes to, the general purpose financial statements: (a) The amount of liabilities recognized in respect of transferred assets

subject to conditions;


SECTION NINE

9 Property, Plant and Equipment

This section explains the Council policies, procedures and guidelines in relation to items of property, plant and equipment that qualify for recognition as assets by the Council. 9.1 Definition of Non-current (Fixed) Assets

(a) All equipment directly acquired for the beneficiary of the Council, or the object of a transfer made official by a document signed by the concerned parties, have to be included in the Council inventory.

(b) These investments are called “non-current (fixed) assets” and are the Council’s property.

(c) Therefore, non-current (fixed) assets are those assets of value which are intended for long-term use on a continuous basis by the Council in the process of earning revenue or in support of the Council’s operations, and which are not primarily for resale or conversion.

9.2 Responsibility

The Council Treasurer is responsible for ensuring that the expenditure on non-current (fixed) assets is properly controlled and recorded. 9.3 Registration of non-current (fixed) assets

For the registration of non-current (fixed) assets the following should be followed: (a) Where non-current (fixed) assets are funded by the Council, they

remain as the property of the Council kept at the exclusive use of the Council and shall not be diverted unless directed by the Minister Responsible for Local Government.

(b) A Non-current (fixed) Assets Register (FAR) - is maintained in which all non-current (fixed) assets are recorded.

(c) The Council Treasurer shall record all details of non-current (fixed) assets on a Non-current (Fixed) Assets Register on completion of acquisition or capital investment.

(d) All non-current (fixed) assets shall be insured. (e) All non-current (fixed) assets shall be coded with identifications

indicating, among other things, their ownership, placement, years,


etc. (f) The physical non-current (fixed) assets inventory is to be carried out

on 30 June every year.

9.4 Categories of Non-current (Fixed) Asset

Category Example

Furnishings Desk, Tables, Chairs, Bookshelves, etc.

Technical equipment Survey equipment and architectures, Hospital equipment, etc.

Office machines, Communication systems

Telephone, Fax, etc.

Vehicles Earth moving equipment, heavy plants, etc.

Hardware Servers, Printers, Laptops, PCs, network components (without wiring)

Software Licenses

Land Owned land

Buildings Owned buildings

Building installations Heating, Air Conditioning, Electrical Installations, Generators, Sanitary installations, Water Supply, Wiring, etc.

Heritage Assets Caves, museums, parks, old libraries etc.

9.5 Acquisitions

(a) The CD and the CT shall approve all quotations before placing any

SECTION NINE

9 Property, Plant and Equipment

This section explains the Council policies, procedures and guidelines in relation to items of property, plant and equipment that qualify for recognition as assets by the Council. 9.1 Definition of Non-current (Fixed) Assets

(a) All equipment directly acquired for the beneficiary of the Council, or the object of a transfer made official by a document signed by the concerned parties, have to be included in the Council inventory.

(b) These investments are called “non-current (fixed) assets” and are the Council’s property.

(c) Therefore, non-current (fixed) assets are those assets of value which are intended for long-term use on a continuous basis by the Council in the process of earning revenue or in support of the Council’s operations, and which are not primarily for resale or conversion.

9.2 Responsibility

The Council Treasurer is responsible for ensuring that the expenditure on non-current (fixed) assets is properly controlled and recorded. 9.3 Registration of non-current (fixed) assets

For the registration of non-current (fixed) assets the following should be followed: (a) Where non-current (fixed) assets are funded by the Council, they

remain as the property of the Council kept at the exclusive use of the Council and shall not be diverted unless directed by the Minister Responsible for Local Government.

(b) A Non-current (fixed) Assets Register (FAR) - is maintained in which all non-current (fixed) assets are recorded.

(c) The Council Treasurer shall record all details of non-current (fixed) assets on a Non-current (Fixed) Assets Register on completion of acquisition or capital investment.

(d) All non-current (fixed) assets shall be insured. (e) All non-current (fixed) assets shall be coded with identifications

indicating, among other things, their ownership, placement, years,


orders. (b) On acquisition of a non-current (fixed) asset, it is the responsibility of

the Council Head of PMU to allocate and mark non-current (fixed) assets with a number so that they can easily be identified.

(c) In addition, for each asset that the Council acquires, the CT must: (1) Determine the cost and other details of a non-current (fixed)

asset from documents generated during purchasing. The cost of an asset should encompass any costs attributable to bring the asset to working condition, such as installation costs.

(2) Record the following details on a Non-current (Fixed) Asset Register: (i) Description, make, model, serial number. (ii) Supplier/Donor details. (iii) Economic life as determined by Ministry responsible for

Local Government from time to time. (iv) Cost in foreign currency and local currency, including

installation and trial run expenses. (v) Location. (vi) Date and year of purchase. (vii) Disposal details.

(3) Maintain a Non-current (Fixed) Asset Register in a physical asset binder, arranged by category of assets.

9.6 Initial Recognition

(a) A Council shall initially measure items of property, plant and equipment that qualify for recognition as an asset at cost.

(b) A Council shall pass the following entry to recognize the cost of the asset: Debit: Purchase Price of the Asset XXX Debit: Costs necessary for the asset to be in place

And condition for intended use XXX Credit: Cash or Liability XXX

(c) The cost of an item of property, plant and equipment comprises: (1) Its purchase price, including import duties and non-refundable

purchase taxes, after deducting trade discounts and rebates. (2) Any costs directly attributable to bringing the asset to the

location and condition necessary for it to be capable of operating in the manner intended by management.


(3) The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an Council incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

9.6.1 Examples of directly attributable costs

(a) Costs of employee benefits (as defined in the relevant international or national accounting standard dealing with employee benefits) arising directly from the construction or acquisition of the item of property, plant and equipment;

(b) Costs of site preparation; (c) Initial delivery and handling costs; (d) Installation and assembly costs; (e) Costs of testing whether the asset is functioning properly, after

deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment); and

(f) Professional fees.

9.6.2 Cessation of Costs Recognition

(a) Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by Management.

(b) Therefore, costs incurred in using or redeploying an item is not included in the carrying amount of that item.

9.6.3 Deferred Payments

(a) The cost of an item of property, plant and equipment is the cash price equivalent or, for an item obtained as grant, its fair value at the recognition date.

(b) If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as interest over the period of credit unless such interest is recognized in the carrying amount of the item.

orders. (b) On acquisition of a non-current (fixed) asset, it is the responsibility of

the Council Head of PMU to allocate and mark non-current (fixed) assets with a number so that they can easily be identified.

(c) In addition, for each asset that the Council acquires, the CT must: (1) Determine the cost and other details of a non-current (fixed)

asset from documents generated during purchasing. The cost of an asset should encompass any costs attributable to bring the asset to working condition, such as installation costs.

(2) Record the following details on a Non-current (Fixed) Asset Register: (i) Description, make, model, serial number. (ii) Supplier/Donor details. (iii) Economic life as determined by Ministry responsible for

Local Government from time to time. (iv) Cost in foreign currency and local currency, including

installation and trial run expenses. (v) Location. (vi) Date and year of purchase. (vii) Disposal details.

(3) Maintain a Non-current (Fixed) Asset Register in a physical asset binder, arranged by category of assets.

9.6 Initial Recognition

(a) A Council shall initially measure items of property, plant and equipment that qualify for recognition as an asset at cost.

(b) A Council shall pass the following entry to recognize the cost of the asset: Debit: Purchase Price of the Asset XXX Debit: Costs necessary for the asset to be in place

And condition for intended use XXX Credit: Cash or Liability XXX

(c) The cost of an item of property, plant and equipment comprises: (1) Its purchase price, including import duties and non-refundable

purchase taxes, after deducting trade discounts and rebates. (2) Any costs directly attributable to bringing the asset to the

location and condition necessary for it to be capable of operating in the manner intended by management.


(c) A Council shall pass the following entry: Debit: Asset XXX Debit: Surplus or Deficit (financial – interest – cost) XXX Credit: Cash or Liability XXX


(a) Where an asset is acquired through a non-exchange transaction, its cost shall be measured at its fair value as at the date of acquisition, and this does not constitute a revaluation.

(b) The following entry shall be passed: Debit: Non-cash Asset XXX Credit: Deferred Grant XXX The asset and the deferred liability shall not be offset.

Statement of Financial Position Extract: Non-Current Assets: Grant Asset XXX Non-Current Liabilities: Deferred Grant XXX

9.6.5 One Asset Exchanged For another Asset

(a) The Council may acquire one or more items of property, plant and equipment in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The cost of such an item of property, plant and equipment is measured at fair value unless: (i) The exchange transaction lacks commercial substance or (ii) The fair value of neither the asset received nor the asset given up

is reliably measurable. (b) The acquired item is measured in this way even if the Council cannot

immediately derecognize the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of


the asset given up.

9.6.6 Heritage Assets

(a) Heritage assets have the following characteristics: (1) Their value in cultural, environmental, educational, and

historical terms is unlikely to be fully reflected in a financial value based purely on a market price;

(2) Legal and/or statutory obligations may impose prohibitions or severe restrictions on disposal by sale;

(3) They are often irreplaceable and their value may increase over time, even if their physical condition deteriorates; and

(4) It may be difficult to estimate their useful lives, which in some cases could be several 100 years

(b) Council shall not recognize heritage assets when the following occurs (1) When there is change in Government policy or directives (2) When the asset is taken by events like environment hazards etc.

9.7 Subsequent Measurements

Councils shall subsequently, at each reporting date, determine the carrying amount of the asset using the Cost Model, being the initially recognized cost less any accumulated depreciation and any accumulated impairment losses from the date of initial recognition to the subsequent measurement date.

9.7.1 Depreciation

Councils shall depreciate items of property, plant and equipment by systematically allocating the depreciable amount of those items over their useful lives.

9.7.1.1 General Provisions

(a) Councils shall depreciate items of property, plant and equipment at the end of each accounting period according to the schedule provided below:-

(c) A Council shall pass the following entry: Debit: Asset XXX Debit: Surplus or Deficit (financial – interest – cost) XXX Credit: Cash or Liability XXX


(a) Where an asset is acquired through a non-exchange transaction, its cost shall be measured at its fair value as at the date of acquisition, and this does not constitute a revaluation.

(b) The following entry shall be passed: Debit: Non-cash Asset XXX Credit: Deferred Grant XXX The asset and the deferred liability shall not be offset.

Statement of Financial Position Extract: Non-Current Assets: Grant Asset XXX Non-Current Liabilities: Deferred Grant XXX

9.6.5 One Asset Exchanged For another Asset

(a) The Council may acquire one or more items of property, plant and equipment in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The cost of such an item of property, plant and equipment is measured at fair value unless: (i) The exchange transaction lacks commercial substance or (ii) The fair value of neither the asset received nor the asset given up

is reliably measurable. (b) The acquired item is measured in this way even if the Council cannot

immediately derecognize the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of


Description Years

Administration assets

Leasehold land Over the lease term

Buildings 25

Plant and machinery 10

Furniture, fixture and equipment 10

Motor vehicles

§ Heavy duty (5 tons and above)

5

§ Light duty (below 5 tons) 10

Motor cycle 7

Office machines, Communication 5

Software 5

Technical Equipment (e.g. Hospital equipment etc.)

4

Description Years

Infrastructural assets


Roads

§ Gravel roads and culverts/drifts

4

§ Tarmac roads and culverts/drifts

10

§ Earth roads (initial cost) and culverts/drifts

Bridges

§ Wooden bridges 2


§ Concrete bridges 15

§ Steel bridges 30

Buildings 50

Building installations (e.g. Heating, Air Conditioning, Electrical Installations, Generators, Sanitary installations, Water Supply, Wiring etc.)

4

Shallow wells 15

Boreholes 15

Sewerage systems 15

Water systems 15

Drainage systems 15

Agriculture and livestock extension system

25



Motor vehicles


5


Motor cycle 7

Computer hardware 5

Heritage Assets No depreciation

(b) Each part of an item of property, plant and equipment with a cost that

is significant in relation to the total cost of the item shall be depreciated

Description Years

Administration assets


Buildings 25



Motor vehicles


5


Motor cycle 7

Office machines, Communication 5

Software 5

Technical Equipment (e.g. Hospital equipment etc.)

4

Description Years

Infrastructural assets


Roads

§ Gravel roads and culverts/drifts

4

§ Tarmac roads and culverts/drifts

10

§ Earth roads (initial cost) and culverts/drifts

Bridges

§ Wooden bridges 2


separately – for example, in most cases, the Council would be required to depreciate separately the pavements, formation, curbs and channels, footpaths, bridges and lighting within a road system.

(c) The Council shall not depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item.

9.7.1.2 Timing of Depreciation

(a) The Council shall begin depreciation of an asset when the asset is available for use i.e., when the asset is in the location and condition necessary for it to be capable of operating in the manner intended by the Council.

(b) The Council shall cease Depreciation of an asset when the asset is derecognized.

9.7.2 Depreciation Amount and Depreciation Period 9.7.2.1 Depreciable Amount

(a) A Council shall allocate the depreciable amount of an asset on a systematic basis over its useful life.

(b) A Council shall set the residual value of the items of property, plant and equipment to zero. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount.

9.7.2.2 Periodic Reviews

(a) A Council shall review the residual value and the useful life of an asset at least at each annual reporting date and, if expectations differ from previous estimates, the Council shall account for the change(s) as a change in an accounting estimate in accordance with IPSAS 3, “Accounting Policies, Changes in Accounting Estimates and Errors” and make disclosures as per paragraph 3.5.

(b) A Council shall recognize depreciation even if the fair value of an asset exceeds its carrying amount; as long as the asset’s residual value does not exceed its carrying amount.

(c) The residual value of an asset may increase to an amount equal to or greater than the asset’s carrying amount. Provided that: If it does, the asset’s depreciation charge is zero unless and until its


residual value subsequently decreases to an amount below the asset’s carrying amount.

9.7.2.3 Accounting Entry

(a) The depreciation charge for each period shall be recognized in surplus or deficit unless it is included in the carrying amount of another asset.

(b) When charging depreciation the following entry shall be passed: Debit: Surplus or Deficit (Depreciation Expense: Asset)XXX Credit: Accumulated Depreciation: Asset XXX

9.7.3 Depreciation Method

(a) A Council shall use a Straight line Method of depreciation - this will reflect the pattern in which the asset’s future economic benefits or service potential is expected to be consumed by the Council.

(b) A Council in consultation with Ministry responsible for Local Government shall review the depreciation method applied to an asset where necessary if there has been a significant change in the expected pattern of the consumption of the future economic benefits or service potential embodied in the asset, the method shall be changed to reflect the changed pattern.

(c) Such a change shall be accounted for as a change in an accounting estimate in accordance with IPSAS 3 and disclosed as per paragraph 3.5.

9.7.3.1 Assets No Longer In Use

The Council shall not cease depreciation when the asset becomes idle or is retired from active use and held for disposal unless the asset is fully depreciated.

9.7.4 Impairment

The Council shall test for impairment all items of property, plant and equipment at each reporting date.

separately – for example, in most cases, the Council would be required to depreciate separately the pavements, formation, curbs and channels, footpaths, bridges and lighting within a road system.

(c) The Council shall not depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item.

9.7.1.2 Timing of Depreciation

(a) The Council shall begin depreciation of an asset when the asset is available for use i.e., when the asset is in the location and condition necessary for it to be capable of operating in the manner intended by the Council.

(b) The Council shall cease Depreciation of an asset when the asset is derecognized.

9.7.2 Depreciation Amount and Depreciation Period 9.7.2.1 Depreciable Amount

(a) A Council shall allocate the depreciable amount of an asset on a systematic basis over its useful life.

(b) A Council shall set the residual value of the items of property, plant and equipment to zero. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount.

9.7.2.2 Periodic Reviews

(a) A Council shall review the residual value and the useful life of an asset at least at each annual reporting date and, if expectations differ from previous estimates, the Council shall account for the change(s) as a change in an accounting estimate in accordance with IPSAS 3, “Accounting Policies, Changes in Accounting Estimates and Errors” and make disclosures as per paragraph 3.5.

(b) A Council shall recognize depreciation even if the fair value of an asset exceeds its carrying amount; as long as the asset’s residual value does not exceed its carrying amount.

(c) The residual value of an asset may increase to an amount equal to or greater than the asset’s carrying amount. Provided that: If it does, the asset’s depreciation charge is zero unless and until its



If the asset is found to be impaired then an impairment loss shall be written off as follows: Debit: Statement of Financial Performance – Impairment Loss XXX Credit: Accumulated Impairment Loss - Non-current asset XXX

9.7.4.2 Compensation for impairment

The Council shall include compensation received from third parties for items of property, plant and equipment that were impaired, lost or given up in surplus or deficit when the compensation becomes receivable. Accounting Entry Debit: Cash or Receivable XXX Credit: Surplus or Deficit (compensation for impairment) XXX 9.8 De-recognition

9.8.1 General Provisions

(a) A Council shall de-recognize the carrying amount of an item of property, plant and equipment on disposal; or when no future economic benefits or service potential is expected from the asset’s use or disposal. Provided that: The Council shall follow Government procedures for disposal of assets as stated in the Public Procurement Act, Cap. 410 and its Regulations.

(b) A Council shall include the gain or loss arising from de-recognition of an item of property, plant and equipment in surplus or deficit when the item is derecognized unless it is a sale and leaseback.

(c) A Council shall not classify gains on de-recognition as revenue. 9.8.2 Assets to be Disposed

(a) Removal of items from the inventory: in the course of the year, any out of use equipment and materials can be removed from the Council inventory. Provided that: Each removal from the inventory is correctly documented (state of the


asset, reason for its suppression (e.g. transfer, destruction, robbery, loss, etc.)

(b) All assets removed from active use must be approved by the Finance Committee and eventually be authorized by the Full Council.

(c) The Council Director signs each removal from the inventory of all assets at the Council and with the Council lower level entities

(d) A Council shall discuss and agree any resale or transfer of obsolete or out of use assets with Donor organizations.

(e) A Council shall not re-allocate the removed item’s number until the removal process from the inventory is complete and the documentation concerning this item is safely filed.

9.8.2.1 Accounting Entries

The following entries shall be passed when disposing off of Council assets: Debit: Disposal of Asset XXX Credit: Asset (being disposed) - Cost XXX

Debit: Accumulated Depreciation (asset being disposed) XXX Credit: Disposal of Asset XXX

9.8.2.2 Sale of the Asset

The gain or loss arising from the de-recognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. (a) If, the asset is disposed off through sale the following entry shall be

passed: Debit: Cash (amount received through sale of asset) XXX Credit: Disposal of Asset XXX The difference, if gain or loss is closed to the surplus or deficit as follows: If gain on disposal: Debit: Disposal of Asset XXX Credit: Surplus or Deficit XXX


If the asset is found to be impaired then an impairment loss shall be written off as follows: Debit: Statement of Financial Performance – Impairment Loss XXX Credit: Accumulated Impairment Loss - Non-current asset XXX

9.7.4.2 Compensation for impairment

The Council shall include compensation received from third parties for items of property, plant and equipment that were impaired, lost or given up in surplus or deficit when the compensation becomes receivable. Accounting Entry Debit: Cash or Receivable XXX Credit: Surplus or Deficit (compensation for impairment) XXX 9.8 De-recognition

9.8.1 General Provisions

(a) A Council shall de-recognize the carrying amount of an item of property, plant and equipment on disposal; or when no future economic benefits or service potential is expected from the asset’s use or disposal. Provided that: The Council shall follow Government procedures for disposal of assets as stated in the Public Procurement Act, Cap. 410 and its Regulations.

(b) A Council shall include the gain or loss arising from de-recognition of an item of property, plant and equipment in surplus or deficit when the item is derecognized unless it is a sale and leaseback.

(c) A Council shall not classify gains on de-recognition as revenue. 9.8.2 Assets to be Disposed

(a) Removal of items from the inventory: in the course of the year, any out of use equipment and materials can be removed from the Council inventory. Provided that: Each removal from the inventory is correctly documented (state of the


If loss on disposal: Debit: Surplus or Deficit XXX Credit: Disposal of Asset XXX

(b) If, asset is disposed off without sale, then the remaining balance is a total loss to the Council and following entry shall be passed: Debit: Surplus or Deficit XXX Credit: Disposal of asset XXX

9.9 Disclosures

The following disclosures shall be made with respect to: 9.9.1 Assets

(a) The financial statements shall disclose, for each class of property, plant and equipment recognized in the financial statements: (1) The measurement bases used for determining the gross carrying

amount; (2) The depreciation methods used; (3) The useful lives or the depreciation rates used; (4) The gross carrying amount and the accumulated depreciation

(aggregated with accumulated impairment losses) at the beginning and end of the period; and

(5) A reconciliation of the carrying amount at the beginning and end of the period showing: (i) Additions; (ii) Disposals; (iii) Acquisitions through Council combinations; (iv) Impairment losses recognized in surplus or deficit; (v) Impairment losses reversed in surplus or deficit; (vi) Depreciation; (vii) The net exchange differences arising on the translation of

the financial statements from the functional currency into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting Council; and

(viii) Other changes.


(b) The financial statements shall also disclose for each class of property, plant and equipment recognized in the financial statements: (i) The existence and amounts of restrictions on title, and property,

plant and equipment pledged as securities for liabilities; (ii) The amount of expenditures recognized in the carrying amount

of an item of property, plant and equipment in the course of its construction;

(iii) The amount of contractual commitments for the acquisition of property, plant and equipment; and

(iv) If it is not disclosed separately on the face of the statement of financial performance, the amount of compensation from third parties for items of property, plant and equipment that were impaired, lost or given up that is included in surplus or deficit.

9.9.2 Impairment of Non-cash Generating Assets

(a) A Council shall disclose the following for each class of assets: (1) The amount of impairment losses recognized in surplus or

deficit during the period and the line item(s) of the statement of financial performance in which those impairment losses are included.

(2) The amount of reversals of impairment losses recognized in surplus or deficit during the period and the line item(s) of the statement of financial performance in which those impairment losses are reversed.

(b) A Council shall disclose the following for each material impairment loss recognized or reversed during the period: (1) The events and circumstances that led to the recognition or

reversal of the impairment loss. (2) The amount of the impairment loss recognized or reversed. (3) The nature of the asset. (4) Whether the recoverable service amount of the asset is its fair

value less costs to sell or its value in use. (5) If the recoverable service amount is fair value less costs to sell,

the basis used to determine fair value less costs to sell (such as whether fair value was determined by reference to an active market).

(6) If the recoverable service amount is value in use, the approach used to determine value in use.

If loss on disposal: Debit: Surplus or Deficit XXX Credit: Disposal of Asset XXX

(b) If, asset is disposed off without sale, then the remaining balance is a total loss to the Council and following entry shall be passed: Debit: Surplus or Deficit XXX Credit: Disposal of asset XXX

9.9 Disclosures

The following disclosures shall be made with respect to: 9.9.1 Assets

(a) The financial statements shall disclose, for each class of property, plant and equipment recognized in the financial statements: (1) The measurement bases used for determining the gross carrying

amount; (2) The depreciation methods used; (3) The useful lives or the depreciation rates used; (4) The gross carrying amount and the accumulated depreciation

(aggregated with accumulated impairment losses) at the beginning and end of the period; and

(5) A reconciliation of the carrying amount at the beginning and end of the period showing: (i) Additions; (ii) Disposals; (iii) Acquisitions through Council combinations; (iv) Impairment losses recognized in surplus or deficit; (v) Impairment losses reversed in surplus or deficit; (vi) Depreciation; (vii) The net exchange differences arising on the translation of

the financial statements from the functional currency into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting Council; and

(viii) Other changes.


(c) The Council shall disclose the following information for the aggregate of impairment losses and aggregate reversals of impairment losses recognized during the period for which no information is disclosed in accordance with IPSAS 21:77: (1) The main classes of assets affected by impairment losses (and the

main classes of assets affected by reversals of impairment losses). (2) The main events and circumstances that led to the recognition of

these impairment losses and reversals of impairment losses. (d) Non-current (Fixed) assets transferred from other institutions to the

Council or Council affiliated Council shall be accounted for as grant and recorded in the Non-current (Fixed) assets register and the asset shall be recognized at fair value.

(e) When the non-current (fixed) asset is expensed the grant account shall be closed and transferred to revenue account.

(e) For non-current assets transferred out of the Council to other Council/institution same procedures and accounting entries shall be passed for de-recognition as already discussed under disposal (paragraph 9.8)


SECTION TEN

10.0 Investment Property

Investment property is a property (land or a building – or part of a building – or both) held by a Council to earn rentals or for capital appreciation or both, rather than for:

(a) Use in the production or supply of goods or services or for administrative purposes; or

(b) Sale in the ordinary course of operations.

10.1 Recognition

A Council shall recognize investment property as an asset when, and only when:

(a) It is probable that the future economic benefits or service potential that are associated with the investment property will flow to the Council; and

(b) The cost or fair value of the investment property can be measured reliably.

10.2 Measurement at Recognition

(a) A Council shall measure investment properties, on initial recognition, at cost.

(b) A Council shall include transaction costs in this initial measurement.

10.2.1 Purchased Investment Property

(a) The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure.

(b) Directly attributable expenditure includes, for example, professional fees for legal services, property transfer taxes and other transaction costs.

(c) The Council shall disclose the following information for the aggregate of impairment losses and aggregate reversals of impairment losses recognized during the period for which no information is disclosed in accordance with IPSAS 21:77: (1) The main classes of assets affected by impairment losses (and the


these impairment losses and reversals of impairment losses. (d) Non-current (Fixed) assets transferred from other institutions to the

Council or Council affiliated Council shall be accounted for as grant and recorded in the Non-current (Fixed) assets register and the asset shall be recognized at fair value.

(e) When the non-current (fixed) asset is expensed the grant account shall be closed and transferred to revenue account.

(e) For non-current assets transferred out of the Council to other Council/institution same procedures and accounting entries shall be passed for de-recognition as already discussed under disposal (paragraph 9.8)


10.2.2 Self-constructed Investment Property

(a) The cost of a self-constructed investment property is its cost at the date when the construction or development is complete, and the property becomes investment property – until that date, the Council applies section 9.

(b) The cost of investment property is not increased by: (1) Start-up costs (unless they are necessary to bring the property to

the condition necessary for it to be capable of operating in the manner intended by management);

(2) Operating losses incurred before the investment property achieves the planned level of occupancy; or

(3) Abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the property.

(c) If payment for investment property is deferred, its cost is the cash price equivalent and the difference between this amount and the total payments is recognized as interest expense over the period of credit.

10.2.3 Investment Property Acquired Through Non-exchange Transaction

A Council shall measure at fair value an investment property acquired by Council through a non-exchange transaction, as its cost, as at the date of acquisition.

10.3 Investment Property held under a Finance Lease

(a) A Council shall recognize the initial cost of a property interest held under a finance lease and classified as an investment property at the lower of the fair value of the property and the present value of the minimum lease payments and recognize an equivalent amount as a liability.

(b) A Council shall pass the following entry:

Debit: Investment Property (under finance lease) XXX

Credit: Lease Payments Payable XXX

(c) A Council shall determine the minimum lease payments using the following formula:


+ S/ (1 + r)t

Where

MLP Minimum Lease Payments

S Assured Residual Value

r The effective rate of interest

t Lease Maturity Period

(d) A Council shall disclose and present the investment property under finance lease on Financial Statement as follows:-

Statement of Financial Position Extract

Non-current Assets

Investment property (under finance lease) XXX

Non-current Liabilities

Lease Payments Payable XXX

10.4 Measurement after Recognition-Accounting Policy

10.4.1 Cost Model A Council, after initial recognition, shall choose the cost model as its accounting policy and shall apply that policy to all of its investment property i.e., at cost less any accumulated depreciation and any accumulated impairment losses.

10.4.2 Fair Value Model

(a) A Council shall carry an investment property held under an operating lease using the fair value model and shall recognize a gain or loss arising from a change in the fair value of investment property in surplus or deficit for the period in which it arises.

(b) The following entry shall be passed:

( )( )r

rMLPValueesentt-+-

=11Pr

10.2.2 Self-constructed Investment Property

(a) The cost of a self-constructed investment property is its cost at the date when the construction or development is complete, and the property becomes investment property – until that date, the Council applies section 9.

(b) The cost of investment property is not increased by: (1) Start-up costs (unless they are necessary to bring the property to

the condition necessary for it to be capable of operating in the manner intended by management);

(2) Operating losses incurred before the investment property achieves the planned level of occupancy; or

(3) Abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the property.

(c) If payment for investment property is deferred, its cost is the cash price equivalent and the difference between this amount and the total payments is recognized as interest expense over the period of credit.

10.2.3 Investment Property Acquired Through Non-exchange Transaction

A Council shall measure at fair value an investment property acquired by Council through a non-exchange transaction, as its cost, as at the date of acquisition.

10.3 Investment Property held under a Finance Lease

(a) A Council shall recognize the initial cost of a property interest held under a finance lease and classified as an investment property at the lower of the fair value of the property and the present value of the minimum lease payments and recognize an equivalent amount as a liability.

(b) A Council shall pass the following entry:

Debit: Investment Property (under finance lease) XXX

Credit: Lease Payments Payable XXX

(c) A Council shall determine the minimum lease payments using the following formula:


Debit: Investment Property XXX

Credit: Surplus or Deficit (gain on fair value) XXX

Or

Debit: Surplus or Deficit (loss on fair value) XXX

Credit: Investment Property XXX

(c) The fair value of investment property shall reflect market conditions at the reporting date.

10.5 Transfers

(a) Council shall make transfers to, or from, investment property when, and only when, there is a change in use, evidenced by: (1) Commencement of owner-occupation, for a transfer from

investment property to owner-occupied property; (2) Commencement of development with a view to sale, for a

transfer from investment property to inventories; (3) End of owner-occupation, for a transfer from owner-occupied

property to investment property; (4) Commencement of an operating lease (on a commercial basis) to

another party, for a transfer from inventories to investment property; or

(5) End of construction or development, for a transfer from property in the course of construction or development (under paragraph 10.9.2) to investment property.

(b) For a transfer from inventories to investment property that will be carried at fair value, any difference between the fair value of the property at that date and its previous carrying amount shall be recognized in surplus or deficit.

10.6 Disposals

(a) A Council shall derecognize investment property (eliminate it from the statement of financial position) on disposal or when the investment property is permanently withdrawn from use and no future economic benefits or service potential are expected from its disposal.


(b) A Council shall determine gains or losses arising from the retirement or disposal of investment property as the difference between the net disposal proceeds and the carrying amount of the asset and shall be recognized in surplus or deficit, unless it is a sale and leaseback, in the period of the retirement or disposal.

(c) Compensation from third parties for investment property that was impaired, lost or given up shall be recognized in surplus or deficit when the compensation becomes receivable.

10.7 Disclosure

10.7.1 Fair Value Model and Cost Model

A Council shall disclose:

(a) Whether it applies the fair value or the cost model. (b) If it applies the fair value model, whether, and in what circumstances,

property interests held under operating leases are classified and accounted for as investment property.

(c) When classification is difficult, the criteria it uses to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of operations.

(d) The methods and significant assumptions applied in determining the fair value of investment property, including a statement whether the determination of fair value was supported by market evidence or was more heavily based on other factors (which the Council shall disclose) because of the nature of the property and lack of comparable market data.

(e) The extent to which the fair value of investment property (as measured or disclosed in the financial statements) is based on a valuation by an independent Valuer who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued. If there has been no such valuation, that fact shall be disclosed.

(f) The amounts recognized in surplus or deficit for: 1) Rental revenue from investment property;

Debit: Investment Property XXX

Credit: Surplus or Deficit (gain on fair value) XXX

Or

Debit: Surplus or Deficit (loss on fair value) XXX

Credit: Investment Property XXX

(c) The fair value of investment property shall reflect market conditions at the reporting date.

10.5 Transfers

(a) Council shall make transfers to, or from, investment property when, and only when, there is a change in use, evidenced by: (1) Commencement of owner-occupation, for a transfer from

investment property to owner-occupied property; (2) Commencement of development with a view to sale, for a

transfer from investment property to inventories; (3) End of owner-occupation, for a transfer from owner-occupied

property to investment property; (4) Commencement of an operating lease (on a commercial basis) to

another party, for a transfer from inventories to investment property; or

(5) End of construction or development, for a transfer from property in the course of construction or development (under paragraph 10.9.2) to investment property.

(b) For a transfer from inventories to investment property that will be carried at fair value, any difference between the fair value of the property at that date and its previous carrying amount shall be recognized in surplus or deficit.

10.6 Disposals

(a) A Council shall derecognize investment property (eliminate it from the statement of financial position) on disposal or when the investment property is permanently withdrawn from use and no future economic benefits or service potential are expected from its disposal.


2) Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental revenue during the period; and

3) Direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental revenue during the period.

(g) The existence and amounts of restrictions on the realisation of investment property or the remittance of revenue and proceeds of disposal.

(h) Contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.


In addition to the disclosures required, a Council that applies the fair value model shall disclose reconciliation between the carrying amounts of investment property at the beginning and end of the period, showing the following:

(a) Additions, disclosing separately those additions resulting from acquisitions and those resulting from subsequent expenditure recognized in the carrying amount of an asset;

(b) Additions resulting from acquisitions through Council combinations; (c) Disposals; (d) Net gains or losses from fair value adjustments; (e) The net exchange differences arising on the translation of the financial

statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting Council;

(f) Transfers to and from inventories and owner-occupied property; and (g) Other changes.

10.7.3 Cost Model

(a) When Council measures investment property using the cost model, the reconciliation required shall disclose amounts relating to that investment property separately from amounts relating to other investment property.


(b) In addition, an Council shall disclose: (1) A description of the investment property; (2) An explanation of why fair value cannot be determined reliably; (3) If possible, the range of estimates within which fair value is

highly likely to lie; and (4) On disposal of investment property not carried at fair value:

(i) The fact that the Council has disposed of investment property not carried at fair value;

(ii) The carrying amount of that investment property at the time of sale; and

(iii) The amount of gain or loss recognized. (5) The depreciation methods used; (6) The useful lives or the depreciation rates used; (7) The gross carrying amount and the accumulated depreciation

(aggregated with accumulated impairment losses) at the beginning and end of the period;

(8) A reconciliation of the carrying amount of investment property at the beginning and end of the period, showing the following: (i) Additions, disclosing separately those additions resulting

from acquisitions and those resulting from subsequent expenditure recognized as an asset;

(ii) Additions resulting from acquisitions through Council combinations;

(iii) Disposals; (iv) Depreciation; (v) The amount of impairment losses recognized, and the

amount of impairment losses reversed, during the period; (vi) The net exchange differences arising on the translation of

the financial statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting Council;

(vii) Transfers to and from inventories and owner-occupied property; and

(viii) Other changes; and

2) Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental revenue during the period; and

3) Direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental revenue during the period.

(g) The existence and amounts of restrictions on the realisation of investment property or the remittance of revenue and proceeds of disposal.

(h) Contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.


In addition to the disclosures required, a Council that applies the fair value model shall disclose reconciliation between the carrying amounts of investment property at the beginning and end of the period, showing the following:

(a) Additions, disclosing separately those additions resulting from acquisitions and those resulting from subsequent expenditure recognized in the carrying amount of an asset;

(b) Additions resulting from acquisitions through Council combinations; (c) Disposals; (d) Net gains or losses from fair value adjustments; (e) The net exchange differences arising on the translation of the financial

statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting Council;

(f) Transfers to and from inventories and owner-occupied property; and (g) Other changes.

10.7.3 Cost Model

(a) When Council measures investment property using the cost model, the reconciliation required shall disclose amounts relating to that investment property separately from amounts relating to other investment property.


(9) The fair value of investment property. In the exceptional cases, when an Council cannot determine the fair value of the investment property reliably, the Council shall disclose: (i) A description of the investment property; (ii) An explanation of why fair value cannot be determined

reliably; and (iii) If possible, the range of estimates within which fair value

is highly likely to lie.


SECTION ELEVEN

11.0 Inventory

(a) Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by a Council and held for resale, or land and other property held for sale.

(b) Inventories also encompass finished goods produced, or work in progress being produced, by a Council.

(c) Inventories also include materials and supplies awaiting use in the production process and goods purchased or produced by a Council, which are for distribution to other parties for no charge or for a nominal charge.

(d) Council inventories will also relate to the provision of services rather than goods purchased and held for resale or goods manufactured for sale.

(e) Inventories in the Council may include: (1) Ammunition; (2) Consumable stores; (3) Hospital drugs and supplies (4) Maintenance materials; (5) Spare parts for plant and equipment other than those dealt with

on Property, Plant and Equipment; (6) Strategic stockpiles (for example, energy reserves); (7) Work in progress, including:

(i) Educational/training course materials; and (ii) Land/property held for sale.

11.1 Measurement of Inventories

(a) A Council shall measure inventories at the lower of cost and net realizable value, except where those inventories are acquired through a non-exchange transaction, their cost shall be measured at their fair value as at the date of acquisition.

(b) Council shall measure inventories at the lower of cost and current replacement cost where they are held for: (1) Distribution at no charge or for a nominal charge; or

(9) The fair value of investment property. In the exceptional cases, when an Council cannot determine the fair value of the investment property reliably, the Council shall disclose: (i) A description of the investment property; (ii) An explanation of why fair value cannot be determined

reliably; and (iii) If possible, the range of estimates within which fair value

is highly likely to lie.


(2) Consumption in the production process of goods to be distributed at no charge or for a nominal charge.

11.1.1 Cost of Inventories

The cost of inventories to the Council shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

11.1.1.1 Costs of Purchase

(a) The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the Council from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and supplies.

(b) Trade discounts, rebates and other similar items are deducted in determining the costs of purchase.

11.1.1.2 Costs of Conversion

(a) The costs of converting work-in-progress inventories into finished goods inventories are incurred primarily in a manufacturing environment.

(b) The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods.

(c) Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and equipment, and the cost of factory management and administration.

(d) Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour.


11.1.1.3 Allocating Overheads

(a) Council, LLG or SPF shall allocate fixed production overheads to the costs of conversion based on the normal capacity of the production facilities – normal capacity is the production expected to be achieved on average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance.

(b) Council may use actual level of production if it approximates normal capacity.

(c) Council, LLG or SPF shall not increase the amount of fixed overhead allocated to each unit of production in consequence of low production or idle plant.

(d) Council, LLG or SPF shall recognize unallocated overheads as an expense in the period in which they are incurred – In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost.

(e) Council, LLG or SPF shall allocate variable production overheads to each unit of production on the basis of the actual use of the production facilities.

10.1.1.4 Joint Products

(a) Where Council, LLG or SPF production process results in more than one product being produced simultaneously and the costs of conversion of each product are not separately identifiable, a Council shall allocate costs between the products on a rational and consistent basis.

(b) Council, LLG or SPF may base the allocation on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production.

(c) When by-products are immaterial, the Council, LLG or SPF shall measure them at net realizable value and deduct the value from the

(2) Consumption in the production process of goods to be distributed at no charge or for a nominal charge.

11.1.1 Cost of Inventories

The cost of inventories to the Council shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

11.1.1.1 Costs of Purchase

(a) The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the Council from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and supplies.

(b) Trade discounts, rebates and other similar items are deducted in determining the costs of purchase.

11.1.1.2 Costs of Conversion

(a) The costs of converting work-in-progress inventories into finished goods inventories are incurred primarily in a manufacturing environment.

(b) The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods.

(c) Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and equipment, and the cost of factory management and administration.

(d) Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour.


cost of the main product – this will result in the carrying amount of the main product to not be materially different from its cost.

11.1.1.5 Other Costs

Council, LLG or SPF shall include other costs in the cost of inventories only to the extent that these costs are incurred in bringing the inventories to their present location and condition.

11.1.1.6 Cost of Agricultural Produce Harvested from Biological assets

Council shall measure, on initial recognition, inventories comprising agricultural produce that Council has harvested from its biological assets at their fair value less estimated point-of sale costs at the point of harvest.

11.1.1.7 Measurement of Cost of Inventories

(a) Council may apply techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method.

(b) Council shall regularly review the techniques and, if necessary, revise them in the light of current conditions.

11.2 Cost Formulas

(a) Council shall assign, using specific identification of their individual costs, cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects.

(b) Council shall use the same cost formula for all inventories having similar nature and use.

(c) For inventories with different nature or use (for example, certain commodities used in one segment and the same type of commodities used in another segment), different cost formulas may be justified. Provided that: A difference in geographical location of inventories (and in the respective tax rules), by itself, is not sufficient to justify the use of different cost formulas.


(d) Council assign cost of inventories, other than items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects, using the first-in, first-out (FIFO).

(e) Council shall use the same cost formula for all inventories having a similar nature and use - for inventories with a different nature or use, different cost formulas may be justified.

11.3 Recognition of Inventory as an Expense

(a) Council shall recognize inventory as an expense, in the period in which the related revenue is recognized, the carrying amount of those inventories sold, exchanged or distributed.

(b) If there is no related revenue, the expense is recognized when the goods are distributed or related service is rendered.

(c) The amount of any written-down inventories and all losses of inventories shall be recognized as an expense in the period the written-down or loss occurs.

(d) The amount of any reversal of any written-down of inventories shall be recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

11.4 Disclosure

(a) The financial statements of the Council should disclose the accounting policy adopted for Inventories.

(b) The financial statements shall disclose: (1) The accounting policies adopted in measuring inventories,

including the cost formula used; (2) The total carrying amount of inventories and the carrying

amount in classifications appropriate to the Council; (3) The carrying amount of inventories carried at fair value less costs

to sell; (4) The amount of inventories recognized as an expense during the

period; (5) The amount of any written-down of inventories recognized as an

expense in the period

cost of the main product – this will result in the carrying amount of the main product to not be materially different from its cost.

11.1.1.5 Other Costs

Council, LLG or SPF shall include other costs in the cost of inventories only to the extent that these costs are incurred in bringing the inventories to their present location and condition.

11.1.1.6 Cost of Agricultural Produce Harvested from Biological assets

Council shall measure, on initial recognition, inventories comprising agricultural produce that Council has harvested from its biological assets at their fair value less estimated point-of sale costs at the point of harvest.

11.1.1.7 Measurement of Cost of Inventories

(a) Council may apply techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method.

(b) Council shall regularly review the techniques and, if necessary, revise them in the light of current conditions.

11.2 Cost Formulas

(a) Council shall assign, using specific identification of their individual costs, cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects.

(b) Council shall use the same cost formula for all inventories having similar nature and use.

(c) For inventories with different nature or use (for example, certain commodities used in one segment and the same type of commodities used in another segment), different cost formulas may be justified. Provided that: A difference in geographical location of inventories (and in the respective tax rules), by itself, is not sufficient to justify the use of different cost formulas.


(6) The amount of any reversal of any write-down that is recognized in the statement of financial performance in the period

(7) The circumstances or events that led to the reversal of a written-down of inventories

(8) The carrying amount of inventories pledged as security for liabilities.


SECTION TWELVE

12.0 Intangible Assets

12.1 Recognition

(a) Council shall recognize an intangible asset if, and only if: (1) It is probable that the expected future economic benefits or

service potential that are attributable to the asset will flow to the Council; and

(2) The cost or fair value of the asset can be measured reliably. (b) Council shall assess the probability of expected future economic

benefits or service potential using reasonable and supportable assumptions that represent management’s best estimate of the set of economic conditions that will exist over the useful life of the asset. Council shall use judgement to assess the degree of certainty attached to the flow of future economic benefits or service potential that are attributable to the use of the asset on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence.

12.1.1 Internally Generated Goodwill

(a) Council shall not recognize an internally generated goodwill as an asset.

(b) Council shall not recognize internally generated brands, mastheads, publishing titles, lists of users of a service, and items similar in substance as intangible assets.

12.1.2 Research Phase

(a) Council shall not recognize an intangible asset arising from research (or from the research phase of an internal project).

(b) Council shall recognize expenditure on research (or on the research phase of an internal project) as an expense when it is incurred.

Debit: Surplus or Deficit XXX Credit: Cash or Liability XXX

(6) The amount of any reversal of any write-down that is recognized in the statement of financial performance in the period

(7) The circumstances or events that led to the reversal of a written-down of inventories

(8) The carrying amount of inventories pledged as security for liabilities.


12.1.3 Recognition of an Expense

Council shall recognize expenditure on an intangible item as an expense when it is incurred unless it forms part of the cost of an intangible asset that meets the recognition criteria

12.1.4 Past Expenses not to be recognized as an Asset

Council shall not recognize expenditure on an intangible item that was initially recognized as an expense as part of the cost of an intangible asset at a later date.

12.1.5 Development Phase

Council shall recognize an intangible asset arising from development (or from the development phase of an internal project) if, and only if, the Council can demonstrate all of the following:

(1) The technical feasibility of completing the intangible asset so that it will be available for use or sale;

(2) Its intention to complete the intangible asset and use or sell it; (3) Its ability to use or sell the intangible asset; (4) How the intangible asset will generate probable future economic

benefits or service potential. Among other things, the Council can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

(5) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

(6) Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

12.2 Measurement

(a) Council shall initially measure an intangible asset at cost – the cost of a separately acquired intangible asset comprises: (1) Its purchase price, including import duties and non-refundable

purchase taxes, after deducting trade discounts and rebates; and


(2) Any directly attributable cost of preparing the asset for its intended use.

(b) Where the Council acquired an intangible asset through a non-exchange transaction, its initial cost at the date of acquisition, shall be measured at its fair value as at that date.

12.3 Subsequent Measurement

Council shall use cost model as its accounting policy – after initial recognition, an intangible asset shall be carried at its cost less any accumulated amortization and any accumulated impairment losses.

12.3.1 Amortization

Council shall systematically allocate the depreciable amount of an intangible asset over its useful life.

12.3.2 Useful Life

(a) Council shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar units constituting, that useful life.

(b) Council shall regard an intangible asset as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for, or provide service potential to, the Council.

(c) The useful life of an intangible asset that arises from binding arrangements (including rights from contracts or other legal rights) shall not exceed the period of the binding arrangement (including rights from contracts or other legal rights), but may be shorter depending on the period over which the Council expects to use the asset. Provided that: If the binding arrangements (including rights from contracts or other legal rights) are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s)

12.1.3 Recognition of an Expense

Council shall recognize expenditure on an intangible item as an expense when it is incurred unless it forms part of the cost of an intangible asset that meets the recognition criteria

12.1.4 Past Expenses not to be recognized as an Asset

Council shall not recognize expenditure on an intangible item that was initially recognized as an expense as part of the cost of an intangible asset at a later date.

12.1.5 Development Phase

Council shall recognize an intangible asset arising from development (or from the development phase of an internal project) if, and only if, the Council can demonstrate all of the following:

(1) The technical feasibility of completing the intangible asset so that it will be available for use or sale;

(2) Its intention to complete the intangible asset and use or sell it; (3) Its ability to use or sell the intangible asset; (4) How the intangible asset will generate probable future economic

benefits or service potential. Among other things, the Council can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

(5) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

(6) Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

12.2 Measurement

(a) Council shall initially measure an intangible asset at cost – the cost of a separately acquired intangible asset comprises: (1) Its purchase price, including import duties and non-refundable

purchase taxes, after deducting trade discounts and rebates; and


only if there is evidence to support renewal by the Council without significant cost.

12.3.3 Intangible Assets with Finite Useful Lives: Amortization Period and Method

(a) Council shall allocate the depreciable amount of an intangible asset with a finite useful life on a systematic basis over its useful life.

(b) Council shall begin amortization when the asset is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by the Council management.

(c) Council shall cease amortization at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with the relevant international or national accounting standard dealing with non-current assets held for sale and discontinued operations and the date that the asset is derecognized.

(d) Council shall use the straight-line method in allocating the depreciable amount of an intangible asset with a finite useful life on a systematic basis over its useful life.

(e) Council shall recognize the amortization charge for each period in surplus or deficit unless it is included in the carrying amount of another asset.

12.3.4 Residual Value

Council shall assume the residual value of an intangible asset with a finite useful life to be zero unless:

(a) There is a commitment by a third party to acquire the asset at the end of its useful life; or

(b) There is an active market for the asset and: (i) Residual value can be determined by reference to that market;

and (ii) It is probable that such a market will exist at the end of the asset’s

useful life.


12.3.5 Review of Amortization Period and Method

(a) Council shall review at least at each reporting date the amortization period and the amortization method for an intangible asset with a finite useful life – If the expected useful life of the asset is different from previous estimates, the amortization period shall be changed accordingly.

(b) Council shall change the amortization method, if there has been a change in the expected pattern of consumption of the future economic benefits or service potential embodied in the asset, to reflect the changed pattern – the Council shall account for such changes as changes in accounting estimates.

12.3.6 Intangible Assets with Indefinite useful lives

Council shall not amortize an intangible asset with an indefinite useful life.

12.3.7 Review of Useful Life Assessment

Council shall review at each reporting date the useful life of an intangible asset that is not being amortized to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset.

Provided that:

If they do not, Council shall change the useful life assessment from indefinite to finite and shall account for such change as a change in an accounting estimate.

12.3.8 Recoverability of the Carrying Amount—Impairment Losses

(a) To determine whether an intangible asset measured under the cost model is impaired, Council shall apply either IPSAS 21 or IPSAS 26, as appropriate.

(b) Those Standards explain when and how an Council reviews the carrying amount of its assets, how it determines the recoverable service amount or recoverable amount of an asset, as appropriate, and when it recognizes or reverses an impairment loss.

only if there is evidence to support renewal by the Council without significant cost.

12.3.3 Intangible Assets with Finite Useful Lives: Amortization Period and Method

(a) Council shall allocate the depreciable amount of an intangible asset with a finite useful life on a systematic basis over its useful life.

(b) Council shall begin amortization when the asset is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by the Council management.

(c) Council shall cease amortization at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with the relevant international or national accounting standard dealing with non-current assets held for sale and discontinued operations and the date that the asset is derecognized.

(d) Council shall use the straight-line method in allocating the depreciable amount of an intangible asset with a finite useful life on a systematic basis over its useful life.

(e) Council shall recognize the amortization charge for each period in surplus or deficit unless it is included in the carrying amount of another asset.

12.3.4 Residual Value

Council shall assume the residual value of an intangible asset with a finite useful life to be zero unless:

(a) There is a commitment by a third party to acquire the asset at the end of its useful life; or

(b) There is an active market for the asset and: (i) Residual value can be determined by reference to that market;

and (ii) It is probable that such a market will exist at the end of the asset’s

useful life.


12.3.9 Retirements and Disposals

(a) Council shall derecognize an intangible asset on disposal (including disposal through a non-exchange transaction); or when no future economic benefits or service potential are expected from its use or disposal.

(b) Council shall recognize gain or loss arising from the de-recognition of an intangible asset, determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset, in surplus or deficit when the asset is derecognized, unless it is a sale and leaseback.

(c) The following journal entry shall be passed:

Debit: Disposal of Asset Account XXX Credit: Asset Account XXX

Debit: Cash XXX Credit: Disposal of Asset Account XXX

12.4 Disclosure

12.4.1 General

(a) Council shall disclose the following for each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets: (1) Whether the useful lives are indefinite or finite and, if finite, the

useful lives or the amortization rates used; (2) The amortization methods used for intangible assets with finite

useful lives; (3) The gross carrying amount and any accumulated amortization


(4) The line item(s) of the statement of financial performance in which any amortization of intangible assets is included;

(5) A reconciliation of the carrying amount at the beginning and end of the period showing:


(i) Additions, indicating separately those from internal development and those acquired separately;

(ii) Assets classified as held for sale or included in a disposal group classified as held for sale in accordance with the relevant international or national accounting standard dealing with non-current assets held for sale and discontinued operations and other disposals;

(iii) Impairment losses recognized in surplus or deficit during the period (if any);

(iv) Impairment losses reversed in surplus or deficit during the period (if any);

(v) Any amortization recognized during the period; (vi) Net exchange differences arising on the translation of the

financial statements into the presentation currency, and on the translation of a foreign operation into the presentation currency of the Council; and

(vii) Other changes in the carrying amount during the period. (b) Council shall also disclose:

(1) For an intangible asset assessed as having an indefinite useful life, the carrying amount of that asset and the reasons supporting the assessment of an indefinite useful life. Provided that: In giving these reasons, the Council shall describe the factor(s) that played a significant role in determining that the asset has an indefinite useful life.

(2) A description, the carrying amount, and remaining amortization period of any individual intangible asset that is material to the Council’s financial statements. For intangible assets acquired through a non-exchange transaction and initially recognized at fair value: (i) The fair value initially recognized for these assets; (ii) Their carrying amount; and (iii) That they are measured after recognition under the cost

model.

12.3.9 Retirements and Disposals

(a) Council shall derecognize an intangible asset on disposal (including disposal through a non-exchange transaction); or when no future economic benefits or service potential are expected from its use or disposal.

(b) Council shall recognize gain or loss arising from the de-recognition of an intangible asset, determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset, in surplus or deficit when the asset is derecognized, unless it is a sale and leaseback.

(c) The following journal entry shall be passed:

Debit: Disposal of Asset Account XXX Credit: Asset Account XXX

Debit: Cash XXX Credit: Disposal of Asset Account XXX

12.4 Disclosure

12.4.1 General

(a) Council shall disclose the following for each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets: (1) Whether the useful lives are indefinite or finite and, if finite, the

useful lives or the amortization rates used; (2) The amortization methods used for intangible assets with finite

useful lives; (3) The gross carrying amount and any accumulated amortization


(4) The line item(s) of the statement of financial performance in which any amortization of intangible assets is included;

(5) A reconciliation of the carrying amount at the beginning and end of the period showing:


(3) The existence and carrying amounts of intangible assets whose title is restricted and the carrying amounts of intangible assets pledged as security for liabilities.

(4) The amount of contractual commitments for the acquisition of intangible assets.

12.4.2 Research and Development Expenditure

Council shall disclose the aggregate amount of research and development expenditure recognized as an expense during the period.

12.4.3 Other Information

Council is encouraged, but not required, to disclose the following information: a description of any fully amortized intangible asset that is still in use; and a brief description of significant intangible assets controlled by the Council but not recognized as assets.


SECTION THIRTEEN

13.0 Borrowing Costs

Borrowing costs may include: -

(a) Interest on bank overdrafts and short-term and long-term borrowings; (b) Amortization of discounts or premiums relating to borrowings; (c) Amortization of ancillary costs incurred in connection with the

arrangement of borrowings; (d) Finance charges in respect of finance leases; and (e) Exchange differences arising from foreign currency borrowings to the

extent that they are regarded as an adjustment to interest costs.

13.1 Borrowing Costs

Council shall recognize borrowing costs as an expense in the period in which they are incurred regardless of how the borrowings are applied.

13.2 Disclosure

The financial statements should disclose the accounting policy adopted for borrowing costs.

(3) The existence and carrying amounts of intangible assets whose title is restricted and the carrying amounts of intangible assets pledged as security for liabilities.

(4) The amount of contractual commitments for the acquisition of intangible assets.

12.4.2 Research and Development Expenditure

Council shall disclose the aggregate amount of research and development expenditure recognized as an expense during the period.

12.4.3 Other Information

Council is encouraged, but not required, to disclose the following information: a description of any fully amortized intangible asset that is still in use; and a brief description of significant intangible assets controlled by the Council but not recognized as assets.


SECTION FOURTEEN

14.0 Provisions, Contingent Liabilities and Contingent Assets

14.1 Provisions and Other Liabilities

(a) Provisions can be distinguished from other liabilities such as payables and accruals because there is uncertainty about the timing or amount of the future expenditure required in settlement.

(b) By contrast:- (1) Payables are liabilities to pay for goods or services that have been

received or supplied and have been invoiced or formally agreed with the supplier (and include payments in respect of social benefits where formal agreements for specified amounts exist); and

(2) Accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or formally agreed with the supplier, including amounts due to employees (for example, amounts relating to accrued vacation pay). (i) Although it is sometimes necessary to estimate the amount

or timing of accruals, the uncertainty is generally much less than for provisions.

(ii) Accruals are often reported as part of accounts payable, whereas provisions are reported separately.

14.2 Recognition

14.2.1 Provisions

(a) Council shall recognize provision when: (1) It has a present obligation (legal or constructive) as a result of a

past event; (2) It is probable that an outflow of resources embodying economic

benefits or service potential will be required to settle the obligation; and

(3) A reliable estimate can be made of the amount of the obligation.


(b) Council shall not recognize provision if these conditions are not met.

14.2.2 Present Obligation

(a) Council may not be clear, in some cases, whether there is a present obligation.

(b) In these cases, Council may deem a past event to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that a present obligation exists at the reporting date.

14.2.3 Reliable Estimate of the Obligation

(a) Council shall use estimates of provisions as an essential part of the preparation of financial statements and does not undermine the reliability of the financial information.

(b) Therefore, except in extremely rare cases, Council shall determine a range of possible outcomes and make an estimate of the obligation that is sufficiently reliable to use in recognizing a provision.

14.3 Contingent Liabilities

(a) Council shall not recognize a contingent liability. (b) Council shall only disclose a contingent liability unless the possibility

of an outflow of resources embodying economic benefits or service potential is remote.

(c) Council shall treat as a contingent liability a part of the obligation that is expected to be met by other parties where it is jointly and severally liable for that obligation.

(d) Council shall assess contingent liabilities yearly on quarterly basis to determine whether an outflow of resources embodying economic benefits or service potential has become probable – if it becomes probable that an outflow of future economic benefits or service potential will be required for an item previously dealt with as a contingent liability, a provision is recognized in the financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).

SECTION FOURTEEN

14.0 Provisions, Contingent Liabilities and Contingent Assets

14.1 Provisions and Other Liabilities

(a) Provisions can be distinguished from other liabilities such as payables and accruals because there is uncertainty about the timing or amount of the future expenditure required in settlement.

(b) By contrast:- (1) Payables are liabilities to pay for goods or services that have been

received or supplied and have been invoiced or formally agreed with the supplier (and include payments in respect of social benefits where formal agreements for specified amounts exist); and

(2) Accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or formally agreed with the supplier, including amounts due to employees (for example, amounts relating to accrued vacation pay). (i) Although it is sometimes necessary to estimate the amount

or timing of accruals, the uncertainty is generally much less than for provisions.

(ii) Accruals are often reported as part of accounts payable, whereas provisions are reported separately.

14.2 Recognition

14.2.1 Provisions

(a) Council shall recognize provision when: (1) It has a present obligation (legal or constructive) as a result of a

past event; (2) It is probable that an outflow of resources embodying economic

benefits or service potential will be required to settle the obligation; and

(3) A reliable estimate can be made of the amount of the obligation.


14.4 Contingent Assets

Council shall not recognize a contingent asset.

14.5 Measurement

14.5.1 Best Estimate

(a) Council shall recognize a provision of an amount that is the best estimate of the expenditure required to settle the present obligation at the reporting date– the best estimate of the expenditure required to settle the present obligation is the amount that the Council would rationally pay to settle the obligation at the reporting date or to transfer it to a third party at that time.

(b) Council management shall use judgement on estimating outcome and financial effect, supplemented by experience of similar transactions and, in some cases, reports from independent experts – the evidence considered includes any additional evidence provided by events after the reporting date.

(c) Council shall deal with the uncertainties surrounding the amount to be recognized as a provision by various means according to the circumstances.

(d) Council shall estimate an obligation by weighting all possible outcomes by their associated probabilities:- (1) Where the provision being measured involves a large population

of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities – the name for this statistical method of estimation is expected value.

(2) Where a single obligation is being measured, the individual most likely outcome may be the best estimate of the liability – however, even in such a case, the Council considers other possible outcomes. Where other possible outcomes are either mostly higher or mostly lower than the most likely outcome, the best estimate will be a higher or lower amount.

(e) The Council shall measure a provision before tax or tax equivalents.


14.5.2 Risks and Uncertainties

Council shall take into consideration all the risks and uncertainties that inevitably surround many events and circumstances in reaching the best estimate of a provision.

14.5.3 Present Value

(a) Council shall measure an amount of a provision as the present value of the expenditures expected to be required to settle the obligation where the effect of the time value of money is material.

(b) Council shall use pre-tax discount rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability – the discount rate(s) should not reflect risks for which future cash flow estimates have been adjusted.

14.5.4 Future Events

Council shall reflect future events that may affect the amount required to settle an obligation in the amount of a provision where there is sufficient objective evidence that they will occur.

14.5.5 Expected Disposal of Assets

Council shall not take into account gains from the expected disposal of assets in measuring a provision.

14.5.6 Reimbursements

(a) Where some or all of the expenditure required settling a provision is expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the Council settles the obligation - the reimbursement shall be treated as a separate asset.

(b) The amount recognized for the reimbursement shall not exceed the amount of the provision.

(c) In the statement of financial performance, the expense relating to a provision may be presented net of the amount recognized for a reimbursement.

14.4 Contingent Assets

Council shall not recognize a contingent asset.

14.5 Measurement

14.5.1 Best Estimate

(a) Council shall recognize a provision of an amount that is the best estimate of the expenditure required to settle the present obligation at the reporting date– the best estimate of the expenditure required to settle the present obligation is the amount that the Council would rationally pay to settle the obligation at the reporting date or to transfer it to a third party at that time.

(b) Council management shall use judgement on estimating outcome and financial effect, supplemented by experience of similar transactions and, in some cases, reports from independent experts – the evidence considered includes any additional evidence provided by events after the reporting date.

(c) Council shall deal with the uncertainties surrounding the amount to be recognized as a provision by various means according to the circumstances.

(d) Council shall estimate an obligation by weighting all possible outcomes by their associated probabilities:- (1) Where the provision being measured involves a large population

of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities – the name for this statistical method of estimation is expected value.

(2) Where a single obligation is being measured, the individual most likely outcome may be the best estimate of the liability – however, even in such a case, the Council considers other possible outcomes. Where other possible outcomes are either mostly higher or mostly lower than the most likely outcome, the best estimate will be a higher or lower amount.

(e) The Council shall measure a provision before tax or tax equivalents.


14.6 Changes in Provisions

(a) Council shall review and adjust provisions at each reporting date to reflect the current best estimate and shall reverse a provision if it is no longer probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation.

(b) Council shall recognize an interest expense when the carrying amount of a provision increases in each period to reflect the passage of time due to rewinding of the discount.

14.7 Use of Provisions

Council shall only use a provision for expenditures for which the provision was originally recognized – only expenditures that relate to the original provision are set against it, since setting expenditures against a provision that was originally recognized for another purpose would conceal the impact of two different events.

14.8 Application of the Recognition and Measurement rules

14.8.1 Future Operating Net Deficits

Council shall not recognize provisions for net deficits from future operating activities – an expectation of net deficits from future operating activities is an indication that certain assets used in these activities may be impaired and the Council shall test these assets for impairment.

14.8.2 Onerous Contracts

(a) If Council has a contract that is onerous, the present obligation (net of recoveries) under the contract should be recognized and measured as a provision – an onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits or service potential expected to be received under it which includes amounts recoverable.

(b) Council shall pass the following entry: Debit: Surplus or Deficit (onerous contract) XXX Credit: Provision for Liability (onerous contract) XXX


(c) Council shall recognize as a provision the present obligation net of recoveries – the unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.

(d) Council shall recognize any impairment loss that has occurred on assets dedicated to an onerous contract before a separate provision for the onerous contract is established.

14.9 Disclosure

(a) Council shall, for each class of provision, disclose: (1) The carrying amount at the beginning and end of the period; (2) Additional provisions made in the period, including increases to

existing provisions; (3) Amounts used (that is, incurred and charged against the

provision) during the period; (4) Unused amounts reversed during the period; and (5) The increase during the period in the discounted amount arising

from the passage of time and the effect of any change in the discount rate.

(b) Comparative information is not required. (c) Council shall disclose the following for each class of provision:

(1) A brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits or service potential;

(2) An indication of the uncertainties about the amount or timing of those outflows. Provided that: Where necessary to provide adequate information, an Council should disclose the major assumptions made concerning future events, and

(3) The amount of any expected reimbursement, stating the amount of any asset that has been recognized for that expected reimbursement.

14.6 Changes in Provisions

(a) Council shall review and adjust provisions at each reporting date to reflect the current best estimate and shall reverse a provision if it is no longer probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation.

(b) Council shall recognize an interest expense when the carrying amount of a provision increases in each period to reflect the passage of time due to rewinding of the discount.

14.7 Use of Provisions

Council shall only use a provision for expenditures for which the provision was originally recognized – only expenditures that relate to the original provision are set against it, since setting expenditures against a provision that was originally recognized for another purpose would conceal the impact of two different events.

14.8 Application of the Recognition and Measurement rules

14.8.1 Future Operating Net Deficits

Council shall not recognize provisions for net deficits from future operating activities – an expectation of net deficits from future operating activities is an indication that certain assets used in these activities may be impaired and the Council shall test these assets for impairment.

14.8.2 Onerous Contracts

(a) If Council has a contract that is onerous, the present obligation (net of recoveries) under the contract should be recognized and measured as a provision – an onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits or service potential expected to be received under it which includes amounts recoverable.

(b) Council shall pass the following entry: Debit: Surplus or Deficit (onerous contract) XXX Credit: Provision for Liability (onerous contract) XXX


(d) Where Council elects to recognize in its financial statements provisions for social benefits for which it does not receive consideration that is approximately equal to the value of goods and services provided, directly in return from the recipients of those benefits, it should make the disclosures above in respect of those provisions.

(e) Council shall, unless the possibility of any outflow in settlement is remote, disclose for each class of contingent liability at the reporting date a brief description of the nature of the contingent liability, and, where practicable: (1) An estimate of its financial effect; (2) An indication of the uncertainties relating to the amount or

timing of any outflow; and (3) The possibility of any reimbursement.

(f) Council should disclose a brief description of the nature of the contingent assets at the reporting date, and, where practicable, an estimate of their financial effect where an inflow of economic benefits or service potential is probable.

(g) Council shall state the fact information required is not disclosed because it is not practicable to do so.

(h) Council need not disclose the information, but should disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed in extremely rare cases where, disclosure of some or all of the information required can be expected to prejudice seriously the position of the Council in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset.


SECTION FIFTEEN

15.0 EMPLOYEE BENEFITS

15.1 Objective (a) The objective of this Section is to prescribe the accounting and

disclosure for employee benefits. (b) A Council is required by the Section to recognize:

(1) A liability when an employee has provided service in exchange for employee benefits to be paid in the future; and

(2) An expense when the entity consumes the economic benefits or service potential arising from service provided by an employee in exchange for employee benefits.

(c) A Council shall apply this Section in accounting for all employee benefits, except share-based transactions (a Council is encouraged to seek relevant international or national accounting standard dealing with share-based transactions).

15.2 The Benefits (a) The employee benefits to which this Section applies include those

provided: (1) Under formal plans or other formal agreements between a

Council and individual employees, groups of employees, or their representatives;

(2) Under legislative requirements, or through industry arrangements, whereby Councils are required to contribute to national, state, industry, or other multi-employer plans, or where Councils are required to contribute to the composite social security program; or

(3) By those informal practices that give rise to a constructive obligation – Informal practices give rise to a constructive obligation where the Council has no realistic alternative but to pay employee benefits: An example of a constructive obligation is where a change in the Council’s informal practices would cause unacceptable damage to its relationship with employees.

(b) Employee Benefits include: (1) Short-term employee benefits, such as the following, if expected

to be settled wholly before twelve months after the end of the

(d) Where Council elects to recognize in its financial statements provisions for social benefits for which it does not receive consideration that is approximately equal to the value of goods and services provided, directly in return from the recipients of those benefits, it should make the disclosures above in respect of those provisions.

(e) Council shall, unless the possibility of any outflow in settlement is remote, disclose for each class of contingent liability at the reporting date a brief description of the nature of the contingent liability, and, where practicable: (1) An estimate of its financial effect; (2) An indication of the uncertainties relating to the amount or

timing of any outflow; and (3) The possibility of any reimbursement.

(f) Council should disclose a brief description of the nature of the contingent assets at the reporting date, and, where practicable, an estimate of their financial effect where an inflow of economic benefits or service potential is probable.

(g) Council shall state the fact information required is not disclosed because it is not practicable to do so.

(h) Council need not disclose the information, but should disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed in extremely rare cases where, disclosure of some or all of the information required can be expected to prejudice seriously the position of the Council in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset.


reporting period in which the employees render the related services: (i) Wages, salaries and social security contributions; (ii) Paid annual leave and paid sick leave; (iii) Profit-sharing and bonuses; and (iv) Non-monetary benefits (such as medical care, housing,

cars and free or subsidized goods or services) for current employees;

(2) Post-employment benefits, such as the following: (i) Retirement benefits (e.g., pensions and lump sum

payments on retirement); and (ii) Other post-employment benefits, such as post-

employment life insurance and post-employment medical care;

(3) Other long-term employee benefits, such as the following: (i) Long-term paid absences such as long-service leave or

sabbatical leave; (ii) Jubilee or other long-service benefits; and (iii) Long-term disability benefits; and

(4) Termination benefits. (c) Employee benefits include benefits provided either to employees or to

their dependents, and may be settled by payments (or the provision of goods or services) made either directly to the employees, to their spouses, children, or other dependents, or to others, such as insurance companies.

(d) An employee may provide services to a Council on a full-time, part-time, permanent, casual, or temporary basis – For the purpose of this Section, employees include key management personnel as defined in IPSAS 20, Related Party Disclosures.

15.3 Short-Term Employee Benefits A Council need not reclassify a short-term employee benefit if the Council’s expectations of the timing of settlement change temporarily – However, if the characteristics of the benefit change (such as a change from a non-accumulating benefit to an accumulating benefit) or if a change in expectations of the timing of settlement is not temporary, then the Council shall consider whether the benefit still meets the definition of short-term employee benefits.


15.3.1 Recognition and measurement (a) All Short-Term Employee Benefits

(1) When an employee has rendered service to a Council during an accounting period, the Council shall recognize the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service: (i) As a liability (accrued expense), after deducting any

amount already paid. If the amount already paid exceeds the undiscounted amount of the benefits, a Council shall recognize that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or a cash refund.

(ii) As an expense, unless another Section requires or permits the inclusion of the benefits in the cost of an asset (see, for example, Section 9 Property, Plant, and Equipment and Section 11 Inventories).

(2) Sections (b)(2) and (3), and (c)(1) below explain how a Council shall apply section (a) above to short-term employee benefits in the form of paid absences and profit-sharing and bonus plans.

(b) Short-Term Paid Absences (1) A Council may pay employees for absence for various reasons,

including holidays, sickness and short-term disability, maternity or paternity, jury service, and military service: Entitlement to paid absences can be: (i) Accumulating: Accumulating paid absences are those that are carried forward and can be used in future periods if the current period’s entitlement is not used in full by employee. Accumulating paid absences may be either vesting (in other words, employees are entitled to a cash payment for unused entitlement on leaving the entity) or non-vesting (when employees are not entitled to a cash payment for unused entitlement on leaving). An obligation arises as employees render service that increases their entitlement to future paid absences. The obligation exists, and is recognized, even if the paid absences are non-vesting, although the possibility that employees may leave before they use an

reporting period in which the employees render the related services: (i) Wages, salaries and social security contributions; (ii) Paid annual leave and paid sick leave; (iii) Profit-sharing and bonuses; and (iv) Non-monetary benefits (such as medical care, housing,

cars and free or subsidized goods or services) for current employees;

(2) Post-employment benefits, such as the following: (i) Retirement benefits (e.g., pensions and lump sum

payments on retirement); and (ii) Other post-employment benefits, such as post-

employment life insurance and post-employment medical care;

(3) Other long-term employee benefits, such as the following: (i) Long-term paid absences such as long-service leave or

sabbatical leave; (ii) Jubilee or other long-service benefits; and (iii) Long-term disability benefits; and

(4) Termination benefits. (c) Employee benefits include benefits provided either to employees or to

their dependents, and may be settled by payments (or the provision of goods or services) made either directly to the employees, to their spouses, children, or other dependents, or to others, such as insurance companies.

(d) An employee may provide services to a Council on a full-time, part-time, permanent, casual, or temporary basis – For the purpose of this Section, employees include key management personnel as defined in IPSAS 20, Related Party Disclosures.

15.3 Short-Term Employee Benefits A Council need not reclassify a short-term employee benefit if the Council’s expectations of the timing of settlement change temporarily – However, if the characteristics of the benefit change (such as a change from a non-accumulating benefit to an accumulating benefit) or if a change in expectations of the timing of settlement is not temporary, then the Council shall consider whether the benefit still meets the definition of short-term employee benefits.


accumulated non-vesting entitlement affects the measurement of that obligation. (ii) Non-accumulating: Non-accumulating paid absences do not carry forward; they lapse if the current period’s entitlement is not used in full and do not entitle employees to a cash payment for unused entitlement on leaving the entity. This is commonly the case for sick pay (to the extent that unused past entitlement does not increase future entitlement), maternity or paternity leave, and paid absences for jury service or military service. An entity recognizes no liability or expense until the time of the absence, because employee service does not increase the amount of the benefit.

(2) A Council shall recognize the expected cost of short-term employee benefits in the form of paid absences under (a) above as follows: (i) In the case of accumulating paid absences, when the

employees render service that increases their entitlement to future paid absences; and

(ii) In the case of non-accumulating paid absences, when the absences occur.

(3) A Council shall measure the expected cost of accumulating paid absences as the additional amount that the entity expects to pay as a result of the unused entitlement that has accumulated at the end of the reporting period. Debit: Short-term Benefit XXX Credit: Provision for Short-term Benefit XXX

(4) The method specified in (3) above measures the obligation at the amount of the additional payments that are expected to arise solely from the fact that the benefit accumulates – In many cases, a Council may not need to make detailed computations to estimate that there is no material obligation for unused paid absences: For example, a sick leave obligation is likely to be material only if there is a formal or informal understanding that unused paid sick leave may be taken as paid annual leave.

(c) Profit-Sharing and Bonus Plans (1) An obligation under profit-sharing plans and bonus plans

results from employee service and not from a transaction with the entity’s owners. Therefore, an entity recognizes the cost of


profit-sharing and bonus plans not as a distribution of profit but as an expense.

(2) A Council shall recognize the expected cost of profit-sharing and bonus payments under (a)(1) when, and only when: (i) The Council has a present legal or constructive obligation

to make such payments as a result of past events; and (ii) A reliable estimate of the obligation can be made. A present obligation exists when, and only when, the Council has no realistic alternative but to make the payments.

(3) A Council shall make a reliable estimate of its legal or constructive obligation under a performance-related payment scheme, bonus plan, or profit-sharing scheme when, and only when: (i) The formal terms of the plan contain a formula for

determining the amount of the benefit; (ii) The Council determines the amounts to be paid before the

financial statements are authorized for issue; or (iii) Past practice gives clear evidence of the amount of the

Council’s constructive obligation. (4) If profit-sharing and bonus payments are not expected to be

settled wholly before twelve months after the end of the reporting period in which the employees render the related service, those payments are other long-term employee benefits (see paragraphs 155–161).

15.3.2 Disclosure This Section does not require specific disclosures about short-term employee benefits, however, other Sections or Standards may require disclosures: (a) IPSAS 20 requires disclosures of the aggregate remuneration of key

management personnel; and (b) IPSAS 1 requires the disclosure of information about employee

benefits expense. 15.4 Post-employment Benefits – Contribution Plans (a) Arrangements whereby a Council provides post-employment benefits

are post-employment benefit plans. A Council shall apply this Section to all such arrangements, whether or not they involve the

accumulated non-vesting entitlement affects the measurement of that obligation. (ii) Non-accumulating: Non-accumulating paid absences do not carry forward; they lapse if the current period’s entitlement is not used in full and do not entitle employees to a cash payment for unused entitlement on leaving the entity. This is commonly the case for sick pay (to the extent that unused past entitlement does not increase future entitlement), maternity or paternity leave, and paid absences for jury service or military service. An entity recognizes no liability or expense until the time of the absence, because employee service does not increase the amount of the benefit.

(2) A Council shall recognize the expected cost of short-term employee benefits in the form of paid absences under (a) above as follows: (i) In the case of accumulating paid absences, when the

employees render service that increases their entitlement to future paid absences; and

(ii) In the case of non-accumulating paid absences, when the absences occur.

(3) A Council shall measure the expected cost of accumulating paid absences as the additional amount that the entity expects to pay as a result of the unused entitlement that has accumulated at the end of the reporting period. Debit: Short-term Benefit XXX Credit: Provision for Short-term Benefit XXX

(4) The method specified in (3) above measures the obligation at the amount of the additional payments that are expected to arise solely from the fact that the benefit accumulates – In many cases, a Council may not need to make detailed computations to estimate that there is no material obligation for unused paid absences: For example, a sick leave obligation is likely to be material only if there is a formal or informal understanding that unused paid sick leave may be taken as paid annual leave.

(c) Profit-Sharing and Bonus Plans (1) An obligation under profit-sharing plans and bonus plans

results from employee service and not from a transaction with the entity’s owners. Therefore, an entity recognizes the cost of


establishment of a separate entity, such as a pension scheme, superannuation scheme, or retirement benefit scheme, to receive contributions and to pay benefits.

(b) Post-employment benefits include items such as the following: (1) Retirement benefits (e.g. pensions and lump sum payments on

retirement); and (2) Other post-employment benefits, such as post-employment life

insurance, and post-employment medical care. Arrangements

(c) A Council’s legal or constructive obligation under defined contribution plans is limited to the amount that it agrees to contribute to the fund – In consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in substance, on the employee.

(d) Examples of cases where a Council’s obligation shall not be limited to the amount that it agrees to contribute to the fund are when the Council has a legal or constructive obligation through: (1) A plan benefit formula that is not linked solely to the amount of

contributions and requires the Council to provide further contributions if assets are insufficient to meet the benefits in the plan benefit formula;

(2) A guarantee, either indirectly through a plan or directly, of a specified return on contributions; or

(3) Those informal practices that give rise to a constructive obligation. For example, a constructive obligation may arise where a Council has a history of increasing benefits for former employees to keep pace with inflation, even where there is no legal obligation to do so.

15.5 Accounting for Defined Contribution Plans (a) A Council’s obligation for defined contribution plans for each period

is determined by the amounts to be contributed for that period. (b) A Council shall make no actuarial assumptions to measure the

obligation or the expense, and there is no possibility of any actuarial gain or loss.

(c) A Council shall measure the obligations on an undiscounted basis, except where they are not expected to be settled wholly before twelve


months after the end of the reporting period in which the employees render the related service.

15.6 Recognition and Measurement (a) A Council shall recognize, when an employee has rendered service to

the Council during a period, the contribution payable to a defined contribution plan in exchange for that service: (1) As a liability (accrued expense), after deducting any contribution

already paid – If the contribution already paid exceeds the contribution due for service before the end of the reporting period, a Council shall recognize that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or a cash refund; and

(2) As an expense, unless another Section requires or permits the inclusion of the contribution in the cost of an asset (see, for example, Section 9 Property, Plant, and Equipment and Section 11 Inventories).

(b) A Council shall discount contributions to a defined contribution plan, when contributions to a defined contribution plan are not expected to be settled wholly before twelve months after the end of the reporting period in which the employees render the related service, using the discount rate specified in 15.7.

15.7 The Discount Rate (a) A Council shall use a rate to discount post-employment benefit

obligations (both funded and unfunded) that reflects the time value of money – the term of the financial instrument selected to reflect the time value of money shall be consistent with the estimated term of the post-employment benefit obligations.

(b) A Council shall ensure that the discount rate reflects the time value of money but not the actuarial or investment risk, and furthermore, the discount rate does not reflect the Council-specific credit risk borne by the Council’s creditors, nor does it reflect the risk that future experience may differ from actuarial assumptions.

(c) A Council shall ensure the discount rate reflects the estimated timing of benefit payments, by applying a single weighted average discount rate that reflects the estimated timing and amount of benefit payments.

establishment of a separate entity, such as a pension scheme, superannuation scheme, or retirement benefit scheme, to receive contributions and to pay benefits.

(b) Post-employment benefits include items such as the following: (1) Retirement benefits (e.g. pensions and lump sum payments on

retirement); and (2) Other post-employment benefits, such as post-employment life

insurance, and post-employment medical care. Arrangements

(c) A Council’s legal or constructive obligation under defined contribution plans is limited to the amount that it agrees to contribute to the fund – In consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in substance, on the employee.

(d) Examples of cases where a Council’s obligation shall not be limited to the amount that it agrees to contribute to the fund are when the Council has a legal or constructive obligation through: (1) A plan benefit formula that is not linked solely to the amount of

contributions and requires the Council to provide further contributions if assets are insufficient to meet the benefits in the plan benefit formula;

(2) A guarantee, either indirectly through a plan or directly, of a specified return on contributions; or

(3) Those informal practices that give rise to a constructive obligation. For example, a constructive obligation may arise where a Council has a history of increasing benefits for former employees to keep pace with inflation, even where there is no legal obligation to do so.

15.5 Accounting for Defined Contribution Plans (a) A Council’s obligation for defined contribution plans for each period

is determined by the amounts to be contributed for that period. (b) A Council shall make no actuarial assumptions to measure the

obligation or the expense, and there is no possibility of any actuarial gain or loss.

(c) A Council shall measure the obligations on an undiscounted basis, except where they are not expected to be settled wholly before twelve


(d) A Council shall ensure the discount rate that reflects the time value of money is best approximated by reference to market yields at the end of the reporting period on government bills and bonds.

15.8 Disclosure (a) A Council shall disclose the amount recognized as an expense for

defined contribution plans. (b) Where required by IPSAS 20, a Council shall disclose information

about contributions to defined contribution plans for key management personnel.

15.9 Other Long-Term Employee Benefits (a) Other long-term employee benefits include items such as the

following, if not expected to be settled wholly before twelve months after the end of the reporting period in which the employees render the related service: (1) Long-term paid absences such as long service or sabbatical leave; (2) Jubilee or other long service benefits; (3) Long-term disability benefits; (4) Profit sharing and bonuses; (5) Deferred remuneration; and (6) Compensation payable by the entity until an individual enters

new employment. (b) A Council shall use a simplified method of accounting for other long-

term employee benefits which does not recognize re-measurements in net assets/equity.

(c) A Council shall make a rebuttable presumption that long-term disability payments are not usually subject to the same degree of uncertainty as the measurement of post-employment benefits otherwise (where this presumption is rebutted) the Council shall consider whether some or all long-term disability payments should be accounted for in accordance with paragraphs 57–154.

15.9.1 Recognition and Measurement (a) A Council shall, in recognizing and measuring the surplus or deficit

in another long-term employee benefit plan, apply paragraphs 58–


100 and 115–117. A Council shall apply paragraphs 118–121 in recognizing and measuring any reimbursement right.

(b) A Council shall, for other long-term employee benefits, recognize the net total of the following amounts in surplus or deficit, except to the extent that another IPSAS requires or permits their inclusion in the cost of an asset: (1) Service cost (see paragraphs 68–114); (2) Net interest on the net defined benefit liability (asset) (see

paragraphs 125-128); and (3) Remeasurements of the net defined benefit liability (asset)

(see paragraphs 129–132). (c) A Council shall measure long-term disability benefit, if the level of

benefit depends on the length of service, as the obligation arises when the service is rendered, reflecting the probability that payment will be required, and the length of time for which payment is expected to be made – however, if the level of benefit is the same for any disabled employee regardless of years of service, the expected cost of those benefits is recognized when an event occurs that causes a long-term disability.

15.9.2 Disclosure This Section does not require specific disclosures about other long-term employee benefits, other IPSASs may require disclosures: (a) IPSAS 20 requires disclosures about employee benefits for key

management personnel; and (b) IPSAS 1 requires disclosure of employee benefits expense. 15.10 Termination Benefits (a) This Section deals with termination benefits separately from other

employee benefits, because the event that gives rise to an obligation is the termination of employment rather than employee service – Termination benefits result from either a Council’s decision to terminate the employment or an employee’s decision to accept a Council’s offer of benefits in exchange for termination of employment.

(b) Termination benefits do not include employee benefits resulting from termination of employment at the request of the employee without a Council’s offer, or as a result of mandatory retirement requirements,

(d) A Council shall ensure the discount rate that reflects the time value of money is best approximated by reference to market yields at the end of the reporting period on government bills and bonds.

15.8 Disclosure (a) A Council shall disclose the amount recognized as an expense for

defined contribution plans. (b) Where required by IPSAS 20, a Council shall disclose information

about contributions to defined contribution plans for key management personnel.

15.9 Other Long-Term Employee Benefits (a) Other long-term employee benefits include items such as the

following, if not expected to be settled wholly before twelve months after the end of the reporting period in which the employees render the related service: (1) Long-term paid absences such as long service or sabbatical leave; (2) Jubilee or other long service benefits; (3) Long-term disability benefits; (4) Profit sharing and bonuses; (5) Deferred remuneration; and (6) Compensation payable by the entity until an individual enters

new employment. (b) A Council shall use a simplified method of accounting for other long-

term employee benefits which does not recognize re-measurements in net assets/equity.

(c) A Council shall make a rebuttable presumption that long-term disability payments are not usually subject to the same degree of uncertainty as the measurement of post-employment benefits otherwise (where this presumption is rebutted) the Council shall consider whether some or all long-term disability payments should be accounted for in accordance with paragraphs 57–154.

15.9.1 Recognition and Measurement (a) A Council shall, in recognizing and measuring the surplus or deficit

in another long-term employee benefit plan, apply paragraphs 58–


because those benefits are post-employment benefits – Termination benefit is the difference between a higher benefit provided for termination of employment at the request of the Council and a lower level of benefit for termination of employment at the request of the employee (in substance, a post-employment benefit).

(c) The form of the employee benefit does not determine whether it is in exchange provided for service or in exchange for termination of the employee’s employment – termination benefits are typically lump sum payments, but sometimes also include: (1) Enhancement of post-employment benefits, either indirectly

through an employee benefit plan or directly. (2) Salary until the end of a specified notice period if the employee

renders no further service that provides economic benefits to the entity.

(d) Indicators that an employee benefit is provided in exchange for services include the following: (1) The benefit is conditional on future service being provided

(including benefits that increase if further service is provided). (2) The benefit is provided in accordance with the terms of an

employee benefit plan. (e) A Council may provide some termination benefits in accordance with

the terms of an existing employee benefit plan – Employee benefits provided in accordance with the terms of an employee benefit plan are termination benefits if they both result from a Council’s decision to terminate an employee’s employment and are not conditional on future service being provided.

(f) A Council may provide some employee benefits regardless of the reason for the employee’s departure where the payment of such benefits is certain (subject to any vesting or minimum service requirements) but the timing of their payment is uncertain – these shall be accounted for as post-employment benefits rather than termination benefits although such benefits may be described in some jurisdictions as termination indemnities or termination gratuities.

15.10.1Recognition (a) A Council shall recognize a liability and expense for termination

benefits at the earlier of the following dates:


(1) When the Council can no longer withdraw the offer of those benefits; and

(2) When the Council recognizes costs for a restructuring that is within the scope of IPSAS 19 and involves the payment of termination benefits.

(b) For termination benefits payable as a result of an employee’s decision to accept an offer of benefits in exchange for the termination of employment, the time when a Council can no longer withdraw the offer of termination benefits is the earlier of: (1) When the employee accepts the offer; and (2) When a restriction (e.g. a legal, regulatory or contractual

requirement or other restriction) on the entity’s ability to withdraw the offer takes effect. This would be when the offer is made, if the restriction existed at the time of the offer.

(c) For termination benefits payable as a result of a Council’s decision to terminate an employee’s employment, the Council can no longer withdraw the offer when the Council has communicated to the affected employees a plan of termination meeting all of the following criteria: (1) Actions required to complete the plan indicate that it is unlikely

that significant changes to the plan will be made. (2) The plan identifies the number of employees whose employment

is to be terminated, their job classifications or functions and their locations (but the plan need not identify each individual employee) and the expected completion date.

(3) The plan establishes the termination benefits that employees will receive in sufficient detail that employees can determine the type and amount of benefits they will receive when their employment is terminated.

(d) When a Council recognizes termination benefits, the Council may also have to account for a plan amendment or a curtailment of other employee benefits (see paragraph 105).

15.10.2Measurement (a) A Council shall measure termination benefits on initial recognition,

and shall measure and recognize subsequent changes, in accordance with the nature of the employee benefit, provided that if the termination benefits are an enhancement to post-employment benefits,

because those benefits are post-employment benefits – Termination benefit is the difference between a higher benefit provided for termination of employment at the request of the Council and a lower level of benefit for termination of employment at the request of the employee (in substance, a post-employment benefit).

(c) The form of the employee benefit does not determine whether it is in exchange provided for service or in exchange for termination of the employee’s employment – termination benefits are typically lump sum payments, but sometimes also include: (1) Enhancement of post-employment benefits, either indirectly

through an employee benefit plan or directly. (2) Salary until the end of a specified notice period if the employee

renders no further service that provides economic benefits to the entity.

(d) Indicators that an employee benefit is provided in exchange for services include the following: (1) The benefit is conditional on future service being provided

(including benefits that increase if further service is provided). (2) The benefit is provided in accordance with the terms of an

employee benefit plan. (e) A Council may provide some termination benefits in accordance with

the terms of an existing employee benefit plan – Employee benefits provided in accordance with the terms of an employee benefit plan are termination benefits if they both result from a Council’s decision to terminate an employee’s employment and are not conditional on future service being provided.

(f) A Council may provide some employee benefits regardless of the reason for the employee’s departure where the payment of such benefits is certain (subject to any vesting or minimum service requirements) but the timing of their payment is uncertain – these shall be accounted for as post-employment benefits rather than termination benefits although such benefits may be described in some jurisdictions as termination indemnities or termination gratuities.

15.10.1Recognition (a) A Council shall recognize a liability and expense for termination

benefits at the earlier of the following dates:


the Council shall apply the requirements for post-employment benefits. Otherwise: (1) If the termination benefits are expected to be settled wholly

before twelve months after the end of the reporting period in which the termination benefit is recognized, the Council shall apply the requirements for short-term employee benefits.

(2) If the termination benefits are not expected to be settled wholly before twelve months after the end of the reporting period, the Council shall apply the requirements for other long-term employee benefits.

(b) Because termination benefits are not provided in exchange for service, paragraphs 72–76 relating to the attribution of the benefit to periods of service are not relevant.

15.10.3Disclosure This Section does not require specific disclosures about termination benefits, other IPSASs may require disclosures: (a) IPSAS 20 requires disclosures about employee benefits for key

management personnel; and (b) IPSAS 1 requires disclosure of employee benefits expense.


SECTION SIXTEEN

16.0 CASH FLOW STATEMENTS

(a) Council shall present financial statements under the accrual basis of accounting and shall prepare a cash flow statement and shall present it as an integral part of its financial statements for each period for which financial statements are presented.

(b) Council shall use the Direct Method shall in preparation of Cash Flow Statements.

16.1 Reporting Cash Flows from Operating Activities

(a) Council shall report cash flows from operating activities using the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed.

(b) Council may obtain information about major classes of gross cash receipts and gross cash payments either: (1) From the accounting records of the Council; or (2) By adjusting operating revenues, operating expenses (interest

and similar revenue, and interest expense and similar charges for a public financial institution) and other items in the statement of financial performance for: (i) Changes during the period in inventories and operating

receivables and payables; (ii) Other noncash items; and (iii) Other items for which the cash effects are investing or

financing cash flows. (c) Council reporting cash flows from operating activities using the direct

method shall provide a reconciliation of the surplus/deficit from ordinary activities with the net cash flow from operating activities – this reconciliation may be provided as part of the cash flow statement or in the notes to the financial statements.

16.1.1 Operating Activities

(a) The amount of net cash flows arising from operating activities is a key indicator of the extent to which the operations of the Council are

the Council shall apply the requirements for post-employment benefits. Otherwise: (1) If the termination benefits are expected to be settled wholly

before twelve months after the end of the reporting period in which the termination benefit is recognized, the Council shall apply the requirements for short-term employee benefits.

(2) If the termination benefits are not expected to be settled wholly before twelve months after the end of the reporting period, the Council shall apply the requirements for other long-term employee benefits.

(b) Because termination benefits are not provided in exchange for service, paragraphs 72–76 relating to the attribution of the benefit to periods of service are not relevant.

15.10.3Disclosure This Section does not require specific disclosures about termination benefits, other IPSASs may require disclosures: (a) IPSAS 20 requires disclosures about employee benefits for key

management personnel; and (b) IPSAS 1 requires disclosure of employee benefits expense.


funded – by way of taxes (directly and indirectly) or from the recipients of goods and services provided by the Council.

(b) The amount of the net cash flows assists in showing the ability of the Council in maintaining its operating capability, repay obligations, pay a dividend or similar distribution to its owner and make new investments without recourse to external sources of financing.

(c) Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows.

(d) Cash flows from operating activities are primarily derived from the principal cash-generating activities of the Council including: (1) Cash receipts from taxes, levies and fines; (2) Cash receipts from charges for goods and services provided by

the Council; (3) Cash receipts from grants or transfers and other appropriations

or other budget authority made by Central Government or other public sector entities;

(4) Cash receipts from royalties, fees, commissions and other revenue;

(5) Cash payments to other public sector entities to finance their operations (not including loans);

(6) Cash payments to suppliers for goods and services; (7) Cash payments to and on behalf of employees; (8) Cash receipts and cash payments of an insurance for premiums

and claims, annuities and other policy benefits; (9) Cash payments of local property taxes or income taxes (where

appropriate) in relation to operating activities; (10) Cash receipts and payments from contracts held for dealing or

trading purposes; (11) Cash receipts or payments from discontinuing operations; and (12) Cash receipts or payments in relation to litigation settlements. (13) Cash flows arising from the purchase and sale of dealing or

trading securities held for dealing or trading purposes. (14) Cash advances and loans made by public financial institutions.


(15) Appropriations or budgetary authorizations that the Council is unable to separately identify into current activities, capital works and contributed capital – this fact should be disclosed in the notes to the financial statements.

16.2 Reporting Cash Flows from Investing and Financing Activities

Council shall report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities.

16.2.1 Investing Activities

The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which cash outflows have been made for resources which are intended to contribute to the Council’s future service delivery, including: (a) Cash payments to acquire property, plant and equipment, intangibles

and other long-term assets. These payments include those relating to capitalized development costs and self-constructed property, plant and equipment;

(b) Cash receipts from sales of property, plant and equipment, intangibles and other long-term assets;

(c) Cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for those instruments considered to be cash equivalents or those held for dealing or trading purposes);

(d) Cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures (other than receipts for those instruments considered to be cash equivalents and those held for dealing or trading purposes);

(e) Cash advances and loans made to other parties (other than advances and loans made by a public financial institution);

(f) Cash receipts from the repayment of advances and loans made to other parties (other than advances and loans of a public financial institution);

(g) Cash payments for futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for

funded – by way of taxes (directly and indirectly) or from the recipients of goods and services provided by the Council.

(b) The amount of the net cash flows assists in showing the ability of the Council in maintaining its operating capability, repay obligations, pay a dividend or similar distribution to its owner and make new investments without recourse to external sources of financing.

(c) Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows.

(d) Cash flows from operating activities are primarily derived from the principal cash-generating activities of the Council including: (1) Cash receipts from taxes, levies and fines; (2) Cash receipts from charges for goods and services provided by

the Council; (3) Cash receipts from grants or transfers and other appropriations

or other budget authority made by Central Government or other public sector entities;

(4) Cash receipts from royalties, fees, commissions and other revenue;

(5) Cash payments to other public sector entities to finance their operations (not including loans);

(6) Cash payments to suppliers for goods and services; (7) Cash payments to and on behalf of employees; (8) Cash receipts and cash payments of an insurance for premiums

and claims, annuities and other policy benefits; (9) Cash payments of local property taxes or income taxes (where

appropriate) in relation to operating activities; (10) Cash receipts and payments from contracts held for dealing or

trading purposes; (11) Cash receipts or payments from discontinuing operations; and (12) Cash receipts or payments in relation to litigation settlements. (13) Cash flows arising from the purchase and sale of dealing or

trading securities held for dealing or trading purposes. (14) Cash advances and loans made by public financial institutions.


dealing or trading purposes, or the payments are classified as financing activities; and

(h) Cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing activities. When a contract is accounted for as a hedge of an identifiable position, the cash flows of the contract are classified in the same manner as the cash flows of the position being hedged.

16.2.2 Financing Activities

The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital to the Council, including:

(a) Cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or long-term borrowings;

(b) Cash repayments of amounts borrowed; and (c) Cash payments by a lessee for the reduction of the outstanding liability

relating to a finance lease.

16.3 Foreign Currency Cash Flows

(a) Cash flows arising from transactions in a foreign currency shall be recorded in Council’s functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow.

(b) The cash flows of a foreign controlled entity shall be translated at the exchange rates between the functional currency and the foreign currency at the dates of the cash flows.

16.4 Interest and Dividends

(a) Cash flows from interest and dividends received and paid should each be disclosed separately.

(b) Each should be classified in a consistent manner from period to period as operating, investing or financing activities.


SECTION SEVENTEEN

17.0 FINANCIAL INSTRUMENTS

17.1 Objective

The objective of this section is to establish principles for financial reporting of financial assets and financial liabilities that will present useful and relevant information to users of financial information for their assessments of the amounts, timing and uncertainty of a Council’s future cash flows.

17.2 Recognition and De-recognition

17.2.1 Initial Recognition

(i) Council shall recognize a financial asset or a financial liability in its statement of financial position when, and only when, the Council becomes a party to the contractual provisions of the instrument.

(ii) Council shall derecognize a financial asset when, and only when the contractual rights to the cash flows from the financial asset expire or are waived; or it transfers the financial asset as set out in paragraphs below and the transfer qualifies for de-recognition.

(iii) Council transfers a financial asset if, and only if, it either transfers the contractual rights to receive the cash flows of the financial asset; or retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in an arrangement that meets the following conditions: (1) Council has no obligation to pay amounts to the eventual

recipients unless it collects equivalent amounts from the original asset. Short-term advances by the Council with the right of full recovery of the amount lent plus accrued interest at market rates do not violate this condition.

(2) Council is prohibited by the terms of the transfer contract from selling or pledging the original asset other than as security to the eventual recipients for the obligation to pay them cash flows.

dealing or trading purposes, or the payments are classified as financing activities; and

(h) Cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing activities. When a contract is accounted for as a hedge of an identifiable position, the cash flows of the contract are classified in the same manner as the cash flows of the position being hedged.

16.2.2 Financing Activities

The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital to the Council, including:

(a) Cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or long-term borrowings;

(b) Cash repayments of amounts borrowed; and (c) Cash payments by a lessee for the reduction of the outstanding liability

relating to a finance lease.

16.3 Foreign Currency Cash Flows

(a) Cash flows arising from transactions in a foreign currency shall be recorded in Council’s functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow.

(b) The cash flows of a foreign controlled entity shall be translated at the exchange rates between the functional currency and the foreign currency at the dates of the cash flows.

16.4 Interest and Dividends

(a) Cash flows from interest and dividends received and paid should each be disclosed separately.

(b) Each should be classified in a consistent manner from period to period as operating, investing or financing activities.


(3) Council has an obligation to remit any cash flows it collects on behalf of the eventual recipients without material delay. In addition, the Council is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents (as defined in IPSAS 2 – Cash Flow Statement) during the short settlement period from the collection date to the date of required remittance to the eventual recipients, and interest earned on such investments is passed to the eventual recipients.

(iv) When a Council transfers a financial asset, it shall evaluate the extent to which it retains the risks and rewards of ownership of the financial asset. In this case: (1) If the Council transfers substantially all the risks and rewards of

ownership of the financial asset, the Council shall derecognize the financial asset and recognize separately as assets or liabilities any rights and obligations created or retained in the transfer.

(2) If the Council retains substantially all the risks and rewards of ownership of the financial asset, the Council shall continue to recognize the financial asset.

(3) If the Council neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, the Council shall determine whether it has retained control of the financial asset. In this case: (i) If the Council has not retained control, it shall derecognize

the financial asset and recognize separately as assets or liabilities any rights and obligations created or retained in the transfer.

(ii) If the Council has retained control, it shall continue to recognize the financial asset to the extent of its continuing involvement in the financial asset.

(v) Council shall recognize the new financial asset, financial liability or servicing liability at fair value if, as a result of a transfer, a financial asset is derecognized in its entirety but the transfer results in the Council obtaining a new financial asset or assuming a new financial liability, or a servicing liability.


(vi) Council shall recognize in surplus or deficit, on de-recognition of a financial asset in its entirety, the difference between: (1) The carrying amount; and (2) The sum of;

(i) The consideration received (including any new asset obtained less any new liability assumed) and (ii) Any cumulative gain or loss that had been recognized directly in net assets/equity.

(vii) Council shall not offset the asset and the associated liability nor shall it offset any revenue arising from the transferred asset with any expense incurred on the associated liability, if it continues to recognize a transferred asset.

(viii) A Council shall recognize and derecognize regular way purchase or sale of financial assets, as applicable, using trade date accounting.

17.2.2 De-recognition of a Financial Liability

(a) Council shall remove a financial liability (or a part of a financial liability) from its statement of financial position when, and only when, it is extinguished—i.e., when the obligation specified in the contract is discharged, waived, cancelled or expires.

(b) Council shall account an exchange between an existing borrowing and a new debt instrument with substantially different terms as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability or a part of it shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.

(c) Council shall recognize in surplus or deficit the difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed.

(d) Council shall de-recognise (Section 8) Revenue and (Section 9) Property, Plant and Equipment where an obligation is waived by the lender or assumed by a third party as part of a non-exchange transaction.

(3) Council has an obligation to remit any cash flows it collects on behalf of the eventual recipients without material delay. In addition, the Council is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents (as defined in IPSAS 2 – Cash Flow Statement) during the short settlement period from the collection date to the date of required remittance to the eventual recipients, and interest earned on such investments is passed to the eventual recipients.

(iv) When a Council transfers a financial asset, it shall evaluate the extent to which it retains the risks and rewards of ownership of the financial asset. In this case: (1) If the Council transfers substantially all the risks and rewards of

ownership of the financial asset, the Council shall derecognize the financial asset and recognize separately as assets or liabilities any rights and obligations created or retained in the transfer.

(2) If the Council retains substantially all the risks and rewards of ownership of the financial asset, the Council shall continue to recognize the financial asset.

(3) If the Council neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, the Council shall determine whether it has retained control of the financial asset. In this case: (i) If the Council has not retained control, it shall derecognize

the financial asset and recognize separately as assets or liabilities any rights and obligations created or retained in the transfer.

(ii) If the Council has retained control, it shall continue to recognize the financial asset to the extent of its continuing involvement in the financial asset.

(v) Council shall recognize the new financial asset, financial liability or servicing liability at fair value if, as a result of a transfer, a financial asset is derecognized in its entirety but the transfer results in the Council obtaining a new financial asset or assuming a new financial liability, or a servicing liability.


17.3 Classification

17.3.1 Classification of Financial Assets (a) A Council shall classify financial assets as subsequently measured at

amortized cost, fair value through net assets/equity or fair value through surplus or deficit on the basis of both: (1) The Council’s management model for financial assets and (2) The contractual cash flows characteristics of the financial asset.

(b) A Council shall measure a financial asset at amortize cost if both of the following conditions are met: (1) The asset is held within a management model whose objective is

to hold financial assets in order to collect contractual cash flows and

(2) The contractual terms of the contractual asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

(c) A financial asset shall be measured at fair value through net assets/equity if both of the following conditions are met: (1) The asset is held within a management model whose objective is

achieved by both collecting contractual cash flows and selling financial assets and


(d) A financial asset shall be measured at fair value through surplus or deficit unless it is measured at amortized cost or at fair value through net assets/equity – however, a Council may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through surplus or deficit to present subsequent changes in fair value in net assets/equity.

(e) A Council may, at initial recognition, irrevocably designate a financial asset as measured through fair value through surplus or deficit if doing so eliminates or significantly reduces a measurement or recognition inconsistency (accounting mismatch) that would


otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.

17.3.2 Classification of Financial Liabilities (a) A Council shall classify financial liabilities as subsequently measured

at amortized cost except for: (1) Financial liabilities through surplus or deficit – such liabilities,

including derivatives that are liabilities, shall be subsequently measured at fair value.

(2) Financial liabilities that arise when a transfer of a financial asset does not qualify for de-recognition or when the continuing involvement approach applies.

(3) Financial guarantee contracts, a Council shall measure them at the higher of: (i) The amount of the loss allowance determined in

accordance with IPSAS 41:73-93, and (ii) The amount initially recognized (see IPSAS 41:57) less,

when appropriate, the cumulative amount of amortization recognized in accordance with the principles of IPSAS 9.

(4) Commitments to provide loans at a below-market rate, where the Council shall measure them at the higher of: (i) The amount of the loss allowance determined in

accordance with IPSAS 41:73-93, and (ii) The amount initially recognized (see IPSAS 41:57) less,

when appropriate, the cumulative amount of amortization recognized in accordance with the principles of IPSAS 9.

(5) A Council may, at initial recognition, irrevocably designate a financial liability as measured through fair value through surplus or deficit, if permitted by IPSAS 41:51, or when doing so results in more relevant information, because either: (i) It eliminates or significantly reduces a measurement or

recognition inconsistency (accounting mismatch) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases (see IPSAS 41: AG 91 – AG 94): or

17.3 Classification

17.3.1 Classification of Financial Assets (a) A Council shall classify financial assets as subsequently measured at

amortized cost, fair value through net assets/equity or fair value through surplus or deficit on the basis of both: (1) The Council’s management model for financial assets and (2) The contractual cash flows characteristics of the financial asset.

(b) A Council shall measure a financial asset at amortize cost if both of the following conditions are met: (1) The asset is held within a management model whose objective is

to hold financial assets in order to collect contractual cash flows and


(c) A financial asset shall be measured at fair value through net assets/equity if both of the following conditions are met: (1) The asset is held within a management model whose objective is

achieved by both collecting contractual cash flows and selling financial assets and


(d) A financial asset shall be measured at fair value through surplus or deficit unless it is measured at amortized cost or at fair value through net assets/equity – however, a Council may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through surplus or deficit to present subsequent changes in fair value in net assets/equity.

(e) A Council may, at initial recognition, irrevocably designate a financial asset as measured through fair value through surplus or deficit if doing so eliminates or significantly reduces a measurement or recognition inconsistency (accounting mismatch) that would


(ii) A group of financial liabilities or group of financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with risk management or investment strategy, and information about the group is provided internally on that basis to the Council’s key management personnel as defined in IPSAS 20.

17.4 Re-classification (a) A Council shall re-classify all affected financial assets when and only

when it changes its management model for financial assets (see IPSAS 41:94-100, AG111 – AG 113, and AG 220 – 221 for additional guidance).

(b) A Council shall not re-classify any financial liability.

17.5 Measurement

17.5.1 Initial Measurement of Financial Assets and Financial Liabilities

Council shall measure at fair value a financial asset or financial liability recognized initially plus, in the case of a financial asset or financial liability not at fair value through surplus or deficit, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

17.5.2 Subsequent Measurement of Financial Assets

(a) A Council shall, after initial recognition, measure a financial asset in accordance with IPSAS 41:39 – 44 at: (i) Amortized cost; (ii) Fair value through net assets/equity; or (iii) Fair value through surplus or deficit.

(b) Council shall measure financial assets after initial recognition, including derivatives that are assets, at their fair values, without any deduction for transaction costs it may incur on sale or other disposal, except those financial assets of the Council that have determinable


periodic cash flows which shall be measured at amortized cost using the effective interest method.

17.5.3 Subsequent Measurement of Financial Liabilities

Council shall after initial recognition, measure all financial liabilities at amortized cost using the effective interest method, except for:

(a) Financial liabilities at fair value through surplus or deficit. Such liabilities, including derivatives that are liabilities, shall be measured at fair value except for a derivative liability that is linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured, which shall be measured at cost.

(b) Financial liabilities that arise when a transfer of a financial asset does not qualify for de-recognition or when the continuing involvement approach applies.

(c) Financial guarantee contracts: Financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. After initial recognition, an issuer of such a contract shall measure it at the higher of: (1) The amount determined in accordance with IPSAS 19; and (2) The amount initially recognized less, when appropriate,

cumulative amortization recognized as revenue from exchange transactions.

(d) Commitments to provide a loan at a below-market interest rate. After initial recognition, an issuer of such a commitment shall measure it at the higher of: (1) The amount determined in accordance with IPSAS 19; and (2) The amount initially recognized less, when appropriate,

cumulative amortization recognized as revenue from exchange transactions.

(ii) A group of financial liabilities or group of financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with risk management or investment strategy, and information about the group is provided internally on that basis to the Council’s key management personnel as defined in IPSAS 20.

17.4 Re-classification (a) A Council shall re-classify all affected financial assets when and only

when it changes its management model for financial assets (see IPSAS 41:94-100, AG111 – AG 113, and AG 220 – 221 for additional guidance).

(b) A Council shall not re-classify any financial liability.

17.5 Measurement

17.5.1 Initial Measurement of Financial Assets and Financial Liabilities

Council shall measure at fair value a financial asset or financial liability recognized initially plus, in the case of a financial asset or financial liability not at fair value through surplus or deficit, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

17.5.2 Subsequent Measurement of Financial Assets

(a) A Council shall, after initial recognition, measure a financial asset in accordance with IPSAS 41:39 – 44 at: (i) Amortized cost; (ii) Fair value through net assets/equity; or (iii) Fair value through surplus or deficit.

(b) Council shall measure financial assets after initial recognition, including derivatives that are assets, at their fair values, without any deduction for transaction costs it may incur on sale or other disposal, except those financial assets of the Council that have determinable


17.6 Impairment

(a) A Council shall recognize a loss allowance for expected credit losses on a financial asset that is measured in accordance with IPSAS 41: 40 or 41 , a lease receivable, or a loan commitment and a financial guarantee contract to which the impairment requirements apply in accordance with IPSAS 41:2(g), 45(c) or 45(d).

(b) Council shall recognize gain or loss arising from a change in the fair value of a financial asset or financial liability that is not part of a hedging relationship in surplus or deficit.

17.7 Expected Credit Loss (ECL) Provisioning

(a) A Council shall measure that loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition.

(b) If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, a Council shall measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses.

(c) At the reporting date, a Council shall only recognize the cumulative changes in lifetime expected credit losses since initial recognition as a loss for purchased or originated credit impaired financial assets.

(d) Council shall at end of reporting period estimate the ECL of financial assets carried in the financial statements. In doing so the Council shall consider the following main principles:

17.7.1 Council Management Responsibilities

(a) Council management is responsible for ensuring that the Council has appropriate credit risk practices, including an effective system of internal control, to consistently determine adequate allowances in accordance with the Council’s stated policies and procedures, the accounting framework and relevant supervisory guidance.

(b) Credit risk assessment and Expected Credit Loss (ECL) measurement processes should be based on sound credit risk management practices


that are consistent with approved Risk Appetite and with sound underwriting practices.

17.7.2 Sound ECL Methodologies

(a) Council shall put in place a “Credit Risk Identification Process” to properly identify on a regular basis the factors that impact changes in credit risk and estimates of ECL; identifying factors and other credit risk mitigates to be considered when assessing the collectability of cash flows.

(b) Council shall put in place a business model and current and forecasted macroeconomic conditions that could potentially affect a Council’s ability to recover amounts due and therefore might need to be considered; developing and documenting its process to generate relevant scenarios to be used in the estimation of ECL (not relying purely on subjective, biased or overly simplistic considerations).

(c) Council need not necessarily identify or model every possible scenario; however, it should consider all reasonable and supportable information that is relevant to the product, borrower, business model or economic and regulatory environment when developing estimates of ECL.

(d) Council will have to employ sound judgment consistent with generally accepted methods for economic analysis and forecasting.

(e) The properly designed proportionate approaches should enable a Council to adopt sound allowance methodologies that commensurate with the size, complexity, structure, economic significance, risk profile of the credit exposures they have and any other relevant facts and circumstances.

(f) Council shall use Forward-looking information and related credit risk factors in ECL estimates consistent with inputs to other relevant estimates in the financial statements, budgets, strategic and capital plans and other reporting.

(g) Council shall set an allowance level that continues to reflect the collectability of the substance of the restructured/modified exposure whether or not the original asset is derecognized.

Furthermore, it would not be appropriate to assume that restructured/modified exposure automatically lead to the conclusion that there has been an immediate decrease in the risk of the exposure.

17.6 Impairment

(a) A Council shall recognize a loss allowance for expected credit losses on a financial asset that is measured in accordance with IPSAS 41: 40 or 41 , a lease receivable, or a loan commitment and a financial guarantee contract to which the impairment requirements apply in accordance with IPSAS 41:2(g), 45(c) or 45(d).

(b) Council shall recognize gain or loss arising from a change in the fair value of a financial asset or financial liability that is not part of a hedging relationship in surplus or deficit.

17.7 Expected Credit Loss (ECL) Provisioning

(a) A Council shall measure that loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition.

(b) If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, a Council shall measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses.

(c) At the reporting date, a Council shall only recognize the cumulative changes in lifetime expected credit losses since initial recognition as a loss for purchased or originated credit impaired financial assets.

(d) Council shall at end of reporting period estimate the ECL of financial assets carried in the financial statements. In doing so the Council shall consider the following main principles:

17.7.1 Council Management Responsibilities

(a) Council management is responsible for ensuring that the Council has appropriate credit risk practices, including an effective system of internal control, to consistently determine adequate allowances in accordance with the Council’s stated policies and procedures, the accounting framework and relevant supervisory guidance.

(b) Credit risk assessment and Expected Credit Loss (ECL) measurement processes should be based on sound credit risk management practices


(h) Council shall review at each reporting period the cash flow estimates for purchased or originated credit-impaired lending exposures – Updates shall be properly supported and documented and approved by management.

17.7.3 Credit Risk Rating Process and Grouping Council shall have a credit risk rating process in place to appropriately group lending exposures on the basis of shared credit risk characteristics. (a) Council shall have an effective credit risk rating process that captures

the varying level, nature and drivers of credit risk, including an independent review function that allows a Council to track migration in credit risk and significant changes in credit risk.

(b) Council shall have criteria underlying a credit risk grade. Credit risk grades may subsequently change not only on an individual basis but also on a portfolio basis due to relevant factors such as changes in industry outlook, business growth rates, consumer sentiment and changes in economic forecasts as well as weaknesses in underwriting identified after initial recognition – hence, credit risk grades should be reviewed whenever relevant information is received or a Council’s expectation of credit risk has changed.

(c) Council shall periodically formally review credit risks grades assigned, at least annually and more frequently for individually assessed lending exposures that are higher-risk or credit-impaired.

(d) Council shall update ECL estimates on a timely basis to reflect changes in credit risk grades.

(e) Council shall make groupings granular enough to assess changes in the level credit risk in response to the impact of changing conditions, including changes in forward looking information, on a common range of credit risk drivers; grouping exposures such that the increase in credit risk of particular exposures is identified on a timely basis and is not masked by the performance of the portfolio as a whole.

(f) A Council shall document and subject to appropriate review and approval grouping methodology and shall re-evaluate regularly (including further or different segmentation in light of relevant new


information that may suggest a particular group is no longer homogenous in terms of their response to credit risk drivers).

17.7.4 Adequacy of the Allowance

(a) Council’s aggregate amount of allowances, regardless of whether allowance components are determined on a collective or an individual basis, should be adequate and consistent with the objectives of the accounting framework.

(b) When forward-looking information and macroeconomic factors cannot be applied at the individual exposure level, exposures should be placed in a group with shared credit risk characteristics and assessed collectively.

17.7.5 ECL Model Validation

Council shall have policies and procedures in place to appropriately validate models used to assess and measure ECLs. (a) Council may use models in various aspects of the ECL assessment and

measurement process – these models should consider the impact of changes to borrower and credit-risk related variables based on historical, current and reasonable and supportable forward looking information.

(b) Council shall conduct model validation when significant changes are made to the model and regularly (for example, annually) – effective model validation policies and procedures are crucial given the extensive judgment involved in developing them.

(c) Council shall put in place key elements of a sound model validation framework, including an independent party review process, the findings of which should be reported in a timely manner to senior management.

17.7.6 Experienced Credit Judgment

Council’s use of experienced credit judgment, especially in the robust consideration of reasonable and supportable forward-looking information, including macroeconomic factors, is essential to the assessment and measurement of ECLs.

(h) Council shall review at each reporting period the cash flow estimates for purchased or originated credit-impaired lending exposures – Updates shall be properly supported and documented and approved by management.

17.7.3 Credit Risk Rating Process and Grouping Council shall have a credit risk rating process in place to appropriately group lending exposures on the basis of shared credit risk characteristics. (a) Council shall have an effective credit risk rating process that captures

the varying level, nature and drivers of credit risk, including an independent review function that allows a Council to track migration in credit risk and significant changes in credit risk.

(b) Council shall have criteria underlying a credit risk grade. Credit risk grades may subsequently change not only on an individual basis but also on a portfolio basis due to relevant factors such as changes in industry outlook, business growth rates, consumer sentiment and changes in economic forecasts as well as weaknesses in underwriting identified after initial recognition – hence, credit risk grades should be reviewed whenever relevant information is received or a Council’s expectation of credit risk has changed.

(c) Council shall periodically formally review credit risks grades assigned, at least annually and more frequently for individually assessed lending exposures that are higher-risk or credit-impaired.

(d) Council shall update ECL estimates on a timely basis to reflect changes in credit risk grades.

(e) Council shall make groupings granular enough to assess changes in the level credit risk in response to the impact of changing conditions, including changes in forward looking information, on a common range of credit risk drivers; grouping exposures such that the increase in credit risk of particular exposures is identified on a timely basis and is not masked by the performance of the portfolio as a whole.

(f) A Council shall document and subject to appropriate review and approval grouping methodology and shall re-evaluate regularly (including further or different segmentation in light of relevant new


(a) It is recognized that it may not always be possible to demonstrate a strong link in formal statistical terms between the set of information and credit risk drivers and that a Council’s experienced credit judgment will be crucial in establishing the appropriate level for the individual or collective allowance.

(b) Hence, credit risk methodology must document a Council’s use of its experienced credit judgment which must also be subject to appropriate oversight.

17.7.7 Common Data

(a) Council shall have a sound credit risk assessment and measurement process that provides it with a strong basis for common systems, tools and data to assess credit risk and to account for ECLs.

(b) It is believed that the use of common processes, systems, tools and data to assess credit risk and measure ECL for accounting purposes and, where appropriate, to determine expected losses for capital adequacy purposes will strengthen the reliability and consistency of the resulting estimates, increases transparency and reinforces compliance with sound credit risk practices for all purposes.

17.7.8 Disclosure

Council’s public disclosures should promote transparency and comparability by providing timely, relevant and decision-useful information. (a) Council shall improve its disclosures in order to fairly depict its

exposures to credit risk and underwriting practices.

(b) Council management will need to apply judgment to determine the appropriate level of aggregation and disaggregation of data disclosed, such that disclosures enable users to perform individual institution analysis and facilitate comparisons with its peer group.

(c) Disclosures shall highlight factors that cause changes in ECL estimates, and the manner in which Council management’s experienced judgment has been incorporated, communicating how management satisfies itself that lending exposures are appropriately grouped.


(d) Council management shall regularly review its disclosure policies to ensure that information disclosed continue to be relevant to its risk profile, product concentrations, industry norms and current market conditions.

17.8 Classification and Measurement

Council shall classify financial assets and liabilities into either Financial assets or liabilities measured at fair value through surplus or deficit, or Financial assets or liabilities measured at amortized cost depending on business model or cash flow characteristics.

17.9 Impairment

Council shall apply impairment to: (a) Financial assets that are debt instruments that are measured at

Amortized Cost. (b) Loan commitments not measured at Fair Value through Surplus or

Deficit. (c) Financial guarantee contracts not measured at Fair Value through

Surplus or Deficit. (d) Lease receivables within the scope of IPSAS 41.

17.9.1 Staging

(a) Council shall, on initial recognition, allocate all financial instruments to stage 1.

(b) Council shall transfer a financial instrument to stage 2 if significant credit risk is identified at reporting date compared to initial recognition.

(c) Council shall transfer a financial instrument to stage 3 if there is objective evidence of impairment, and the Council shall credit impair the financial instrument.

(a) It is recognized that it may not always be possible to demonstrate a strong link in formal statistical terms between the set of information and credit risk drivers and that a Council’s experienced credit judgment will be crucial in establishing the appropriate level for the individual or collective allowance.

(b) Hence, credit risk methodology must document a Council’s use of its experienced credit judgment which must also be subject to appropriate oversight.

17.7.7 Common Data

(a) Council shall have a sound credit risk assessment and measurement process that provides it with a strong basis for common systems, tools and data to assess credit risk and to account for ECLs.

(b) It is believed that the use of common processes, systems, tools and data to assess credit risk and measure ECL for accounting purposes and, where appropriate, to determine expected losses for capital adequacy purposes will strengthen the reliability and consistency of the resulting estimates, increases transparency and reinforces compliance with sound credit risk practices for all purposes.

17.7.8 Disclosure

Council’s public disclosures should promote transparency and comparability by providing timely, relevant and decision-useful information. (a) Council shall improve its disclosures in order to fairly depict its

exposures to credit risk and underwriting practices.

(b) Council management will need to apply judgment to determine the appropriate level of aggregation and disaggregation of data disclosed, such that disclosures enable users to perform individual institution analysis and facilitate comparisons with its peer group.

(c) Disclosures shall highlight factors that cause changes in ECL estimates, and the manner in which Council management’s experienced judgment has been incorporated, communicating how management satisfies itself that lending exposures are appropriately grouped.


17.9.2 Impairment Calculation

(a) Council shall calculate impairment for financial instruments in stage 1 based on expected default (defaults possible) in the next 12 months.

(b) Council shall calculate ECL for financial instruments in stages 2 and 3 based on default events over the whole lifespan of the instrument.

17.9.3 Assessment of credit risks

(a) Council shall carry out assessments of credit risks at each reporting date.

(b) Council can move an asset in and out of lifetime ECL categories based on the fact pattern.

(c) Determining that there has been a significant increase in credit risk requires considerable judgment of the Council’s risk management department

(d) Council shall make assessment of a significant increase in credit risk for a specific instrument rather than for a counterparty, since the quantum of change in credit risk may be different for different instruments transacted with the same counterparty – also different instruments issued by the same counterparty may have had a different credit risk at initial recognition

(e) Council shall make a presumption of credit impairment when payments are 30 days past due which can only be rebutted if the Council has reasonable and supportable information demonstrating that even if contractual payments are 30 days past due, it does not represent a significant increase in credit risk.

17.9.4ECL Parameters

(a) Council shall calculate ECL on financial instruments as an unbiased probability weighted amount based on possible outcomes after considering risk of credit loss even if probability is low.

(b) Council shall calculate ECL as the difference between the cash flows due under the contract and the cash flows expected to be received by the Council.

(c) Council shall apply the following model in calculating ECL


Where; • MPD = marginal probability of default • LGD = Loss Given Default • EAD = Exposure at default • D = Discount factor

17.9.5Probability of Default

(a) For assets in stage 1 a 12 month PD is required (b) For assets in stage 2 and 3 a lifetime PD is required for which a PD

term structure needs to be built. (c) The forward looking PD shall reflect the entities view of the future and

should be an unbiased estimate as it should not include conservatism or optimism.

17.9.6 Loss Given Default

(a) One of the components of credit risk parameters based ECL model, LGD is an estimate of the loss from a transaction given that a default occurs.

(b) LGD is the percentage of exposure the bank might lose in case the borrower defaults.

(c) These losses are usually shown as a percentage of EAD, and depend, amongst others, on the type and amount of collateral as well as the type of borrower and the expected proceeds from the work-out of the assets.

(d) Lifetime LGDs are a collection of LGD estimates applicable to different future periods.

(e) In the context of lifetime ECL calculation an LGD estimate has to be available for all periods that are part of the lifetime horizon (and not only for the case of a default within next 12 months)

(f) The LGD component of ECL is independent of asset quality deterioration, and thus applied uniformly across various stages

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17.9.2 Impairment Calculation

(a) Council shall calculate impairment for financial instruments in stage 1 based on expected default (defaults possible) in the next 12 months.

(b) Council shall calculate ECL for financial instruments in stages 2 and 3 based on default events over the whole lifespan of the instrument.

17.9.3 Assessment of credit risks

(a) Council shall carry out assessments of credit risks at each reporting date.

(b) Council can move an asset in and out of lifetime ECL categories based on the fact pattern.

(c) Determining that there has been a significant increase in credit risk requires considerable judgment of the Council’s risk management department

(d) Council shall make assessment of a significant increase in credit risk for a specific instrument rather than for a counterparty, since the quantum of change in credit risk may be different for different instruments transacted with the same counterparty – also different instruments issued by the same counterparty may have had a different credit risk at initial recognition

(e) Council shall make a presumption of credit impairment when payments are 30 days past due which can only be rebutted if the Council has reasonable and supportable information demonstrating that even if contractual payments are 30 days past due, it does not represent a significant increase in credit risk.

17.9.4ECL Parameters

(a) Council shall calculate ECL on financial instruments as an unbiased probability weighted amount based on possible outcomes after considering risk of credit loss even if probability is low.

(b) Council shall calculate ECL as the difference between the cash flows due under the contract and the cash flows expected to be received by the Council.

(c) Council shall apply the following model in calculating ECL


17.9.7 Exposure at Default

(a) An estimation of the extent to which the Council may be exposed to a counter party in the event of default and at the time of the counterparty’s default.

(b) An estimate of the amount outstanding (drawn amounts plus likely future draw downs of yet undrawn lines) in case the borrower defaults

(c) EAD modeling would require the ALM system of the Council to produce either contractual or behavioral cash flows till the lifetime of the loans.

(d) EAD shall be based on historical prepayments and establishing a relationship with a change interest rates to forecast the prepayment factors in order to estimate prepayments in future scenarios.

(e) EAD for funded/single drawdown facilities shall be the actual outstanding amount of the loan – the maturity of the loan shall be fixed as per the contractual terms

17.9.8 Discount Factor

(a) The discount factor shall be the original effective interest rate in order to arrive at the present value of expected losses at the reporting date or the ECL computation date.

(b) The Effective Interest Rate may be calculated at the account level of portfolio level depending on the availability of data.

17.9.9 The Expected Loss (EL)

(a) The Expected Loss (in currency amounts) can then be written as EL = PD * EAD * LGD

(b) or, if expressed as a percentage figure of the EAD, as EL = PD * LGD.


SECTION EIGHTEEN

18.0 Impairment

18.1 Impairment of Non-cash Generating Assets

(a) Impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic recognition of the loss of the asset’s future economic benefits or service potential through depreciation (amortization).

(b) Council shall assess at each reporting date whether there is any indication that an asset may be impaired – if any such indication exists, the Council shall estimate the recoverable service amount of the asset.

(c) Council shall consider, as a minimum, the following indications in assessing whether there is any indication that an asset may be impaired:

18.1.1 External sources of information

(a) Cessation, or near cessation, of the demand or need for services provided by the asset;

(b) Significant long-term changes with an adverse effect on the Council have taken place during the period or will take place in the near future, in the technological, legal or Government policy environment in which the Council operates;

18.1.2 Internal sources of information

(a) Evidence is available of physical damage of an asset; (b) Significant long-term changes with an adverse effect on the Council

have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used – these changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, or plans to dispose of an asset before the previously expected date.

(c) A decision to halt the construction of the asset before it is complete or in a usable condition; and

17.9.7 Exposure at Default

(a) An estimation of the extent to which the Council may be exposed to a counter party in the event of default and at the time of the counterparty’s default.

(b) An estimate of the amount outstanding (drawn amounts plus likely future draw downs of yet undrawn lines) in case the borrower defaults

(c) EAD modeling would require the ALM system of the Council to produce either contractual or behavioral cash flows till the lifetime of the loans.

(d) EAD shall be based on historical prepayments and establishing a relationship with a change interest rates to forecast the prepayment factors in order to estimate prepayments in future scenarios.

(e) EAD for funded/single drawdown facilities shall be the actual outstanding amount of the loan – the maturity of the loan shall be fixed as per the contractual terms

17.9.8 Discount Factor

(a) The discount factor shall be the original effective interest rate in order to arrive at the present value of expected losses at the reporting date or the ECL computation date.

(b) The Effective Interest Rate may be calculated at the account level of portfolio level depending on the availability of data.

17.9.9 The Expected Loss (EL)

(a) The Expected Loss (in currency amounts) can then be written as EL = PD * EAD * LGD

(b) or, if expressed as a percentage figure of the EAD, as EL = PD * LGD.


(d) Evidence is available from internal reporting that indicates that the service performance of an asset is, or will be, significantly worse than expected – this may relate to the ability of the asset to provide goods or services rather than to a decline in the demand for the goods or services provided by the asset. This includes the existence of:

(1) Significantly higher costs of operating or maintaining the asset, compared with those originally budgeted; and

(2) Significantly lower service or output levels provided by the asset compared with those originally expected due to poor operating performance.

18.2 Measuring Recoverable Service Amount

(a) Council shall not always determine both an asset’s fair value less costs to sell and its value in use – If either of these amounts exceeds the asset’s carrying amount, the asset is not impaired and it is not necessary to estimate the other amount.

(b) Council may use the asset’s value in use as its recoverable service amount if it is not possible to determine fair value less costs to sell because there is no basis for making a reliable estimate of the amount obtainable from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties.

(c) Council shall use the asset’s fair value less costs to sell as its recoverable service amount if there is no reason to believe that an asset’s value in use materially exceeds its fair value less costs to sell – this will often be the case for an asset that is held for disposal because the value in use of an asset held for disposal will consist mainly of the net disposal proceeds. However, for many public sector non-cash-generating assets which are held on an ongoing basis to provide specialized services or public goods to the community, the value in use of the asset is likely to be greater than its fair value less costs to sell.

18.2.1 Fair Value less Costs to Sell

(a) Council shall use a price in a binding sale agreement in an arm’s length transaction, adjusted for incremental costs that would be directly


attributable to the disposal of the asset as the best evidence of an asset’s fair value less costs to sell.

(b) Council shall use market price less the costs of disposal as the asset’s fair value less costs to sell if there is no binding sale agreement but an asset is traded in an active market – the appropriate market price is usually the current bid price. When current bid prices are unavailable, the price of the most recent transaction may provide a basis from which to estimate fair value less costs to sell, provided that there has not been a significant change in economic circumstances between the transaction date and the date as at which the estimate is made.

(c) Council can base fair value less costs to sell on the best information available to reflect the amount that Council could obtain, at reporting date, from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal if there is no binding sale agreement or active market for an asset, is based – in determining this amount, the Council could consider the outcome of recent transactions for similar assets within the same industry. Fair value less costs to sell does not reflect a forced sale, unless management or the governing body is compelled to sell immediately.

(d) Council shall deduct costs of disposal, such costs are legal costs, stamp duty and similar transaction taxes, costs of removing the asset, and direct incremental costs to bring an asset into condition for its sale, other than those that have been recognized as liabilities, in determining fair value less costs to sell – however, termination benefits and costs associated with reducing or reorganizing a business following the disposal of an asset are not direct incremental costs to dispose of the asset.

18.2.2 Value in Use

(a) The value in use of a non-cash-generating asset as the present value of the asset’s remaining service potential.

(b) The present value of the remaining service potential of the asset is determined using any one of the approaches, as appropriate:

(d) Evidence is available from internal reporting that indicates that the service performance of an asset is, or will be, significantly worse than expected – this may relate to the ability of the asset to provide goods or services rather than to a decline in the demand for the goods or services provided by the asset. This includes the existence of:

(1) Significantly higher costs of operating or maintaining the asset, compared with those originally budgeted; and

(2) Significantly lower service or output levels provided by the asset compared with those originally expected due to poor operating performance.

18.2 Measuring Recoverable Service Amount

(a) Council shall not always determine both an asset’s fair value less costs to sell and its value in use – If either of these amounts exceeds the asset’s carrying amount, the asset is not impaired and it is not necessary to estimate the other amount.

(b) Council may use the asset’s value in use as its recoverable service amount if it is not possible to determine fair value less costs to sell because there is no basis for making a reliable estimate of the amount obtainable from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties.

(c) Council shall use the asset’s fair value less costs to sell as its recoverable service amount if there is no reason to believe that an asset’s value in use materially exceeds its fair value less costs to sell – this will often be the case for an asset that is held for disposal because the value in use of an asset held for disposal will consist mainly of the net disposal proceeds. However, for many public sector non-cash-generating assets which are held on an ongoing basis to provide specialized services or public goods to the community, the value in use of the asset is likely to be greater than its fair value less costs to sell.

18.2.1 Fair Value less Costs to Sell

(a) Council shall use a price in a binding sale agreement in an arm’s length transaction, adjusted for incremental costs that would be directly


18.2.3 Depreciated Replacement Cost Approach

(a) Council, when using this approach, shall determine the present value of the remaining service potential of an asset as the depreciated replacement cost of the asset – the replacement cost of an asset is the cost to replace the asset’s gross service potential and is depreciated to reflect the asset in its used condition.

(b) Council may replace an asset either through reproduction (replication) of the existing asset or through replacement of its gross service potential – hence, the Council shall measure the depreciated replacement cost as the reproduction or replacement cost of the asset, whichever is lower, less accumulated depreciation calculated on the basis of such cost, to reflect the already consumed or expired service potential of the asset.

(c) Council shall consider any standby or surplus capacity that is held for safety or other reasons as part of the required service potential of the asset.

18.2.4 Restoration Cost Approach

(a) The Council using this approach shall determine the present value of the remaining service potential of the asset as the current cost of replacing the remaining service potential of the asset before impairment less the estimated restoration (the lower of the depreciated reproduction or replacement) cost of the asset.

(b) Restoration cost is the cost of restoring the service potential of an asset to its pre-impaired level.

18.2.5 Service Units Approach

The Council using this approach shall determine the present value of the remaining service potential of the asset by reducing the current cost of the remaining service potential of the asset before impairment to conform with the reduced number of service units expected from the asset in its impaired state – as in the restoration cost approach, the current cost of replacing the remaining service potential of the asset before impairment is usually


determined as the depreciated reproduction or replacement cost of the asset before impairment, whichever is lower.

18.2.6 Application of Approaches

The choice of the most appropriate approach to measuring value in use depends on the availability of data and the nature of the impairment:

(a) Impairments identified from significant long-term changes in the technological, legal or Government policy environment are generally measurable using a depreciated replacement cost approach or a service units approach, when appropriate;

(b) Impairments identified from a significant long-term change in the extent or manner of use, including that identified from the cessation or near cessation of demand, are generally measurable using a depreciated replacement cost or a service units approach when appropriate; and

(c) Impairments identified from physical damage are generally measurable using a restoration cost approach or a depreciated replacement cost approach when appropriate.

18.2.7 Recognizing and Measuring an Impairment Loss (a) Council shall recognize an impairment loss immediately in surplus or

deficit and reduce the carrying amount of an asset to its recoverable service amount, if, and only if, the recoverable service amount of an asset is less than its carrying amount.

(b) For Tangible Non-current Assets Debit: Surplus or Deficit (impairment loss) XXX Credit: Accumulated Impairment Loss – Asset XXX

(c) For Intangible or Current Assets Debit: Surplus or Deficit (impairment loss) XXX Credit: Asset XXX

(d) Council shall recognize a liability if, and only if, that is required by another IPSAS when the amount estimated for an impairment loss is greater than the carrying amount of the asset to which it relates.

(e) Council shall adjust future periods depreciation (amortization) charge for the asset to allocate the asset’s revised carrying amount, less its

18.2.3 Depreciated Replacement Cost Approach

(a) Council, when using this approach, shall determine the present value of the remaining service potential of an asset as the depreciated replacement cost of the asset – the replacement cost of an asset is the cost to replace the asset’s gross service potential and is depreciated to reflect the asset in its used condition.

(b) Council may replace an asset either through reproduction (replication) of the existing asset or through replacement of its gross service potential – hence, the Council shall measure the depreciated replacement cost as the reproduction or replacement cost of the asset, whichever is lower, less accumulated depreciation calculated on the basis of such cost, to reflect the already consumed or expired service potential of the asset.

(c) Council shall consider any standby or surplus capacity that is held for safety or other reasons as part of the required service potential of the asset.

18.2.4 Restoration Cost Approach

(a) The Council using this approach shall determine the present value of the remaining service potential of the asset as the current cost of replacing the remaining service potential of the asset before impairment less the estimated restoration (the lower of the depreciated reproduction or replacement) cost of the asset.

(b) Restoration cost is the cost of restoring the service potential of an asset to its pre-impaired level.

18.2.5 Service Units Approach

The Council using this approach shall determine the present value of the remaining service potential of the asset by reducing the current cost of the remaining service potential of the asset before impairment to conform with the reduced number of service units expected from the asset in its impaired state – as in the restoration cost approach, the current cost of replacing the remaining service potential of the asset before impairment is usually


residual value (if any), on a systematic basis over its remaining useful life after the recognition of an impairment loss.

18.3 Reversing an Impairment Loss

(a) Council shall assess at each reporting date whether there is any indication that an impairment loss recognized in prior periods for an asset may no longer exist or may have decreased. If any such indication exists, the Council shall estimate the recoverable service amount of that asset.

(b) Council shall review and adjust the remaining useful life, depreciation (amortization) method or the residual value of an asset if there is an indication that an impairment loss recognized for an asset may no longer exist or may have decreased, even if no impairment loss is reversed for the asset.

(c) Council shall recognize, immediately in surplus or deficit, reversal of an impairment loss recognized in prior periods for an asset if, and only if, there has been a change in the estimates used to determine the asset’s recoverable service amount since the last impairment loss was recognized – if this is the case, the Council shall increase the carrying amount of the asset to its recoverable service amount. That increase is a reversal of an impairment loss.

(d) For Tangible Non-current Assets Debit: Accumulated Impairment Loss – Asset XX Credit: Surplus or Deficit (reversal of impairment loss) XXX

(e) For Intangible or Current Assets Debit: Asset XXX Credit: Surplus or Deficit (reversal of impairment loss) XXX

(f) The increased carrying amount of an asset attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior periods.

(g) Council shall adjust the depreciation (amortization) charge for the asset in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life after a reversal of impairment loss is recognized.


(h) Council shall consider, as a minimum, the following indications in assessing whether there is any indication that an impairment loss recognized in prior periods for an asset may no longer exist or may have decreased:

18.3.1 External sources of information

(a) Resurgence of the demand or need for services provided by the asset. (b) Significant long-term changes with a favourable effect on the Council

have taken place during the period, or will take place in the near future, in the technological, legal or Government policy environment in which the Council operates.

18.3.2 Internal sources of information

(a) Significant long-term changes with a favourable effect on the Council have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, the asset is used or is expected to be used. These changes include costs incurred during the period to improve or enhance an asset’s performance or restructure the operation to which the asset belongs.

(b) A decision to resume construction of the asset that was previously halted before it was completed or in a usable condition.

(c) Evidence is available from internal reporting that indicates that the service performance of the asset is, or will be, significantly better than expected.

18.4 Re-designation of Assets

(a) The re-designation of assets from cash-generating assets to non-cash generating assets or from non-cash-generating assets to cash generating assets shall only occur when there is clear evidence that such a re-designation is appropriate.

(b) A re-designation, by itself, does not necessarily trigger an impairment test or a reversal of an impairment loss. Instead, the indication for an impairment test or a reversal of an impairment loss arises from, as a minimum, the listed indications applicable to the asset after re-designation.

residual value (if any), on a systematic basis over its remaining useful life after the recognition of an impairment loss.

18.3 Reversing an Impairment Loss

(a) Council shall assess at each reporting date whether there is any indication that an impairment loss recognized in prior periods for an asset may no longer exist or may have decreased. If any such indication exists, the Council shall estimate the recoverable service amount of that asset.

(b) Council shall review and adjust the remaining useful life, depreciation (amortization) method or the residual value of an asset if there is an indication that an impairment loss recognized for an asset may no longer exist or may have decreased, even if no impairment loss is reversed for the asset.

(c) Council shall recognize, immediately in surplus or deficit, reversal of an impairment loss recognized in prior periods for an asset if, and only if, there has been a change in the estimates used to determine the asset’s recoverable service amount since the last impairment loss was recognized – if this is the case, the Council shall increase the carrying amount of the asset to its recoverable service amount. That increase is a reversal of an impairment loss.

(d) For Tangible Non-current Assets Debit: Accumulated Impairment Loss – Asset XX Credit: Surplus or Deficit (reversal of impairment loss) XXX

(e) For Intangible or Current Assets Debit: Asset XXX Credit: Surplus or Deficit (reversal of impairment loss) XXX

(f) The increased carrying amount of an asset attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior periods.

(g) Council shall adjust the depreciation (amortization) charge for the asset in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life after a reversal of impairment loss is recognized.


18.5 Disclosure

(a) Council shall disclose the following for each class of assets: (1) The amount of impairment losses recognized in surplus or



(b) Council that reports segment information shall disclose the following for each segment reported by the Council:

i. The amount of impairment losses recognized in surplus or deficit during the period.

ii. The amount of reversals of impairment losses recognized in surplus or deficit during the period.

(c) Council shall disclose the following for each material impairment loss recognized or reversed during the period: (1) The events and circumstances that led to the recognition or

reversal of the impairment loss. (2) The amount of the impairment loss recognized or reversed. (3) The nature of the asset. (4) The segment to which the asset belongs, if the Council reports

segment information. (5) Whether the recoverable service amount of the asset is its fair




(d) Council shall disclose the following information for the aggregate of impairment losses and aggregate reversals of impairment losses


recognized during the period for which no information is disclosed in accordance with above paragraph: (1) The main classes of assets affected by impairment losses (and the


these impairment losses and reversals of impairment losses.

18.5 Disclosure

(a) Council shall disclose the following for each class of assets: (1) The amount of impairment losses recognized in surplus or



(b) Council that reports segment information shall disclose the following for each segment reported by the Council:

i. The amount of impairment losses recognized in surplus or deficit during the period.

ii. The amount of reversals of impairment losses recognized in surplus or deficit during the period.

(c) Council shall disclose the following for each material impairment loss recognized or reversed during the period: (1) The events and circumstances that led to the recognition or

reversal of the impairment loss. (2) The amount of the impairment loss recognized or reversed. (3) The nature of the asset. (4) The segment to which the asset belongs, if the Council reports

segment information. (5) Whether the recoverable service amount of the asset is its fair




(d) Council shall disclose the following information for the aggregate of impairment losses and aggregate reversals of impairment losses


SECTION NINETEEN

19 PRIMARY BOOKS OF ACCOUNT

(a) This part will describe the main forms of recording documents that will be used at the Council, LLGs and SPFs.

(b) All recording documents for Councils will be in the EPICOR and FFARS.

19.1 Introduction

a. Councils are required by law to maintain in proper books of accounts. b. This legal requirement is elaborated further in the Financial

Memorandum issued by the Minister in Compliance with the Local Government Finances Act, Cap 290.

c. In order to comply with the law, LGAs have to maintain a set of books into which all transactions will be recorded.

19.2 Financial Reporting Tool

(a) The Councils, LLGs and SPFs shall use a financial reporting tool that shows the date, transaction explanation, reference document, amount, and account code – this will also show the daily cash balance.

(b) This is the portal into which movement of money (cash, cheques, money orders etc.) shall be recorded.

(c) When money is received on behalf of the Council, LLG or SPF an acknowledgement receipt is issued, a copy of which provides the necessary information for recording in the Cash Book.

(d) Where the Council, LLG or SPF makes a payment, such a transaction is supported by a payment voucher which provides the basic information for recording in the Cash Book.

(e) Receipts form the debit entries into the Cash Book and payments the credit entries.

19.3 Coding of Accounts

Council shall use account codes to its transactions and also provide LLGs and SPFs with account codes to be used to record LLGs and SPFs transactions.


19.4 Subsidiary Records

(a) Councils, LLGs and SPFs shall need to maintain subsidiary records for debtors and creditors.

(b) The main records that shall be maintained by Councils, LLGs and SPFs are:- (1) Journal Voucher File (2) Dishonored Cheques Register (3) Fees Register (4) Fixed Assets Register (5) Imprest Register (6) Salary Advances Register (7) Any other register the Council deems necessary

SECTION NINETEEN

19 PRIMARY BOOKS OF ACCOUNT

(a) This part will describe the main forms of recording documents that will be used at the Council, LLGs and SPFs.

(b) All recording documents for Councils will be in the EPICOR and FFARS.

19.1 Introduction

a. Councils are required by law to maintain in proper books of accounts. b. This legal requirement is elaborated further in the Financial

Memorandum issued by the Minister in Compliance with the Local Government Finances Act, Cap 290.

c. In order to comply with the law, LGAs have to maintain a set of books into which all transactions will be recorded.

19.2 Financial Reporting Tool

(a) The Councils, LLGs and SPFs shall use a financial reporting tool that shows the date, transaction explanation, reference document, amount, and account code – this will also show the daily cash balance.

(b) This is the portal into which movement of money (cash, cheques, money orders etc.) shall be recorded.

(c) When money is received on behalf of the Council, LLG or SPF an acknowledgement receipt is issued, a copy of which provides the necessary information for recording in the Cash Book.

(d) Where the Council, LLG or SPF makes a payment, such a transaction is supported by a payment voucher which provides the basic information for recording in the Cash Book.

(e) Receipts form the debit entries into the Cash Book and payments the credit entries.

19.3 Coding of Accounts

Council shall use account codes to its transactions and also provide LLGs and SPFs with account codes to be used to record LLGs and SPFs transactions.


SECTION TWENTY

20.0 RESERVE PROVISION AND HOLDING ACCOUNTS

20.1 Reserves

(a) The law empowers Councils to maintain such reserves, renewals or special funds as the Minister responsible for Local Government may approve or direct.

(b) The purpose of maintaining a general reserve fund is to provide a sufficient working balance and for meeting unforeseen contingencies.

(c) Other reserves are designed for more specific purposes. 20.2 Accounting for Reserves

(a) Council shall create reserves by appropriating the revenue account surplus into the main reserve account known as the General Reserve Fund.

(b) Council shall, in order to create such a reserve, debit the Revenue Appropriation Account with the amount required to be transferred and credit the General Reserve Fund.

20.3 Minimum Compulsory Reserve

(a) Council is statutorily required to place funds in the Minimum Compulsory Reserve (MCR) with the LGLB.

(b) Council shall maintain the reserve at a set percentage of the recurrent income of the previous year before grant is included and shall vary from year to year.

(c) Council shall affect through the General Fund Appropriation Account the appropriation of the initial contribution to the MCR, and the annual adjustment, whether an increase or decrease.

20.4 Investment of Reserves

(a) Council may invest specific reserves and the funds held against specific future contingencies.


(b) The MCR (LGLB) is exceptional in that the reserve funds appropriated are placed with another organization and constitute an asset for the local Authority.

(c) The funds placed with the LGLB are a liability of that organization to the Council.

(d) After appropriation of the MCR, therefore, the Council transfers funds to the LGLB, creating an investment (LGLB) account parallel to the MCR (LGLB) Account.

Statement of Financial Position as at………………………………. Current Assets Cash and Cash Equivalents XXX Receivables XXX Non-Current Assets Investment LGLB XXX Current Liabilities Creditors XXX Reserves MCR (LGLB) XXX General Reserve Fund XXX

20.5 MCR Borrowing Entitlement

(a) Council is entitled to short and medium term borrowing facilities with the creation and placing of the MCR with the LGLB.

(b) Council shall not place such borrowings in the Appropriation Account or through the Reserve or Investment Accounts.

20.6 Interest on MCR Deposits

(a) At present the LGLB does not pay interest and has not done so since the scheme was created.

SECTION TWENTY

20.0 RESERVE PROVISION AND HOLDING ACCOUNTS

20.1 Reserves

(a) The law empowers Councils to maintain such reserves, renewals or special funds as the Minister responsible for Local Government may approve or direct.

(b) The purpose of maintaining a general reserve fund is to provide a sufficient working balance and for meeting unforeseen contingencies.

(c) Other reserves are designed for more specific purposes. 20.2 Accounting for Reserves

(a) Council shall create reserves by appropriating the revenue account surplus into the main reserve account known as the General Reserve Fund.

(b) Council shall, in order to create such a reserve, debit the Revenue Appropriation Account with the amount required to be transferred and credit the General Reserve Fund.

20.3 Minimum Compulsory Reserve

(a) Council is statutorily required to place funds in the Minimum Compulsory Reserve (MCR) with the LGLB.

(b) Council shall maintain the reserve at a set percentage of the recurrent income of the previous year before grant is included and shall vary from year to year.

(c) Council shall affect through the General Fund Appropriation Account the appropriation of the initial contribution to the MCR, and the annual adjustment, whether an increase or decrease.

20.4 Investment of Reserves

(a) Council may invest specific reserves and the funds held against specific future contingencies.


(b) However, should interest be paid (this depends upon Minister responsible for Local Government’s decision) regulations require that all interest on MCR deposits with the LGLB be credited to the General Fund Account.

(c) On strict accounting grounds the Council shall accrue interest and show the LGLB as a creditor – in the absence of any indicated interest rate, and to avoid overstating income, accrual is not recommended at the time. Provided that: However, this issue should be noted for future reference and appropriate accrual made in the accounts when definite arrangements have been made.

20.7 Renewals funds

(a) The purpose of a renewals fund is to equalize the cost of renewals and replacements of assets of a number of years, usually the expected life time of each asset in question.

(b) Renewals funds are restricted to vehicles, plant, machinery and furniture.

(c) The fund is built up by annual contributions to the fund from the revenue account calculated to ensure availability of funds to replace the asset after the expiry of its working life (less estimated residual or sale values).

(d) Where the items in the Renewals Fund are numerous, the Renewals Fund Account in the General Ledger is kept in total only, the details appearing in a Renewals Fund Schedule.

(e) The rate of contribution to a Renewals Fund in respect of every asset included in it should be reviewed frequently, particularly in an era of continually rising prices.

(f) Inflation adjusted contributions, based on future projections of price increases, provide for replacement rather than historic cost values.

20.7.1 Accounting for Renewals Funds

(a) Council shall pass the following entry when accounting for a Renewals Fund:


Debit: The appropriate service revenue account XXX Credit: The Renewals Fund Account XXX

(b) Where a Council operates a transport pool, the contribution to the Motor Vehicles Renewals fund is made from the Transport Holding account.

20.7.2 Investment of Renewals Funds

(a) Council shall invest in an interest yielding asset the cash equivalent of the fund contributions in order to ensure the availability of the funds set aside for the future purchase of the replacement asset,.

(b) Council is statutorily required to invest renewals funds with the LGLB and this requires separate book-keeping transactions and the creation of a specific asset account.

(c) The renewals fund cash flow is therefore lost to the Council but is preserved from being appropriated to other purposes.

(d) Interest earned should therefore at a minimum equate with the rate of inflation and, properly, show a real rate of return if funds are to be made available to replace the asset in full.

The statement of financial position for renewals fund investments will show:

RESERVES/PROVISIONS Renewals Fund 100,000

INVESTMENTS LGLB (Renewals) A/C 100,000

20.7.3 Interest on Renewals funds

(a) Regulations provide for all interest earned on LGLB deposits to be credited to the General Fund Account.

(b) Therefore, to ensure that interest is credited to the Renewals Fund, a contra expenditure entry is required debiting the General Fund Account, where the renewals contribution is being charged, and crediting the Renewals Fund Account.

(b) However, should interest be paid (this depends upon Minister responsible for Local Government’s decision) regulations require that all interest on MCR deposits with the LGLB be credited to the General Fund Account.

(c) On strict accounting grounds the Council shall accrue interest and show the LGLB as a creditor – in the absence of any indicated interest rate, and to avoid overstating income, accrual is not recommended at the time. Provided that: However, this issue should be noted for future reference and appropriate accrual made in the accounts when definite arrangements have been made.

20.7 Renewals funds

(a) The purpose of a renewals fund is to equalize the cost of renewals and replacements of assets of a number of years, usually the expected life time of each asset in question.

(b) Renewals funds are restricted to vehicles, plant, machinery and furniture.

(c) The fund is built up by annual contributions to the fund from the revenue account calculated to ensure availability of funds to replace the asset after the expiry of its working life (less estimated residual or sale values).

(d) Where the items in the Renewals Fund are numerous, the Renewals Fund Account in the General Ledger is kept in total only, the details appearing in a Renewals Fund Schedule.

(e) The rate of contribution to a Renewals Fund in respect of every asset included in it should be reviewed frequently, particularly in an era of continually rising prices.

(f) Inflation adjusted contributions, based on future projections of price increases, provide for replacement rather than historic cost values.

20.7.1 Accounting for Renewals Funds

(a) Council shall pass the following entry when accounting for a Renewals Fund:


20.8 Maintenance funds (a) Maintenance funds are set up for the purpose of equalizing

maintenance costs, usually for public housing, staff quarters, public buildings vehicles and equipment.

(b) They differ in nature from those set up to equalize replacement costs as the latter are normally concerned with the financing of capital expenditure while maintenance funds are concerned with financing revenue (recurrent) expenditure.

20.8.1 Maintenance Costs (a) The usual practice is to treat maintenance costs as part of the running

costs of the year in which they fall to be met, and this is reasonable and equitable enough if maintenance costs occur evenly over the lifetime of the asset.

(b) This is rarely the case in respect of buildings and vehicles which rend to make few demands for repair and maintenance during the early years of their life but which, as they become older, are subject to sudden and heavy repair costs, which constitute a heavy burden in the year of their occurrence if charged fully in that year.

(c) Such funds, for example, Housing maintenance funds are not the subject of any statutory regulation but are simply a form of provision which a Council may make if convinced of its financial merit and prudence.

(d) Those accounting procedures follow the same pattern as those of renewals funds.

(e) One exception is apparent, however, in that the utilization of a housing maintenance fund does not create an asset and therefore no capitalization is involved.

(f) The balance on the maintenance fund is shown on the liability side of the financial position and is prudently balanced by an asset (investment in realizable securities or cash) which is readily available when maintenance expenditure has to be incurred.

(g) The accounting transactions are similar to other fund accounting arrangements.


20.8.2 Separation of funds (a) Separation maintenance funds are required for each category of asset

and must take into account issues of inflation, the predictability of repair and maintenance costs, and notional or real interest earned on the balances.

(b) There is a tendency for repair and maintenance needs to be deferred leading to the need for major works to rehabilitate buildings.

(c) This is frequently shown and financed through the capital budget but funds may be appropriated from the housing maintenance fund for the whole or part of the rehabilitation.

20.9 Holding Account (a) Holding accounts may be maintained for common facilities such as

printing works and transport pools. (b) Holding accounts facilitate the allocation of costs currently held

centrally and arbitrarily charged to one committee’s budget even through benefiting other committees and departments.

20.8 Maintenance funds (a) Maintenance funds are set up for the purpose of equalizing

maintenance costs, usually for public housing, staff quarters, public buildings vehicles and equipment.

(b) They differ in nature from those set up to equalize replacement costs as the latter are normally concerned with the financing of capital expenditure while maintenance funds are concerned with financing revenue (recurrent) expenditure.

20.8.1 Maintenance Costs (a) The usual practice is to treat maintenance costs as part of the running

costs of the year in which they fall to be met, and this is reasonable and equitable enough if maintenance costs occur evenly over the lifetime of the asset.

(b) This is rarely the case in respect of buildings and vehicles which rend to make few demands for repair and maintenance during the early years of their life but which, as they become older, are subject to sudden and heavy repair costs, which constitute a heavy burden in the year of their occurrence if charged fully in that year.

(c) Such funds, for example, Housing maintenance funds are not the subject of any statutory regulation but are simply a form of provision which a Council may make if convinced of its financial merit and prudence.

(d) Those accounting procedures follow the same pattern as those of renewals funds.

(e) One exception is apparent, however, in that the utilization of a housing maintenance fund does not create an asset and therefore no capitalization is involved.

(f) The balance on the maintenance fund is shown on the liability side of the financial position and is prudently balanced by an asset (investment in realizable securities or cash) which is readily available when maintenance expenditure has to be incurred.

(g) The accounting transactions are similar to other fund accounting arrangements.


SECTION TWENTY ONE

21.0 PLANNING AND BUDGETING

(a) A budget is an estimate of future income and expenditure for achieving the financial and operational goals of the Local Authority. It is an essential tool for effective financial control. The description below is an outline of the present budgetary situation and will be supplemented by a detailed annual budget guideline issued by the Government (The Plan and Budget Guideline).

(b) Since a budget is a forecast of future events, it benefits a Council in many ways: (1) It increases the Accounting Officers’ awareness

The Council is compelled to make estimates of future economic conditions including costs of different services expected to be offered to the public and a timely estimation of revenue expected to be raised to meet increased costs.

(2) It gives an advance warning

A budget shows in advance the expected future financial results of the local Authority.

(3) It coordinates departmental activities

The budget provides the Council’s Accounting Officers with an opportunity to coordinate the activities of the various departments within the local Authority.

21.1 Strategic Planning (a) Strategic planning is a systematic process of envisioning a desired

future, and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them and remains an important aspect of strategic management.

(b) According to Medium Term Strategic Planning and Budgeting Manual (2007) a strategic plan clarifies institutional priorities and unifies the staff in the pursuit of shared objectives and provides an opportunity to address fundamental questions, to focus away from day to day operations, and to take initiatives to improve performance.


(c) In contrast to long-term planning (which begins with the current status and lays down a path to meet estimated future needs), strategic planning begins with the desired-end and works backward to the current status.

(d) Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy and extending to control mechanisms for guiding the implementation of the strategy.

(e) Strategic Planning is a collective and participatory process, involving senior management, employees, and consultation with a wide range of stakeholders, looking at the big picture from a longer-term perspective.

(f) Strategic planning occurs around the strategy formation activity.

21.1.1 Strategy

(a) The senior leadership of an organization is generally tasked with determining strategy.

(b) Strategy has many definitions, but generally involves setting goals, determining actions to achieve the goals, and mobilizing resources to execute the actions, describing how the ends (goals) will be achieved by the means (resources) and can be planned (intended) or can be observed as a pattern of activity (emergent) as the organization adapts to its environment or competes.

(c) Strategy includes processes of formulation and implementation; strategic planning helps coordinate both – however, strategic planning is analytical in nature (i.e., it involves "finding the dots"); strategy formation itself involves synthesis (i.e., "connecting the dots") via strategic thinking.

(d) Strategic planning is a process in which organizational leaders determine their vision for the future as well as identify their goals and objectives for the organization – the process also includes establishing the sequence in which those goals should fall so that the organization is enabled to reach its stated vision.

21.1.2 Purpose of Strategic Planning

(a) Strategic planning provides inputs for strategic thinking, which guides the actual strategy formation.

SECTION TWENTY ONE

21.0 PLANNING AND BUDGETING

(a) A budget is an estimate of future income and expenditure for achieving the financial and operational goals of the Local Authority. It is an essential tool for effective financial control. The description below is an outline of the present budgetary situation and will be supplemented by a detailed annual budget guideline issued by the Government (The Plan and Budget Guideline).

(b) Since a budget is a forecast of future events, it benefits a Council in many ways: (1) It increases the Accounting Officers’ awareness

The Council is compelled to make estimates of future economic conditions including costs of different services expected to be offered to the public and a timely estimation of revenue expected to be raised to meet increased costs.

(2) It gives an advance warning

A budget shows in advance the expected future financial results of the local Authority.

(3) It coordinates departmental activities

The budget provides the Council’s Accounting Officers with an opportunity to coordinate the activities of the various departments within the local Authority.

21.1 Strategic Planning (a) Strategic planning is a systematic process of envisioning a desired

future, and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them and remains an important aspect of strategic management.

(b) According to Medium Term Strategic Planning and Budgeting Manual (2007) a strategic plan clarifies institutional priorities and unifies the staff in the pursuit of shared objectives and provides an opportunity to address fundamental questions, to focus away from day to day operations, and to take initiatives to improve performance.


(b) The end result is the organization's strategy, including a diagnosis of the environment and competitive situation, a guiding policy on what the organization intends to accomplish, and key initiatives or action plans for achieving the guiding policy.

21.1.3 Qualities of a Good Strategic Plan (a) Formulation of competitive strategy includes consideration of four key

elements: (1) Factors internal to the Council (i.e., the internal environment)

(i) Council strengths and weaknesses, and (ii) Personal values of the key implementers (i.e., management

and the board). (2) Factors external to the Council (i.e., the external environment)

(i) Industry opportunities and threats, and (ii) Broader societal expectations.

(b) Formulating the strategy requires gathering inputs, such as: (1) Councils determining where they are:

This is harder than is looks – some Council see themselves how they WANT to see themselves, not how they actually appear to others: It is easy to get snared in this trap. For an accurate picture of where the Council is, they will need to conduct external and internal audits to get a clear understanding of the environment and the Council’s competencies (the real—not perceived—competencies).

(2) Councils to identify what’s important: (i) Councils should focus on where they want to take their

organization over time – this sets the direction of the Council over the long term and clearly defines the mission and vision (conceptualization of what Council’s future should or could be).

(ii) From this analysis, Councils can determine the priority issues—those issues so significant to the overall well-being of the Council that they require the full and immediate attention of the entire management team – the strategic plan should focus on these issues.

(3) Councils should define what they must achieve:


Councils should define the expected objectives that clearly state what they must achieve to address the priority issues.

(4) Councils should determine who is accountable: This is how Councils are going to get to where they want to go – the strategies, action plans, and budgets are all steps in the process that effectively communicates how you will allocate time, human capital, and money to address the priority issues and achieve the defined objectives.

(5) Council should Review (i) It’s not over. It’s never over. (ii) To ensure the plan performs as designed, Councils must

hold regularly scheduled formal reviews of the process and refine as necessary, at least once a quarter.

(c) The preparation of the strategic plan at the Council level involves Villages and Mitaa as corporate bodies within Council’s structure –Councils should prepare their Strategic planning in 5-year cycles and following with review when is needed during the implementation.

21.2 Medium Term Expenditure Framework (MTEF) (a) Council shall plan three year-expenditure framework annually. (b) Council shall sets out the medium-term expenditure priorities and

budget constraints against which departmental plans can be developed and refined.

(b) The end result is the organization's strategy, including a diagnosis of the environment and competitive situation, a guiding policy on what the organization intends to accomplish, and key initiatives or action plans for achieving the guiding policy.

21.1.3 Qualities of a Good Strategic Plan (a) Formulation of competitive strategy includes consideration of four key

elements: (1) Factors internal to the Council (i.e., the internal environment)

(i) Council strengths and weaknesses, and (ii) Personal values of the key implementers (i.e., management

and the board). (2) Factors external to the Council (i.e., the external environment)

(i) Industry opportunities and threats, and (ii) Broader societal expectations.

(b) Formulating the strategy requires gathering inputs, such as: (1) Councils determining where they are:

This is harder than is looks – some Council see themselves how they WANT to see themselves, not how they actually appear to others: It is easy to get snared in this trap. For an accurate picture of where the Council is, they will need to conduct external and internal audits to get a clear understanding of the environment and the Council’s competencies (the real—not perceived—competencies).

(2) Councils to identify what’s important: (i) Councils should focus on where they want to take their

organization over time – this sets the direction of the Council over the long term and clearly defines the mission and vision (conceptualization of what Council’s future should or could be).

(ii) From this analysis, Councils can determine the priority issues—those issues so significant to the overall well-being of the Council that they require the full and immediate attention of the entire management team – the strategic plan should focus on these issues.

(3) Councils should define what they must achieve:


(c) The Council MTEF shall contain outcome and criteria for the purpose of performance measurement.

(d) Council shall prepare the budget against actual performance and explain in detail the reasons for variances for review purposes.

(e) Council shall prepare comparative figures for the previous financial year against the current year.

21.3 Budgeting

(a) Simply extending financial statement projections into the future without consideration of the competitive environment is a form of financial planning or budgeting, not strategic planning.

(b) In business, the term "financial plan" is often used to describe the expected financial performance of an organization for future periods.

(c) The term "budget" is used for a financial plan for the upcoming year – a "forecast" is typically a combination of actual performance year-to-date plus expected performance for the remainder of the year, so is generally compared against plan or budget and prior performance.

(d) The financial plans accompanying a strategic plan may include 3–5 years of projected performance.

(e) The four stages of sophisticated planning processes, with strategic management ranked the highest, include: (1) Financial Planning

(i) Financial planning, which is primarily about annual budgets and a functional focus, with limited regard for the environment;

(ii) Forecast-based planning, which includes multi-year financial plans and more robust capital allocation across Council units;

(2) Strategic Planning (i) Externally oriented planning, where a thorough situation

analysis and competitive assessment is performed; (ii) Strategic management, where widespread strategic

thinking occurs and a well-defined strategic framework is used.


21.4 Council Budget

(a) Councils shall exercise care when framing Council budgets in order to inspire public confidence.

(b) The approved budget represents the policy of the Full Council expressed in financial terms. It must include budgets for:- (1) Services (2) Capital (3) Sources of Revenue

(c) The budget is a summary of the Council resolutions, in monetary terms, to collect certain sums of money from specific groups of people (taxpayers, service users) and to spend it in various ways for the benefit of the inhabitants of the locality.

21.5 Budget Period

(a) Council budget shall cover a period of twelve months from 1st July to 30th June each financial year.

(b) From January onwards each year, each Council committee shall meet to prepare budget proposals for the following financial year.

(c) Departmental Heads shall advise their respective committees on Government guidelines and directives for the preparation of budget for each financial year - priorities are discussed and recommendations made by them are included in the budget.

(d) With the assistance of the chairperson of the Council Committees and Heads of Department, the Finance Committee shall consider the draft estimates and prepare the final draft which is submitted to Full Council in February.

(e) The council weighs the needs of each committee against the needs of other committees and agreement is reached on priorities – the budget process takes into account the political, economic and social forces originating in the community and represented in the Council Chamber.

(f) The income proposals of each committee are discussed and compared with the expenditure requirements of the committees.

(g) Council should not budget for a deficit balance. Provided that:

(c) The Council MTEF shall contain outcome and criteria for the purpose of performance measurement.

(d) Council shall prepare the budget against actual performance and explain in detail the reasons for variances for review purposes.

(e) Council shall prepare comparative figures for the previous financial year against the current year.

21.3 Budgeting

(a) Simply extending financial statement projections into the future without consideration of the competitive environment is a form of financial planning or budgeting, not strategic planning.

(b) In business, the term "financial plan" is often used to describe the expected financial performance of an organization for future periods.

(c) The term "budget" is used for a financial plan for the upcoming year – a "forecast" is typically a combination of actual performance year-to-date plus expected performance for the remainder of the year, so is generally compared against plan or budget and prior performance.

(d) The financial plans accompanying a strategic plan may include 3–5 years of projected performance.

(e) The four stages of sophisticated planning processes, with strategic management ranked the highest, include: (1) Financial Planning

(i) Financial planning, which is primarily about annual budgets and a functional focus, with limited regard for the environment;

(ii) Forecast-based planning, which includes multi-year financial plans and more robust capital allocation across Council units;

(2) Strategic Planning (i) Externally oriented planning, where a thorough situation

analysis and competitive assessment is performed; (ii) Strategic management, where widespread strategic

thinking occurs and a well-defined strategic framework is used.


Where such a situation is projected efforts must be made to reduce costs if income sources cannot be raised.

(h) In February each year, not later than the 28thday, the budget shall be approved by the Council.

21.6 Budget compilation

21.6.1 Revenue (Income) Budget

(a) A Revenue Budget consists of the sources of revenue approved by the Council By – Laws, considering the collection trends, the yields from each source, and the costs involved in collecting each type of income. The costs of collection should not exceed the expected income. Income estimates should not be inflated on the groups that future collections will be more efficient than past experience has shown achievable unless new factors have been brought into account.

(b) Income estimates take into account the following:- (1) An up-to-date list of revenue sources together with the by-law

establishing the source of income. (2) A schedule of tariffs, fees, and charges for each source of income. (3) A schedule of income showing the trend of actual collections of

each income source per month. (4) A cash flow schedule showing the peak periods of collecting

periods. (5) Advice of Heads of Department responsible for the service. (6) Actual income collected during the past year and the approved

figure of estimates during the same year.

21.6.2 The Personnel Budget

(a) The personnel Budget is prepared by the Human Resources Department and shall conform to the various committee resolutions passed during the year in connection with recruitment, dismissal, promotion, superannuation benefits, etc.

(b) The Personnel Budget shows clearly for each council department the establishment and scales, names of employees, their check numbers, salaries, incremental dates and location of the employees.


(c) The Planning Officers/Economist in collaboration with the Council Treasurer compiles the draft budget and submits it to the finance committee for scrutiny.

(d) The Personnel Budget is not an independent budget; it is part of the Recurrent Expenditure Budget and provides supplementary information on personnel, hence the totals of the Personnel Budget for each department are included in the recurrent expenditure budget.

21.6.3 Recurrent Budget (other charges)

(a) The Recurrent Budget for other charges refers to financial costs other than personnel emoluments.

(b) Heads of departments shall compile recurrent expenditure costs and channel them through their respective committees from the month of January each year.

(c) The respective committees shall consider, review, amend or delete items in the proposals as submitted by Heads of Departments and thereafter pass resolutions to endorse the budget proposals.

(d) In considering the budget proposals the following aspects must be taken into account; (1) The resolutions passed in connection with expenditures during

committee and council sessions in the year (2) The scope and quality of services expected to be provided (3) The volume of work required to render the services (4) Quality and type of labour, materials, requirements and other

cost elements (5) Price levels of each cost element

(e) In so far as is practicable budgets shall take into consideration the effects of future projections of inflation.

(f) The Planning Officers/Economist, Human Resource Officer in collaboration with the Council Treasurer shall combine the Personnel Budget and the other charges Budget to establish the Recurrent Expenditure budget.

21.6.4 Development Budget

(a) The procedure for the preparation of the Development Budget is similar to the recurrent Budget – the difference arises from the fact that

Where such a situation is projected efforts must be made to reduce costs if income sources cannot be raised.

(h) In February each year, not later than the 28thday, the budget shall be approved by the Council.

21.6 Budget compilation

21.6.1 Revenue (Income) Budget

(a) A Revenue Budget consists of the sources of revenue approved by the Council By – Laws, considering the collection trends, the yields from each source, and the costs involved in collecting each type of income. The costs of collection should not exceed the expected income. Income estimates should not be inflated on the groups that future collections will be more efficient than past experience has shown achievable unless new factors have been brought into account.

(b) Income estimates take into account the following:- (1) An up-to-date list of revenue sources together with the by-law

establishing the source of income. (2) A schedule of tariffs, fees, and charges for each source of income. (3) A schedule of income showing the trend of actual collections of

each income source per month. (4) A cash flow schedule showing the peak periods of collecting

periods. (5) Advice of Heads of Department responsible for the service. (6) Actual income collected during the past year and the approved

figure of estimates during the same year.

21.6.2 The Personnel Budget

(a) The personnel Budget is prepared by the Human Resources Department and shall conform to the various committee resolutions passed during the year in connection with recruitment, dismissal, promotion, superannuation benefits, etc.

(b) The Personnel Budget shows clearly for each council department the establishment and scales, names of employees, their check numbers, salaries, incremental dates and location of the employees.


most of the data originates from the Ward Development Committees (through O and OD approach).

(b) Heads of Departments shall take into account proposals submitted to them by Ward Development Committees, as these come from the village Government they touch upon the needs of the people.

(c) Heads of Departments shall convert these proposals to financial terms with all costs that relate to services shown separately from costs that relate to capital works.

(d) The development (or capital) proposals shall be tabled in the same way as for the Recurrent Budget.

(e) The Finance Committee shall scrutinize the Recurrent Budget and Development Budget and forward the Development Budget to the Full Council, where it shall be discussed and inputs and advice are given – it shall then be referred to the Full Council together with the Recurrent Budget for approval.

(f) The Council Director forwards the Recurrent and Development Budget to the Regional Secretariat for scrutiny and thereafter to the Regional Consultative Committee where it is discussed and inputs and advice are given – it shall then be referred to the Full Council together with the Recurrent Budget for approval.

(g) The Council Director shall forward the approved budget to the Regional Secretariat for compilation and submission to the responsible Ministry.

21.6.5 Treatment of Unspent Balance of Development Fund in the Budget

(a) Unspent balances at the end of the year shall be carried forward to the next year and do not form part of the estimates of that year.

(b) The budget process is a continuous exercise which commences as soon as the new financial year begins.

(c) Resolutions with financial consequences which are not provided for in the current budget are passed during the period prior to the commencement of the July Budget committee sessions.

(d) After the budgets have been approved by the Full Council, the Planning Officers/Economist, Human Resource Officer in collaboration with the Council Treasurer consolidates the estimates of personal emoluments, other charges and the development budget as approved by the Council.


21.6.6 Budgeting for a Surplus

(a) Council shall budget for a surplus in its recurrent budget. (b) Council total income estimates shall exceed expenditure estimates in

order to achieve the requirement in (a) above. 21.6.7 Reserves

(a) Section 39 of the Local Government Finance Act CAP 290 requires Local Authorities to maintain a reserve fund with the LGLB

(b) If at the end of the financial year the statement of Income and Expenditure shows that actual revenue under “own income sources” was collected in excess of the estimates an additional deposit shall be made with the LGLB to the extent of the difference between the estimated 10% and the actual outcome. Provided that: The foregoing above notwithstanding, when there is a decrease in own sources of income, the LGLB is not required to refund the difference.

21.7 Budget format and contents

The order of the papers in the Estimates shall be prescribed by the annual budget guidelines and shall include the following:- (i) The Memorandum. (ii) Summary of estimated revenue and expenditure. (iii) Estimates of Revenue (Income). (iv) Estimates of Expenditure. (v) Estimates of Development Expenditure. (vi) Budget by nature and by function. 21.8 Reallocation (Virement)

(a) If it is foreseen that an item or items of expenditure will exceed the annual approved budget, a proposal to reallocate expenditure shall be submitted to Council Management Team by the Council Treasurer, and thereafter the Council Director shall submit the same to the Finance and Administration Committee.

most of the data originates from the Ward Development Committees (through O and OD approach).

(b) Heads of Departments shall take into account proposals submitted to them by Ward Development Committees, as these come from the village Government they touch upon the needs of the people.

(c) Heads of Departments shall convert these proposals to financial terms with all costs that relate to services shown separately from costs that relate to capital works.

(d) The development (or capital) proposals shall be tabled in the same way as for the Recurrent Budget.

(e) The Finance Committee shall scrutinize the Recurrent Budget and Development Budget and forward the Development Budget to the Full Council, where it shall be discussed and inputs and advice are given – it shall then be referred to the Full Council together with the Recurrent Budget for approval.

(f) The Council Director forwards the Recurrent and Development Budget to the Regional Secretariat for scrutiny and thereafter to the Regional Consultative Committee where it is discussed and inputs and advice are given – it shall then be referred to the Full Council together with the Recurrent Budget for approval.

(g) The Council Director shall forward the approved budget to the Regional Secretariat for compilation and submission to the responsible Ministry.

21.6.5 Treatment of Unspent Balance of Development Fund in the Budget

(a) Unspent balances at the end of the year shall be carried forward to the next year and do not form part of the estimates of that year.

(b) The budget process is a continuous exercise which commences as soon as the new financial year begins.

(c) Resolutions with financial consequences which are not provided for in the current budget are passed during the period prior to the commencement of the July Budget committee sessions.

(d) After the budgets have been approved by the Full Council, the Planning Officers/Economist, Human Resource Officer in collaboration with the Council Treasurer consolidates the estimates of personal emoluments, other charges and the development budget as approved by the Council.


(b) The application to reallocate expenditure shall be supported by a memorandum giving full reasons for the inadequacy of the money voted for.

(c) After consideration by the Finance and Administration Committee, the application shall be forwarded to the Full Council for approval. (1) No funds shall be reallocated for any purpose in respect of which

provision has not been made in the approved estimates without the prior consent of the Full Council.

(2) No funds shall in any way be reallocated for any purpose where the item in the estimates relating therefore was disapproved by the Full Council.

(3) No Development fund shall be reallocated

(d) Where the Full Council has approved the supplementary budget then the Council Treasurer should prepare a certified true copy of the council’s resolution showing the items and amounts both from which and to which reallocation has been made.

(e) Notwithstanding to the items described in subsection 21.8 (a-d), reallocation of item in estimates shall be effective after approval from Ministry responsible for Local Government.

21.9 Budget Monitoring, Control and Management The most important aspect of budgeting is the monitoring and control of expenditures and comparison with the approved budget. (a) Council Treasurer shall ensure that the budget is monitored

continuously. (b) Council Treasurer shall ensure that no budget line is overspent. (c) Council Treasurer shall ensure that before any payment is made a

check is made in the budget to see if funds are available. (d) Council Treasurer shall not reallocate funds from one budget line to

another without proper approval (see paragraph 28 above). (e) Council Treasurer shall prepare a Council Financial Overview Report

(Form 5.3.29), which will show the budget amount per line; actual monthly expenditure per budget line; and the budget balance in amount and percentage, and shall update the report each time the Council makes payments.


SECTION TWENTY TWO

22.0 AGRICULTURE

Council that has biological assets, which are not bearer plants; and agricultural produce at the point of harvest, shall use the policies on this part of LAAM.

22.1 Agricultural Activity

(a) Council shall be deemed to engage in agricultural activity when it manages biological transformation of and harvest of biological assets for: (1) Sale; (2) Distribution for no charge or for a nominal charge; or (3) Conversion into agricultural produce or into additional

biological asset for sale or for distribution for no charge or for a nominal charge

(b) Council using biological assets for research, education, transportation, custom control, entertainment, recreation, or in any other activities that are not agricultural activities as defined in (a) above, shall apply either Section 9 Property, Plant and Equipment or Section 11 Inventories in determining appropriate accounting.

(c) Council that processes agricultural produce after point of harvest shall use Section 8-Revenue or Section-11 Inventories or any other appropriate section.

22.2 Recognition and Measurement

(a) Council shall recognize a biological asset or agricultural produce, when and only when: (1) Council controls the asset as a result of past events (2) It is probable that future economic benefits or service potential

associated with the asset will flow to the Council (3) Council can reliably measure the cost or fair value of the asset.

(b) Council shall base on the fair value of an asset on its present condition and location.

(b) The application to reallocate expenditure shall be supported by a memorandum giving full reasons for the inadequacy of the money voted for.

(c) After consideration by the Finance and Administration Committee, the application shall be forwarded to the Full Council for approval. (1) No funds shall be reallocated for any purpose in respect of which

provision has not been made in the approved estimates without the prior consent of the Full Council.

(2) No funds shall in any way be reallocated for any purpose where the item in the estimates relating therefore was disapproved by the Full Council.

(3) No Development fund shall be reallocated

(d) Where the Full Council has approved the supplementary budget then the Council Treasurer should prepare a certified true copy of the council’s resolution showing the items and amounts both from which and to which reallocation has been made.

(e) Notwithstanding to the items described in subsection 21.8 (a-d), reallocation of item in estimates shall be effective after approval from Ministry responsible for Local Government.

21.9 Budget Monitoring, Control and Management The most important aspect of budgeting is the monitoring and control of expenditures and comparison with the approved budget. (a) Council Treasurer shall ensure that the budget is monitored

continuously. (b) Council Treasurer shall ensure that no budget line is overspent. (c) Council Treasurer shall ensure that before any payment is made a

check is made in the budget to see if funds are available. (d) Council Treasurer shall not reallocate funds from one budget line to

another without proper approval (see paragraph 28 above). (e) Council Treasurer shall prepare a Council Financial Overview Report

(Form 5.3.29), which will show the budget amount per line; actual monthly expenditure per budget line; and the budget balance in amount and percentage, and shall update the report each time the Council makes payments.


22.3 Measurement Initially and Subsequently

(a) Council shall measure a biological asset on initial recognition and at each reporting date at its fair value less costs to sell, except where the fair value cannot be measured reliably.

(b) Council acquiring a biological asset through a non-exchange transaction shall measure the asset on initial recognition and at each reporting date at its fair value less costs to sell, except where the fair value cannot be measured reliably.

(c) Council shall measure agricultural produce harvested from Council’s biological assets at fair value less costs to sell at the point of harvest.

(d) Council shall apply the measurement in (c) above when applying Section 11- Inventories or any other appropriate section.

22.4 Basis for Determining Fair Value

(a) Council may group biological assets or agricultural produce according to significant attributes such as age, quality, etc., when determining fair value, and selects attributes corresponding to the attributes used in the market as a basis for pricing.

(b) Neither, the Council shall not use prices in contracts to sell biological assets or agricultural produce at a future date nor shall adjust a fair value due to an existence of a future price, as sometimes a contract for a sale of a biological asset or agricultural produce in an exchange transaction may be an onerous contract as defined in paragraph 14.8.2.

(c) Council shall use, as appropriate basis for determining the fair value a biological asset or agricultural produce exit in its present condition and location, the quoted price in the market if an active market for a biological asset or agricultural produce exit in its present condition and location.

(d) Council shall use one or more of the following, in determining fair value of a biological asset or agricultural produce, if an active market does not exist: (1) The most recent market transaction price, provided that there

has not been a significant change in economic circumstances between that transaction date and the reporting date.


(2) Market prices for similar assets with adjustment to reflect differences.

(3) Sector benchmarks such as the value of an orchard expressed per export tray, bushel, or hectare, and the value of cattle expressed per kilogram of meat.

(e) Council shall consider the reasons for differences giving rise to different price outcomes in (d) above in order to arrive at the most reliable estimate of fair value within a relatively narrow range of reasonable estimates.

(f) Council shall discount expected net cash flows from the biological asset or agricultural produce at a market-determined rate in determining fair value of the biological asset or agricultural produce. Provided that: Council shall not include any cash flows for financing the assets, taxation, or re-establishing biological assets after harvest (for example the cost of replanting trees in a plantation forest after harvest).

22.4 Cost as Proxy for Fair Value

Council may sometimes approximate fair value of a biological asset or agricultural produce at point of harvest, particularly when:

(a) Little biological transformation has taken place since initial cost incurrence, or

(b) The impact of biological transformation on price is not expected to be material.

22.5 Fair Value of Combined Assets

Where a biological asset is attached to land and there is no separate market for the asset, but there is an active market for the combined assets (the asset, raw land and land improvement as a package), a Council use the information regarding the combined assets to determine the fair value of the biological assets.

22.3 Measurement Initially and Subsequently

(a) Council shall measure a biological asset on initial recognition and at each reporting date at its fair value less costs to sell, except where the fair value cannot be measured reliably.

(b) Council acquiring a biological asset through a non-exchange transaction shall measure the asset on initial recognition and at each reporting date at its fair value less costs to sell, except where the fair value cannot be measured reliably.

(c) Council shall measure agricultural produce harvested from Council’s biological assets at fair value less costs to sell at the point of harvest.

(d) Council shall apply the measurement in (c) above when applying Section 11- Inventories or any other appropriate section.

22.4 Basis for Determining Fair Value

(a) Council may group biological assets or agricultural produce according to significant attributes such as age, quality, etc., when determining fair value, and selects attributes corresponding to the attributes used in the market as a basis for pricing.

(b) Neither, the Council shall not use prices in contracts to sell biological assets or agricultural produce at a future date nor shall adjust a fair value due to an existence of a future price, as sometimes a contract for a sale of a biological asset or agricultural produce in an exchange transaction may be an onerous contract as defined in paragraph 14.8.2.

(c) Council shall use, as appropriate basis for determining the fair value a biological asset or agricultural produce exit in its present condition and location, the quoted price in the market if an active market for a biological asset or agricultural produce exit in its present condition and location.

(d) Council shall use one or more of the following, in determining fair value of a biological asset or agricultural produce, if an active market does not exist: (1) The most recent market transaction price, provided that there

has not been a significant change in economic circumstances between that transaction date and the reporting date.


22.6 Gains and Losses

(a) Council shall include in surplus or deficit a gain or loss arising on initial recognition of a biological asset at fair value less costs to sell and from a change in fair value less costs to sell for the period in which it arises.

(b) A gain may arise on initial recognition of a biological asset such as when a calf is born.

(c) A loss may arise on initial recognition of a biological asset because costs to sell are deducted in determining fair value less costs to sell of a biological asset.

(d) Council shall include in surplus or deficit a gain or loss arising on initial recognition of an agricultural produce at fair value less costs to sell for the period in which it arises.

(e) A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting.

22.7 Inability to Measure Fair Value Reliably

Council shall measure a biological asset, for which market–determined prices or values are not available, and for which alternative estimates of fair value are determined to be clearly unreliable, at Cost less accumulated depreciation and accumulated impairment losses

Provided that:

Council shall measure the biological asset at fair value less costs to sell once the fair value of such a biological asset becomes reliably measurable.

22.8 Disclosures

22.8.1 General (a) Council shall disclose the aggregate gain or loss arising during the

current period on initial recognition of biological assets and agricultural produce and from the change in fair value less costs to sell of biological assets.

(b) Council shall provide a description of biological assets that distinguishes between consumable and bearer biological assets and


between biological assets held for sale and those held for distribution at no charge or for a nominal charge.

(c) Council shall, if not disclosed elsewhere in information published with the financial statements, describe: (1) The nature of its activities involving each group of biological

assets; and (2) Non-financial measures or estimates of the physical quantities

of: (i) Each group of the Council’s biological assets at the end of

the period; and (ii) Output of agricultural produce during the period.

(d) Council shall disclose the methods and significant assumptions applied in determining the fair value of each group of agricultural produce at the point of harvest and each group of biological assets.

(e) Council shall disclose the fair value less costs to sell of agricultural produce harvested during the period, determined at the point of harvest.

(f) Council shall disclose: (1) The existence and carrying amounts of biological assets whose

title is restricted, and the carrying amounts of biological assets pledged as security for liabilities;

(2) The nature and extent of restrictions on the Council’s use or capacity to sell biological assets;

(3) The amount of commitments for the development or acquisition of biological assets; and

(4) Financial risk management strategies related to agricultural activity.

(g) Council shall present a reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period.

(h) The reconciliation in paragraph (g) shall include: (1) The gain or loss arising from changes in fair value less costs to

sell, disclosed separately for bearer biological assets and consumable biological assets;

(2) Increases due to purchases; (3) Increases due to assets acquired through a non-exchange

transaction;

22.6 Gains and Losses

(a) Council shall include in surplus or deficit a gain or loss arising on initial recognition of a biological asset at fair value less costs to sell and from a change in fair value less costs to sell for the period in which it arises.

(b) A gain may arise on initial recognition of a biological asset such as when a calf is born.

(c) A loss may arise on initial recognition of a biological asset because costs to sell are deducted in determining fair value less costs to sell of a biological asset.

(d) Council shall include in surplus or deficit a gain or loss arising on initial recognition of an agricultural produce at fair value less costs to sell for the period in which it arises.

(e) A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting.

22.7 Inability to Measure Fair Value Reliably

Council shall measure a biological asset, for which market–determined prices or values are not available, and for which alternative estimates of fair value are determined to be clearly unreliable, at Cost less accumulated depreciation and accumulated impairment losses

Provided that:

Council shall measure the biological asset at fair value less costs to sell once the fair value of such a biological asset becomes reliably measurable.

22.8 Disclosures

22.8.1 General (a) Council shall disclose the aggregate gain or loss arising during the

current period on initial recognition of biological assets and agricultural produce and from the change in fair value less costs to sell of biological assets.

(b) Council shall provide a description of biological assets that distinguishes between consumable and bearer biological assets and


(4) Decreases attributable to sales and biological assets classified as held for sale in accordance with the relevant international or national standard dealing with non-current assets held for sale and discontinued operations;

(5) Decreases due to distributions at no charge or for a nominal charge;

(6) Decreases due to harvest; (7) Increases resulting from Council combinations; (8) Net exchange differences arising on the translation of financial

statements into a different presentation currency, and on the translation of a foreign operation into the presentation currency of the reporting Council; and

(9) Other changes. 22.8.2 Additional Disclosures for Biological Assets where Fair Value

cannot be measured reliably

(a) If a Council measures biological assets at their cost less any accumulated depreciation and any accumulated impairment losses (see paragraph 22.7) at the end of the period, then shall disclose for such biological assets: (1) A description of the biological assets; (2) An explanation of why fair value cannot be measured reliably; (3) If possible, the range of estimates within which fair value is

highly likely to lie; (4) The depreciation method used; (5) The useful lives or the depreciation rates used; and (6) The gross carrying amount and the accumulated depreciation

(aggregated with accumulated impairment losses) at the beginning and end of the period.

(b) If, during the current period, Council measures biological assets at their cost less any accumulated depreciation and any accumulated impairment losses (see paragraph 22.7), then shall disclose any gain or loss recognized on disposal of such biological assets and the reconciliation required by paragraph 22.8.1 (g) shall disclose amounts related to such biological assets separately.

(c) In addition, the reconciliation shall include the following amounts included in surplus or deficit related to those biological assets:


(1) Impairment losses; (2) Reversals of impairment losses; and (3) Depreciation.

(d) If the fair value of biological assets previously measured at their cost less any accumulated depreciation and any accumulated impairment losses becomes reliably measurable during the current period, a Council shall disclose for those biological assets: (1) A description of the biological assets; (2) An explanation of why fair value has become reliably

measurable; and (3) The effect of the change.

(4) Decreases attributable to sales and biological assets classified as held for sale in accordance with the relevant international or national standard dealing with non-current assets held for sale and discontinued operations;

(5) Decreases due to distributions at no charge or for a nominal charge;

(6) Decreases due to harvest; (7) Increases resulting from Council combinations; (8) Net exchange differences arising on the translation of financial

statements into a different presentation currency, and on the translation of a foreign operation into the presentation currency of the reporting Council; and

(9) Other changes. 22.8.2 Additional Disclosures for Biological Assets where Fair Value

cannot be measured reliably

(a) If a Council measures biological assets at their cost less any accumulated depreciation and any accumulated impairment losses (see paragraph 22.7) at the end of the period, then shall disclose for such biological assets: (1) A description of the biological assets; (2) An explanation of why fair value cannot be measured reliably; (3) If possible, the range of estimates within which fair value is

highly likely to lie; (4) The depreciation method used; (5) The useful lives or the depreciation rates used; and (6) The gross carrying amount and the accumulated depreciation

(aggregated with accumulated impairment losses) at the beginning and end of the period.

(b) If, during the current period, Council measures biological assets at their cost less any accumulated depreciation and any accumulated impairment losses (see paragraph 22.7), then shall disclose any gain or loss recognized on disposal of such biological assets and the reconciliation required by paragraph 22.8.1 (g) shall disclose amounts related to such biological assets separately.

(c) In addition, the reconciliation shall include the following amounts included in surplus or deficit related to those biological assets:


SECTION TWENTY-THREE

23.0 SEPARATE FINANCIAL STATEMENTS

23.1 Objective

The objective of this Section of the LAAM is to prescribe the accounting and disclosure requirements for investments in controlled entities, joint ventures and associates when a Council prepares separate financial statements. A Council shall apply the accounting and disclosure requirements under this Section in accounting for investments in controlled entities, joint ventures and associates when it elects, or is required by regulations, to present separate financial statements. 23.2 Separate Financial Statements

(a) A Council shall present separate financial statements in addition to consolidated financial statements or in addition to the financial statements of the Council that does not have controlled entities but has investments in associates or joint ventures in which the investments in associates or joint ventures are required by IPSAS 36 to be accounted for using the equity method, other than in the circumstances set out in (c) and (d) below.

(b) The financial statements of a Council that does not have a controlled entity, associate or joint venturer’s interest in a joint venture are not separate financial statements.

(c) A Council if exempt in accordance with IPSAS 35:5, from consolidation or IPSAS 36:23, from applying the equity method may present separate financial statements as its only financial statements.

(d) An investment Council that is required, throughout the current period and all comparative periods presented, to measure its investment in all its controlled entities at fair value through surplus or deficit in accordance with IPSAS 35:56, shall present separate financial statements as its only financial statements.


23.3 Preparation of Separate Financial Statements

(a) A Council shall prepare separate financial statements in accordance with all applicable IPSASs, except as provided in (b) below.

(b) When a Council prepares separate financial statements, it shall account for similar investments in controlled entities, joint ventures and associates either: (1) At cost; (2) In accordance with IPSAS 29; or (3) Using the equity method as described in Section 25.

(c) If a Council elects, in accordance with Section 25.6(b), to measure its investments in associates or joint ventures at fair value through surplus or deficit in accordance with IPSAS 29, it shall also account for those investments in the same way in its separate financial statements.

(d) If a controlling Council is required, in accordance with IPSAS 35:56, to measure its investment in a controlled entity at fair value through surplus or deficit in accordance with IPSAS 29, it shall also account for that investment in the same way in its separate financial statements. If a controlling entity that is not itself an investment entity is required, in accordance with IPSAS 35:58, to measure the investments of a controlled investment entity at fair value through surplus or deficit in accordance with IPSAS 29 and consolidate the other assets and liabilities and revenue and expenses of the controlled investment entity, it shall also account for that investment in the controlled investment entity in the same way in its separate financial statements.

(e) When a controlling Council ceases to be an investment entity, or becomes an investment entity, it shall account for the change from the date when the change in status occurred, as follows: (1) When a Council ceases to be an investment entity, the Council

shall account for an investment in a controlled entity in accordance with (b) above. Provided that:- The date of the change of status shall be the deemed acquisition date and the fair value of the controlled entity at the deemed acquisition date shall represent the transferred deemed consideration when accounting for the investment in accordance with (b) above.

SECTION TWENTY-THREE

23.0 SEPARATE FINANCIAL STATEMENTS

23.1 Objective

The objective of this Section of the LAAM is to prescribe the accounting and disclosure requirements for investments in controlled entities, joint ventures and associates when a Council prepares separate financial statements. A Council shall apply the accounting and disclosure requirements under this Section in accounting for investments in controlled entities, joint ventures and associates when it elects, or is required by regulations, to present separate financial statements. 23.2 Separate Financial Statements

(a) A Council shall present separate financial statements in addition to consolidated financial statements or in addition to the financial statements of the Council that does not have controlled entities but has investments in associates or joint ventures in which the investments in associates or joint ventures are required by IPSAS 36 to be accounted for using the equity method, other than in the circumstances set out in (c) and (d) below.

(b) The financial statements of a Council that does not have a controlled entity, associate or joint venturer’s interest in a joint venture are not separate financial statements.

(c) A Council if exempt in accordance with IPSAS 35:5, from consolidation or IPSAS 36:23, from applying the equity method may present separate financial statements as its only financial statements.

(d) An investment Council that is required, throughout the current period and all comparative periods presented, to measure its investment in all its controlled entities at fair value through surplus or deficit in accordance with IPSAS 35:56, shall present separate financial statements as its only financial statements.


(2) When a Council becomes an investment entity, it shall account for an investment in a controlled entity at fair value through surplus or deficit in accordance with IPSAS 29. Provided that:- The difference between the previous carrying amount of the controlled entity and its fair value at the date of the change of status of the investor shall be recognized as a gain or loss in surplus or deficit. The cumulative amount of any gain or loss previously recognized directly in net assets/equity in respect of those controlled entities shall be treated as if the investment entity had disposed of those controlled entities at the date of change in status.

(f) A Council shall recognize in its separate financial statements dividends or similar distributions from a controlled entity, a joint venture or an associate when the Council’s right to receive the dividend or similar distribution is established. Provided that:- A Council shall recognize in surplus or deficit the dividend or similar distribution unless the Council elects to use the equity method, in which case the dividend or similar distribution is recognized as a reduction from the carrying amount of the investment.

(g) When a controlling Council reorganizes the structure of its economic entity by establishing a new entity as its controlling entity in a manner that satisfies the following criteria: (1) The new controlling entity obtains control of the original

controlling entity either (i) by issuing equity instruments in exchange for existing

equity instruments of the original controlling entity or (ii) by some other mechanism which results in the new

controlling entity having a controlling ownership interest in the original controlling entity;

(2) The assets and liabilities of the new economic entity and the original economic entity are the same immediately before and after the reorganization; and

(3) The owners of the original controlling entity before the reorganization have the same absolute and relative interests in the net assets of the original economic entity and the new


economic entity immediately before and after the reorganization; and

(4) The new controlling entity accounts for its investment in the original controlling Council in accordance with (a) above in its separate financial statements, the new controlling entity shall measure cost at the carrying amount of its share of the net assets/equity items shown in the separate financial statements of the original controlling Council at the date of the reorganization.

(h) Similarly, a Council that is not a controlling entity might establish a new entity as its controlling entity in a manner that satisfies the criteria in (g) above. The requirements in (g) above apply equally to such reorganizations.

23.4 Disclosure

(a) A Council shall apply all applicable IPSASs when providing disclosures in its separate financial statements, including the requirements in (b) to (e) below.

(b) A controlling Council electing not to prepare consolidated financial statements, in accordance with IPSAS 35:5, and instead prepares separate financial statements, shall disclose in those separate financial statements: (1) The fact that the financial statements are separate financial

statements; that the exemption from consolidation has been used; the name of the entity whose consolidated financial statements that comply with IPSASs have been produced for public use; and the address where those consolidated financial statements are obtainable.

(2) A list of significant investments in controlled entities, joint ventures and associates, including: (i) The name of those controlled entities, joint ventures and

associates. (ii) The jurisdiction in which those controlled entities, joint

ventures and associates operate (if it is different from that of the controlling entity).

(2) When a Council becomes an investment entity, it shall account for an investment in a controlled entity at fair value through surplus or deficit in accordance with IPSAS 29. Provided that:- The difference between the previous carrying amount of the controlled entity and its fair value at the date of the change of status of the investor shall be recognized as a gain or loss in surplus or deficit. The cumulative amount of any gain or loss previously recognized directly in net assets/equity in respect of those controlled entities shall be treated as if the investment entity had disposed of those controlled entities at the date of change in status.

(f) A Council shall recognize in its separate financial statements dividends or similar distributions from a controlled entity, a joint venture or an associate when the Council’s right to receive the dividend or similar distribution is established. Provided that:- A Council shall recognize in surplus or deficit the dividend or similar distribution unless the Council elects to use the equity method, in which case the dividend or similar distribution is recognized as a reduction from the carrying amount of the investment.

(g) When a controlling Council reorganizes the structure of its economic entity by establishing a new entity as its controlling entity in a manner that satisfies the following criteria: (1) The new controlling entity obtains control of the original

controlling entity either (i) by issuing equity instruments in exchange for existing

equity instruments of the original controlling entity or (ii) by some other mechanism which results in the new

controlling entity having a controlling ownership interest in the original controlling entity;

(2) The assets and liabilities of the new economic entity and the original economic entity are the same immediately before and after the reorganization; and

(3) The owners of the original controlling entity before the reorganization have the same absolute and relative interests in the net assets of the original economic entity and the new


(iii) Its proportion of the ownership interest held in those entities and a description of how that ownership interest has been determined.

(3) A description of the method used to account for the controlled entities, joint ventures and associates listed under (2) above.

(c) An investment Council that is a controlling Council (other than a controlling Council covered in (b) above) shall disclose the fact it prepares separate financial statements as its only financial statements, in accordance with paragraph 23:2 (d) above, and shall also present the disclosures relating to investment entities required by IPSAS 38, Disclosure of Interests in Other Entities.

(d) A controlling Council that is not itself an investment Council shall disclose the fact it is required to measure the investments of a controlled investment entity at fair value through surplus or deficit in accordance with IPSAS 29 and consolidate the other assets and liabilities and revenue and expenses of the controlled investment entity, in accordance with IPSAS 35:56, and shall also present the disclosures relating to investment entities required by IPSAS 38, Disclosure of Interests in Other Entities.

(e) A controlling Council (other than a controlling Council covered under (b) and (c) above) or a Council with joint control of, or significant influence over, an investee preparing separate financial statements shall identify the financial statements prepared in accordance with Section 24, Section 25 or Section 26, to which they relate and shall also disclose in its separate financial statements:

(1) The fact that the statements are separate financial statements and the reasons why those statements are prepared, if not required by legislation or other authority.

(2) A list of significant controlled entities, joint ventures and associates, including:

(i) The name of those controlled entities, joint ventures and associates.

(ii) The jurisdiction in which those controlled entities, joint ventures and associates operate (if different from that of the controlling entity).




23.5 Transitional Provisions (a) At the date of initial application of this Section an Investment Council

that previously measured its investment in a controlled entity at: (1) Cost shall instead measure that investment at fair value through

surplus or deficit as if the requirements of this Section had always been effective and shall adjust retrospectively the annual period immediately preceding the date of initial application and shall adjust accumulated surplus/deficit at the beginning of the immediately preceding period for any difference between: (i) The previous carrying amount of the investment; and (ii) The fair value of the investor’s investment in the controlled

entity. (2) Fair value directly to net assets/equity shall continue to measure

that investment at fair value and shall transfer to accumulated surplus/deficit at the beginning of the annual period immediately preceding the date of initial application the cumulative amount of any fair value adjustment previously recognized in net assets/equity.

(b) An investment Council shall not make adjustments, at the date of initial application of this Section, to the previous accounting for an interest in a controlled entity that it had previously elected to measure at fair value through surplus or deficit in accordance with IPSAS 29, as permitted under 23:3 (b).

(c) An investment Council shall use the fair value amounts previously reported to investors or to management.

(d) An investment Council shall apply the requirements of this Section at the beginning of the earliest period for which application of (a) – (c) above is practicable, which may be the current period, if measuring the investment in the controlled entity in accordance with (a) – (c) above is impracticable (as defined in IPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors), and shall adjust retrospectively the



(c) An investment Council that is a controlling Council (other than a controlling Council covered in (b) above) shall disclose the fact it prepares separate financial statements as its only financial statements, in accordance with paragraph 23:2 (d) above, and shall also present the disclosures relating to investment entities required by IPSAS 38, Disclosure of Interests in Other Entities.

(d) A controlling Council that is not itself an investment Council shall disclose the fact it is required to measure the investments of a controlled investment entity at fair value through surplus or deficit in accordance with IPSAS 29 and consolidate the other assets and liabilities and revenue and expenses of the controlled investment entity, in accordance with IPSAS 35:56, and shall also present the disclosures relating to investment entities required by IPSAS 38, Disclosure of Interests in Other Entities.

(e) A controlling Council (other than a controlling Council covered under (b) and (c) above) or a Council with joint control of, or significant influence over, an investee preparing separate financial statements shall identify the financial statements prepared in accordance with Section 24, Section 25 or Section 26, to which they relate and shall also disclose in its separate financial statements:

(1) The fact that the statements are separate financial statements and the reasons why those statements are prepared, if not required by legislation or other authority.

(2) A list of significant controlled entities, joint ventures and associates, including:

(i) The name of those controlled entities, joint ventures and associates.

(ii) The jurisdiction in which those controlled entities, joint ventures and associates operate (if different from that of the controlling entity).


annual period immediately preceding the date of initial application, unless the beginning of the earliest period for which application of this paragraph is practicable is the current period. When the date that it is practicable for the investment entity to measure the fair value of the controlled entity is earlier than the beginning of the immediately preceding period, the investor Council shall adjust net assets/equity at the beginning of the immediately preceding period for any difference between: (1) The previous carrying amount of the investment; and (2) The fair value of the investor’s investment in the controlled

entity. If the earliest period for which application of this paragraph is practicable is the current period, the adjustment to net assets/equity shall be recognized at the beginning of the current period.

(e) The investment Council shall not be required to make adjustments to the previous accounting for the investment in a controlled entity it has disposed of, or lost control of, before the date of initial application of this Section.

(f) A controlling entity that is not itself an investment Council but which is required, in accordance with IPSAS 35:56, to measure the investments of a controlled investment entity, at the date of initial application, at fair value through surplus or deficit in accordance with IPSAS 29 and consolidate the other assets and liabilities and revenue and expenses of the controlled investment entity, shall use the transitional provisions in (a) – (e) above in accounting for its investment in the controlled investment entity in its separate financial statements.

(g) The transitional provisions for changes in the accounting, in a Council’s separate financial statements, for its interest in a joint operation are set out in Section 26.


SECTION TWENTY-FOUR

24.0 CONSOLIDATED FINANCIAL STATEMENT

24.1 Objective The objective of this Section is to establish principles for the presentation and preparation of consolidated financial statements when a Council controls one or more other entities. A Council that prepares and presents financial statements under the accrual basis of accounting shall apply this Section in the preparation and presentation of consolidated financial statements for the economic entity. 24.2 Requirements To meet the objective set in 24.1 above, this Section: (a) Requires a Council (the controlling entity) that controls one or more

other entities (controlled entities) to present consolidated financial statements;

(b) Defines the principle of control, and establishes control as the basis for consolidation;

(c) Sets out how to apply the principle of control to identify whether a Council controls another entity and therefore must consolidate that entity;

(d) Sets out the accounting requirements for the preparation of consolidated financial statements; and

(e) Defines an investment Council and sets out an exception to consolidating particular controlled entities of an investment entity.

24.3 Presentation of Consolidated Financial Statements (a) A Council that is a controlling entity shall present consolidated

financial statements. (b) This Section shall apply to all Councils, except that a controlling entity

need not present consolidated financial statements if it meets all the following conditions: (1) It is itself a controlled entity and the information needs of users

are met by its controlling entity’s consolidated financial statements, and, in the case of a partially owned controlled entity, all its other owners, including those not otherwise entitled

annual period immediately preceding the date of initial application, unless the beginning of the earliest period for which application of this paragraph is practicable is the current period. When the date that it is practicable for the investment entity to measure the fair value of the controlled entity is earlier than the beginning of the immediately preceding period, the investor Council shall adjust net assets/equity at the beginning of the immediately preceding period for any difference between: (1) The previous carrying amount of the investment; and (2) The fair value of the investor’s investment in the controlled

entity. If the earliest period for which application of this paragraph is practicable is the current period, the adjustment to net assets/equity shall be recognized at the beginning of the current period.

(e) The investment Council shall not be required to make adjustments to the previous accounting for the investment in a controlled entity it has disposed of, or lost control of, before the date of initial application of this Section.

(f) A controlling entity that is not itself an investment Council but which is required, in accordance with IPSAS 35:56, to measure the investments of a controlled investment entity, at the date of initial application, at fair value through surplus or deficit in accordance with IPSAS 29 and consolidate the other assets and liabilities and revenue and expenses of the controlled investment entity, shall use the transitional provisions in (a) – (e) above in accounting for its investment in the controlled investment entity in its separate financial statements.

(g) The transitional provisions for changes in the accounting, in a Council’s separate financial statements, for its interest in a joint operation are set out in Section 26.


to vote, have been informed about, and do not object to, the entity not presenting consolidated financial statements;

(2) Its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);

(3) It did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; and

(4) Its ultimate or any intermediate controlling entity produces financial statements that are available for public use and comply with International Public Sector Accounting Standards (IPSASs), in which controlled entities are consolidated or are measured at fair value through surplus or deficit in accordance with this Section.

(c) This Section does not apply to post-employment benefit plans or other long-term employee benefit plans to which Section 15, Employee Benefits applies.

(d) A controlling entity that is an investment entity shall not present consolidated financial statements if it is required, in accordance with 24.17 (a), to measure all of its controlled entities at fair value through surplus or deficit.

(e) A controlled entity is not excluded from consolidation because its activities are dissimilar to those of the other entities within the economic entity, for example, the consolidation of Government Business Enterprises (GBEs) with entities in the budget sector. Relevant information is provided by consolidating such controlled entities and disclosing additional information in the consolidated financial statements about the different activities of controlled entities. For example, the disclosures required by IPSAS 18, Segment Reporting, help to explain the significance of different activities within the economic entity.

(f) The exemption from preparing consolidated financial statements in (b) above does not apply where the information needs of a controlled entity’s users would not be met by the consolidated financial statements of its controlling entity. For example, consolidated financial statements at a Council level may not meet the information needs of users in respect of key sectors or activities of a Council. Hence, there


shall be legislated financial reporting requirements intended to address the information needs of such users.

(g) An entity may be required, (for example, by legislation, or by external users) to prepare aggregated financial statements which are for a different economic entity than that required by this Section. Although such financial statements fall outside the scope of this Section and would not comply with the requirements in this Section, an entity could use the guidance in this Section in the preparation of such aggregated financial statements.

24.4 Government Business Enterprises (a) Generally, this Section shall apply to all public sector entities other

than GBEs, as GBEs apply IFRSs issued by the IASB. (b) Although GBEs are not required to comply with this Section in their

own financial statements, the provisions of this Section will apply where a Council, LLG or SPF has one or more controlled entities that are GBEs, in consolidating GBEs into the financial statements of the Council, LLG or SPF.

24.5 Control (a) A Council, regardless of the nature of its involvement with another

entity, shall determine whether it is a controlling entity by assessing whether it controls the other entity.

(b) A Council shall control another entity 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.

(c) A Council shall control another entity if and only if it has all the following: (1) Power over the other entity (see 24.6); (2) Exposure, or rights, to variable benefits from its involvement

with the other entity (see 24.7); and (3) The ability to use its power over the other entity to affect the

nature or amount of the benefits from its involvement with the other entity (see 24.8).

(d) A Council shall consider all facts and circumstances when assessing whether it controls another entity, reassessing whether it controls

to vote, have been informed about, and do not object to, the entity not presenting consolidated financial statements;

(2) Its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);

(3) It did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; and

(4) Its ultimate or any intermediate controlling entity produces financial statements that are available for public use and comply with International Public Sector Accounting Standards (IPSASs), in which controlled entities are consolidated or are measured at fair value through surplus or deficit in accordance with this Section.

(c) This Section does not apply to post-employment benefit plans or other long-term employee benefit plans to which Section 15, Employee Benefits applies.

(d) A controlling entity that is an investment entity shall not present consolidated financial statements if it is required, in accordance with 24.17 (a), to measure all of its controlled entities at fair value through surplus or deficit.

(e) A controlled entity is not excluded from consolidation because its activities are dissimilar to those of the other entities within the economic entity, for example, the consolidation of Government Business Enterprises (GBEs) with entities in the budget sector. Relevant information is provided by consolidating such controlled entities and disclosing additional information in the consolidated financial statements about the different activities of controlled entities. For example, the disclosures required by IPSAS 18, Segment Reporting, help to explain the significance of different activities within the economic entity.

(f) The exemption from preparing consolidated financial statements in (b) above does not apply where the information needs of a controlled entity’s users would not be met by the consolidated financial statements of its controlling entity. For example, consolidated financial statements at a Council level may not meet the information needs of users in respect of key sectors or activities of a Council. Hence, there


another entity if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in (c) above.

(e) Two or more entities shall collectively control another entity when they must act together to direct the relevant activities – In such cases, because no single entity can direct the activities without the co-operation of the others, no single entity controls the other entity. Provided that: Each entity would account for its interest in the other entity in accordance with the relevant IPSASs, such as IPSAS 36, IPSAS 37, or the IPSASs dealing with financial instruments (IPSAS 28, Financial Instruments: Presentation, IPSAS 29, Financial Instruments: Recognition and Measurement, and IPSAS 30, Financial Instruments: Disclosures).

24.6 Power (a) A Council shall have power over another entity when the Council has

existing rights that give it the current ability to direct the relevant activities, i.e., the activities that significantly affect the nature or amount of the benefits from its involvement with the other entity – The right to direct the financial and operating policies of another entity indicates that a Council has the ability to direct the relevant activities of another entity and is frequently the way in which power is demonstrated in the public sector.

(b) A Council power shall arise from rights either:- (1) Directly and solely from the voting rights granted by equity

instruments such as shares, and can be assessed by considering the voting rights from those shareholdings; or

(2) By providing evidence of a financial investment though without having an equity instrument; or

(3) Through rights conferred by binding arrangements, giving a Council power to require the other entity to deploy assets or incur liabilities in a way that affects the nature or amount of benefits received by the first-mentioned entity – The assessment of whether such rights give rise to power over another entity may be complex and require more than one factor to be considered.


(c) A Council shall have power over another entity even if it does not have responsibility for the day-to-day operation of the other entity through legislation.

(d) The existence of rights over another entity does not necessarily give rise to power for the purposes of this Section – A Council shall not have power over another entity solely due to the existence of: (1) Regulatory control; or (2) Economic dependence.

(e) A Council shall have power if it has current ability to direct the relevant activities of another entity even if its rights to direct have yet to be exercised. Evidence that the entity has been directing the relevant activities of the entity being assessed for control can help determine whether the entity has power, but such evidence is not, in itself, conclusive in determining whether the entity has power over the entity being assessed for control. In the case of an entity established with predetermined activities, the right to direct the relevant activities may have been exercised at the time that the entity was established.

(f) If Council and other entities each have existing rights that give them the unilateral ability to direct different relevant activities, the Council shall have power over other entity if it has the current ability to direct the activities that most significantly affect the nature or amount of benefits from that entity.

(g) A Council shall have power over an entity being assessed for control even if other entities have existing rights that give them the current ability to participate in the direction of the relevant activities, when it has significant influence – However, a Council that holds only protective rights does not have power over another entity, and consequently does not control the other entity.

24.7 Benefits (a) A Council is exposed, or has rights, to variable benefits from its

involvement with an entity being assessed for control when the benefits that it seeks from its involvement have the potential to vary as a result of the other entity’s performance.

(b) The Council’s benefits from its involvement with the entity being assessed for control can be only financial, only non-financial or both financial and non-financial.

another entity if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in (c) above.

(e) Two or more entities shall collectively control another entity when they must act together to direct the relevant activities – In such cases, because no single entity can direct the activities without the co-operation of the others, no single entity controls the other entity. Provided that: Each entity would account for its interest in the other entity in accordance with the relevant IPSASs, such as IPSAS 36, IPSAS 37, or the IPSASs dealing with financial instruments (IPSAS 28, Financial Instruments: Presentation, IPSAS 29, Financial Instruments: Recognition and Measurement, and IPSAS 30, Financial Instruments: Disclosures).

24.6 Power (a) A Council shall have power over another entity when the Council has

existing rights that give it the current ability to direct the relevant activities, i.e., the activities that significantly affect the nature or amount of the benefits from its involvement with the other entity – The right to direct the financial and operating policies of another entity indicates that a Council has the ability to direct the relevant activities of another entity and is frequently the way in which power is demonstrated in the public sector.

(b) A Council power shall arise from rights either:- (1) Directly and solely from the voting rights granted by equity

instruments such as shares, and can be assessed by considering the voting rights from those shareholdings; or

(2) By providing evidence of a financial investment though without having an equity instrument; or

(3) Through rights conferred by binding arrangements, giving a Council power to require the other entity to deploy assets or incur liabilities in a way that affects the nature or amount of benefits received by the first-mentioned entity – The assessment of whether such rights give rise to power over another entity may be complex and require more than one factor to be considered.


(c) The following examples illustrate financial benefits that a Council may receive from its involvement with another entity: (1) Dividends, variable interest on debt securities, other

distributions of economic benefits; (2) Exposure to increases or decreases in the value of an investment

in another entity; (3) Exposure to loss from agreements to provide financial support,

including financial support for major projects; (4) Cost savings (for example, if an entity would achieve economies

of scale or synergies by combining the operations or assets of the other entity with its own operations or assets);

(5) Residual interests in the other entity’s assets and liabilities on liquidation of that other entity; and

(6) Other exposures to variable benefits that are not available to other entities.

(d) Examples of non-financial benefits include: (1) The ability to benefit from the specialized knowledge of another

entity; (2) The value to the entity of the other entity undertaking activities

that assist the entity in achieving its objectives; (3) Improved outcomes; (4) More efficient delivery of outcomes; (5) More efficient or effective production and delivery of goods and

services; (6) Having an asset and related services available earlier than

otherwise would be the case; and (7) Having a higher level of service quality than would otherwise be

the case. 24.8 Link between Power and Benefits (a) A Council shall control another entity if the Council not only has

power over the entity being assessed for control and exposure or rights to variable benefits from its involvement with the other entity, but also has the ability to use its power to affect the nature or amount of the benefits from its involvement with the entity being assessed for control.

(b) The existence of congruent objectives alone is insufficient for a Council to conclude that it controls another entity – In order to have control the


Council would also need to have the ability to use its power over the entity being assessed for control to direct that other entity to work with it to further its objectives.

(c) A Council with decision-making rights shall determine whether it is a principal or an agent and shall also determine whether another entity with decision-making rights is acting as an agent for the entity – An agent is a party primarily engaged to act on behalf and for the benefit of another party or parties (the principal(s)) and therefore does not control the other entity when it exercises its decision-making authority.

24.9 Accounting Requirements (a) A controlling Council shall prepare consolidated financial statements

using uniform accounting policies for like transactions and other events in similar circumstances.

(b) A Council shall begin consolidation of a controlled entity from the date it obtains control of the other entity and cease when it loses control of the other entity.

24.10 Consolidation Procedures (a) Consolidated financial statements:

(1) Combine like items of assets, liabilities, net assets/equity, revenue, expenses and cash flows of the controlling entity with those of its controlled entities.

(2) Offset (eliminate) the carrying amount of the controlling entity’s investment in each controlled entity and the controlling entity’s portion of net assets/equity of each controlled entity (the relevant international or national accounting standards explain how to account for any related goodwill).

(3) Eliminate in full intra-economic entity assets, liabilities, net assets/equity, revenue, expenses and cash flows relating to transactions between entities of the economic entity (surpluses or deficits resulting from intra-economic entity transactions that are recognized in assets, such as inventory and fixed assets, are eliminated in full) – Intra-economic entity losses may indicate an impairment that requires recognition in the consolidated financial statements.

(c) The following examples illustrate financial benefits that a Council may receive from its involvement with another entity: (1) Dividends, variable interest on debt securities, other

distributions of economic benefits; (2) Exposure to increases or decreases in the value of an investment

in another entity; (3) Exposure to loss from agreements to provide financial support,

including financial support for major projects; (4) Cost savings (for example, if an entity would achieve economies

of scale or synergies by combining the operations or assets of the other entity with its own operations or assets);

(5) Residual interests in the other entity’s assets and liabilities on liquidation of that other entity; and

(6) Other exposures to variable benefits that are not available to other entities.

(d) Examples of non-financial benefits include: (1) The ability to benefit from the specialized knowledge of another

entity; (2) The value to the entity of the other entity undertaking activities

that assist the entity in achieving its objectives; (3) Improved outcomes; (4) More efficient delivery of outcomes; (5) More efficient or effective production and delivery of goods and

services; (6) Having an asset and related services available earlier than

otherwise would be the case; and (7) Having a higher level of service quality than would otherwise be

the case. 24.8 Link between Power and Benefits (a) A Council shall control another entity if the Council not only has

power over the entity being assessed for control and exposure or rights to variable benefits from its involvement with the other entity, but also has the ability to use its power to affect the nature or amount of the benefits from its involvement with the entity being assessed for control.

(b) The existence of congruent objectives alone is insufficient for a Council to conclude that it controls another entity – In order to have control the


24.11 Uniform Accounting Policies If a member of the economic entity uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to that member’s financial statements in preparing the consolidated financial statements to ensure conformity with the Council’s accounting policies. 24.12 Measurement (a) A Council shall include the revenue and expenses of a controlled entity

in the consolidated financial statements from the date it gains control until the date when the Council ceases to control the controlled entity.

(b) Revenue and expenses of the controlled entity are based on the amounts of the assets and liabilities recognized in the consolidated financial statements at the acquisition date – For example, depreciation expense recognized in the consolidated statement of financial performance after the acquisition date is based on the values of the related depreciable assets recognized in the consolidated financial statements at the acquisition date.

24.13 Potential Voting Rights (a) A Council shall determine the proportion of surplus or deficit and

changes in net assets/equity allocated to the Council and non-controlling interests in preparing consolidated financial statements solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivatives when potential voting rights, or other derivatives containing potential voting rights exist, unless (b) below applies.

(b) In some circumstances a Council shall have, in substance, an existing ownership interest as a result of a transaction that currently gives the Council access to the benefits associated with an ownership interest – In such circumstances, the proportion allocated to the controlling entity and non-controlling interests in preparing consolidated financial statements is determined by taking into account the eventual exercise of those potential voting rights and other derivatives that currently give the Council access to the benefits.


(c) A Council shall not apply IPSAS 28 and IPSAS 29 to interests in controlled entities that are consolidated – When instruments containing potential voting rights in substance currently give access to the benefits associated with an ownership interest in a controlled entity, the instruments are not subject to the requirements of IPSAS 28 and IPSAS 29. In all other cases, instruments containing potential voting rights in a controlled entity are accounted for in accordance with IPSAS 28 and IPSAS 29.

24.14 Reporting Dates (a) The financial statements of the controlling Council and its controlled

entities used in the preparation of the consolidated financial statements shall be prepared as at the same reporting date.

(b) When the end of the reporting period of the controlling Council is different from that of a controlled entity, the controlling Council either: (1) Obtains, for consolidation purposes, additional financial

information as of the same date as the financial statements of the controlling Council; or

(2) Uses the most recent financial statements of the controlled entity adjusted for the effects of significant transactions or events that occur between the date of those financial statements and the date of the consolidated financial statements.

24.15 Non-Controlling Interests (a) A controlling Council shall present non-controlling interests in the

consolidated statement of financial position within net assets/equity, separately from the net assets/equity of the owners of the controlling Council.

(b) Changes in a controlling Council’s interest in a controlled entity that do not result in the controlling Council losing control of the controlled entity are transactions with owners in their capacity as owners.

(c) A Council shall attribute the surplus or deficit and each gain or loss recognized directly in net assets/equity to the owners of the controlling Council and to the non-controlling interests and shall also attribute the total amount recognized in the statement of changes in net assets/equity to the owners of the controlling Council and to the

24.11 Uniform Accounting Policies If a member of the economic entity uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to that member’s financial statements in preparing the consolidated financial statements to ensure conformity with the Council’s accounting policies. 24.12 Measurement (a) A Council shall include the revenue and expenses of a controlled entity

in the consolidated financial statements from the date it gains control until the date when the Council ceases to control the controlled entity.

(b) Revenue and expenses of the controlled entity are based on the amounts of the assets and liabilities recognized in the consolidated financial statements at the acquisition date – For example, depreciation expense recognized in the consolidated statement of financial performance after the acquisition date is based on the values of the related depreciable assets recognized in the consolidated financial statements at the acquisition date.

24.13 Potential Voting Rights (a) A Council shall determine the proportion of surplus or deficit and

changes in net assets/equity allocated to the Council and non-controlling interests in preparing consolidated financial statements solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivatives when potential voting rights, or other derivatives containing potential voting rights exist, unless (b) below applies.

(b) In some circumstances a Council shall have, in substance, an existing ownership interest as a result of a transaction that currently gives the Council access to the benefits associated with an ownership interest – In such circumstances, the proportion allocated to the controlling entity and non-controlling interests in preparing consolidated financial statements is determined by taking into account the eventual exercise of those potential voting rights and other derivatives that currently give the Council access to the benefits.


non-controlling interests even if this results in the non-controlling interests having a deficit balance.

(d) A Council shall, if a controlled entity has outstanding cumulative preference shares that are classified as equity instruments and are held by non-controlling interests, compute its share of surplus or deficit after adjusting for the dividends on such shares whether or not such dividends have been declared.

(e) When the proportion of the net assets/equity held by non-controlling interests changes, an entity shall adjust the carrying amounts of the controlling and non-controlling interests to reflect the changes in their relative interests in the controlled entity. The entity shall recognize directly in net assets/equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received, and attribute it to the owners of the controlling entity.

24.16 Loss of Control (a) If a controlling Council loses control of a controlled entity, the

controlling Council: (1) Derecognizes the assets and liabilities of the former controlled

entity from the consolidated statement of financial position; (2) Recognizes any investment retained in the former controlled

entity at its fair value when control is lost and subsequently accounts for it and for any amounts owed by or to the former controlled entity in accordance with relevant IPSASs. That fair value shall be regarded as the fair value on initial recognition of a financial asset in accordance with IPSAS 29 or the cost on initial recognition of an investment in an associate or joint venture; and

(3) Recognizes the gain or loss associated with the loss of control attributable to the former controlling interest.

(b) A controlling Council might lose control of a controlled entity in two or more arrangements (transactions), however, sometimes circumstances indicate that the multiple arrangements should be accounted for as a single transaction – In determining whether to account for the arrangements as a single transaction, a controlling Council shall consider all the terms and conditions of the arrangements and their economic effects. One or more of the following


indicate that the controlling Council should account for the multiple arrangements as a single transaction: (1) They are entered into at the same time or in contemplation of

each other. (2) They form a single transaction designed to achieve an overall

commercial effect. (3) The occurrence of one arrangement is dependent on the

occurrence of at least one other arrangement. (4) One arrangement considered on its own is not economically

justified, but it is economically justified when considered together with other arrangements. An example is when a disposal of an investment is priced below market and is compensated for by a subsequent disposal priced above market.

(c) If a controlling Council loses control of a controlled entity, it shall: (1) Derecognize:

(i) The assets (including any goodwill) and liabilities of the controlled entity at their carrying amounts at the date when control is lost; and

(ii) The carrying amount of any non-controlling interests in the former controlled entity at the date when control is lost (including any gain or loss recognized directly in net assets/equity attributable to them).

(2) Recognize: (i) The fair value of the consideration received, if any, from

the transaction, event or circumstances that resulted in the loss of control;

(ii) If the transaction, event or circumstances that resulted in the loss of control involves a distribution of shares of the controlled entity to owners in their capacity as owners, that distribution; and

(iii) Any investment retained in the former controlled entity at its fair value at the date when control is lost.

(3) Transfer directly to accumulated surplus/deficit, if required by other IPSASs, the amounts recognized directly in net assets/equity in relation to the controlled entity on the basis described in (d) below.

(4) Recognize any resulting difference as a gain or loss in surplus or deficit attributable to the controlling entity.

non-controlling interests even if this results in the non-controlling interests having a deficit balance.

(d) A Council shall, if a controlled entity has outstanding cumulative preference shares that are classified as equity instruments and are held by non-controlling interests, compute its share of surplus or deficit after adjusting for the dividends on such shares whether or not such dividends have been declared.

(e) When the proportion of the net assets/equity held by non-controlling interests changes, an entity shall adjust the carrying amounts of the controlling and non-controlling interests to reflect the changes in their relative interests in the controlled entity. The entity shall recognize directly in net assets/equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received, and attribute it to the owners of the controlling entity.

24.16 Loss of Control (a) If a controlling Council loses control of a controlled entity, the

controlling Council: (1) Derecognizes the assets and liabilities of the former controlled

entity from the consolidated statement of financial position; (2) Recognizes any investment retained in the former controlled

entity at its fair value when control is lost and subsequently accounts for it and for any amounts owed by or to the former controlled entity in accordance with relevant IPSASs. That fair value shall be regarded as the fair value on initial recognition of a financial asset in accordance with IPSAS 29 or the cost on initial recognition of an investment in an associate or joint venture; and

(3) Recognizes the gain or loss associated with the loss of control attributable to the former controlling interest.

(b) A controlling Council might lose control of a controlled entity in two or more arrangements (transactions), however, sometimes circumstances indicate that the multiple arrangements should be accounted for as a single transaction – In determining whether to account for the arrangements as a single transaction, a controlling Council shall consider all the terms and conditions of the arrangements and their economic effects. One or more of the following


(d) If a controlling Council loses control of a controlled entity, the controlling entity shall account for all amounts previously recognized directly in net assets/equity in relation to that controlled entity on the same basis as would be required if the controlling entity had directly disposed of the related assets or liabilities. If a revaluation surplus previously recognized directly in net assets/equity would be transferred directly to accumulated surplus/deficit on the disposal of the asset, the controlling Council shall transfer the revaluation surplus directly to accumulated surplus/deficit when it loses control of the controlled entity.

24.17 Investment Entities: Fair Value Requirement (a) An investment Council shall not, except as described in (b) below,

consolidate its controlled entities, instead it shall measure an investment in a controlled entity at fair value through surplus or deficit in accordance with IPSAS 29.

(b) Notwithstanding the requirement in (a) above, if an investment Council has a controlled entity that is not itself an investment entity and whose main purpose and activities are providing services that relate to the investment Council’s investment activities, it shall consolidate that controlled entity in accordance with 24.9 – 24.17.

(c) A controlling Council of an investment entity that is not itself an investment entity shall present consolidated financial statements in which it (1) measures the investments of a controlled investment entity at

fair value through surplus or deficit in accordance with IPSAS 29 and

(2) consolidates the other assets and liabilities and revenue and expenses of the controlled investment entity in accordance with 24.9 – 24.17.

24.18 Determining Whether a Council is an Investment Council (a) A Council shall consider all facts and circumstances when assessing

whether it is an investment Council, including its purpose and design (see IPSAS 35:AG89–AG106 for description of aspects of the definition of an investment entity in more detail) – If facts and circumstances indicate that there are changes to one or more of the three elements


that make up the definition of an investment entity, a controlling Council shall reassess whether it is an investment Council.

(b) A controlling Council that either ceases to be an investment Council or becomes an investment Council shall account for the change in its status prospectively from the date at which the change in status occurred (see 24.20).

24.19 Judgments and Assumptions (a) An investment Council shall disclose the information required by

IPSAS 38:15 about significant judgments and assumptions made in determining that it is an investment entity unless it has all of the following characteristics: (1) It has obtained funds from more than one investor (see IPSAS

35:AG89–AG90); (2) It has ownership interests in the form of equity or similar

interests (see IPSAS 35:AG91–AG92); and (3) It has more than one investment (see IPSAS 35:AG96–AG97).

(b) The absence of any of these characteristics does not necessarily disqualify a Council from being classified as an investment Council. However, the absence of any of these characteristics means that a Council is required to disclose information about the significant judgments and assumptions made in determining that it is an investment Council.

24.20 Accounting for a Change in Investment Entity Status (a) When a Council ceases to be an investment Council the date of the

change of status shall be the deemed acquisition date and the fair value of the controlled entity at the deemed acquisition date shall represent the transferred deemed consideration when measuring any goodwill or gain from a bargain purchase that arises from the deemed acquisition. All controlled entities shall be consolidated in accordance with 24.9 – 24.16 from the date of change of status.

(b) When a Council becomes an investment Council, it shall cease to consolidate its controlled entities at the date of the change in status, except for any controlled entity that shall continue to be consolidated in accordance with 24.17 (b). The investment Council shall apply the requirements of 24.16 (a) and (b) to those controlled entities that it

(d) If a controlling Council loses control of a controlled entity, the controlling entity shall account for all amounts previously recognized directly in net assets/equity in relation to that controlled entity on the same basis as would be required if the controlling entity had directly disposed of the related assets or liabilities. If a revaluation surplus previously recognized directly in net assets/equity would be transferred directly to accumulated surplus/deficit on the disposal of the asset, the controlling Council shall transfer the revaluation surplus directly to accumulated surplus/deficit when it loses control of the controlled entity.

24.17 Investment Entities: Fair Value Requirement (a) An investment Council shall not, except as described in (b) below,

consolidate its controlled entities, instead it shall measure an investment in a controlled entity at fair value through surplus or deficit in accordance with IPSAS 29.

(b) Notwithstanding the requirement in (a) above, if an investment Council has a controlled entity that is not itself an investment entity and whose main purpose and activities are providing services that relate to the investment Council’s investment activities, it shall consolidate that controlled entity in accordance with 24.9 – 24.17.

(c) A controlling Council of an investment entity that is not itself an investment entity shall present consolidated financial statements in which it (1) measures the investments of a controlled investment entity at

fair value through surplus or deficit in accordance with IPSAS 29 and

(2) consolidates the other assets and liabilities and revenue and expenses of the controlled investment entity in accordance with 24.9 – 24.17.

24.18 Determining Whether a Council is an Investment Council (a) A Council shall consider all facts and circumstances when assessing

whether it is an investment Council, including its purpose and design (see IPSAS 35:AG89–AG106 for description of aspects of the definition of an investment entity in more detail) – If facts and circumstances indicate that there are changes to one or more of the three elements


ceases to consolidate as though the investment Council had lost control of those controlled entities at that date.

24.21 Transitional Provisions (a) A Council shall apply this Section retrospectively, in accordance with

IPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors, except as specified in (b) - below.

(b) Notwithstanding the requirements of IPSAS 3:33, when this Section is first applied a Council need only present the quantitative information required by IPSAS 3:33(f) for the annual period immediately preceding the date of initial application of this Section (the “immediately preceding period”) – A Council may also present this information for the current period or for earlier comparative periods, but is not required to do so.

(c) For the purposes of this Section, the date of initial application is the beginning of the annual reporting period for which this Section is applied for the first time.

(d) At the date of initial application, an entity is not required to make adjustments to the previous accounting for its involvement with either: (1) Entities that would be consolidated at that date in accordance

with IPSAS 6, Consolidated and Separate Financial Statements, and are still consolidated in accordance with this Section; or

(2) Entities that would not be consolidated at that date in accordance with IPSAS 6, and are not consolidated in accordance with this Section.

(e) At the date of initial application, an entity shall assess whether it is an investment entity on the basis of the facts and circumstances that exist at that date. If, at the date of initial application, an entity concludes that it is an investment entity, it shall apply the requirements of (f) - (i) below instead of (m) – (n) below.

(f) Except for any controlled entity that is consolidated in accordance with 24.17(b) (to which (d) above or (m) – (n) below, whichever is relevant, apply), an investment Council shall measure its investment in each controlled entity at fair value through surplus or deficit as if the requirements of this Section had always been effective – The investment Council shall retrospectively adjust both the annual period that immediately precedes the date of initial application and net


assets/equity at the beginning of the immediately preceding period for any difference between: (1) The previous carrying amount of the controlled entity; and (2) The fair value of the investment entity’s investment in the

controlled entity. The cumulative amount of any fair value adjustments previously recognized directly in net assets/equity shall be transferred to accumulated surplus/deficit at the beginning of the annual period immediately preceding the date of initial application.

(g) An investment Council shall use the fair value amounts that were previously reported to investors or to management.

(h) If measuring an investment in a controlled entity in accordance with (f) above is impracticable (as defined in IPSAS 3), an investment Council shall apply the requirements of this Section at the beginning of the earliest period for which application of (f) above is practicable, which may be the current period. The Council shall retrospectively adjust the annual period that immediately precedes the date of initial application, unless the beginning of the earliest period for which application of this paragraph is practicable is the current period. If this is the case, the adjustment to net assets/equity shall be recognized at the beginning of the current period.

(i) If an investment Council has disposed of, or has lost control of, an investment in a controlled entity before the date of initial application of this Section, the investment Council is not required to make adjustments to the previous accounting for that controlled entity.

(j) If, at the date of initial application, a Council concludes that it shall consolidate another entity that was not consolidated in accordance with IPSAS 6, the entity shall measure the assets, liabilities and non-controlling interests in that previously unconsolidated entity as if that other entity had been consolidated from the date when the Council obtained control of that other entity on the basis of the requirements of this Section. The Council shall adjust retrospectively the annual period immediately preceding the date of initial application. When the date that control was obtained is earlier than the beginning of the immediately preceding period, the Council shall recognize, as an adjustment to net assets/equity at the beginning of the immediately preceding period, any difference between:

ceases to consolidate as though the investment Council had lost control of those controlled entities at that date.

24.21 Transitional Provisions (a) A Council shall apply this Section retrospectively, in accordance with

IPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors, except as specified in (b) - below.

(b) Notwithstanding the requirements of IPSAS 3:33, when this Section is first applied a Council need only present the quantitative information required by IPSAS 3:33(f) for the annual period immediately preceding the date of initial application of this Section (the “immediately preceding period”) – A Council may also present this information for the current period or for earlier comparative periods, but is not required to do so.

(c) For the purposes of this Section, the date of initial application is the beginning of the annual reporting period for which this Section is applied for the first time.

(d) At the date of initial application, an entity is not required to make adjustments to the previous accounting for its involvement with either: (1) Entities that would be consolidated at that date in accordance

with IPSAS 6, Consolidated and Separate Financial Statements, and are still consolidated in accordance with this Section; or

(2) Entities that would not be consolidated at that date in accordance with IPSAS 6, and are not consolidated in accordance with this Section.

(e) At the date of initial application, an entity shall assess whether it is an investment entity on the basis of the facts and circumstances that exist at that date. If, at the date of initial application, an entity concludes that it is an investment entity, it shall apply the requirements of (f) - (i) below instead of (m) – (n) below.

(f) Except for any controlled entity that is consolidated in accordance with 24.17(b) (to which (d) above or (m) – (n) below, whichever is relevant, apply), an investment Council shall measure its investment in each controlled entity at fair value through surplus or deficit as if the requirements of this Section had always been effective – The investment Council shall retrospectively adjust both the annual period that immediately precedes the date of initial application and net


(1) The amount of assets, liabilities and non-controlling interests recognized; and

(2) The previous carrying amount of the entity’s involvement with the other entity.

(k) If measuring a controlled entity’s assets, liabilities and non-controlling interests in accordance with 24.21(j) (1) or (2) is impracticable (as defined in IPSAS 3), an entity shall measure the assets, liabilities and non-controlling interests in that previously unconsolidated entity as if that entity had been consolidated from the deemed acquisition date. The deemed acquisition date shall be the beginning of the earliest period for which the application of this paragraph is practicable, which may be the current period.

(l) The entity shall adjust retrospectively the annual period immediately preceding the date of initial application, unless the beginning of the earliest period for which application of this paragraph is practicable is the current period. When the deemed acquisition date is earlier than the beginning of the immediately preceding period, the entity shall recognize, as an adjustment to net assets/equity at the beginning of the immediately preceding period, any difference between: (1) The amount of assets, liabilities and non-controlling interests

recognized; and (2) The previous carrying amounts of the entity’s involvement with

the other entity. If the earliest period for which application of this paragraph is practicable is the current period, the adjustment to net assets/equity shall be recognized at the beginning of the current period.

(m) If, at the date of initial application, a Council concludes that it will no longer consolidate an entity that was consolidated in accordance with IPSAS 6, the Council shall measure its interest in the other entity at the amount at which it would have been measured if the requirements of this Section had been effective when the Council became involved with, or lost control of, the other entity. The Council shall adjust retrospectively the annual period immediately preceding the date of initial application. When the date that the Council became involved with (but did not obtain control in accordance with this Section), or lost control of, the other entity is earlier than the beginning of the immediately preceding period, the Council shall recognize, as an


adjustment to net assets/equity at the beginning of the immediately preceding period, any difference between: (1) The previous carrying amount of the assets, liabilities and non-

controlling interests; and (2) The recognized amount of the entity’s interest in the other entity.

(n) If measuring the interest in the other entity in accordance with (m) above is impracticable (as defined in IPSAS 3), a Council shall apply the requirements of this Section at the beginning of the earliest period for which application of (m) above is practicable, which may be the current period. The Council shall adjust retrospectively the annual period immediately preceding the date of initial application, unless the beginning of the earliest period for which application of this paragraph is practicable is the current period. When the date that the Council became involved with (but did not obtain control in accordance with this Section), or lost control of, the other entity is earlier than the beginning of the immediately preceding period, the Council shall recognize, as an adjustment to net assets/equity at the beginning of the immediately preceding period, any difference between: (1) The previous carrying amount of the assets, liabilities and non-

controlling interests; and (2) The recognized amount of the entity’s interest in the other entity.

(1) The amount of assets, liabilities and non-controlling interests recognized; and

(2) The previous carrying amount of the entity’s involvement with the other entity.

(k) If measuring a controlled entity’s assets, liabilities and non-controlling interests in accordance with 24.21(j) (1) or (2) is impracticable (as defined in IPSAS 3), an entity shall measure the assets, liabilities and non-controlling interests in that previously unconsolidated entity as if that entity had been consolidated from the deemed acquisition date. The deemed acquisition date shall be the beginning of the earliest period for which the application of this paragraph is practicable, which may be the current period.

(l) The entity shall adjust retrospectively the annual period immediately preceding the date of initial application, unless the beginning of the earliest period for which application of this paragraph is practicable is the current period. When the deemed acquisition date is earlier than the beginning of the immediately preceding period, the entity shall recognize, as an adjustment to net assets/equity at the beginning of the immediately preceding period, any difference between: (1) The amount of assets, liabilities and non-controlling interests

recognized; and (2) The previous carrying amounts of the entity’s involvement with

the other entity. If the earliest period for which application of this paragraph is practicable is the current period, the adjustment to net assets/equity shall be recognized at the beginning of the current period.

(m) If, at the date of initial application, a Council concludes that it will no longer consolidate an entity that was consolidated in accordance with IPSAS 6, the Council shall measure its interest in the other entity at the amount at which it would have been measured if the requirements of this Section had been effective when the Council became involved with, or lost control of, the other entity. The Council shall adjust retrospectively the annual period immediately preceding the date of initial application. When the date that the Council became involved with (but did not obtain control in accordance with this Section), or lost control of, the other entity is earlier than the beginning of the immediately preceding period, the Council shall recognize, as an


SECTION TWENTY FIVE

25.0 INVESTMENT IN ASSOCIATES AND JOINT VENTURES

25.1 Objective (a) The objective of this Section is to prescribe the accounting for

investments in associates and joint ventures and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

(b) A Council that is an investor with significant influence over, or joint control of, an investee where the investment leads to the holding of a quantifiable ownership interest shall apply this Section in accounting for investments in associates and joint ventures.

(c) This Section provides the basis for accounting for ownership interests in associates and joint ventures, i.e., the investment in the other entity that confers on the Council the risks and rewards incidental to an ownership interest.

(d) This Section applies only to quantifiable ownership interests including ownership interests arising from investments in the formal equity structure of another entity – a formal equity structure means share capital or an equivalent form of capital, such as units in a property trust: quantifiable ownership interests may also include ownership interests arising from other investments in which the Council’s ownership interest can be measured reliably (for example, interests in a partnership). Where the equity structure of the other entity is poorly defined, it may not be possible to obtain a reliable measure of the ownership interest.

(e) Some contributions made by a Council may be referred to as “investment,” but may not give rise to an ownership interest, like a substantial investment in the development of a hospital that is owned and operated by a charity: while such contributions allow the Council to participate in the operation of the hospital, and the charity is accountable to the Council for its use of public monies, however, the contributions made by the Council do not constitute an ownership interest, as the charity could seek alternative funding and thereby prevent the Council from participating in the operation of the hospital.

(f) This Section applies to Councils, LLGs and SPFs other than Government Business Enterprises (GBEs).


25.2 Binding Arrangement (a) A binding arrangement is often, but not always, in writing, in the form

of a contract or documented discussions between the parties and can be evidenced in several ways.

(b) Statutory mechanisms such as legislative or executive authority can also create enforceable arrangements, similar to contractual arrangements, either on their own, or in conjunction with contracts between the parties.

25.3 Significant Influence (a) A Council shall judge if it has significant influence over an investee

based on the nature of the relationship between the Council and the investee, and on the definition of significant influence in this LAAM. This Section applies only to those associates in which a Council holds a quantifiable ownership interest either in the form of a shareholding or other formal equity structure or in another form in which the Council’s interest can be measured reliably.

(b) A Council shall be presumed to have significant influence if it holds, directly or indirectly, a quantifiable ownership interest of 20 per cent or more of the voting power of the investee, unless it can be clearly demonstrated that this is not the case.

(c) A Council shall be presumed not to have significant influence if it holds, directly or indirectly, less than 20 per cent of the voting power of the investee, unless such influence can be clearly demonstrated.

(d) A Council shall not necessarily be precluded from having significant influence by a substantial or majority ownership by another investor.

(e) A Council shall evidence the existence of significant influence in one or more of the following ways: (1) Representation on the board of directors or equivalent governing

body of the investee; (2) Participation in policy-making processes, including

participation in decisions about dividends or similar distributions;

(3) Material transactions between the Council and its investee;

(4) Interchange of managerial personnel; or

SECTION TWENTY FIVE

25.0 INVESTMENT IN ASSOCIATES AND JOINT VENTURES

25.1 Objective (a) The objective of this Section is to prescribe the accounting for

investments in associates and joint ventures and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

(b) A Council that is an investor with significant influence over, or joint control of, an investee where the investment leads to the holding of a quantifiable ownership interest shall apply this Section in accounting for investments in associates and joint ventures.

(c) This Section provides the basis for accounting for ownership interests in associates and joint ventures, i.e., the investment in the other entity that confers on the Council the risks and rewards incidental to an ownership interest.

(d) This Section applies only to quantifiable ownership interests including ownership interests arising from investments in the formal equity structure of another entity – a formal equity structure means share capital or an equivalent form of capital, such as units in a property trust: quantifiable ownership interests may also include ownership interests arising from other investments in which the Council’s ownership interest can be measured reliably (for example, interests in a partnership). Where the equity structure of the other entity is poorly defined, it may not be possible to obtain a reliable measure of the ownership interest.

(e) Some contributions made by a Council may be referred to as “investment,” but may not give rise to an ownership interest, like a substantial investment in the development of a hospital that is owned and operated by a charity: while such contributions allow the Council to participate in the operation of the hospital, and the charity is accountable to the Council for its use of public monies, however, the contributions made by the Council do not constitute an ownership interest, as the charity could seek alternative funding and thereby prevent the Council from participating in the operation of the hospital.

(f) This Section applies to Councils, LLGs and SPFs other than Government Business Enterprises (GBEs).


(5) Provision of essential technical information.

(f) A Council shall consider the existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities when assessing whether an entity has significant influence, if the Council owns share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the Council additional voting power or to reduce another party’s voting power over the financial and operating policies of another entity (i.e., potential voting rights) – Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event.

(g) A Council shall examine all facts and circumstances (including the terms of exercise of the potential voting rights and any other binding arrangements whether considered individually or in combination) that affect potential rights, In assessing whether potential voting rights contribute to significant influence, except the intentions of management and the financial ability to exercise or convert those potential rights.

(h) A Council shall lose significant influence over an investee when it loses the power to participate in the financial and operating policy decisions of that investee. The loss of significant influence can occur with or without a change in absolute or relative ownership levels. It could occur, for example, when an associate becomes subject to the control of another government, a court or an administrator. It could also occur as a result of a binding arrangement.

25.4 Equity Method (a) A Council shall on initial recognition, under the equity method,

recognize at cost an investment in an associate or a joint venture and subsequently increase or decrease the carrying amount of the investment to recognize the Council’s share of the surplus or deficit of the investee after the date of acquisition – Council’s share of the surplus or deficit is adjusted in the Council’s surplus or deficit. When making investment:


Debit: Investment in Associate/Joint Venture (cost) XXX Credit: Cash or Cash Equivalent XXX Share of surplus or deficit: Debit: Investment in Associate/Joint Venture (surplus) XXX Credit: Council surplus or deficit XXX Share of surplus or deficit: Debit: Council surplus or deficit XXX Credit: Investment in Associate/Joint Venture (deficit) XXX

(b) A Council shall reduce the carrying amount of an investment due to distributions received from an investee. Debit: Council cash XXX Credit: Investment in Associate/Joint Venture XXX

(c) A Council shall also adjust the carrying amount of an investment for changes in the Council’s proportionate interest in the investee arising from changes in the investee’s equity that have not been recognized in the investee’s surplus or deficit such as those arising from the revaluation of property, plant and equipment and from foreign exchange translation differences – The Council’s share of those changes is recognized in net assets/equity. Gains Debit: Investment in Associate/Joint Venture XXX Credit: Net Assets (revaluation surplus, exchange gain) XXX Losses Debit: Net assets (revaluation loss, exchange loss) XXX Credit: Investment in Associate/Joint Venture XXX

(d) The recognition of revenue on the basis of distributions received may not be an adequate measure of the revenue earned by a Council on an investment in an associate or a joint venture because the distributions received may bear little relation to the performance of the associate or joint venture. Because the Council has joint control of, or significant

(5) Provision of essential technical information.

(f) A Council shall consider the existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities when assessing whether an entity has significant influence, if the Council owns share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the Council additional voting power or to reduce another party’s voting power over the financial and operating policies of another entity (i.e., potential voting rights) – Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event.

(g) A Council shall examine all facts and circumstances (including the terms of exercise of the potential voting rights and any other binding arrangements whether considered individually or in combination) that affect potential rights, In assessing whether potential voting rights contribute to significant influence, except the intentions of management and the financial ability to exercise or convert those potential rights.

(h) A Council shall lose significant influence over an investee when it loses the power to participate in the financial and operating policy decisions of that investee. The loss of significant influence can occur with or without a change in absolute or relative ownership levels. It could occur, for example, when an associate becomes subject to the control of another government, a court or an administrator. It could also occur as a result of a binding arrangement.

25.4 Equity Method (a) A Council shall on initial recognition, under the equity method,

recognize at cost an investment in an associate or a joint venture and subsequently increase or decrease the carrying amount of the investment to recognize the Council’s share of the surplus or deficit of the investee after the date of acquisition – Council’s share of the surplus or deficit is adjusted in the Council’s surplus or deficit. When making investment:


influence over, the investee, the Council has an interest in the associate’s or joint venture’s performance and, as a result, the return on its investment. The Council accounts for this interest by extending the scope of its financial statements to include its share of the surplus or deficit of such an investee. As a result, application of the equity method provides more informative reporting of the Council’s net assets/equity and surplus or deficit.

(e) A Council’s interest in an associate or a joint venture, when potential voting rights or other derivatives containing potential voting rights exist, is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivative instruments, unless (f) below applies.

(f) In some circumstances, a Council has, in substance, an existing ownership interest as a result of a transaction that currently gives it access to the benefits associated with an ownership interest. In such circumstances, the proportion allocated to the Council is determined by taking into account the eventual exercise of those potential voting rights and other derivative instruments that currently give the entity access to the benefits.

(g) A Council shall not apply IPSAS 29, Financial Instruments: Recognition and Measurement to interests in associates and joint ventures that are accounted for using the equity method, i.e., when instruments containing potential voting rights in substance currently give access to the benefits associated with an ownership interest in an associate or a joint venture – In all other cases, the Council shall account in accordance with IPSAS 29 instruments containing potential voting rights in an associate or a joint venture.

(h) A Council shall classify an investment in an associate or a joint venture accounted for using the equity method as a non-current asset.

25.5 Application of the Equity Method A Council with joint control of, or significant influence over, an investee shall account for its investment in an associate or a joint venture using the equity method except when that investment qualifies for exemption in accordance with 25.6 below.


25.6 Exemptions from Applying the Equity Method (a) A Council need not apply the equity method to its investment in an

associate or a joint venture if the Council is a controlling entity that is exempt from preparing consolidated financial statements under Section 24.3 or if all of the following apply: (1) The entity itself is a controlled entity and the information needs

of users are met by its controlling Council’s consolidated financial statements, and, in the case of a partially owned entity, all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the entity not applying the equity method.

(2) The entity’s debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets).

(3) The entity did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organization, for the purpose of issuing any class of instruments in a public market.

(4) The ultimate or any intermediate controlling entity of the entity produces financial statements available for public use that comply with IPSASs, in which controlled entities are consolidated or are measured at fair value in accordance with Section 24.

(b) When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organization, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the Council may elect to measure investments in those associates and joint ventures at fair value through surplus or deficit in accordance with IPSAS 29 – An investment Council will, by definition, have made this election.

(c) When a Council has an investment in an associate, a portion of which is held indirectly through a venture capital organization, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the Council may elect to measure that portion of the investment in the associate at fair value through surplus or deficit in accordance with IPSAS 29 regardless of whether the venture capital organization, or the mutual fund, unit trust and similar entities including investment-linked insurance funds, has significant influence

influence over, the investee, the Council has an interest in the associate’s or joint venture’s performance and, as a result, the return on its investment. The Council accounts for this interest by extending the scope of its financial statements to include its share of the surplus or deficit of such an investee. As a result, application of the equity method provides more informative reporting of the Council’s net assets/equity and surplus or deficit.

(e) A Council’s interest in an associate or a joint venture, when potential voting rights or other derivatives containing potential voting rights exist, is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivative instruments, unless (f) below applies.

(f) In some circumstances, a Council has, in substance, an existing ownership interest as a result of a transaction that currently gives it access to the benefits associated with an ownership interest. In such circumstances, the proportion allocated to the Council is determined by taking into account the eventual exercise of those potential voting rights and other derivative instruments that currently give the entity access to the benefits.

(g) A Council shall not apply IPSAS 29, Financial Instruments: Recognition and Measurement to interests in associates and joint ventures that are accounted for using the equity method, i.e., when instruments containing potential voting rights in substance currently give access to the benefits associated with an ownership interest in an associate or a joint venture – In all other cases, the Council shall account in accordance with IPSAS 29 instruments containing potential voting rights in an associate or a joint venture.

(h) A Council shall classify an investment in an associate or a joint venture accounted for using the equity method as a non-current asset.

25.5 Application of the Equity Method A Council with joint control of, or significant influence over, an investee shall account for its investment in an associate or a joint venture using the equity method except when that investment qualifies for exemption in accordance with 25.6 below.


over that portion of the investment. If the Council makes that election, it shall apply the equity method to any remaining portion of its investment in an associate that is not held through a venture capital organization, or a mutual fund, unit trust and similar entities including investment-linked insurance funds. When a Council has an investment in an associate, a portion of which is held indirectly through an investment entity, the Council shall measure that portion of the investment at fair value through surplus or deficit in accordance with IPSAS 29.

25.7 Discontinuing the Use of the Equity Method (a) A Council shall discontinue the use of the equity method from the date

when its investment ceases to be an associate or a joint venture as follows: (1) If the investment becomes a controlled entity, the Council shall

account for its investment in accordance with Section 24. (2) If the retained interest in the former associate or joint venture is

a financial asset, the Council shall measure the retained interest at fair value. The fair value of the retained interest shall be regarded as its fair value on initial recognition as a financial asset in accordance with IPSAS 29. If a Council is precluded by IPSAS 29:AG113 – 114 from measuring the retained interest at fair value, the Council shall measure the retained interest at the carrying amount of the investment at the date that it ceases to be an associate or joint venture and that carrying amount shall be regarded as its cost on initial recognition as a financial asset in accordance with IPSAS 29. The Council shall recognize in surplus or deficit any difference between: (i) The fair value (or, where relevant, the carrying amount) of

any retained interest and any proceeds from disposing of a part interest in the associate or joint venture; and

(ii) The carrying amount of the investment at the date the equity method was discontinued.

(3) When a Council discontinues the use of the equity method it shall account for all amounts previously recognized directly in the net assets/equity in relation to that investment on the same basis as would have been required if the investee had directly disposed of the related assets or liabilities.


(b) A Council shall continue to apply the equity method and shall not remeasure the retained interest if an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate,.

25.8 Changes in Ownership Interest If a Council’s ownership interest in an associate or a joint venture is reduced, but the investment continues to be classified either as an associate or a joint venture respectively, the Council shall transfer directly to accumulated surpluses or deficits the proportion of the gain or loss that had previously been recognized in net assets/equity relating to that reduction in ownership interest if that gain or loss would be required to be transferred directly to accumulated surpluses or deficits on the disposal of the related assets or liabilities. 25.9 Equity Method Procedures (a) Many of the procedures that are appropriate for the application of the

equity method are similar to the consolidation procedures described in Section 24. Furthermore, the concepts underlying the procedures used in accounting for the acquisition of a controlled entity are also adopted in accounting for the acquisition of an investment in an associate or a joint venture.

(b) An economic entity’s share in an associate or a joint venture is the aggregate of the holdings in that associate or joint venture by the controlling Council and its controlled entities, ignoring the holdings of the economic entity’s other associates or joint ventures – when an associate or a joint venture has controlled entities, associates or joint ventures, the surplus or deficit and net assets taken into account in applying the equity method are those recognized in the associate’s or joint venture’s financial statements (including the associate’s or joint venture’s share of the surpluses or deficits and net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting policies (see (j) – (l) below).

(c) Gains and losses resulting from “upstream” and “downstream” transactions between a Council (including its consolidated controlled entities) and its associate or joint venture are recognized in the Council’s financial statements only to the extent of unrelated investors’

over that portion of the investment. If the Council makes that election, it shall apply the equity method to any remaining portion of its investment in an associate that is not held through a venture capital organization, or a mutual fund, unit trust and similar entities including investment-linked insurance funds. When a Council has an investment in an associate, a portion of which is held indirectly through an investment entity, the Council shall measure that portion of the investment at fair value through surplus or deficit in accordance with IPSAS 29.

25.7 Discontinuing the Use of the Equity Method (a) A Council shall discontinue the use of the equity method from the date

when its investment ceases to be an associate or a joint venture as follows: (1) If the investment becomes a controlled entity, the Council shall

account for its investment in accordance with Section 24. (2) If the retained interest in the former associate or joint venture is

a financial asset, the Council shall measure the retained interest at fair value. The fair value of the retained interest shall be regarded as its fair value on initial recognition as a financial asset in accordance with IPSAS 29. If a Council is precluded by IPSAS 29:AG113 – 114 from measuring the retained interest at fair value, the Council shall measure the retained interest at the carrying amount of the investment at the date that it ceases to be an associate or joint venture and that carrying amount shall be regarded as its cost on initial recognition as a financial asset in accordance with IPSAS 29. The Council shall recognize in surplus or deficit any difference between: (i) The fair value (or, where relevant, the carrying amount) of

any retained interest and any proceeds from disposing of a part interest in the associate or joint venture; and

(ii) The carrying amount of the investment at the date the equity method was discontinued.

(3) When a Council discontinues the use of the equity method it shall account for all amounts previously recognized directly in the net assets/equity in relation to that investment on the same basis as would have been required if the investee had directly disposed of the related assets or liabilities.


interests in the associate or joint venture – “Upstream” transactions are, for example, sales of assets from an associate or a joint venture to the Council, while “Downstream” transactions are, for example, sales or contributions of assets from the Council to its associate or its joint venture: The Council’s share in the associate’s or joint venture’s gains or losses resulting from these transactions is eliminated.

(d) A Council shall recognize in full any loss when downstream transactions provide evidence of a reduction in the net realizable value of the assets to be sold or contributed, or of an impairment loss of those assets. When upstream transactions provide evidence of a reduction in the net realizable value of the assets to be purchased or of an impairment loss of those assets, the Council shall recognize only its share in those losses.

(e) A Council shall account a contribution of a non-monetary asset to an associate or a joint venture in exchange for an equity interest in the associate or joint venture in accordance with (c) above, except when the contribution lacks commercial substance, when gain or loss is regarded as unrealized and is not recognized unless (f) below also applies – a Council shall eliminate such unrealized gains and losses against the investment accounted for using the equity method and shall not present them as deferred gains or losses in the Council’s consolidated statement of financial position or in the Council’s statement of financial position in which investments are accounted for using the equity method.

(f) A Council shall recognize in full in surplus or deficit the portion of the gain or loss on the contribution relating to the monetary or non-monetary assets received if, in addition to receiving an equity interest in an associate or a joint venture, the Council also receives monetary or non-monetary assets.

(g) A Council shall account an investment using the equity method from the date on which it becomes an associate or a joint venture. On acquisition of the investment, any difference between the cost of the investment and the Council’s share of the net fair value of the investee’s identifiable assets and liabilities is accounted for as follows: (1) When a Council has included goodwill relating to an associate

or a joint venture in the carrying amount of the investment, amortization of that goodwill is not permitted.


(2) Any excess of the Council’s share of the net fair value of the investee’s identifiable assets and liabilities over the cost of the investment is included as revenue in the determination of the Council’s share of the associate or joint venture’s surplus or deficit in the period in which the investment is acquired.

(h) A Council shall make appropriate adjustments to the Council’s share of the associate’s or joint venture’s surplus or deficit after acquisition in order to account for depreciation of the depreciable assets based on their fair values at the acquisition date, impairment losses such as for property, plant and equipment or, where relevant, goodwill.

(i) A Council shall use the most recent available financial statements of the associate or joint venture in applying the equity method. When the end of the reporting period of the Council is different from that of an associate or a joint venture the Council either: (1) Obtains, for the purpose of applying the equity method,

additional financial information as of the same date as the financial statements of the Council; or

(2) Uses the most recent financial statements of the associate or joint venture adjusted for the effects of significant transactions or events that occur between the date of those financial statements and the date of the Council’s financial statements.

(j) The Council’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances.

(k) Except as described in (l) below, if an associate or a joint venture uses accounting policies other than those of the Council for like transactions and events in similar circumstances, adjustments shall be made to make the associate’s or joint venture’s accounting policies conform to those of the Council when the associate’s or joint venture’s financial statements are used by the Council in applying the equity method.

(l) Notwithstanding the requirements in (k) above, if a Council has an interest in an associate or a joint venture that is an investment entity, the Council shall, when applying the equity method, retain the fair value measurement applied by that investment entity, associate or joint venture to its interest in controlled entities.

(m) If an associate or a joint venture has outstanding cumulative preference shares that are held by parties other than the Council and are classified as equity, the Council shall compute its share of surplus

interests in the associate or joint venture – “Upstream” transactions are, for example, sales of assets from an associate or a joint venture to the Council, while “Downstream” transactions are, for example, sales or contributions of assets from the Council to its associate or its joint venture: The Council’s share in the associate’s or joint venture’s gains or losses resulting from these transactions is eliminated.

(d) A Council shall recognize in full any loss when downstream transactions provide evidence of a reduction in the net realizable value of the assets to be sold or contributed, or of an impairment loss of those assets. When upstream transactions provide evidence of a reduction in the net realizable value of the assets to be purchased or of an impairment loss of those assets, the Council shall recognize only its share in those losses.

(e) A Council shall account a contribution of a non-monetary asset to an associate or a joint venture in exchange for an equity interest in the associate or joint venture in accordance with (c) above, except when the contribution lacks commercial substance, when gain or loss is regarded as unrealized and is not recognized unless (f) below also applies – a Council shall eliminate such unrealized gains and losses against the investment accounted for using the equity method and shall not present them as deferred gains or losses in the Council’s consolidated statement of financial position or in the Council’s statement of financial position in which investments are accounted for using the equity method.

(f) A Council shall recognize in full in surplus or deficit the portion of the gain or loss on the contribution relating to the monetary or non-monetary assets received if, in addition to receiving an equity interest in an associate or a joint venture, the Council also receives monetary or non-monetary assets.

(g) A Council shall account an investment using the equity method from the date on which it becomes an associate or a joint venture. On acquisition of the investment, any difference between the cost of the investment and the Council’s share of the net fair value of the investee’s identifiable assets and liabilities is accounted for as follows: (1) When a Council has included goodwill relating to an associate

or a joint venture in the carrying amount of the investment, amortization of that goodwill is not permitted.


or deficit after adjusting for the dividends on such shares, whether or not the dividends have been declared.

(n) If a Council’s share of the deficit of an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the Council discontinues recognizing its share of further deficits. The interest in an associate or a joint venture is the carrying amount of the investment in the associate or joint venture determined using the equity method together with any long-term interests that, in substance, form part of the Council’s net investment in the associate or joint venture. Deficits recognized using the equity method in excess of the Council’s investment in ordinary shares are applied to the other components of the Council’s interest in an associate or a joint venture in the reverse order of their seniority (i.e. priority in liquidation).

(o) After the Council’s interest is reduced to zero, additional deficits are provided for, and a liability is recognized, only to the extent that the Council has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports surpluses, the Council resumes recognizing its share of those surpluses only after its share of the surpluses equals the share of deficits not recognized.

25.10 Impairment Losses (a) A Council shall apply IPSAS 29 to determine whether it is necessary to

recognize any additional impairment loss with respect to its net investment in the associate or joint venture after application of the equity method, including recognizing the associate’s or joint venture’s deficits in accordance with (n) above.

(b) A Council shall also apply IPSAS 29 to determine whether any additional impairment loss is recognized with respect to its interest in the associate or joint venture that does not constitute part of the net investment and the amount of that impairment loss.

(c) A Council shall apply Section 18 whenever application of IPSAS 29 indicates that the investment in an associate or a joint venture may be impaired and shall estimate, in determining the value in use of the cash-generating investment in accordance with Section 18: (1) Its share of the present value of the estimated future cash flows

expected to be generated by the associate or joint venture, including the cash flows from the operations of the associate or


joint venture and the proceeds from the ultimate disposal of the investment; or

(2) The present value of the estimated future cash flows expected to arise from dividends or similar distributions to be received from the investment, and from its ultimate disposal.

Using appropriate assumptions, both methods give the same result. (d) A Council shall assess the recoverable amount of an investment in an

associate or a joint venture for each associate or joint venture, unless the associate or joint venture does not generate cash inflows from continuing use that are largely independent of those from other assets of the Council.

25.11 Separate Financial Statements A Council shall account for an investment in an associate or a joint venture in the separate financial statements in accordance with Section 23.3(b) of this LAAM.

or deficit after adjusting for the dividends on such shares, whether or not the dividends have been declared.

(n) If a Council’s share of the deficit of an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the Council discontinues recognizing its share of further deficits. The interest in an associate or a joint venture is the carrying amount of the investment in the associate or joint venture determined using the equity method together with any long-term interests that, in substance, form part of the Council’s net investment in the associate or joint venture. Deficits recognized using the equity method in excess of the Council’s investment in ordinary shares are applied to the other components of the Council’s interest in an associate or a joint venture in the reverse order of their seniority (i.e. priority in liquidation).

(o) After the Council’s interest is reduced to zero, additional deficits are provided for, and a liability is recognized, only to the extent that the Council has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports surpluses, the Council resumes recognizing its share of those surpluses only after its share of the surpluses equals the share of deficits not recognized.

25.10 Impairment Losses (a) A Council shall apply IPSAS 29 to determine whether it is necessary to

recognize any additional impairment loss with respect to its net investment in the associate or joint venture after application of the equity method, including recognizing the associate’s or joint venture’s deficits in accordance with (n) above.

(b) A Council shall also apply IPSAS 29 to determine whether any additional impairment loss is recognized with respect to its interest in the associate or joint venture that does not constitute part of the net investment and the amount of that impairment loss.

(c) A Council shall apply Section 18 whenever application of IPSAS 29 indicates that the investment in an associate or a joint venture may be impaired and shall estimate, in determining the value in use of the cash-generating investment in accordance with Section 18: (1) Its share of the present value of the estimated future cash flows

expected to be generated by the associate or joint venture, including the cash flows from the operations of the associate or


SECTION TWENTY SIX

26.0 JOINT ARRANGEMENTS

26.1 Objective The objective of this Section is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e., joint arrangements) and, when a Council that is a party to a joint arrangement, in determining the type of joint arrangement in which it is involved by assessing its rights and obligations and to account for those rights and obligations in accordance with that type of joint arrangement. 26.2 Joint Control (a) Joint control is the sharing of control of an arrangement, which exists

only when decisions about the relevant activities require the unanimous consent of the parties sharing control – The sharing of control may have been agreed by way of a binding arrangement.

(b) A Council that is a party to an arrangement shall assess whether the binding arrangement gives all the parties, or a group of the parties, control of the arrangement collectively – All the parties, or a group of the parties, control the arrangement collectively when they must act together to direct the activities that significantly affect the benefits from the arrangement (i.e., the relevant activities).

(c) Once it has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively.

(d) In a joint arrangement, no single party controls the arrangement on its own. A party with joint control of an arrangement can prevent any of the other parties, or a group of the parties, from controlling the arrangement.

(e) An arrangement can be a joint arrangement even though not all of its parties have joint control of the arrangement – This Section distinguishes between parties that have joint control of a joint arrangement (joint operators or joint venturers) and parties that participate in, but do not have joint control of, a joint arrangement.


(f) An entity will need to apply judgment when assessing whether all the parties, or a group of the parties, have joint control of an arrangement. An entity shall make this assessment by considering all facts and circumstances (see IPSAS 37:AG5–AG11).

(g) A Council shall reassess whether it still has joint control of the arrangement if facts and circumstances change.

26.3 Types of Joint Arrangement (a) A Council shall determine the type of joint arrangement in which it is

involved and classify a joint arrangement as a joint operation or a joint venture depending upon the rights and obligations of the parties to the arrangement.

(b) A Council shall apply judgment when assessing whether a joint arrangement is a joint operation or a joint venture – A Council shall assess its rights and obligations by considering the structure and legal form of the arrangement, the terms agreed by the parties or established by legislative or executive authority and, when relevant, other facts and circumstances (see IPSAS 37:AG12–AG33).

(c) Sometimes the parties are bound by a framework agreement that sets up the general terms for undertaking one or more activities establishing different joint arrangements to deal with specific activities that form part of the agreement – Consequently, joint operations and joint ventures can coexist when the parties undertake different activities that form part of the same framework agreement.

(d) A Council shall reassess whether the type of joint arrangement in which it is involved has changed if facts and circumstances change.

26.4 Financial Statements of Parties to a Joint Arrangement 26.4.1 Joint Operations (a) A Council joint operator shall recognize in relation to its interest in a

joint operation: (1) Its assets, including its share of any assets held jointly; (2) Its liabilities, including its share of any liabilities incurred jointly; (3) Its revenue from the sale of its share of the output arising from

the joint operation; (4) Its share of the revenue from the sale of the output by the joint

operation; and

SECTION TWENTY SIX

26.0 JOINT ARRANGEMENTS

26.1 Objective The objective of this Section is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e., joint arrangements) and, when a Council that is a party to a joint arrangement, in determining the type of joint arrangement in which it is involved by assessing its rights and obligations and to account for those rights and obligations in accordance with that type of joint arrangement. 26.2 Joint Control (a) Joint control is the sharing of control of an arrangement, which exists

only when decisions about the relevant activities require the unanimous consent of the parties sharing control – The sharing of control may have been agreed by way of a binding arrangement.

(b) A Council that is a party to an arrangement shall assess whether the binding arrangement gives all the parties, or a group of the parties, control of the arrangement collectively – All the parties, or a group of the parties, control the arrangement collectively when they must act together to direct the activities that significantly affect the benefits from the arrangement (i.e., the relevant activities).

(c) Once it has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively.

(d) In a joint arrangement, no single party controls the arrangement on its own. A party with joint control of an arrangement can prevent any of the other parties, or a group of the parties, from controlling the arrangement.

(e) An arrangement can be a joint arrangement even though not all of its parties have joint control of the arrangement – This Section distinguishes between parties that have joint control of a joint arrangement (joint operators or joint venturers) and parties that participate in, but do not have joint control of, a joint arrangement.


(5) Its expenses, including its share of any expenses incurred jointly. (b) A Council joint operator shall account for the assets, liabilities,

revenues and expenses relating to its interest in a joint operation in accordance with the Sections applicable to the particular assets, liabilities, revenues and expenses.

(c) A Council that participates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with (a) and (b) above; 26.4.2 and 26.4.3 if the Council has rights to the assets, and obligations for the liabilities, relating to the joint operation – If a Council participates in but, does not have joint control of a joint operation, does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, shall account for its interest in the joint operation in accordance with the Sections applicable to that interest.

26.4.2 Accounting for Sales or Contributions of Assets to a Joint Operation (a) A Council shall recognize gains and losses resulting from a sale or

contribution of assets, it is conducting with the other parties to a joint operation in which it is a joint operator, only to the extent of the other parties’ interests in the joint operation.

(b) A Council shall recognize full loss when transactions in (a) above provide evidence of a reduction in the net realizable value of the assets to be sold or contributed to the joint operation, or of an impairment loss of those assets.

26.4.3 Accounting for Purchases of Assets from a Joint Operation (a) A Council shall not recognize its share of the gains and losses from

purchase of assets in a joint operation in which it is a joint operator until it resells those assets to a third party.

(b) A Council shall recognize its share of those losses when transactions in (a) above provide evidence of a reduction in the net realizable value of the assets to be purchased or of an impairment loss of those assets.

26.5 Joint Ventures (a) A Council joint venturer shall recognize its interest in a joint venture

as an investment and shall account for that investment using the equity


method in accordance with Section 25, unless the Council is exempted from applying the equity method as specified in that Section.

(b) A Council that participates in, but does not have joint control of, a joint venture shall account for its interest in the arrangement in accordance with the IPSASs dealing with financial instruments, being IPSAS 28, Financial Instruments: Presentation, IPSAS 29, Financial Instruments: Recognition and Measurement, and IPSAS 30, Financial Instruments: Disclosures, unless it has significant influence over the joint venture, in which case it shall account for it in accordance with Section 25.

26.6 Separate Financial Statements (a) In its separate financial statements, a Council joint operator or joint

venturer shall account for its interest in: (1) A joint operation in accordance with 26.4; and (2) A joint venture in accordance with Section 23.3.

(b) In its separate financial statements, a Council that participates in, but does not have joint control of, a joint arrangement shall account for its interest in: (1) A joint operation in accordance with Section 26; and (2) A joint venture in accordance with IPSAS 29, unless the entity

has significant influence over the joint venture, in which case it shall apply Section 23.3.

26.7 Joint Ventures—Transition from Proportionate Consolidation to the

Equity Method (a) A Council shall recognize its investment in the joint venture as at the

beginning of the immediately preceding period when changing from proportionate consolidation to the equity method – That initial investment shall be measured as the aggregate of the carrying amounts of the assets and liabilities that the Council had previously proportionately consolidated, including any purchased goodwill arising from acquisition transactions (guidance on accounting for the acquisition of an entity and the allocation of goodwill to joint ventures can be found in IFRS 3 and joint arrangements).

(b) A Council shall regard as the deemed cost of the investment at initial recognition the opening balance of the investment determined in

(5) Its expenses, including its share of any expenses incurred jointly. (b) A Council joint operator shall account for the assets, liabilities,

revenues and expenses relating to its interest in a joint operation in accordance with the Sections applicable to the particular assets, liabilities, revenues and expenses.

(c) A Council that participates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with (a) and (b) above; 26.4.2 and 26.4.3 if the Council has rights to the assets, and obligations for the liabilities, relating to the joint operation – If a Council participates in but, does not have joint control of a joint operation, does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, shall account for its interest in the joint operation in accordance with the Sections applicable to that interest.

26.4.2 Accounting for Sales or Contributions of Assets to a Joint Operation (a) A Council shall recognize gains and losses resulting from a sale or

contribution of assets, it is conducting with the other parties to a joint operation in which it is a joint operator, only to the extent of the other parties’ interests in the joint operation.

(b) A Council shall recognize full loss when transactions in (a) above provide evidence of a reduction in the net realizable value of the assets to be sold or contributed to the joint operation, or of an impairment loss of those assets.

26.4.3 Accounting for Purchases of Assets from a Joint Operation (a) A Council shall not recognize its share of the gains and losses from

purchase of assets in a joint operation in which it is a joint operator until it resells those assets to a third party.

(b) A Council shall recognize its share of those losses when transactions in (a) above provide evidence of a reduction in the net realizable value of the assets to be purchased or of an impairment loss of those assets.

26.5 Joint Ventures (a) A Council joint venturer shall recognize its interest in a joint venture

as an investment and shall account for that investment using the equity


accordance with (a) above. A Council shall apply IPSAS 36:43-48 to the opening balance of the investment to assess whether the investment is impaired and shall recognize any impairment loss as an adjustment to accumulated surplus or deficit at the beginning of the immediately preceding period.

(c) If aggregating all previously proportionately consolidated assets and liabilities results in negative net assets, a Council shall assess whether it has legal or constructive obligations in relation to the negative net assets and, if so, the Council shall recognize the corresponding liability. If the Council concludes that it does not have legal or constructive obligations in relation to the negative net assets, it shall not recognize the corresponding liability but it shall adjust accumulated surplus or deficit at the beginning of the immediately preceding period. The Council shall disclose this fact, along with its cumulative unrecognized share of losses of its joint ventures as at the beginning of the immediately preceding period and at the date at which this Section is first applied.

(d) A Council shall disclose a breakdown of the assets and liabilities that have been aggregated into the single line investment balance as at the beginning of the immediately preceding period – That disclosure shall be prepared in an aggregated manner for all joint ventures for which a Council applies the transition requirements referred to in (a) – (c).

(e) A Council shall account for its investment in the joint venture, after initial recognition, using the equity method in accordance with Section 25.

26.8 Joint Operations—Transition from the Equity Method to

Accounting for Assets and Liabilities (a) When changing from the equity method to accounting for assets and

liabilities in respect of its interest in a joint operation, a Council shall, at the beginning of the immediately preceding period, derecognize the investment that was previously accounted for using the equity method and any other items that formed part of the Council’s net investment in the arrangement in accordance with IPSAS 36:41 and recognize its share of each of the assets and the liabilities in respect of its interest in the joint operation, including any goodwill that might have formed part of the carrying amount of the investment.


(b) A Council shall determine its interest in the assets and liabilities relating to the joint operation on the basis of its rights and obligations in a specified proportion in accordance with the binding arrangement. A Council measures the initial carrying amounts of the assets and liabilities by disaggregating them from the carrying amount of the investment at the beginning of the immediately preceding period on the basis of the information used by the Council in applying the equity method.

(c) Any difference arising from the investment previously accounted for using the equity method together with any other items that formed part of the Council’s net investment in the arrangement in accordance with IPSAS 36:41 and the net amount of the assets and liabilities, including any goodwill, recognized shall be: (1) Offset against any goodwill relating to the investment with any

remaining difference adjusted against accumulated surplus or deficit at the beginning of the immediately preceding period, if the net amount of the assets and liabilities, including any goodwill, recognized is higher than the investment (and any other items that formed part of the entity’s net investment) derecognized.

(2) Adjusted against accumulated surplus or deficit at the beginning of the immediately preceding period, if the net amount of the assets and liabilities, including any goodwill, recognized is lower than the investment (and any other items that formed part of the Council’s net investment) derecognized.

(d) A Council changing from the equity method to accounting for assets and liabilities shall provide a reconciliation between the investment derecognized, and the assets and liabilities recognized, together with any remaining difference adjusted against accumulated surplus or deficit, at the beginning of the immediately preceding period.

accordance with (a) above. A Council shall apply IPSAS 36:43-48 to the opening balance of the investment to assess whether the investment is impaired and shall recognize any impairment loss as an adjustment to accumulated surplus or deficit at the beginning of the immediately preceding period.

(c) If aggregating all previously proportionately consolidated assets and liabilities results in negative net assets, a Council shall assess whether it has legal or constructive obligations in relation to the negative net assets and, if so, the Council shall recognize the corresponding liability. If the Council concludes that it does not have legal or constructive obligations in relation to the negative net assets, it shall not recognize the corresponding liability but it shall adjust accumulated surplus or deficit at the beginning of the immediately preceding period. The Council shall disclose this fact, along with its cumulative unrecognized share of losses of its joint ventures as at the beginning of the immediately preceding period and at the date at which this Section is first applied.

(d) A Council shall disclose a breakdown of the assets and liabilities that have been aggregated into the single line investment balance as at the beginning of the immediately preceding period – That disclosure shall be prepared in an aggregated manner for all joint ventures for which a Council applies the transition requirements referred to in (a) – (c).

(e) A Council shall account for its investment in the joint venture, after initial recognition, using the equity method in accordance with Section 25.

26.8 Joint Operations—Transition from the Equity Method to

Accounting for Assets and Liabilities (a) When changing from the equity method to accounting for assets and

liabilities in respect of its interest in a joint operation, a Council shall, at the beginning of the immediately preceding period, derecognize the investment that was previously accounted for using the equity method and any other items that formed part of the Council’s net investment in the arrangement in accordance with IPSAS 36:41 and recognize its share of each of the assets and the liabilities in respect of its interest in the joint operation, including any goodwill that might have formed part of the carrying amount of the investment.


SECTION TWENTY SEVEN

27.0 DISCLOSURE OF INTERESTS IN OTHER ENTITIES

27.1 Objective (a) The objective of this Section is to require a Council to disclose

information that enables users of its financial statements to evaluate: (1) The nature of, and risks associated with, its interests in

controlled entities, unconsolidated controlled entities, joint arrangements and associates, and structured entities that are not consolidated; and

(2) The effects of those interests on its financial position, financial performance and cash flows.

(b) A Council shall apply this Section in disclosing information about its interests in controlled entities, unconsolidated controlled entities, joint arrangements and associates, and structured entities that are not consolidated.

27.2 Disclosing Information about Interests in Other Entities (a) To meet the objective in section 27.1, a Council shall disclose:

(1) The significant judgments and assumptions it has made in determining: (i) The nature of its interest in another entity or arrangement; (ii) The type of joint arrangement in which it has an interest

(section 27.3); and (iii) That it meets the definition of an investment entity, if

applicable (section 27.4(a)); and (2) Information about its interests in:

(i) Controlled entities (section 27.5–27.10); (ii) Joint arrangements and associates (section 27.12–27.13); (iii) Structured entities that are not consolidated (section 27.14–

27.17); (iv) Non-quantifiable ownership interests (section 27.18); and (v) Controlling interests acquired with the intention of

disposal (section 27.19). (b) If the disclosures required by this Section, together with disclosures

required by other Sections, do not meet the objective in 27.1, a Council


shall disclose whatever additional information is necessary to meet that objective.

(c) A Council shall consider the level of detail necessary to satisfy the disclosure objective in 27.1 and how much emphasis to place on each of the requirements in this Section – the Council shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have different characteristics: (1) By deciding, in the light of its circumstances, how much detail it

provides to satisfy the information needs of users, how much emphasis it places on different aspects of the requirements and how it aggregates the information, striking a balance between burdening financial statements with excessive detail that may not assist users of financial statements and obscuring information as a result of too much aggregation.

(2) By aggregating the disclosures required by this Section for interests in similar entities if aggregation is consistent with the disclosure objective and the requirement in (3) below, and does not obscure the information provided – the Council shall disclose how it has aggregated its interests in similar entities.

(3) By presenting information separately for interests in: (i) Controlled entities; (ii) Joint ventures; (iii) Joint operations; (iv) Associates; and (v) Structured entities that are not consolidated.

(4) By considering quantitative and qualitative information, in determining whether to aggregate information, about the different risk and benefit characteristics of each entity it is considering for aggregation and the significance of each such entity to the reporting entity, presenting the disclosures in a manner that clearly explains to users of financial statements the nature and extent of its interests in those other entities.

(5) Examples of aggregation levels within the classes of entities set out in (3) above that might be appropriate are: (i) Nature of activities (e.g., a research and development

entity, a revolving credit card securitization entity). (ii) Industry classification.

SECTION TWENTY SEVEN

27.0 DISCLOSURE OF INTERESTS IN OTHER ENTITIES

27.1 Objective (a) The objective of this Section is to require a Council to disclose

information that enables users of its financial statements to evaluate: (1) The nature of, and risks associated with, its interests in

controlled entities, unconsolidated controlled entities, joint arrangements and associates, and structured entities that are not consolidated; and

(2) The effects of those interests on its financial position, financial performance and cash flows.

(b) A Council shall apply this Section in disclosing information about its interests in controlled entities, unconsolidated controlled entities, joint arrangements and associates, and structured entities that are not consolidated.

27.2 Disclosing Information about Interests in Other Entities (a) To meet the objective in section 27.1, a Council shall disclose:

(1) The significant judgments and assumptions it has made in determining: (i) The nature of its interest in another entity or arrangement; (ii) The type of joint arrangement in which it has an interest

(section 27.3); and (iii) That it meets the definition of an investment entity, if

applicable (section 27.4(a)); and (2) Information about its interests in:

(i) Controlled entities (section 27.5–27.10); (ii) Joint arrangements and associates (section 27.12–27.13); (iii) Structured entities that are not consolidated (section 27.14–

27.17); (iv) Non-quantifiable ownership interests (section 27.18); and (v) Controlling interests acquired with the intention of

disposal (section 27.19). (b) If the disclosures required by this Section, together with disclosures

required by other Sections, do not meet the objective in 27.1, a Council


(iii) Geography (e.g., country or region).

27.3 Significant Judgments and Assumptions (a) A Council shall disclose the methodology used to determine:

(1) That it has control of another entity as described in Section 24 and IPSAS 35:18 and 20;

(2) That it has joint control of an arrangement or significant influence over another entity; and

(3) The type of joint arrangement (i.e., joint operation or joint venture) when the arrangement has been structured through a separate vehicle.

(b) A Council shall give the disclosures required by (a) above either in the financial statements or incorporate by cross-reference from the financial statements to some other statement that is available to users of the financial statements on the same terms as the financial statements and at the same time.

(c) A Council shall disclose, in order to comply with (a) above, the factors considered in determining that: (1) It controls a specific entity (or similar category of entities) where

the interest in the other entity is not evidenced by the holding of equity or debt instruments;

(2) It does not control another entity (or category of entities) even though it holds more than half of the voting rights of the other entity (or entities);

(3) It controls another entity (or category of entities) even though it holds less than half of the voting rights of the other entity (or entities);

(4) It is an agent or a principal (see Section 24 and IPSAS 35:AG60–AG74);

(5) It does not have significant influence even though it holds 20 per cent or more of the voting rights of another entity; and

(6) It has significant influence even though it holds less than 20 per cent of the voting rights of another entity.

27.4 Investment Entity Status (a) When a controlling Council determines that it is an investment entity

in accordance with Section 24, the Council shall disclose information


about significant judgments and assumptions it has made in determining that it is an investment entity – an investment entity is not required to disclose this information if it has all of the characteristics in Section 24 and IPSAS 35:16.

(b) When a Council becomes, or ceases to be, an investment entity, it shall disclose the change of investment entity status and the reasons for the change – in addition, a Council that becomes an investment entity shall disclose the effect of the change of status on the financial statements for the period presented, including: (1) The total fair value, as of the date of change of status, of the

controlled entities that cease to be consolidated; (2) The total gain or loss, if any, calculated in accordance with

Section 24 IPSAS 35:63; and (3) The line item(s) in surplus or deficit in which the gain or loss is

recognized (if not presented separately). 27.5 Interests in Controlled Entities (a) A Council shall disclose information that enables users of its

consolidated financial statements: (1) To understand:

(i) The composition of the economic entity; and (ii) The interest that non-controlling interests have in the

economic entity’s activities and cash flows (Section 27.6); and

(2) To evaluate: (i) The nature and extent of significant restrictions on its

ability to access or use assets, and settle liabilities, of the economic entity (Section 27.7);

(ii) The nature of, and changes in, the risks associated with its interests in consolidated structured entities (Section 27.8);

(iii) The consequences of changes in its ownership interest in a controlled entity that do not result in a loss of control (Section 27.9); and

(iv) The consequences of losing control of a controlled entity during the reporting period (Section 27.10).

(b) A Council shall disclose, when the financial statements of a controlled entity used in the preparation of consolidated financial statements are

(iii) Geography (e.g., country or region).

27.3 Significant Judgments and Assumptions (a) A Council shall disclose the methodology used to determine:

(1) That it has control of another entity as described in Section 24 and IPSAS 35:18 and 20;

(2) That it has joint control of an arrangement or significant influence over another entity; and

(3) The type of joint arrangement (i.e., joint operation or joint venture) when the arrangement has been structured through a separate vehicle.

(b) A Council shall give the disclosures required by (a) above either in the financial statements or incorporate by cross-reference from the financial statements to some other statement that is available to users of the financial statements on the same terms as the financial statements and at the same time.

(c) A Council shall disclose, in order to comply with (a) above, the factors considered in determining that: (1) It controls a specific entity (or similar category of entities) where

the interest in the other entity is not evidenced by the holding of equity or debt instruments;

(2) It does not control another entity (or category of entities) even though it holds more than half of the voting rights of the other entity (or entities);

(3) It controls another entity (or category of entities) even though it holds less than half of the voting rights of the other entity (or entities);

(4) It is an agent or a principal (see Section 24 and IPSAS 35:AG60–AG74);

(5) It does not have significant influence even though it holds 20 per cent or more of the voting rights of another entity; and

(6) It has significant influence even though it holds less than 20 per cent of the voting rights of another entity.

27.4 Investment Entity Status (a) When a controlling Council determines that it is an investment entity

in accordance with Section 24, the Council shall disclose information


as of a date or for a period that is different from that of the consolidated financial statements (see Section 24 IPSAS 35:46): (1) The date of the end of the reporting period of the financial

statements of that controlled entity; and (2) The reason for using a different date or period.

27.6 The Interest that Non-controlling Interests have in the Economic

Entity’s Activities and Cash Flows (a) A Council shall disclose for each of its controlled entities that have

non-controlling interests that are material to the reporting entity: (1) The name of the controlled entity; (2) The domicile and legal form of the controlled entity and the

jurisdiction in which it operates; (3) The proportion of ownership interests held by non-controlling

interests; (4) The proportion of voting rights held by non-controlling interests,

if different from the proportion of ownership interests held; (5) The surplus or deficit allocated to non-controlling interests of the

controlled entity during the reporting period; (6) Accumulated non-controlling interests of the controlled entity at

the end of the reporting period; and (7) Summarized financial information about the controlled entity

such as: (i) Dividends or similar distributions paid to non-controlling

interests; and (ii) Summarized financial information about the assets,

liabilities, surplus or deficit and cash flows of the controlled entity that enables users to understand the interest that non-controlling interests have in the economic entity’s activities and cash flows. That information might include but is not limited to, for example, current assets, non-current assets, current liabilities, non-current liabilities, revenue and surplus or deficit.

27.7 The Nature and Extent of Significant Restrictions (a) A Council shall disclose:


(1) Significant restrictions in binding arrangements (e.g., statutory, contractual and regulatory restrictions) on its ability to access or use the assets and settle the liabilities of the economic entity, such as: (i) Those that restrict the ability of a controlling Council or its

controlled entities to transfer cash or other assets to (or from) other entities within the economic entity.

(ii) Guarantees or other requirements that may restrict dividends and other capital distributions being paid, or loans and advances being made or repaid, to (or from) other entities within the economic entity.

(2) The nature and extent to which protective rights of non-controlling interests can significantly restrict the Council’s ability to access or use the assets and settle the liabilities of the economic entity (such as when a controlling Council is obliged to settle liabilities of a controlled entity before settling its own liabilities, or approval of non-controlling interests is required either to access the assets or to settle the liabilities of a controlled entity).

(3) The carrying amounts in the consolidated financial statements of the assets and liabilities to which those restrictions apply.

27.8 Nature of the Risks Associated with a Council’s Interests in

Consolidated Structured Entities (a) A Council shall disclose the terms of any binding arrangements that

could require the controlling Council or its controlled entities to provide financial support to a consolidated structured entity, including events or circumstances that could expose the reporting entity to a loss (e.g., liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or provide financial support).

(b) If during the reporting period a controlling Council or any of its controlled entities has, without having an obligation under a binding arrangement to do so, provided financial or other support to a consolidated structured entity (e.g., purchasing assets of, or instruments issued by, the structured entity), the Council shall disclose:

as of a date or for a period that is different from that of the consolidated financial statements (see Section 24 IPSAS 35:46): (1) The date of the end of the reporting period of the financial

statements of that controlled entity; and (2) The reason for using a different date or period.

27.6 The Interest that Non-controlling Interests have in the Economic

Entity’s Activities and Cash Flows (a) A Council shall disclose for each of its controlled entities that have

non-controlling interests that are material to the reporting entity: (1) The name of the controlled entity; (2) The domicile and legal form of the controlled entity and the

jurisdiction in which it operates; (3) The proportion of ownership interests held by non-controlling

interests; (4) The proportion of voting rights held by non-controlling interests,

if different from the proportion of ownership interests held; (5) The surplus or deficit allocated to non-controlling interests of the

controlled entity during the reporting period; (6) Accumulated non-controlling interests of the controlled entity at

the end of the reporting period; and (7) Summarized financial information about the controlled entity

such as: (i) Dividends or similar distributions paid to non-controlling

interests; and (ii) Summarized financial information about the assets,

liabilities, surplus or deficit and cash flows of the controlled entity that enables users to understand the interest that non-controlling interests have in the economic entity’s activities and cash flows. That information might include but is not limited to, for example, current assets, non-current assets, current liabilities, non-current liabilities, revenue and surplus or deficit.

27.7 The Nature and Extent of Significant Restrictions (a) A Council shall disclose:


(1) The type and amount of support provided, including situations in which the controlling entity or its controlled entities assisted the structured entity in obtaining financial support; and

(2) The reasons for providing the support. (c) If during the reporting period a controlling Council or any of its

controlled entities has, without having an obligation under a binding arrangement to do so, provided financial or other support to a previously unconsolidated structured entity and that provision of support resulted in the Council controlling the structured entity, the Council shall disclose an explanation of the relevant factors in reaching that decision.

(d) A Council shall disclose any current intentions to provide financial or other support to a consolidated structured entity, including intentions to assist the structured entity in obtaining financial support.

27.9 Consequences of Changes in a Controlling Council’s Ownership

Interest in a Controlled Entity that do not Result in a Loss of Control A Council shall present a schedule that shows the effects on the net assets/equity attributable to owners of the controlling Council of any changes in its ownership interest in a controlled entity that do not result in a loss of control. 27.10 Consequences of Losing Control of a Controlled Entity During the

Reporting Period (a) A Council shall disclose the gain or loss, if any, calculated in

accordance with Section 24 and IPSAS 35:52: (1) The portion of that gain or loss attributable to measuring any

investment retained in the former controlled entity at its fair value at the date when control is lost; and

(2) The line item(s) in surplus or deficit in which the gain or loss is recognized (if not presented separately).

27.11 Interests in Unconsolidated Controlled Entities (Investment

Entities) (a) An investment Council that, in accordance with Section 24 is required

to apply the exception to consolidation and instead account for its


investment in a controlled entity at fair value through surplus or deficit shall disclose that fact.

(b) An investment Council shall disclose for each unconsolidated controlled entity,: (1) The controlled entity’s name; (2) The domicile and legal form of the controlled entity and the

jurisdiction in which it operates; and (3) The proportion of ownership interest held by the investment

entity and, if different, the proportion of voting rights held. (c) If an investment Council is the controlling entity of another investment

entity it shall also provide the disclosures in (b) above for investments that are controlled by its controlled investment entity, by including, in its financial statements, the financial statements of the controlled entity (or controlled entities) that contain the above information.

(d) An investment Council shall disclose: (1) The nature and extent of any significant restrictions arising from

binding arrangements (e.g., resulting from borrowing arrangements, regulatory requirements or contractual arrangements) on the ability of an unconsolidated controlled entity to transfer funds to the investment Council in the form of cash dividends, or similar distributions, or to repay loans or advances made to the unconsolidated controlled entity by the investment Council; and

(2) Any current commitments or intentions to provide financial or other support to an unconsolidated controlled entity, including commitments or intentions to assist the controlled entity in obtaining financial support.

(e) If, during the reporting period, an investment Council or any of its controlled entities has, without having an obligation arising from a binding arrangement to do so, provided financial or other support to an unconsolidated controlled entity (e.g., purchasing assets of, or instruments issued by, the controlled entity or assisting the controlled entity in obtaining financial support), the Council shall disclose: (1) The type and amount of support provided to each

unconsolidated controlled entity; and

(1) The type and amount of support provided, including situations in which the controlling entity or its controlled entities assisted the structured entity in obtaining financial support; and

(2) The reasons for providing the support. (c) If during the reporting period a controlling Council or any of its

controlled entities has, without having an obligation under a binding arrangement to do so, provided financial or other support to a previously unconsolidated structured entity and that provision of support resulted in the Council controlling the structured entity, the Council shall disclose an explanation of the relevant factors in reaching that decision.

(d) A Council shall disclose any current intentions to provide financial or other support to a consolidated structured entity, including intentions to assist the structured entity in obtaining financial support.

27.9 Consequences of Changes in a Controlling Council’s Ownership

Interest in a Controlled Entity that do not Result in a Loss of Control A Council shall present a schedule that shows the effects on the net assets/equity attributable to owners of the controlling Council of any changes in its ownership interest in a controlled entity that do not result in a loss of control. 27.10 Consequences of Losing Control of a Controlled Entity During the

Reporting Period (a) A Council shall disclose the gain or loss, if any, calculated in

accordance with Section 24 and IPSAS 35:52: (1) The portion of that gain or loss attributable to measuring any

investment retained in the former controlled entity at its fair value at the date when control is lost; and

(2) The line item(s) in surplus or deficit in which the gain or loss is recognized (if not presented separately).

27.11 Interests in Unconsolidated Controlled Entities (Investment

Entities) (a) An investment Council that, in accordance with Section 24 is required

to apply the exception to consolidation and instead account for its


(2) The reasons for providing the support. (f) An investment Council shall disclose the terms of any binding

arrangements that could require the entity or its unconsolidated controlled entities to provide financial support to an unconsolidated, controlled, structured entity, including events or circumstances that could expose the reporting entity to a loss (e.g., liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or to provide financial support).

(g) If during the reporting period an investment Council or any of its unconsolidated controlled entities has, without having an obligation arising from a binding arrangement to do so, provided financial or other support to an unconsolidated, structured entity that the investment Council did not control, and if that provision of support resulted in the investment Council controlling the structured entity, the investment entity shall disclose an explanation of the relevant factors in reaching the decision to provide that support.

(h) A controlling Council that controls an investment entity and is not itself an investment entity, shall disclose in its consolidated financial statements, the information required by paragraphs (a) to (g) above in respect of such unconsolidated controlled entities.

27.12 Interests in Joint Arrangements and Associates (a) A Council shall disclose information that enables users of its financial

statements to evaluate: (1) The nature, extent and financial effects of its interests in joint

arrangements and associates, including the nature and effects of its relationship with the other investors with joint control of, or significant influence over, joint arrangements and associates (Sections 27.13 (a) and (c)); and

(2) The nature of, and changes in, the risks associated with its interests in joint ventures and associates (Section 27.14).


27.13 Nature, Extent and Financial Effects of a Council’s Interests in Joint Arrangements and Associates

(a) A Council shall disclose: (1) For each joint arrangement and associate that is material to the

reporting Council: (i) The name of the joint arrangement or associate; (ii) The nature of the Council’s relationship with the joint

arrangement or associate (by, for example, describing the nature of the activities of the joint arrangement or associate and whether they are strategic to the Council’s activities);

(iii) The domicile and legal form of the joint arrangement or associate and the jurisdiction in which it operates; and

(iv) The proportion of ownership interest or participating share held by the Council and, if different, the proportion of voting rights held (if applicable).

(2) For each joint venture and associate that is material to the reporting Council: (i) Whether the investment in the joint venture or associate is

measured using the equity method or at fair value; (ii) Dividends or similar distributions received from the joint

venture or associate; and (iii) The basis on which the summarized financial information

has been prepared. (iv) Summarized financial information for the joint venture or

associate including, but not necessarily limited to: • Current assets; • Non-current assets; • Current liabilities; • Non-current liabilities; • Revenue; • Tax expense; • Pre-tax gain or loss recognized on the disposal of

assets or settlement of liabilities attributable to discontinuing operations; and

• Surplus or deficit.

(2) The reasons for providing the support. (f) An investment Council shall disclose the terms of any binding

arrangements that could require the entity or its unconsolidated controlled entities to provide financial support to an unconsolidated, controlled, structured entity, including events or circumstances that could expose the reporting entity to a loss (e.g., liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or to provide financial support).

(g) If during the reporting period an investment Council or any of its unconsolidated controlled entities has, without having an obligation arising from a binding arrangement to do so, provided financial or other support to an unconsolidated, structured entity that the investment Council did not control, and if that provision of support resulted in the investment Council controlling the structured entity, the investment entity shall disclose an explanation of the relevant factors in reaching the decision to provide that support.

(h) A controlling Council that controls an investment entity and is not itself an investment entity, shall disclose in its consolidated financial statements, the information required by paragraphs (a) to (g) above in respect of such unconsolidated controlled entities.

27.12 Interests in Joint Arrangements and Associates (a) A Council shall disclose information that enables users of its financial

statements to evaluate: (1) The nature, extent and financial effects of its interests in joint

arrangements and associates, including the nature and effects of its relationship with the other investors with joint control of, or significant influence over, joint arrangements and associates (Sections 27.13 (a) and (c)); and

(2) The nature of, and changes in, the risks associated with its interests in joint ventures and associates (Section 27.14).


(v) If the joint venture or associate is accounted for using the equity method, the fair value of its investment in the joint venture or associate, if there is a quoted market price for the investment.

(3) In addition to the summarized financial information required by (2) above, a Council shall disclose for each joint venture that is material to the reporting entity the amount of: (i) Cash and cash equivalents; (ii) Current financial liabilities (excluding taxes and transfers

payable, payables under exchange transactions and provisions);

(iii) Non-current financial liabilities (excluding taxes and transfers payable, payables under exchange transactions and provisions);

(iv) Depreciation and amortization; (v) Interest revenue; (vi) Interest expense; and (vii) Income tax expense.

(4) The summarized financial information presented in accordance with (2) and (3) shall be the amounts included in the IPSAS financial statements of the joint venture or associate (and not the Council’s share of those amounts) – if the Council accounts for its interest in the joint venture or associate using the equity method: (i) The amounts included in the IPSAS financial statements of

the joint venture or associate shall be adjusted to reflect adjustments made by the Council when using the equity method, such as fair value adjustments made at the time of acquisition and adjustments for differences in accounting policies.

(ii) The entity shall provide a reconciliation of the summarized financial information presented to the carrying amount of its interest in the joint venture or associate.

(5) A Council may present the summarized financial information required by (2) and (3) on the basis of the joint venture's or associate's financial statements if: (i) The Council measures its interest in the joint venture or

associate at fair value in accordance with Section 25; and


(ii) The joint venture or associate does not prepare IPSAS financial statements and preparation on that basis would be impracticable or cause undue cost.

(6) Financial information, disclosed separately from the aggregated information on joint ventures, about the Council’s investments in joint ventures and associates that are not individually material: (i) The carrying amount of its interests in all individually

immaterial joint ventures or associates that are accounted for using the equity method;

(ii) Revenue. (iii) Tax expense. (iv) Pre-tax gain or loss recognized on the disposal of assets or

settlement of liabilities attributable to discontinuing operations.

(v) Surplus or deficit. A Council shall provide the disclosures separately for joint ventures and associates.

(b) An investment Council need not provide the disclosures required by (a) above.

(c) A Council shall also disclose: (1) The nature and extent of any significant restrictions (e.g.,

resulting from borrowing arrangements, regulatory requirements or binding arrangements between investors with joint control of, or significant influence over, a joint venture or an associate) on the ability of joint ventures or associates to transfer funds to the Council in the form of cash dividends or similar distributions, or to repay loans or advances made by the entity.

(2) When the financial statements of a joint venture or associate used in applying the equity method are as of a date or for a period that is different from that of the Council: (i) The date of the end of the reporting period of the financial

statements of that joint venture or associate; and (ii) The reason for using a different date or period.

(3) The unrecognized share of losses of a joint venture or associate, both for the reporting period and cumulatively, if the Council

(v) If the joint venture or associate is accounted for using the equity method, the fair value of its investment in the joint venture or associate, if there is a quoted market price for the investment.

(3) In addition to the summarized financial information required by (2) above, a Council shall disclose for each joint venture that is material to the reporting entity the amount of: (i) Cash and cash equivalents; (ii) Current financial liabilities (excluding taxes and transfers

payable, payables under exchange transactions and provisions);

(iii) Non-current financial liabilities (excluding taxes and transfers payable, payables under exchange transactions and provisions);

(iv) Depreciation and amortization; (v) Interest revenue; (vi) Interest expense; and (vii) Income tax expense.

(4) The summarized financial information presented in accordance with (2) and (3) shall be the amounts included in the IPSAS financial statements of the joint venture or associate (and not the Council’s share of those amounts) – if the Council accounts for its interest in the joint venture or associate using the equity method: (i) The amounts included in the IPSAS financial statements of

the joint venture or associate shall be adjusted to reflect adjustments made by the Council when using the equity method, such as fair value adjustments made at the time of acquisition and adjustments for differences in accounting policies.

(ii) The entity shall provide a reconciliation of the summarized financial information presented to the carrying amount of its interest in the joint venture or associate.

(5) A Council may present the summarized financial information required by (2) and (3) on the basis of the joint venture's or associate's financial statements if: (i) The Council measures its interest in the joint venture or

associate at fair value in accordance with Section 25; and


has stopped recognizing its share of losses of the joint venture or associate when applying the equity method.

27.14 Risks Associated with a Council’s Interests in Joint Ventures and

Associates A Council shall disclose: (a) Commitments that it has relating to its joint ventures separately from

the amount of other commitments: (1) A Council shall disclose total commitments it has made but not

recognized at the reporting date (including its share of commitments made jointly with other investors with joint control of a joint venture) relating to its interests in joint ventures – commitments are those that may give rise to a future outflow of cash or other resources.

(2) Unrecognized commitments that may give rise to a future outflow of cash or other resources include: (i) Unrecognized commitments to contribute funding or

resources as a result of, for example: • The constitution or acquisition agreements of a joint

venture (that, for example, require a Council to contribute funds over a specific period).

• Capital-intensive projects undertaken by a joint venture.

• Unconditional purchase obligations, comprising procurement of equipment, inventory or services that an entity is committed to purchasing from, or on behalf of, a joint venture.

• Unrecognized commitments to provide loans or other financial support to a joint venture.

• Unrecognized commitments to contribute resources to a joint venture, such as assets or services.

• Other non-cancellable unrecognized commitments relating to a joint venture.

(ii) Unrecognized commitments to acquire another party’s ownership interest (or a portion of that ownership interest) in a joint venture if a particular event occurs or does not occur in the future.


(3) The requirements and examples in (1) and (2) illustrate some of the types of disclosure required by IPSAS 20:27, Related Party Disclosures.

(b) In accordance with IPSAS 19, Provisions, Contingent Liabilities and Contingent Assets, unless the probability of loss is remote, contingent liabilities incurred relating to its interests in joint ventures or associates (including its share of contingent liabilities incurred jointly with other investors with joint control of, or significant influence over, the joint ventures or associates), separately from the amount of other contingent liabilities.

27.15 Interests in Structured Entities that are not Consolidated (a) A Council shall disclose information that enables users of its financial

statements: (1) To understand the nature and extent of its interests in structured

entities that are not consolidated (section 27.16); and (2) To evaluate the nature of, and changes in, the risks associated

with its interests in structured entities that are not consolidated (section 27.17).

(b) The information required by (a)(2) above includes information about a Council’s exposure to risk from involvement that it had with structured entities that are not consolidated in previous periods (e.g., sponsoring the structured entity), even if the Council no longer has any involvement by way of binding arrangement with the structured entity at the reporting date.

(c) An investment Council need not provide the disclosures required by (a) above for a structured entity that it controls but which is not consolidated, and for which it presents the disclosures required by section 27.11.

27.16 Nature of Interests (a) A Council shall disclose qualitative and quantitative information

about its interests in structured entities that are not consolidated, including, but not limited to, the nature, purpose, size and activities of the structured entity and how the structured entity is financed.

(b) If a Council has sponsored a structured entity that is not consolidated for which it does not provide information required by 27.17(a) (e.g.,

has stopped recognizing its share of losses of the joint venture or associate when applying the equity method.

27.14 Risks Associated with a Council’s Interests in Joint Ventures and

Associates A Council shall disclose: (a) Commitments that it has relating to its joint ventures separately from

the amount of other commitments: (1) A Council shall disclose total commitments it has made but not

recognized at the reporting date (including its share of commitments made jointly with other investors with joint control of a joint venture) relating to its interests in joint ventures – commitments are those that may give rise to a future outflow of cash or other resources.

(2) Unrecognized commitments that may give rise to a future outflow of cash or other resources include: (i) Unrecognized commitments to contribute funding or

resources as a result of, for example: • The constitution or acquisition agreements of a joint

venture (that, for example, require a Council to contribute funds over a specific period).

• Capital-intensive projects undertaken by a joint venture.

• Unconditional purchase obligations, comprising procurement of equipment, inventory or services that an entity is committed to purchasing from, or on behalf of, a joint venture.

• Unrecognized commitments to provide loans or other financial support to a joint venture.

• Unrecognized commitments to contribute resources to a joint venture, such as assets or services.

• Other non-cancellable unrecognized commitments relating to a joint venture.

(ii) Unrecognized commitments to acquire another party’s ownership interest (or a portion of that ownership interest) in a joint venture if a particular event occurs or does not occur in the future.


because it does not have an interest in the entity at the reporting date), the Council shall disclose: (1) How it has determined which structured entities it has

sponsored; (2) Revenue from those structured entities during the reporting

period, including a description of the types of revenue presented; and

(3) The carrying amount (at the time of transfer) of all assets transferred to those structured entities during the reporting period.

(c) A Council shall present the information in (b)(2) and (3) above in tabular format, unless another format is more appropriate, and classify its sponsoring activities into relevant categories (see section 27.2 (c)(1-2)).

27.17 Nature of Risks (a) A Council shall disclose in tabular format, unless another format is

more appropriate, a summary of: (1) The carrying amounts of the assets and liabilities recognized in

its financial statements relating to its interests in structured entities that are not consolidated;

(2) The line items in the statement of financial position in which those assets and liabilities are recognized;

(3) The amount that best represents the Council’s maximum exposure to loss from its interests in structured entities that are not consolidated, including how the maximum exposure to loss is determined. If an entity cannot quantify its maximum exposure to loss from its interests in structured entities that are not consolidated it shall disclose that fact and the reasons; and

(4) A comparison of the carrying amounts of the assets and liabilities of the Council that relate to its interests in structured entities that are not consolidated and the Council’s maximum exposure to loss from those entities.

(b) A Council shall disclose, if during the reporting period it has, without having an obligation under a binding arrangement to do so, provided financial or other support to a structured entity that is not consolidated in which it previously had or currently has an interest (for example, purchasing assets of, or instruments issued by, the structured entity):


(1) The type and amount of support provided, including situations in which the entity assisted the structured entity in obtaining financial support; and

(2) The reasons for providing the support. (c) A Council shall disclose any current intentions to provide financial or

other support to a structured entity that is not consolidated, including intentions to assist the structured entity in obtaining financial support – such current intentions include intentions to provide support as a result of obligations under binding arrangements and intentions to provide support where the Council has no obligation under a binding arrangement.

27.18 Non-quantifiable Ownership Interests

(a) 49. An entity shall disclose information that enables users of its financial statements to understand the nature and extent of any non-quantifiable ownership interests in other entities.

(b) 50. To the extent that this information has not already been provided in accordance with this Standard, an entity shall disclose, in respect of each non-quantifiable ownership interest that is material to the reporting entity: (a) The name of the entity in which it has an ownership interest; and

(c) The nature of its ownership interest in the entity. 27.19 Controlling Interests Acquired with the Intention of Disposal (a) A Council, other than an investment Council, shall disclose

information regarding its interest in a controlled entity when, at the point at which control arose, the Council had the intention of disposing of that interest and, at the reporting date, it has an active intention to dispose of that interest.

(b) A Council shall disclose the following information in the notes in respect of each controlled entity referred to in (a) above: (1) The name of the controlled entity and a description of its key

activities; (2) The rationale for the acquisition of the controlling interest and

the factors considered in determining that control exists;

because it does not have an interest in the entity at the reporting date), the Council shall disclose: (1) How it has determined which structured entities it has

sponsored; (2) Revenue from those structured entities during the reporting

period, including a description of the types of revenue presented; and

(3) The carrying amount (at the time of transfer) of all assets transferred to those structured entities during the reporting period.

(c) A Council shall present the information in (b)(2) and (3) above in tabular format, unless another format is more appropriate, and classify its sponsoring activities into relevant categories (see section 27.2 (c)(1-2)).

27.17 Nature of Risks (a) A Council shall disclose in tabular format, unless another format is

more appropriate, a summary of: (1) The carrying amounts of the assets and liabilities recognized in

its financial statements relating to its interests in structured entities that are not consolidated;

(2) The line items in the statement of financial position in which those assets and liabilities are recognized;

(3) The amount that best represents the Council’s maximum exposure to loss from its interests in structured entities that are not consolidated, including how the maximum exposure to loss is determined. If an entity cannot quantify its maximum exposure to loss from its interests in structured entities that are not consolidated it shall disclose that fact and the reasons; and

(4) A comparison of the carrying amounts of the assets and liabilities of the Council that relate to its interests in structured entities that are not consolidated and the Council’s maximum exposure to loss from those entities.

(b) A Council shall disclose, if during the reporting period it has, without having an obligation under a binding arrangement to do so, provided financial or other support to a structured entity that is not consolidated in which it previously had or currently has an interest (for example, purchasing assets of, or instruments issued by, the structured entity):


(3) The impact on the consolidated financial statements of consolidating the controlled entity including the effect on assets, liabilities, revenue, expenses and net assets/equity; and

(4) The current status of the approach to disposal, including the expected method and timing of disposal.

(c) A Council shall provide the disclosures required by (b) above at each reporting date until the Council disposes of the controlling interest or ceases to have the intention to dispose of that interest. In the period in which the Council disposes of the controlling interest or ceases to have the intention to dispose of the controlling interest it shall disclose: (1) The fact that there has been a disposal or change of intention; and (2) The effect of the disposal or change of intention on the

consolidated financial statements. (d) Where other disclosures required by this Section or other Sections or

IPSASs would provide information relevant to (b) or (c) above, a cross-reference to those other disclosures shall be provided.


SECTION TWENTY EIGHT

28.0 PUBLIC SECTOR COMBINATIONS

28.1 Objective (a) The objective of this Section is to improve the relevance, faithful

representativeness and comparability of the information that a reporting entity provides in its financial statements about a public sector combination and its effects – A Council shall seek more guidance in IPSAS 40.

(b) To accomplish the above, this Section establishes principles and requirements for how: (1) A reporting entity classifies a public sector combination as an

amalgamation or an acquisition; (2) A resulting entity recognizes and measures in its financial

statements the identifiable assets received, the liabilities assumed and any non-controlling interest in an amalgamation;

(3) A resulting entity recognizes and measures components of net assets/equity and other adjustments recognized in an amalgamation;

(4) An acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired operation;

(5) An acquirer recognizes and measures the goodwill acquired in, or the gain or loss arising from, an acquisition; and

(6) A reporting entity determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a public sector combination.

(c) A Council, LLG or SPF shall apply this Section in accounting for a transaction or other event that meets the definition of a public sector combinations.

28.2 Identifying a public sector combination A Council, LLG or SPF shall determine whether a transaction or other event is a public sector combination by applying the definitions in IPSAS 40, which requires that the assets and liabilities constitute an operation – If the assets and liabilities do not constitute an operation, the entity shall account for the transaction or other event in accordance with other Sections.

(3) The impact on the consolidated financial statements of consolidating the controlled entity including the effect on assets, liabilities, revenue, expenses and net assets/equity; and

(4) The current status of the approach to disposal, including the expected method and timing of disposal.

(c) A Council shall provide the disclosures required by (b) above at each reporting date until the Council disposes of the controlling interest or ceases to have the intention to dispose of that interest. In the period in which the Council disposes of the controlling interest or ceases to have the intention to dispose of the controlling interest it shall disclose: (1) The fact that there has been a disposal or change of intention; and (2) The effect of the disposal or change of intention on the

consolidated financial statements. (d) Where other disclosures required by this Section or other Sections or

IPSASs would provide information relevant to (b) or (c) above, a cross-reference to those other disclosures shall be provided.


28.3 Classification of public sector combinations (a) If no party to a public sector combination gains control of one or more

operations as a result of the combination, the combination shall be classified as an amalgamation.

(b) If one party to a public sector combination gains control of one or more operations as a result of the combination, a Council, LLG or SPF shall consider the economic substance of the combination in classifying the combination as either an amalgamation or an acquisition – A combination in which one party gains control of one or more operations shall be classified as an acquisition, unless it has the economic substance of an amalgamation.

(c) In determining the classification of the public sector combination, a Council, LLG or SPF shall consider whether the resulting accounting treatment of the combination provides information that meets the objectives of financial reporting and that satisfies the qualitative characteristics (QCs) – To assess the economic substance of the combination, an entity considers the indicators relating to consideration and to the decision-making process in IPSAS 40:12–13, individually or in combination.

(d) A Council, LLG or SPF shall, in exceptional circumstances, after applying the indicators in IPSAS 40:12–13 and the results are inconclusive or not providing sufficient evidence about the economic substance of the public sector combination, consider which classification would provide information that best meets the objectives of financial reporting and that best satisfies the QCs.

28.4 Accounting for amalgamations (a) A resulting entity shall account for each amalgamation by applying the

modified pooling of interests method of accounting. (b) Applying the modified pooling of interests method of accounting

requires: (1) Identifying the resulting entity – the entity that is the result of

two or more operations combining in an amalgamation; (2) Determining the amalgamation date – which is the date on

which it obtains control of the combining operations;


(3) Recognizing and measuring the identifiable assets received, the liabilities assumed and any non-controlling interest in the combining operations, consistent with the requirements in IPSAS 40: 22-23 and other IPSASs; and

(4) Recognizing and measuring the components of net assets/equity and other adjustments from an amalgamation.

28.4.1 Classifying or designating assets and liabilities in an amalgamation At the amalgamation date, the resulting entity shall classify or designate the assets and liabilities received in an amalgamation using the classifications or designations previously applied by the combining operations – A resulting entity shall not adopt different classifications or designations on initial recognition, even if this is permitted by other IPSASs. 28.4.2 Measurement principle (a) The resulting entity shall measure the identifiable assets and liabilities

of the combining operations at their carrying amounts in the financial statements of the combining operations as of the amalgamation date, subject to the requirements of (b) below.

(b) As of the amalgamation date, the resulting entity shall adjust the carrying amounts of the identifiable assets and liabilities of the combining operations where required to conform to the resulting entity's accounting policies.

(c) The resulting entity shall measure any non-controlling interests in a combining operation at their carrying amounts in the financial statements of that combining operation as of the amalgamation date, adjusted for the non-controlling interests’ proportionate share of the adjustments made in accordance with (b) above.

(d) IPSAS 40:32–35 provides limited exceptions to recognition and measurement principles, specifying both the particular items for which exceptions are provided and the nature of those exceptions – The resulting entity shall account for those items by applying the requirements in paragraphs, which will result in some items being: (1) Recognized either by applying recognition conditions in

addition to those in IPSAS 40: 22-23 or by applying the requirements of other IPSASs, with results that differ from applying the recognition principle and conditions.

28.3 Classification of public sector combinations (a) If no party to a public sector combination gains control of one or more

operations as a result of the combination, the combination shall be classified as an amalgamation.

(b) If one party to a public sector combination gains control of one or more operations as a result of the combination, a Council, LLG or SPF shall consider the economic substance of the combination in classifying the combination as either an amalgamation or an acquisition – A combination in which one party gains control of one or more operations shall be classified as an acquisition, unless it has the economic substance of an amalgamation.

(c) In determining the classification of the public sector combination, a Council, LLG or SPF shall consider whether the resulting accounting treatment of the combination provides information that meets the objectives of financial reporting and that satisfies the qualitative characteristics (QCs) – To assess the economic substance of the combination, an entity considers the indicators relating to consideration and to the decision-making process in IPSAS 40:12–13, individually or in combination.

(d) A Council, LLG or SPF shall, in exceptional circumstances, after applying the indicators in IPSAS 40:12–13 and the results are inconclusive or not providing sufficient evidence about the economic substance of the public sector combination, consider which classification would provide information that best meets the objectives of financial reporting and that best satisfies the QCs.

28.4 Accounting for amalgamations (a) A resulting entity shall account for each amalgamation by applying the

modified pooling of interests method of accounting. (b) Applying the modified pooling of interests method of accounting

requires: (1) Identifying the resulting entity – the entity that is the result of

two or more operations combining in an amalgamation; (2) Determining the amalgamation date – which is the date on

which it obtains control of the combining operations;


(2) Measured at an amount other than their amalgamation date carrying amounts.

28.4.3 Recognizing and measuring components of net assets/equity arising

as a result of an amalgamation (a) An amalgamation does not give rise to goodwill. (b) The resulting entity shall recognize within net assets/equity amounts

equal and opposite to the following items: (1) The carrying amounts of the combining operations’ assets; (2) The carrying amounts of the combining operations’ liabilities;

and (3) The carrying amounts of the combining operations’ non-

controlling interests. (c) The resulting entity shall recognize within net assets/equity the

corresponding adjustments in respect of: (1) The elimination of transactions between combining entities in

accordance with IPSAS 40:22; (2) Adjustments made to the carrying amounts of the identifiable

assets and liabilities of the combining operations where required to conform to the resulting entity's accounting policies, in accordance with IPSAS 40:27; and

(3) Adjustments made in respect of the exceptions to the recognition and/or measurement principles, in accordance with IPSAS 40:32–35.

(d) The resulting entity may present the amounts recognized within net assets/equity in accordance with (b) and (c) above as either: (1) A single opening balance; or (2) As separate components of net assets/equity.

28.4.4 Measurement period (a) If the initial accounting for an amalgamation is incomplete by the end

of the reporting period in which the amalgamation occurs, the resulting entity shall report in its financial statements provisional amounts for the items for which the accounting is incomplete.

(b) During the measurement period, the resulting entity shall retrospectively adjust the provisional amounts recognized at the amalgamation date to reflect new information obtained about facts


and circumstances that existed as of the amalgamation date and, if known, would have affected the measurement of the amounts recognized as of that date.

(c) During the measurement period, the resulting entity shall also recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the amalgamation date and, if known, would have resulted in the recognition of those assets and liabilities as of that date.

(d) The measurement period ends as soon as the resulting entity receives the information it was seeking about facts and circumstances that existed as of the amalgamation date or learns that more information is not obtainable. However, the measurement period shall not exceed one year from the amalgamation date.

(e) After the measurement period ends, the resulting entity shall revise the accounting for an amalgamation only to correct an error in accordance with IPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors.

28.4.5 Presentation of financial statements (a) Except where a resulting entity is not a new entity following a public

sector combination, the resulting entity’s first set of financial statements following the amalgamation shall comprise: (1) An opening statement of financial position as of the

amalgamation date; (2) A statement of financial position as at the reporting date; (3) A statement of financial performance for the period from the

amalgamation date to the reporting date; (4) A statement of changes in net assets/equity for the period from

the amalgamation date to the reporting date; (5) A cash flow statement for the period from the amalgamation

date to the reporting date; (6) If the entity makes publicly available its approved budget, a

comparison of budget and actual amounts for the period from the amalgamation date to the reporting date, either as a separate additional financial statement or as a budget column in the financial statements; and

(7) Notes, comprising a summary of significant accounting policies and other explanatory notes.

(2) Measured at an amount other than their amalgamation date carrying amounts.

28.4.3 Recognizing and measuring components of net assets/equity arising

as a result of an amalgamation (a) An amalgamation does not give rise to goodwill. (b) The resulting entity shall recognize within net assets/equity amounts

equal and opposite to the following items: (1) The carrying amounts of the combining operations’ assets; (2) The carrying amounts of the combining operations’ liabilities;

and (3) The carrying amounts of the combining operations’ non-

controlling interests. (c) The resulting entity shall recognize within net assets/equity the

corresponding adjustments in respect of: (1) The elimination of transactions between combining entities in

accordance with IPSAS 40:22; (2) Adjustments made to the carrying amounts of the identifiable

assets and liabilities of the combining operations where required to conform to the resulting entity's accounting policies, in accordance with IPSAS 40:27; and

(3) Adjustments made in respect of the exceptions to the recognition and/or measurement principles, in accordance with IPSAS 40:32–35.

(d) The resulting entity may present the amounts recognized within net assets/equity in accordance with (b) and (c) above as either: (1) A single opening balance; or (2) As separate components of net assets/equity.

28.4.4 Measurement period (a) If the initial accounting for an amalgamation is incomplete by the end

of the reporting period in which the amalgamation occurs, the resulting entity shall report in its financial statements provisional amounts for the items for which the accounting is incomplete.

(b) During the measurement period, the resulting entity shall retrospectively adjust the provisional amounts recognized at the amalgamation date to reflect new information obtained about facts


(b) Where a resulting entity is not a new entity following a public sector combination, the resulting entity shall disclose: (1) The amounts recognized of each major class of assets and

liabilities, and components of net assets/equity from combining operations included in the resulting entity;

(2) Any adjustments made to components of net assets/equity where required to conform the accounting policies of the combining operations with those of the resulting entity; and

(3) Any adjustments made to eliminate transactions between the combining operations.

28.4.6 Disclosures (a) The resulting entity shall disclose information that enables users of its

financial statements to evaluate the nature and financial effect of an amalgamation.

(b) To meet the objective in (a) above, the resulting entity shall disclose the following information for each amalgamation that occurs during the reporting period: (1) The name and a description of each combining operation. (2) The amalgamation date. (3) The primary reasons for the amalgamation including, where

applicable, the legal basis for the amalgamation. (4) The amounts recognized as of the amalgamation date for each

major class of assets and liabilities transferred. (5) The adjustments made to the carrying amounts of assets and

liabilities recorded by each combining operation as of the amalgamation date: (i) To eliminate the effect of transactions between combining

operations in accordance with IPSAS 40:22; and (ii) To conform to the resulting entity's accounting policies in

accordance with IPSAS 40:27. (6) An analysis of net assets/equity, including any components that

are presented separately, and any significant adjustments such as revaluation surpluses or deficits, recognized in accordance with IPSAS 40:37–38.

(7) If a resulting entity elects to present financial statements for periods prior to the amalgamation date in accordance with


IPSAS 40:52, the resulting entity shall disclose the following information for each combining operation: (i) A statement of financial position as at the end of the prior

period(s); (ii) A statement of financial performance for the prior

period(s); (iii) A statement of changes in net assets/equity for the prior

period(s); (iv) A cash flow statement for the prior period(s); and (v) Notes, comprising a summary of significant accounting

policies and other explanatory notes. The resulting entity shall not restate this information, but shall disclose the information on the same basis as used in the combining operations’ financial statements. The resulting entity shall disclose the basis on which this information is presented.

(8) If, at the time the financial statements of the resulting entity are authorized for issue, the last reporting date of any of the combining operations does not immediately precede the amalgamation date, the resulting entity shall disclose the following information: (i) The amounts of revenue and expense, and the surplus or

deficit of each combining operation from the last reporting date of the combining operations until the amalgamation date. The amounts of revenue shall be analyzed in a manner appropriate to the entity’s operations, in accordance with IPSAS 1:108, Presentation of Financial Statements. The amounts of expense shall be analyzed using a classification based on either the nature of expenses or their function within the entity, whichever provides information that is faithfully representative and more relevant, in accordance with IPSAS 1:109.

(ii) The amounts reported by each combining operation immediately prior to the amalgamation date for each major class of assets and liabilities.

(iii) The amounts reported by each combining operation immediately prior to the amalgamation date in net assets/equity.

(b) Where a resulting entity is not a new entity following a public sector combination, the resulting entity shall disclose: (1) The amounts recognized of each major class of assets and

liabilities, and components of net assets/equity from combining operations included in the resulting entity;

(2) Any adjustments made to components of net assets/equity where required to conform the accounting policies of the combining operations with those of the resulting entity; and

(3) Any adjustments made to eliminate transactions between the combining operations.

28.4.6 Disclosures (a) The resulting entity shall disclose information that enables users of its

financial statements to evaluate the nature and financial effect of an amalgamation.

(b) To meet the objective in (a) above, the resulting entity shall disclose the following information for each amalgamation that occurs during the reporting period: (1) The name and a description of each combining operation. (2) The amalgamation date. (3) The primary reasons for the amalgamation including, where

applicable, the legal basis for the amalgamation. (4) The amounts recognized as of the amalgamation date for each

major class of assets and liabilities transferred. (5) The adjustments made to the carrying amounts of assets and

liabilities recorded by each combining operation as of the amalgamation date: (i) To eliminate the effect of transactions between combining

operations in accordance with IPSAS 40:22; and (ii) To conform to the resulting entity's accounting policies in

accordance with IPSAS 40:27. (6) An analysis of net assets/equity, including any components that

are presented separately, and any significant adjustments such as revaluation surpluses or deficits, recognized in accordance with IPSAS 40:37–38.

(7) If a resulting entity elects to present financial statements for periods prior to the amalgamation date in accordance with


(c) The resulting entity shall disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognized in the current reporting period that relate to amalgamations that occurred in the period or previous reporting periods.

(d) To meet the objective in (c) above, the resulting entity shall disclose the following information: (1) If the initial accounting for an amalgamation is incomplete (see

IPSAS 40:40) for particular assets or liabilities, and the amounts recognized in the financial statements for the amalgamation thus have been determined only provisionally: (i) The reasons why the initial accounting for the

amalgamation is incomplete; (ii) The assets or liabilities for which the initial accounting is

incomplete; and (iii) The nature and amount of any measurement period

adjustments recognized during the reporting period in accordance with IPSAS 40:43.

(2) If amounts of tax due are forgiven as a result of the terms of the amalgamation (see IPSAS 40:33–34): (i) The amount of tax due that was forgiven; and (ii) Where the resulting entity is the tax authority, details of

the adjustment made to tax receivable. (e) If the specific disclosures required by this Section and other IPSASs do

not meet the objectives set out in (a) and (c) above, the resulting entity shall disclose whatever additional information is necessary to meet those objectives.

28.5 Accounting for acquisitions (a) An acquirer shall account for each acquisition by applying the

acquisition method of accounting. (b) Applying the acquisition method of accounting requires:

(1) Identifying the acquirer – the party to the combination that gains control of one or more operations shall be identified as the acquirer;

(2) Determining the acquisition date – which is the date on which the acquirer obtains control of the acquired operation;


(3) Recognizing and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired operation – As of the acquisition date, the acquirer shall recognize, separately from any goodwill recognized, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired operation. Recognition of identifiable assets acquired and liabilities assumed is subject to the conditions specified in IPSAS 40:65 and 66.; and

(4) Recognizing and measuring goodwill, a gain or a loss from an acquisition.

(c) At the acquisition date, the acquirer shall classify or designate the identifiable assets acquired and liabilities assumed as necessary to subsequently apply other Sections and IPSASs – The acquirer shall make those classifications or designations on the basis of the terms of the binding arrangement (including contractual terms), economic conditions, its operating or accounting policies and other pertinent conditions as they exist at the acquisition date.

(d) The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values.

(e) For each acquisition, the acquirer shall measure at the acquisition date components of non-controlling interests in the acquired operation that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation at either: (1) Fair value; or (2) The present ownership instruments’ proportionate share in the

recognized amounts of the acquired operation’s identifiable net assets.

All other components of non-controlling interests shall be measured at their acquisition-date fair values, unless another measurement basis is required by IPSASs.

(f) IPSAS 40:78–84 specify the types of identifiable assets and liabilities that include items for which IPSAS 40 provides limited exceptions to the measurement principle.

(c) The resulting entity shall disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognized in the current reporting period that relate to amalgamations that occurred in the period or previous reporting periods.

(d) To meet the objective in (c) above, the resulting entity shall disclose the following information: (1) If the initial accounting for an amalgamation is incomplete (see

IPSAS 40:40) for particular assets or liabilities, and the amounts recognized in the financial statements for the amalgamation thus have been determined only provisionally: (i) The reasons why the initial accounting for the

amalgamation is incomplete; (ii) The assets or liabilities for which the initial accounting is

incomplete; and (iii) The nature and amount of any measurement period

adjustments recognized during the reporting period in accordance with IPSAS 40:43.

(2) If amounts of tax due are forgiven as a result of the terms of the amalgamation (see IPSAS 40:33–34): (i) The amount of tax due that was forgiven; and (ii) Where the resulting entity is the tax authority, details of

the adjustment made to tax receivable. (e) If the specific disclosures required by this Section and other IPSASs do

not meet the objectives set out in (a) and (c) above, the resulting entity shall disclose whatever additional information is necessary to meet those objectives.

28.5 Accounting for acquisitions (a) An acquirer shall account for each acquisition by applying the

acquisition method of accounting. (b) Applying the acquisition method of accounting requires:

(1) Identifying the acquirer – the party to the combination that gains control of one or more operations shall be identified as the acquirer;

(2) Determining the acquisition date – which is the date on which the acquirer obtains control of the acquired operation;


28.5.1 Recognizing and measuring goodwill or a gain from a bargain purchase

(a) The acquirer shall recognize goodwill as of the acquisition date measured as the excess of (1) over (2) below, subject to the requirements of (b): (1) The aggregate of:

(i) The consideration transferred measured in accordance with this Standard, which generally requires acquisition-date fair value (see IPSAS: 95);

(ii) The amount of any non-controlling interest in the acquired operation measured in accordance with this Standard; and

(iii) In an acquisition achieved in stages (see IPSAS 40:99–100), the acquisition-date fair value of the acquirer’s previously held equity interest in the acquired operation.

(2) The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Standard.

(b) The acquirer shall recognize goodwill only to the extent that the acquisition will result in: (1) The generation of cash inflows (such as the acquisition of a cash-

generating operation); and/or (2) A reduction in the net cash outflows of the acquirer. An acquirer shall recognize any further excess of (1) over (2) in (a) above as a loss in surplus or deficit.

28.5.2An acquisition achieved in stages (a) In an acquisition achieved in stages, the acquirer shall re-measure its

previously held equity interest in the acquired operation at its acquisition-date fair value and recognize the resulting gain or loss, if any, in surplus or deficit or in net assets/equity, as appropriate.

(b) In prior reporting periods, the acquirer may have recognized changes in the value of its equity interest in the acquired operation in net assets/equity.

(c) If so, the amount that was recognized in net assets/equity shall be recognized on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.


28.5.3 Measurement period (a) If the initial accounting for an acquisition is incomplete by the end of

the reporting period in which the acquisition occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete.

(b) During the measurement period, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date.

(c) During the measurement period, the acquirer shall also recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date.

(d) The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable – However, the measurement period shall not exceed one year from the acquisition date.

(e) After the measurement period ends, the acquirer shall revise the accounting for an acquisition only to correct an error in accordance with IPSAS 3.

28.5.4 Determining what is part of the acquisition transaction (a) The acquirer and the acquired operation may have a pre-existing

relationship or other arrangement before negotiations for the acquisition began, or they may enter into an arrangement during the negotiations that is separate from the acquisition.

(b) In either situation, the acquirer shall identify any amounts that are not part of what the acquirer and the acquired operation (or its former owners) exchanged in the acquisition, i.e., amounts that are not part of the exchange for the acquired operation.

(c) The acquirer shall recognize as part of applying the acquisition method only the consideration transferred for the acquired operation and the assets acquired and liabilities assumed in the exchange for the acquired operation.

28.5.1 Recognizing and measuring goodwill or a gain from a bargain purchase

(a) The acquirer shall recognize goodwill as of the acquisition date measured as the excess of (1) over (2) below, subject to the requirements of (b): (1) The aggregate of:

(i) The consideration transferred measured in accordance with this Standard, which generally requires acquisition-date fair value (see IPSAS: 95);

(ii) The amount of any non-controlling interest in the acquired operation measured in accordance with this Standard; and

(iii) In an acquisition achieved in stages (see IPSAS 40:99–100), the acquisition-date fair value of the acquirer’s previously held equity interest in the acquired operation.

(2) The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Standard.

(b) The acquirer shall recognize goodwill only to the extent that the acquisition will result in: (1) The generation of cash inflows (such as the acquisition of a cash-

generating operation); and/or (2) A reduction in the net cash outflows of the acquirer. An acquirer shall recognize any further excess of (1) over (2) in (a) above as a loss in surplus or deficit.

28.5.2An acquisition achieved in stages (a) In an acquisition achieved in stages, the acquirer shall re-measure its

previously held equity interest in the acquired operation at its acquisition-date fair value and recognize the resulting gain or loss, if any, in surplus or deficit or in net assets/equity, as appropriate.

(b) In prior reporting periods, the acquirer may have recognized changes in the value of its equity interest in the acquired operation in net assets/equity.

(c) If so, the amount that was recognized in net assets/equity shall be recognized on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.


(d) Separate transactions shall be accounted for in accordance with the relevant IPSASs.

28.5.5 Subsequent measurement and accounting (a) In general, an acquirer shall subsequently measure and account for

assets acquired, liabilities assumed or incurred and equity instruments issued in an acquisition in accordance with other applicable IPSASs for those items, depending on their nature.

(b) IPSAS 40 provides guidance on subsequently measuring and accounting for the following assets acquired, liabilities assumed or incurred and equity instruments issued in an acquisition: (1) Reacquired rights; (2) Contingent liabilities recognized as of the acquisition date; (3) Indemnification assets; (4) Contingent consideration; and (5) Income taxes (where not included in the terms of the

acquisition). 28.5.6 Disclosures (a) The acquirer shall disclose information that enables users of its

financial statements to evaluate the nature and financial effect of an acquisition that occurs either: (1) During the current reporting period; or (2) After the end of the reporting period but before the financial

statements are authorized for issue. (b) To meet the objective in (a) above, the acquirer shall disclose the

following information for each acquisition that occurs during the reporting period: (1) The name and a description of the acquired operation. (2) The acquisition date. (3) The percentage of voting equity interests or equivalent acquired. (4) The primary reasons for the acquisition and a description of how

the acquirer obtained control of the acquired operation including, where applicable, the legal basis for the acquisition.

(5) A qualitative description of the factors that make up the goodwill recognized, such as expected synergies from combining the operations of the acquired operation and the


acquirer, intangible assets that do not qualify for separate recognition or other factors.

(6) The acquisition-date fair value of the total consideration transferred and the acquisition-date fair value of each major class of consideration, such as: (i) Cash; (ii) Other tangible or intangible assets, including an operation

or controlled entity of the acquirer; (iii) Liabilities incurred, for example, a liability for contingent

consideration; and (iv) Equity interests of the acquirer, including the number of

instruments or interests issued or issuable and the method of measuring the fair value of those instruments or interests.

(7) For contingent consideration arrangements and indemnification assets: (i) The amount recognized as of the acquisition date; (ii) A description of the arrangement and the basis for

determining the amount of the payment; and (iii) An estimate of the range of outcomes (undiscounted) or, if

a range cannot be estimated, that fact and the reasons why a range cannot be estimated. If the maximum amount of the payment is unlimited, the acquirer shall disclose that fact.

(8) For acquired receivables: (i) The fair value of the receivables; (ii) The gross amounts receivable in accordance with a binding

arrangement; and (iii) The best estimate at the acquisition date of the cash flows

in accordance with a binding arrangement not expected to be collected.

The disclosures shall be provided by major class of receivable, such as loans, direct finance leases and any other class of receivables.

(9) The amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed.

(10) For each contingent liability recognized in accordance with IPSAS 40: 77, the information required in IPSAS 19: 98. If a

(d) Separate transactions shall be accounted for in accordance with the relevant IPSASs.

28.5.5 Subsequent measurement and accounting (a) In general, an acquirer shall subsequently measure and account for

assets acquired, liabilities assumed or incurred and equity instruments issued in an acquisition in accordance with other applicable IPSASs for those items, depending on their nature.

(b) IPSAS 40 provides guidance on subsequently measuring and accounting for the following assets acquired, liabilities assumed or incurred and equity instruments issued in an acquisition: (1) Reacquired rights; (2) Contingent liabilities recognized as of the acquisition date; (3) Indemnification assets; (4) Contingent consideration; and (5) Income taxes (where not included in the terms of the

acquisition). 28.5.6 Disclosures (a) The acquirer shall disclose information that enables users of its

financial statements to evaluate the nature and financial effect of an acquisition that occurs either: (1) During the current reporting period; or (2) After the end of the reporting period but before the financial

statements are authorized for issue. (b) To meet the objective in (a) above, the acquirer shall disclose the

following information for each acquisition that occurs during the reporting period: (1) The name and a description of the acquired operation. (2) The acquisition date. (3) The percentage of voting equity interests or equivalent acquired. (4) The primary reasons for the acquisition and a description of how

the acquirer obtained control of the acquired operation including, where applicable, the legal basis for the acquisition.

(5) A qualitative description of the factors that make up the goodwill recognized, such as expected synergies from combining the operations of the acquired operation and the


contingent liability is not recognized because its fair value cannot be measured reliably, the acquirer shall disclose: (i) The information required by IPSAS 19: 100; and (ii) The reasons why the liability cannot be measured reliably.

(11) The total amount of goodwill that is expected to be deductible for tax purposes.

(12) For transactions that are recognized separately from the acquisition of assets and assumption of liabilities in the acquisition in accordance with IPSAS 40:109: (i) A description of each transaction; (ii) How the acquirer accounted for each transaction; (iii) The amounts recognized for each transaction and the line

item in the financial statements in which each amount is recognized; and

(iv) If the transaction is the effective settlement of a pre-existing relationship, the method used to determine the settlement amount.

(13) The disclosure of separately recognized transactions required by (12) shall include the amount of acquisition-related costs and, separately, the amount of those costs recognized as an expense and the line item or items in the statement of financial performance in which those expenses are recognized. The amount of any issue costs not recognized as an expense and how they were recognized shall also be disclosed.

(14) In an acquisition in which a loss is recognized in surplus or deficit (see IPSAS 40: 86): (i) The amount of the loss recognized in accordance with

IPSAS 40: 86 and the line item in the statement of financial performance in which the loss is recognized; and

(ii) A description of the reasons why the transaction resulted in a loss.

(15) In a bargain purchase (see IPSAS 40:88–90): (i) The amount of any gain recognized in accordance with

IPSAS 40:88 and the line item in the statement of financial performance in which the gain is recognized; and

(ii) A description of the reasons why the transaction resulted in a gain.


(16) For each acquisition in which the acquirer holds less than 100 percent of the quantifiable ownership interests or equivalent in the acquired operation at the acquisition date: (i) The amount of the non-controlling interest in the acquired

operation recognized at the acquisition date and the measurement basis for that amount; and

(ii) For each non-controlling interest in an acquired operation measured at fair value, the valuation technique(s) and significant inputs used to measure that value.

(17) In an acquisition achieved in stages: (i) The acquisition-date fair value of the equity interest in the

acquired operation held by the acquirer immediately before the acquisition date; and

(ii) The amount of any gain or loss recognized as a result of re-measuring to fair value the equity interest in the acquired operation held by the acquirer before the acquisition (see IPSAS 40:100) and the line item in the statement of financial performance in which that gain or loss is recognized.

(18) The following information: (i) The amounts of revenue and expense, and the surplus or

deficit of the acquired operation since the acquisition date included in the consolidated statement of financial performance for the reporting period; and

(ii) The revenue and expense, and the surplus or deficit of the combined entity for the current reporting period as though the acquisition date for all acquisitions that occurred during the year had been as of the beginning of the annual reporting period.

If disclosure of any of the information required by this subparagraph is impracticable, the acquirer shall disclose that fact and explain why the disclosure is impracticable. This Standard uses the term ‘impracticable’ with the same meaning as in IPSAS 3.

(c) For individually immaterial acquisitions occurring during the reporting period that are material collectively, the acquirer shall disclose in aggregate the information required by (b)(5)–(18).

(d) If the acquisition date of an acquisition is after the end of the reporting period but before the financial statements are authorized for issue, the

contingent liability is not recognized because its fair value cannot be measured reliably, the acquirer shall disclose: (i) The information required by IPSAS 19: 100; and (ii) The reasons why the liability cannot be measured reliably.

(11) The total amount of goodwill that is expected to be deductible for tax purposes.

(12) For transactions that are recognized separately from the acquisition of assets and assumption of liabilities in the acquisition in accordance with IPSAS 40:109: (i) A description of each transaction; (ii) How the acquirer accounted for each transaction; (iii) The amounts recognized for each transaction and the line

item in the financial statements in which each amount is recognized; and

(iv) If the transaction is the effective settlement of a pre-existing relationship, the method used to determine the settlement amount.

(13) The disclosure of separately recognized transactions required by (12) shall include the amount of acquisition-related costs and, separately, the amount of those costs recognized as an expense and the line item or items in the statement of financial performance in which those expenses are recognized. The amount of any issue costs not recognized as an expense and how they were recognized shall also be disclosed.

(14) In an acquisition in which a loss is recognized in surplus or deficit (see IPSAS 40: 86): (i) The amount of the loss recognized in accordance with

IPSAS 40: 86 and the line item in the statement of financial performance in which the loss is recognized; and

(ii) A description of the reasons why the transaction resulted in a loss.

(15) In a bargain purchase (see IPSAS 40:88–90): (i) The amount of any gain recognized in accordance with

IPSAS 40:88 and the line item in the statement of financial performance in which the gain is recognized; and

(ii) A description of the reasons why the transaction resulted in a gain.


acquirer shall disclose the information required by (b) above unless the initial accounting for the acquisition is incomplete at the time the financial statements are authorized for issue. In that situation, the acquirer shall describe which disclosures could not be made and the reasons why they cannot be made.

(e) The acquirer shall disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognized in the current reporting period that relate to acquisitions that occurred in the period or previous reporting periods.

(f) To meet the objective in (e) above, the acquirer shall disclose the following information for each material acquisition or in the aggregate for individually immaterial acquisitions that are material collectively: (1) If the initial accounting for an acquisition is incomplete (see

IPSAS 40:103) for particular assets, liabilities, non-controlling interests or items of consideration and the amounts recognized in the financial statements for the acquisition thus have been determined only provisionally: (i) The reasons why the initial accounting for the acquisition

is incomplete; (ii) The assets, liabilities, quantifiable ownership interests (or

equivalent) or items of consideration for which the initial accounting is incomplete; and

(iii) The nature and amount of any measurement period adjustments recognized during the reporting period in accordance with IPSAS 40:107.

(2) For each reporting period after the acquisition date until the entity collects, sells or otherwise loses the right to a contingent consideration asset, or until the entity settles a contingent consideration liability or the liability is cancelled or expires: (i) Any changes in the recognized amounts, including any

differences arising upon settlement; (ii) Any changes in the range of outcomes (undiscounted) and

the reasons for those changes; and (iii) The valuation techniques and key model inputs used to

measure contingent consideration. (3) For contingent liabilities recognized in an acquisition, the

acquirer shall disclose the information required by IPSAS 19:97 and 98 for each class of provision.


(4) A reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period showing separately: (i) The gross amount and accumulated impairment losses at

the beginning of the reporting period. (ii) Additional goodwill recognized during the reporting

period. (iii) Adjustments resulting from the subsequent recognition of

amounts during the reporting period in accordance with the relevant international or national accounting standard dealing with income taxes.

(iv) Goodwill derecognized during the reporting period. (v) Impairment losses recognized during the reporting period

in accordance with IPSAS 26, Impairment of Cash-Generating Assets. (IPSAS 26 requires disclosure of information about the recoverable amount and impairment of goodwill in addition to this requirement.)

(vi) Net exchange rate differences arising during the reporting period in accordance with IPSAS 4, The Effects of Changes in Foreign Exchange Rates.

(vii) Any other changes in the carrying amount during the reporting period.

(viii) The gross amount and accumulated impairment losses at the end of the reporting period.

(5) The amount and an explanation of any gain or loss recognized in the current reporting period that both: (i) Relates to the identifiable assets acquired or liabilities

assumed in an acquisition that was effected in the current or previous reporting period; and

(ii) Is of such a size, nature or incidence that disclosure is relevant to understanding the combined entity’s financial statements.

And (6) If amounts of tax due are forgiven as a result of the terms of the

acquisition (see IPSAS 40:78–79): (i) The amount of tax due that was forgiven; and (ii) Where the acquirer is the tax authority, details of the

adjustment made to tax receivable.

acquirer shall disclose the information required by (b) above unless the initial accounting for the acquisition is incomplete at the time the financial statements are authorized for issue. In that situation, the acquirer shall describe which disclosures could not be made and the reasons why they cannot be made.

(e) The acquirer shall disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognized in the current reporting period that relate to acquisitions that occurred in the period or previous reporting periods.

(f) To meet the objective in (e) above, the acquirer shall disclose the following information for each material acquisition or in the aggregate for individually immaterial acquisitions that are material collectively: (1) If the initial accounting for an acquisition is incomplete (see

IPSAS 40:103) for particular assets, liabilities, non-controlling interests or items of consideration and the amounts recognized in the financial statements for the acquisition thus have been determined only provisionally: (i) The reasons why the initial accounting for the acquisition

is incomplete; (ii) The assets, liabilities, quantifiable ownership interests (or

equivalent) or items of consideration for which the initial accounting is incomplete; and

(iii) The nature and amount of any measurement period adjustments recognized during the reporting period in accordance with IPSAS 40:107.

(2) For each reporting period after the acquisition date until the entity collects, sells or otherwise loses the right to a contingent consideration asset, or until the entity settles a contingent consideration liability or the liability is cancelled or expires: (i) Any changes in the recognized amounts, including any

differences arising upon settlement; (ii) Any changes in the range of outcomes (undiscounted) and

the reasons for those changes; and (iii) The valuation techniques and key model inputs used to

measure contingent consideration. (3) For contingent liabilities recognized in an acquisition, the

acquirer shall disclose the information required by IPSAS 19:97 and 98 for each class of provision.


(g) If the specific disclosures required by this Section and other IPSASs do not meet the objectives set out in IPSAS 40:119 and 123, the acquirer shall disclose whatever additional information is necessary to meet those objectives.

28.6 Transition (a) Assets and liabilities that arose from public sector combinations whose

acquisition dates or amalgamation dates preceded the application of this LAAM shall not be adjusted upon application of this Section.

(b) However, when an acquisition agreement provides for such an adjustment, that adjustment is not included in the cost of the acquisition at the time of initially accounting for the acquisition if it either is not probable or cannot be measured reliably – If that adjustment subsequently becomes probable and can be measured reliably, the additional consideration shall be treated as an adjustment to the cost of the acquisition.


SECTION TWENTY NINE

29.0 SOCIAL BENEFITS

29.1 Objective (a) The objective of this Standard is to improve the relevance, faithful

representativeness and comparability of the information that a reporting entity provides in its financial statements about social benefits as defined in this Standard.

(b) The information provided should help users of the financial statements and general purpose financial reports assess: (1) The nature of such social benefits provided by the entity; (2) The key features of the operation of those social benefit schemes;

and (3) The impact of such social benefits provided on the entity’s

financial performance, financial position and cash flows. (c) To accomplish that, this Section establishes principles and

requirements for: (1) Recognizing expenses and liabilities for social benefits; (2) Measuring expenses and liabilities for social benefits; (3) Presenting information about social benefits in the financial

statements; and (4) Determining what information to disclose to enable users of the

financial statements to evaluate the nature and financial effects of the social benefits provided by the reporting entity.

(d) A Council shall apply this Standard in accounting for social benefits. 29.2 General Approach 29.2.1 Recognition of a Liability for a Social Benefit Scheme A Council shall recognize a liability for a social benefit scheme when: (a) The Council has a present obligation for an outflow of resources that

results from a past event; and (b) The present obligation can be measured in a way that achieves the

qualitative characteristics and takes account of constraints on information in general purpose financial reports as set out in the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities.

(g) If the specific disclosures required by this Section and other IPSASs do not meet the objectives set out in IPSAS 40:119 and 123, the acquirer shall disclose whatever additional information is necessary to meet those objectives.

28.6 Transition (a) Assets and liabilities that arose from public sector combinations whose

acquisition dates or amalgamation dates preceded the application of this LAAM shall not be adjusted upon application of this Section.

(b) However, when an acquisition agreement provides for such an adjustment, that adjustment is not included in the cost of the acquisition at the time of initially accounting for the acquisition if it either is not probable or cannot be measured reliably – If that adjustment subsequently becomes probable and can be measured reliably, the additional consideration shall be treated as an adjustment to the cost of the acquisition.


29.2.2 Outflow of Resources (a) A liability must involve an outflow of resources from the Council for

it to be settled – An obligation that can be settled without an outflow of resources from the Council is not a liability.

(b) There may be uncertainty associated with the measurement of the liability: (1) The use of estimates is an essential part of the accrual basis of

accounting. (2) Uncertainty regarding the outflow of resources does not prevent

the recognition of a liability unless the level of uncertainty is so large that the qualitative characteristics of relevance and faithful representativeness cannot be met.

(3) Where the level of uncertainty does not prevent the recognition of a liability, it is taken into account when measuring the liability.

29.2.3 Past Event The past event that gives rise to a liability for a social benefit scheme is the satisfaction by each beneficiary of all eligibility criteria to receive a social benefit payment – The satisfaction of eligibility criteria for each social benefit payment is a separate past event. 29.3 Recognition of an Expense for a Social Benefit Scheme (a) A Council shall recognize an expense for a social benefit scheme at the

same point that it recognizes a liability. (b) A Council shall not recognize an expense for a social benefit scheme

where a social benefit payment is made prior to all eligibility criteria for the next payment being satisfied – rather, a Council shall recognize a payment in advance as an asset in the statement of financial position, unless the amount becomes irrecoverable, in which case it shall recognize an expense.

29.4 Measurement of a Liability for a Social Benefit Scheme 29.4.1 Initial Measurement of the Liability (a) A Council shall measure the liability for a social benefit scheme at the

best estimate of the costs (i.e., the social benefit payments) that the


entity will incur in fulfilling the present obligations represented by the liability.

(b) A Council’s best estimate of the costs (i.e., the social benefit payments) that the Council will make takes into account the possible effect of subsequent events on those social benefit payments.

(c) When the liability in respect of a social benefit scheme is not expected to be settled before twelve months after the end of the reporting period in which the liability is recognized (i.e., the next social benefit payment will not be made for more than twelve months), the liability shall be discounted using the discount rate specified in 29.4.3.

29.4.2 Subsequent Measurement (a) A Council shall reduce the liability for a social benefit scheme as social

benefit payments are made and shall recognize in surplus or deficit in the period in which the liability is settled any difference between the cost of making the social benefit payments and the carrying amount of the liability in respect of the social benefit scheme.

(b) A Council shall, where it discounts a liability in accordance with 29.4.1(c), increase the liability and interest expense recognized in each reporting period until the liability is settled, to reflect the unwinding of the discount.

(c) A Council shall, where a liability has yet to be settled, review the liability at each reporting date, and adjust it to reflect the current best estimate of the costs (i.e., the social benefit payments) that the Council will incur in fulfilling the present obligations represented by the liability.

29.4.3 Discount Rate A Council shall discount a liability in respect of a social benefit scheme using a rate that reflects the time value of money – the term of the financial instrument selected to reflect the time value of money shall be consistent with the estimated term of the social benefit liability. 29.5 Measurement of an Expense for a Social Benefit Scheme (a) A Council shall initially measure the expense for a social benefit

scheme at an amount equivalent to the amount of the liability measured in accordance with paragraph 29.4.1(a).

29.2.2 Outflow of Resources (a) A liability must involve an outflow of resources from the Council for

it to be settled – An obligation that can be settled without an outflow of resources from the Council is not a liability.

(b) There may be uncertainty associated with the measurement of the liability: (1) The use of estimates is an essential part of the accrual basis of

accounting. (2) Uncertainty regarding the outflow of resources does not prevent

the recognition of a liability unless the level of uncertainty is so large that the qualitative characteristics of relevance and faithful representativeness cannot be met.

(3) Where the level of uncertainty does not prevent the recognition of a liability, it is taken into account when measuring the liability.

29.2.3 Past Event The past event that gives rise to a liability for a social benefit scheme is the satisfaction by each beneficiary of all eligibility criteria to receive a social benefit payment – The satisfaction of eligibility criteria for each social benefit payment is a separate past event. 29.3 Recognition of an Expense for a Social Benefit Scheme (a) A Council shall recognize an expense for a social benefit scheme at the

same point that it recognizes a liability. (b) A Council shall not recognize an expense for a social benefit scheme

where a social benefit payment is made prior to all eligibility criteria for the next payment being satisfied – rather, a Council shall recognize a payment in advance as an asset in the statement of financial position, unless the amount becomes irrecoverable, in which case it shall recognize an expense.

29.4 Measurement of a Liability for a Social Benefit Scheme 29.4.1 Initial Measurement of the Liability (a) A Council shall measure the liability for a social benefit scheme at the

best estimate of the costs (i.e., the social benefit payments) that the


(b) Where a Council makes a social benefit payment prior to all eligibility criteria for the next payment being satisfied, it shall measure the payment in advance or expense recognized in accordance with 29.3(b) at the amount of the cash transferred.

29.6 Disclosure (a) The objective of the disclosures under the general approach, together

with the information provided in the statement of financial position, statement of financial performance, statement of changes in net assets/equity and statement of cash flows, is for entities to give users of the financial statements a basis to assess the effect that social benefits may have on the financial position, financial performance and cash flows of the entity. Requirements on how to meet this objective are specified under (b) – (d) below.

(b) A Council shall disclose information that: (1) Explains the characteristics of its social benefit schemes; and (2) Explains the demographic, economic and other external factors

that may affect its social benefit schemes. (c) To meet the requirements of (b) above, a Council shall disclose:

(1) Information about the characteristics of its social benefit schemes, including: (i) The nature of the social benefits provided by the schemes

(for example, retirement benefits, unemployment benefits, child benefits).

(ii) Key features of the social benefit schemes, such as a description of the legislative framework governing the schemes, a summary of the main eligibility criteria that must be satisfied to receive the social benefits, and a statement about how additional information about the scheme can be obtained.

(iii) A description of how the schemes are funded, including whether the funding for the schemes is provided by means of a budget appropriation, a transfer from another public sector entity, or by other means. If a scheme is funded (whether in full or in part) by social contributions, the entity shall provide: o A cross reference to the location of information about

those social contributions and any dedicated assets


(where this information is included in the entity’s financial statements); or

o A statement regarding the availability of information on those social contributions and any dedicated assets in another entity’s financial statements and how that information can be obtained.

(iv) A description of the key demographic, economic and other external factors that influence the level of expenditure under the social benefit schemes. This description may be presented in aggregate where the same demographic, economic and other external factors impact a number of social benefit schemes in a similar manner.

(2) The total expenditure on social benefits recognized in the statement of financial performance, analyzed by social benefit scheme.

(3) A description of any significant amendments to the social benefit schemes made during the reporting period, along with a description of the expected effect of the amendments. Amendments to a social benefit scheme include, but are not limited to: (i) Changes to the level of social benefits provided; and (ii) Changes to the eligibility criteria, including the individuals

and/or households covered by the social benefit scheme. In making the disclosures required by this paragraph, an entity shall have regard to the requirements of IPSAS 1:45-47, Presentation of Financial Statements, which provide guidance on materiality and aggregation.

(d) If a social benefit scheme satisfies the criteria in paragraph 29.7.1(c) to permit the use of the insurance approach, a statement to that effect.

29.7 Insurance Approach 29.7.1 Recognition and Measurement (a) Where a social benefit scheme satisfies the criteria in (c) below, a

Council is permitted, but not required, to recognize and measure the assets, liabilities, revenue and expenses associated with that social benefit scheme by applying, by analogy, the requirements of IFRS 17, Insurance Contracts.

(b) Where a Council makes a social benefit payment prior to all eligibility criteria for the next payment being satisfied, it shall measure the payment in advance or expense recognized in accordance with 29.3(b) at the amount of the cash transferred.

29.6 Disclosure (a) The objective of the disclosures under the general approach, together

with the information provided in the statement of financial position, statement of financial performance, statement of changes in net assets/equity and statement of cash flows, is for entities to give users of the financial statements a basis to assess the effect that social benefits may have on the financial position, financial performance and cash flows of the entity. Requirements on how to meet this objective are specified under (b) – (d) below.

(b) A Council shall disclose information that: (1) Explains the characteristics of its social benefit schemes; and (2) Explains the demographic, economic and other external factors

that may affect its social benefit schemes. (c) To meet the requirements of (b) above, a Council shall disclose:

(1) Information about the characteristics of its social benefit schemes, including: (i) The nature of the social benefits provided by the schemes

(for example, retirement benefits, unemployment benefits, child benefits).

(ii) Key features of the social benefit schemes, such as a description of the legislative framework governing the schemes, a summary of the main eligibility criteria that must be satisfied to receive the social benefits, and a statement about how additional information about the scheme can be obtained.

(iii) A description of how the schemes are funded, including whether the funding for the schemes is provided by means of a budget appropriation, a transfer from another public sector entity, or by other means. If a scheme is funded (whether in full or in part) by social contributions, the entity shall provide: o A cross reference to the location of information about

those social contributions and any dedicated assets


(b) Where a Council elects not to apply by analogy the requirements of IFRS 17, the Council shall recognize and measure the liabilities and expenses associated with that social benefit scheme, and include disclosures in the financial statements, in accordance with 29.2 – 29.6.

(c) A Council may recognize and measure the assets, liabilities, revenue and expenses associated with a social benefit scheme by applying, by analogy, the requirements of IFRS 17 where: (1) The social benefit scheme is intended to be fully funded from

contributions; and (2) There is evidence that the entity manages the scheme in the same

way as an issuer of insurance contracts, including assessing the financial performance and financial position of the scheme on a regular basis.

29.7.2 Disclosure (a) The objective of the disclosures under the insurance approach,

together with the information provided in the statement of financial position, statement of financial performance, statement of changes in net assets/equity and statement of cash flows, is for entities to give users of the financial statements a basis to assess the effect that social benefits may have on the financial position, financial performance and cash flows of the entity. Requirements on how to meet this objective are specified in (b) and (c) below.

(b) Where an entity recognizes and measures the assets, liabilities, revenue and expenses associated with a social benefit scheme by applying, by analogy, the requirements of the relevant international or national accounting standard dealing with insurance contracts, the entity shall disclose: (1) The basis for determining that the insurance approach is

appropriate; (2) The information required by the relevant international or

national accounting standard dealing with insurance contracts; and

(3) Any additional information required by (c) below. (c) To meet the requirements of (b)(3) above, a Council shall disclose:

(1) Information about the characteristics of its social benefit schemes, including:


(i) The nature of the social benefits provided by the schemes (for example, retirement benefits, unemployment benefits, child benefits); and

(ii) Key features of the social benefit schemes, such as a description of the legislative framework governing the scheme, a summary of the main eligibility criteria that must be satisfied to receive the social benefit, and a statement about how additional information about the scheme can be obtained; and

(2) A description of any significant amendments to the social benefit schemes made during the reporting period, along with a description of the expected effect of the amendments. Amendments to a social benefit scheme include, but are not limited to: (i) Changes to the level of social benefits provided; and (ii) Changes to the eligibility criteria, including the individuals

and/or households covered by the social benefit scheme. In making the disclosures required by this paragraph, an entity shall have regard to the requirements of paragraphs 45–47 of IPSAS 1, which provide guidance on materiality and aggregation.

29.8 Reporting on the Long-Term Sustainability of a Council’s Finances Councils with social benefits are encouraged, but not required, to prepare general purpose financial reports that provide information on the long-term sustainability of the entity’s finances – Recommended Practice Guideline (RPG) 1, Reporting on the Long-Term Sustainability of an Entity’s Finances, provides guidance on the preparation of such reports. 29.9 Transitional Provisions A Council shall, when applying this Section for annual financial statements covering periods before January 1, 2022, disclose that fact – this requirement shall cease after that date. 29.9.1 General Approach In accounting for a social benefit scheme that is recognized and measured, and about which disclosures are made, in accordance with the general

(b) Where a Council elects not to apply by analogy the requirements of IFRS 17, the Council shall recognize and measure the liabilities and expenses associated with that social benefit scheme, and include disclosures in the financial statements, in accordance with 29.2 – 29.6.

(c) A Council may recognize and measure the assets, liabilities, revenue and expenses associated with a social benefit scheme by applying, by analogy, the requirements of IFRS 17 where: (1) The social benefit scheme is intended to be fully funded from

contributions; and (2) There is evidence that the entity manages the scheme in the same

way as an issuer of insurance contracts, including assessing the financial performance and financial position of the scheme on a regular basis.

29.7.2 Disclosure (a) The objective of the disclosures under the insurance approach,

together with the information provided in the statement of financial position, statement of financial performance, statement of changes in net assets/equity and statement of cash flows, is for entities to give users of the financial statements a basis to assess the effect that social benefits may have on the financial position, financial performance and cash flows of the entity. Requirements on how to meet this objective are specified in (b) and (c) below.

(b) Where an entity recognizes and measures the assets, liabilities, revenue and expenses associated with a social benefit scheme by applying, by analogy, the requirements of the relevant international or national accounting standard dealing with insurance contracts, the entity shall disclose: (1) The basis for determining that the insurance approach is

appropriate; (2) The information required by the relevant international or

national accounting standard dealing with insurance contracts; and

(3) Any additional information required by (c) below. (c) To meet the requirements of (b)(3) above, a Council shall disclose:

(1) Information about the characteristics of its social benefit schemes, including:


approach (see 29.2 – 29.6), a Council shall apply this Section retrospectively, in accordance with IPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors. 29.9.2 Insurance Approach A Council shall apply the transitional provisions in IFRS 17 in accounting for a social benefit scheme that is recognized and measured, and about which disclosures are made, in accordance with the insurance approach (see 29.7).


SECTION THIRTY

30.0 FIRST-TIME ADOPTION OF ACCRUAL BASIS INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSASs)

30.1 Objective (a) A Council adopting IPSASs for the first time shall use guidance

provided under this Section in preparing and presenting financial statements following the adoption of accrual basis IPSASs, in order to present high quality information: (1) That provides transparent reporting about a Council’s transition

to accrual basis IPSASs; (2) That provides a suitable starting point for accounting in

accordance with accrual basis IPSASs irrespective of the basis of accounting the Council has used prior to the date of adoption; and

(3) Where the benefits are expected to exceed the costs. (b) A Council shall apply this Section when it prepares and presents its

annual financial statements on the adoption of, and during the transition to, accrual basis IPSASs.

(c) At the end of the transitional period a first-time adopter must comply with the recognition, measurement, presentation and disclosure requirements in the other accrual basis IPSAS in order to assert compliance with accrual basis IPSASs as required in IPSAS 1, Presentation of Financial Statements.

30.2 Date of Adoption of IPSASs (a) The date of adoption of IPSASs is the date that a Council adopts

accrual basis IPSASs for the first time. (b) It is the start of the reporting period in which the first-time adopter

adopts accrual basis IPSASs and for which it presents its first transitional IPSAS financial statements or its first IPSAS financial statements.

(c) Financial statements shall not be described as complying with IPSASs unless they comply with all the requirements of all the applicable IPSASs.

approach (see 29.2 – 29.6), a Council shall apply this Section retrospectively, in accordance with IPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors. 29.9.2 Insurance Approach A Council shall apply the transitional provisions in IFRS 17 in accounting for a social benefit scheme that is recognized and measured, and about which disclosures are made, in accordance with the insurance approach (see 29.7).


30.3 First IPSAS Financial Statements (a) A Council’s first IPSAS financial statements are the first annual

financial statements in which the first-time adopter can make an explicit and unreserved statement in those financial statements of compliance with accrual basis IPSASs.

(b) If a first-time adopter does not adopt the exemptions in IPSAS 33 that affect fair presentation and compliance with accrual basis IPSASs (see IPSAS 33:36–62), its first financial statements following the adoption of accrual basis IPSASs will also be its first IPSAS financial statements.

30.3.1 Previous Basis of Accounting The previous basis of accounting is the basis of accounting that a first-time adopter used immediately before adopting accrual basis IPSASs – This might be a cash basis of accounting, an accrual basis of accounting, a modified version of either a cash basis or an accrual basis of accounting, or another prescribed basis. 30.3.2 Transitional IPSAS Financial Statements (a) A Council’s transitional IPSAS financial statements are the annual

financial statements in which a Council transitions to accrual basis IPSASs and adopts certain exemptions in this Section or IPSAS 33 that affect the fair presentation of the financial statements and its ability to assert compliance with accrual basis IPSASs.

(b) Financial statements shall not be described as complying with IPSASs unless they comply with all the requirements of all the applicable IPSASs.

(c) A Council’s transitional IPSAS financial statements are those financial statements, where the entity transitions from another accounting basis such as when it: (1) Prepared its most recent previous financial statements in

accordance with the IPSAS, Financial Reporting Under the Cash Basis of Accounting;

(2) Presented its most recent previous financial statements: (i) In accordance with prescribed requirements that are not

consistent with IPSASs in all respects;


(ii) In conformity with IPSASs in all respects, except that the financial statements did not contain an explicit and unreserved statement that they complied with IPSASs;

(iii) Containing an explicit statement of compliance with some, but not all, IPSASs);

(iv) In accordance with prescribed requirements inconsistent with IPSASs, using some individual IPSASs to account for items for which prescribed requirements did not exist; or

(v) In accordance with prescribed requirements, with a reconciliation of some amounts to the amounts determined in accordance with IPSASs;

(3) Prepared financial statements in accordance with IPSASs for internal use only, without making them available to external users;

(4) Prepared a reporting package in accordance with IPSASs for consolidation purposes without preparing a complete set of financial statements as defined in IPSAS 1; or

(5) Did not present financial statements for previous periods. 30.4 Recognition and Measurement 30.4.1 Opening Statement of Financial Position on Adoption of IPSASs A first-time adopter shall prepare and present an opening statement of financial position at the date of adoption of IPSASs – This is the starting point for its accounting in accordance with accrual basis IPSASs. 30.4.2 Accounting Policies (a) On the date of adoption of accrual basis IPSASs, a first-time adopter

shall apply the requirements of the IPSASs retrospectively except if required, or otherwise permitted, in this Section or IPSAS 33.

(b) A first-time adopter shall use the same accounting policies in its opening statement of financial position and throughout all periods presented.

(c) The accounting policies shall comply with each IPSAS effective at the date of adoption of IPSASs.

(d) A first-time adopter shall apply the versions of accrual basis IPSASs effective at the date of adoption of IPSASs:

30.3 First IPSAS Financial Statements (a) A Council’s first IPSAS financial statements are the first annual

financial statements in which the first-time adopter can make an explicit and unreserved statement in those financial statements of compliance with accrual basis IPSASs.

(b) If a first-time adopter does not adopt the exemptions in IPSAS 33 that affect fair presentation and compliance with accrual basis IPSASs (see IPSAS 33:36–62), its first financial statements following the adoption of accrual basis IPSASs will also be its first IPSAS financial statements.

30.3.1 Previous Basis of Accounting The previous basis of accounting is the basis of accounting that a first-time adopter used immediately before adopting accrual basis IPSASs – This might be a cash basis of accounting, an accrual basis of accounting, a modified version of either a cash basis or an accrual basis of accounting, or another prescribed basis. 30.3.2 Transitional IPSAS Financial Statements (a) A Council’s transitional IPSAS financial statements are the annual

financial statements in which a Council transitions to accrual basis IPSASs and adopts certain exemptions in this Section or IPSAS 33 that affect the fair presentation of the financial statements and its ability to assert compliance with accrual basis IPSASs.

(b) Financial statements shall not be described as complying with IPSASs unless they comply with all the requirements of all the applicable IPSASs.

(c) A Council’s transitional IPSAS financial statements are those financial statements, where the entity transitions from another accounting basis such as when it: (1) Prepared its most recent previous financial statements in

accordance with the IPSAS, Financial Reporting Under the Cash Basis of Accounting;

(2) Presented its most recent previous financial statements: (i) In accordance with prescribed requirements that are not

consistent with IPSASs in all respects;


(1) A first-time adopter may apply a new IPSAS that is not yet mandatory if that IPSAS permits early application.

(2) Any new IPSASs that become effective during the period of transition shall be applied by the first-time adopter from the date it becomes effective.

(e) A first-time adopter shall, in its opening statement of financial position: (1) Recognize all assets and liabilities whose recognition is required

by IPSASs; (2) Not recognize items as assets or liabilities if IPSASs do not

permit such recognition; (3) Reclassify items that it recognized in accordance with the

previous basis of accounting as one type of asset, liability or component of net assets/equity, but are a different type of asset, liability or component of net assets/equity in accordance with IPSASs; and

(4) Apply IPSASs in measuring all recognized assets and liabilities. (f) The accounting policies that a first-time adopter uses in financial

statements may differ from those that it used at the end of its comparative period under its previous basis of accounting: (1) The resulting adjustments arise from transactions, other events

or conditions before the date of adoption of IPSASs. (2) Therefore, a first-time adopter shall recognize those adjustments

to the opening balance of accumulated surplus or deficit in the period in which the items are recognized and/or measured (or, if appropriate, another category of net assets/equity).

(3) The first-time adopter shall recognize these adjustments in the earliest period presented.

(g) The transitional exemptions and provisions in other IPSAS apply to changes in accounting policies made by a Council that already applies accrual basis IPSASs – The transitional exemptions and provisions in this Section or IPSAS 33 applies to a first-time adopter that prepares and presents its annual financial statements on the adoption of, and during the transition to accrual basis IPSASs.

30.4.3 Exceptions to the Retrospective Application of IPSASs (a) A first-time adopter’s estimates in accordance with IPSASs at the date

of adoption of IPSASs, shall be consistent with estimates made in


accordance with the previous basis of accounting (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were inconsistent with the requirements in IPSASs.

(b) A Council is prohibited retrospective application of some aspects of accrual basis IPSASs. (1) A first-time adopter may receive information after the date of

adoption of IPSASs about estimates that it had made under its previous basis of accounting.

(2) In accordance with (a) above, a first-time adopter shall treat the receipt of that information in the same way as non-adjusting events after the reporting period in accordance with IPSAS 14, Events after the Reporting Period.

(c) A first-time adopter may need to make estimates in accordance with IPSASs at the date of adoption of IPSASs or during the period of transition that were not required at that date under the previous basis of accounting: (1) To achieve consistency with IPSAS 14, those estimates in

accordance with IPSASs shall reflect conditions that existed at the date of adoption of IPSASs or at the date during the period of transition.

(2) In particular, estimates determined at the date of adoption of IPSASs or during the period of transition of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date.

(3) For non-financial assets, such as property, plant and equipment, estimates about the asset’s useful life, residual value or condition reflect management’s expectations and judgment at the date of adoption of IPSASs or the date during the period of transition.

(d) Requirements in (a) – (c) above apply to the opening statement of financial position and to a comparative period where a Council elects to present comparative information in accordance with IPSAS 33:78, in which case the references to the date of adoption of IPSASs are replaced by references to the end of that comparative period.

30.5 Fair Presentation and Compliance with IPSASs (a) A first-time adopter’s first IPSAS financial statements shall fairly

present the financial position, financial performance, and cash flows of

(1) A first-time adopter may apply a new IPSAS that is not yet mandatory if that IPSAS permits early application.

(2) Any new IPSASs that become effective during the period of transition shall be applied by the first-time adopter from the date it becomes effective.

(e) A first-time adopter shall, in its opening statement of financial position: (1) Recognize all assets and liabilities whose recognition is required

by IPSASs; (2) Not recognize items as assets or liabilities if IPSASs do not

permit such recognition; (3) Reclassify items that it recognized in accordance with the

previous basis of accounting as one type of asset, liability or component of net assets/equity, but are a different type of asset, liability or component of net assets/equity in accordance with IPSASs; and

(4) Apply IPSASs in measuring all recognized assets and liabilities. (f) The accounting policies that a first-time adopter uses in financial

statements may differ from those that it used at the end of its comparative period under its previous basis of accounting: (1) The resulting adjustments arise from transactions, other events

or conditions before the date of adoption of IPSASs. (2) Therefore, a first-time adopter shall recognize those adjustments

to the opening balance of accumulated surplus or deficit in the period in which the items are recognized and/or measured (or, if appropriate, another category of net assets/equity).

(3) The first-time adopter shall recognize these adjustments in the earliest period presented.

(g) The transitional exemptions and provisions in other IPSAS apply to changes in accounting policies made by a Council that already applies accrual basis IPSASs – The transitional exemptions and provisions in this Section or IPSAS 33 applies to a first-time adopter that prepares and presents its annual financial statements on the adoption of, and during the transition to accrual basis IPSASs.

30.4.3 Exceptions to the Retrospective Application of IPSASs (a) A first-time adopter’s estimates in accordance with IPSASs at the date

of adoption of IPSASs, shall be consistent with estimates made in


the entity – Fair presentation requires the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, revenue, and expenses set out in IPSASs

(b) A first-time adopter shall claim full compliance with IPSASs only when it has complied with all the requirements of the applicable IPSASs effective at that date. An entity’s whose financial statements comply with IPSASs shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IPSASs unless they comply with all the requirements of IPSASs, and shall be qualified as accrual basis IPSAS complaint financial statements.

(c) In accordance with IPSAS 1:29 fair presentation is achieved in virtually all circumstances by compliance with applicable IPSASs – For a first-time adopter to claim full compliance with IPSASs, all the requirements of the applicable IPSASs needs to be complied with to ensure that information is presented in a manner that meets the qualitative characteristics.

30.6 Permitted Exemptions (a) A first-time adopter shall assess whether the transitional exemptions

adopted affect the fair presentation of the financial statements and the first-time adopter’s ability to assert compliance with accrual basis IPSASs.

(b) A first-time adopter is required, or may elect, to adopt the exemptions in 30.6.1 – 30.6.13. These exemptions will not affect the fair presentation of a first-time adopter’s financial statements and its ability to assert compliance with accrual basis IPSASs during the period of transition while they are applied. A first-time adopter shall not apply these exemptions by analogy to other items.

30.6.1 Using Deemed Cost to Measure Assets and/or Liabilities (a) A first-time adopter may elect to measure the following assets and/or

liabilities at their fair value when reliable cost information about the assets and liabilities is not available, and use that fair value as the deemed cost for: (1) Inventory (see IPSAS 12);


(2) Investment property, if the first-time adopter elects to use the cost model in IPSAS 16;

(3) Property, plant and equipment (see IPSAS 17); (4) Intangible assets, other than internally generated intangible

assets (see IPSAS 31) that meets: (i) The recognition criteria in IPSAS 31 (excluding the reliable

measurement criterion); and (ii) The criteria in IPSAS 31 for revaluation (including the

existence of an active market); (5) Financial Instruments (see IPSAS 29); or (6) Service concession assets (see IPSAS 32).

(b) Deemed cost can only be determined where the acquisition cost of the asset and/or the liability is not available: (1) Deemed cost assumes that the entity had initially recognized the

asset and/ or the liability at the given date. (2) Subsequent depreciation or amortization is based on that

deemed cost on the premise that the acquisition cost is equal to the deemed cost.

(c) The use of deemed cost is not considered a revaluation or the application of the fair value model for subsequent measurement in accordance with other IPSASs.

(d) A first-time adopter may elect to use the revaluation amount of property, plant and equipment under its previous basis of accounting as deemed cost if the revaluation was, at the date of the revaluation, broadly comparable to: (1) Fair value; or (2) Cost or depreciated cost, where appropriate, in accordance with

IPSASs adjusted to reflect, for example, changes in a general or specific price index.

(e) A first-time adopter may have established a deemed cost in accordance with its previous basis of accounting for property, plant and equipment by measuring it at fair value at one particular date because of a specific event: (1) If the measurement date is at or before the date of adoption of

IPSASs, a first-time adopter may use such event-driven fair value measurements as deemed cost for IPSASs at the date of that measurement.

the entity – Fair presentation requires the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, revenue, and expenses set out in IPSASs

(b) A first-time adopter shall claim full compliance with IPSASs only when it has complied with all the requirements of the applicable IPSASs effective at that date. An entity’s whose financial statements comply with IPSASs shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IPSASs unless they comply with all the requirements of IPSASs, and shall be qualified as accrual basis IPSAS complaint financial statements.

(c) In accordance with IPSAS 1:29 fair presentation is achieved in virtually all circumstances by compliance with applicable IPSASs – For a first-time adopter to claim full compliance with IPSASs, all the requirements of the applicable IPSASs needs to be complied with to ensure that information is presented in a manner that meets the qualitative characteristics.

30.6 Permitted Exemptions (a) A first-time adopter shall assess whether the transitional exemptions

adopted affect the fair presentation of the financial statements and the first-time adopter’s ability to assert compliance with accrual basis IPSASs.

(b) A first-time adopter is required, or may elect, to adopt the exemptions in 30.6.1 – 30.6.13. These exemptions will not affect the fair presentation of a first-time adopter’s financial statements and its ability to assert compliance with accrual basis IPSASs during the period of transition while they are applied. A first-time adopter shall not apply these exemptions by analogy to other items.

30.6.1 Using Deemed Cost to Measure Assets and/or Liabilities (a) A first-time adopter may elect to measure the following assets and/or

liabilities at their fair value when reliable cost information about the assets and liabilities is not available, and use that fair value as the deemed cost for: (1) Inventory (see IPSAS 12);


(2) If the measurement date is after the date of adoption of IPSASs, but during the period of transition where the first-time adopter takes advantage of the exemption that provides a three year transitional relief period to not recognize and/or measure certain assets, the event-driven fair value measurements may be used as deemed cost when the event occurs.

(3) A first-time adopter shall recognize the resulting adjustments directly in accumulated surplus or deficit when the asset is recognized and/or measured.

(f) A first-time adopter may elect to measure an asset acquired through a non-exchange transaction at its fair value when reliable cost information about the asset is not available, and use that fair value as its deemed cost.

(g) Where a first-time adopter measures an investment in a controlled entity, joint venture or associate at cost in its separate financial statements, it may, on the date of adoption of IPSASs, elect to measure that investment at one of the following amounts in its separate opening statement of financial position: (1) Cost; or (2) Deemed cost. The deemed cost of such an investment shall be its

fair value (determined in accordance with IPSAS 29) at the first-time adopter’s date of adoption of IPSASs in its separate financial statements.

30.6.2 Comparative Information (a) A first-time adopter is encouraged to present comparative information

in its first transitional IPSAS financial statements or its first IPSAS financial statements presented – When a first-time adopter presents comparative information, it shall be presented in accordance with the requirements of IPSAS 1.

(b) Where a first-time adopter elects to present comparative information, the transitional IPSAS financial statements or the first IPSAS financial statements presented shall include: (1) One statement of financial position with comparative

information for the preceding period, and an opening statement of financial position as at the beginning of the reporting period prior to the date of adoption of accrual basis IPSAS;


(2) One statement of financial performance with comparative information for the preceding period;

(3) One statement of changes in net assets/equity with comparative information for the preceding period;

(4) One cash flow statement with comparative information for the preceding period;

(5) A comparison of budget and actual amounts for the current year as a separate additional financial statement or as a budget column in the financial statements if the first-time adopter makes its approved budget publicly available; and

(6) Related notes including comparative information, and the disclosure of narrative information about material adjustments.

30.6.3 IPSAS 5, Borrowing Costs (a) A first-time adopter is encouraged, but not required, to apply the

requirements of IPSAS 5 retrospectively where it adopts or changes its accounting policy to the benchmark treatment.

(b) Where a first-time adopter adopts or changes its accounting policy to the benchmark treatment it is allowed to designate any date before the date of adoption of IPSASs and apply IPSAS 5 prospectively on or after that designated date.

30.6.4 IPSAS 13, Leases (a) A first-time adopter shall on the date of adoption of IPSAS, classify all

existing leases as operating or finance leases on the basis of circumstances existing at the inception of the lease, to the extent that these are known on the date of adoption of IPSASs.

(b) If, however, the lessee and the lessor have agreed to change the provisions of the lease between the date of inception of the lease and the date of adoption of accrual basis IPSASs in a manner that would have resulted in a different classification of the lease at the date of adoption, the revised agreement shall be regarded as a new agreement. A first-time adopter shall consider the provisions of the new agreement at the date of adoption of accrual basis IPSASs in classifying the lease as an operating or finance lease.

(2) If the measurement date is after the date of adoption of IPSASs, but during the period of transition where the first-time adopter takes advantage of the exemption that provides a three year transitional relief period to not recognize and/or measure certain assets, the event-driven fair value measurements may be used as deemed cost when the event occurs.

(3) A first-time adopter shall recognize the resulting adjustments directly in accumulated surplus or deficit when the asset is recognized and/or measured.

(f) A first-time adopter may elect to measure an asset acquired through a non-exchange transaction at its fair value when reliable cost information about the asset is not available, and use that fair value as its deemed cost.

(g) Where a first-time adopter measures an investment in a controlled entity, joint venture or associate at cost in its separate financial statements, it may, on the date of adoption of IPSASs, elect to measure that investment at one of the following amounts in its separate opening statement of financial position: (1) Cost; or (2) Deemed cost. The deemed cost of such an investment shall be its

fair value (determined in accordance with IPSAS 29) at the first-time adopter’s date of adoption of IPSASs in its separate financial statements.

30.6.2 Comparative Information (a) A first-time adopter is encouraged to present comparative information

in its first transitional IPSAS financial statements or its first IPSAS financial statements presented – When a first-time adopter presents comparative information, it shall be presented in accordance with the requirements of IPSAS 1.

(b) Where a first-time adopter elects to present comparative information, the transitional IPSAS financial statements or the first IPSAS financial statements presented shall include: (1) One statement of financial position with comparative

information for the preceding period, and an opening statement of financial position as at the beginning of the reporting period prior to the date of adoption of accrual basis IPSAS;


30.6.5 IPSAS 21, Impairment of Non-Cash-Generating Assets A first-time adopter shall apply the requirements in IPSAS 21 prospectively from the date of adoption of IPSASs.

30.6.6 IPSAS 25, Employee Benefits A first-time adopter shall recognize and/or measure all employee benefits on the date of adoption of IPSASs. 30.6.7 IPSAS 26, Impairment of Cash-Generating Assets A first-time adopter shall apply the requirements in IPSAS 26 prospectively from the date of adoption of IPSASs. 30.6.8 IPSAS 28, Financial Instruments (a) On the date of adoption of IPSASs, a first-time adopter shall evaluate

the terms of the financial instrument to determine whether it contains both a liability component and a net asset/equity component – If the liability component is no longer outstanding on the date of adoption of IPSASs, the first-time adopter need not separate the compound financial instrument into a liability component and a net asset/equity component.

(b) A first-time adopter may designate a financial asset or financial liability as a financial asset or financial liability at fair value through surplus or deficit that meet the criteria for designation in IPSAS 29. A first-time adopter shall disclose the fair value of financial assets and financial liabilities designated into each category at the date of designation, their classification and carrying amount.

(c) IPSAS 29 permits a financial asset to be designated on initial recognition as available for sale or a financial instrument (provide it meets certain criteria) to be designated as a financial asset or financial liability at fair value though surplus or deficit. Despite this requirement, exceptions apply in the following circumstances: (1) A first-time adopter is permitted to make an available-for-sale

designation at the date of adoption of IPSASs. (2) A first-time adopter is permitted to designate, at the date of

adoption of IPSASs, any financial asset or financial liability as at fair value through surplus or deficit provided the asset or


liability meets the criteria in IPSAS 29: 10(b)(i), 10(b)(ii) or 13 at that date.

(d) A first-time adopter shall apply the de-recognition requirements in IPSAS 29 prospectively for transactions occurring on or after the date of adoption of IPSASs.

(e) As required by IPSAS 29, a first-time adopter shall at the date of adoption of IPSASs: (1) Measure all derivatives at fair value; and (2) Eliminate all deferred losses and gains arising on derivatives that

were reported in accordance with its previous basis of accounting as if they were assets or liabilities.

(f) A first-time adopter shall not reflect in its opening statement of financial position a hedging relationship of a type that does not qualify for hedge accounting in accordance with IPSAS 29 (for example, many hedging relationships where the hedging instrument is a cash instrument or written option; or where the hedged item is a net position).

(g) A first-time adopter shall apply the impairment requirements prospectively from the date of adoption of IPSASs – Any impairment loss incurred shall be recognized in opening accumulated surplus or deficit in the period in which the financial instrument is recognized and/or measured.

(h) Where the first-time adopter elects to present comparative information, it is not required to present information about the nature and extent of risks arising from financial instruments for the comparative period in its transitional IPSAS financial statements or its first IPSAS financial statements.

(i) A first-time adopter shall apply the requirements in IPSAS 30 prospectively from the date of adoption of IPSASs.

30.6.9 IPSAS 31, Intangible Assets (a) A first-time adopter shall recognize and/or measure an internally

generated intangible asset if it meets the definition of an intangible asset and the recognition criteria in IPSAS 31, even if the first-time adopter has, under its previous basis of accounting, expensed such costs – A deemed cost may not be determined for internally generated intangible assets.

30.6.5 IPSAS 21, Impairment of Non-Cash-Generating Assets A first-time adopter shall apply the requirements in IPSAS 21 prospectively from the date of adoption of IPSASs.

30.6.6 IPSAS 25, Employee Benefits A first-time adopter shall recognize and/or measure all employee benefits on the date of adoption of IPSASs. 30.6.7 IPSAS 26, Impairment of Cash-Generating Assets A first-time adopter shall apply the requirements in IPSAS 26 prospectively from the date of adoption of IPSASs. 30.6.8 IPSAS 28, Financial Instruments (a) On the date of adoption of IPSASs, a first-time adopter shall evaluate

the terms of the financial instrument to determine whether it contains both a liability component and a net asset/equity component – If the liability component is no longer outstanding on the date of adoption of IPSASs, the first-time adopter need not separate the compound financial instrument into a liability component and a net asset/equity component.

(b) A first-time adopter may designate a financial asset or financial liability as a financial asset or financial liability at fair value through surplus or deficit that meet the criteria for designation in IPSAS 29. A first-time adopter shall disclose the fair value of financial assets and financial liabilities designated into each category at the date of designation, their classification and carrying amount.

(c) IPSAS 29 permits a financial asset to be designated on initial recognition as available for sale or a financial instrument (provide it meets certain criteria) to be designated as a financial asset or financial liability at fair value though surplus or deficit. Despite this requirement, exceptions apply in the following circumstances: (1) A first-time adopter is permitted to make an available-for-sale

designation at the date of adoption of IPSASs. (2) A first-time adopter is permitted to designate, at the date of

adoption of IPSASs, any financial asset or financial liability as at fair value through surplus or deficit provided the asset or


30.6.10 IPSAS 32, Service Concession Arrangements Initial Measurement of Related Liability (a) Where a first-time adopter elects to measure service concession assets

using deemed cost, the related liabilities shall be measured as follows: i. For the liability under the financial liability model, the

remaining contractual cash flows specified in the binding arrangement and the rate prescribed in IPSAS 32; or

ii. For the liability under the grant of a right to the operator model, the fair value of the asset less any financial liabilities, adjusted to reflect the remaining period of the service concession arrangement.

(b) A first-time adopter shall recognize and/or measure any difference between the value of the service concession asset and the financial liability under the financial liability model in IPSAS 33:127 in opening accumulated surplus or deficit in the period in which the items are recognized and/or measured.

30.6.11 IPSAS 34, Separate Financial Statements, IPSAS 35, Consolidated Financial Statements and IPSAS 36, Investments in Associates and Joint Ventures

(a) If a controlled entity becomes a first-time adopter later than its controlling entity, except for the controlled entity of an investment entity, the controlled entity shall, in its financial statements, measure its assets and liabilities at either: (1) The carrying amounts determined in accordance with this IPSAS

that would be included in the controlling entity’s consolidated financial statements, based on the controlled entity’s date of adoption of IPSASs, if no adjustments were made for consolidation procedures and for the effects of the entity combination in which the controlling entity acquired the controlled entity; or

(2) The carrying amounts required by the rest of this IPSAS, based on the controlled entity’s date of adoption of IPSASs. These carrying amounts could differ from those described in (a): (i) When the exemptions in this IPSAS result in

measurements that depend on the date of adoption of IPSASs.


(ii) When the accounting policies used in the controlled entity’s financial statements differ from those in the consolidated financial statements. For example, the controlled entity may use as its accounting policy the cost model in IPSAS 17, whereas the economic entity may use the revaluation model.

(iii) A similar election is available to an associate or joint venture that becomes a first-time adopter later than an entity that has significant influence or joint control over it.

(b) However, if a controlling entity becomes a first-time adopter later than its controlled entity (or associate or joint venture) the controlling entity shall, in its consolidated financial statements, measure the assets and liabilities of the controlled entity (or associate or joint venture) at the same carrying amounts as in the financial statements of the controlled entity (or associate or joint venture), after adjusting for consolidation and equity accounting adjustments and for the effects of the entity combination in which the controlling entity acquired the controlled entity (or associate or joint venture), subject to the exemptions that may be adopted in terms of this IPSAS. Similarly, if a controlled entity becomes a first-time adopter for its separate financial statements earlier or later than for its consolidated financial statements, it shall measure its assets and liabilities at the same amounts in both financial statements, subject to the exemptions that may be adopted in this IPSAS, except for consolidation adjustments.

30.6.12 IPSAS 35, Consolidated Financial Statements A first-time adopter that is a controlled entity shall assess whether it is an investment entity on the basis of the facts and circumstances that exist at the date of adoption of accrual basis IPSASs, and measure its investment in each controlled entity at fair value through surplus or deficit at the date of adoption of accrual basis IPSASs. 30.6.13 IPSAS 37, Joint Arrangements (a) Where a first-time adopter accounted for its investment in a joint

venture under its previous basis of accounting basis using proportionate consolidation, the investment in the joint venture shall be measured on the date of adoption as the aggregate of the carrying

30.6.10 IPSAS 32, Service Concession Arrangements Initial Measurement of Related Liability (a) Where a first-time adopter elects to measure service concession assets

using deemed cost, the related liabilities shall be measured as follows: i. For the liability under the financial liability model, the

remaining contractual cash flows specified in the binding arrangement and the rate prescribed in IPSAS 32; or

ii. For the liability under the grant of a right to the operator model, the fair value of the asset less any financial liabilities, adjusted to reflect the remaining period of the service concession arrangement.

(b) A first-time adopter shall recognize and/or measure any difference between the value of the service concession asset and the financial liability under the financial liability model in IPSAS 33:127 in opening accumulated surplus or deficit in the period in which the items are recognized and/or measured.

30.6.11 IPSAS 34, Separate Financial Statements, IPSAS 35, Consolidated Financial Statements and IPSAS 36, Investments in Associates and Joint Ventures

(a) If a controlled entity becomes a first-time adopter later than its controlling entity, except for the controlled entity of an investment entity, the controlled entity shall, in its financial statements, measure its assets and liabilities at either: (1) The carrying amounts determined in accordance with this IPSAS

that would be included in the controlling entity’s consolidated financial statements, based on the controlled entity’s date of adoption of IPSASs, if no adjustments were made for consolidation procedures and for the effects of the entity combination in which the controlling entity acquired the controlled entity; or

(2) The carrying amounts required by the rest of this IPSAS, based on the controlled entity’s date of adoption of IPSASs. These carrying amounts could differ from those described in (a): (i) When the exemptions in this IPSAS result in

measurements that depend on the date of adoption of IPSASs.


amount of the assets and liabilities that the entity previously proportionately consolidated, including any purchased goodwill arising from acquisition transactions (see IFRS dealing with entity combinations).

(b) The opening balance of the investment determined in accordance with (a) above is regarded as the deemed cost of the investment at initial recognition: (1) A first-time adopter shall test the investment for impairment as

at the date of adoption, regardless of whether there is any indication that the investment may be impaired.

(2) Any impairment loss shall be adjusted to the accumulated surplus or deficit at the date of adoption.

(c) If aggregating all previously proportionately consolidated assets and liabilities results in negative net assets, the first-time adopter shall assess whether it has legal or constructive obligations in relation to the negative net assets and, if so, the first-time adopter shall recognize a corresponding liability. (1) If the first-time adopter concludes that it does not have legal or

constructive obligations in relation to the negative net assets, it shall not recognize the corresponding liability but it shall adjust accumulated surplus or deficit at the date of adoption.

(2) The first-time adopter shall disclose this fact, along with its cumulative unrecognized share of losses of its joint ventures as at the date of adoption of accrual basis IPSASs.

30.7 Disclosures (a) A first-time adopter with financial statements that comply with the

requirements of this Section and IPSAS 33 shall make an explicit and unreserved statement of compliance with this IPSAS in the notes to the financial statements – This statement shall be accompanied by a statement that the financial statements do not fully comply with accrual basis IPSASs.

(b) Where a first-time adopter is not able to present consolidated financial statements because of the transitional exemptions and provisions adopted in IPSAS 33:58 or 62, it shall disclose: (1) The reason why the financial statements, investments in

associates or interests in joint ventures could not be presented as consolidated financial statements; and


(2) An indication by when the first-time adopter will be able to present consolidated financial statements.

(c) The disclosure requirements of (a) and (b) above will assist users to track the progress of the first-time adopter in conforming its accounting policies to the requirements in the applicable IPSASs during the period of transition.

30.7.1 Explanation of Transition to IPSASs A first-time adopter shall disclose: (a) The date of adoption of IPSASs; and (b) Information and explanations about how the transition from the

previous basis of accounting to IPSASs affected its reported financial position, and, where appropriate, its reported financial performance and cash flows.

30.7.2 Reconciliations (a) A first-time adopter shall present in the notes to its transitional IPSAS

financial statements or its first IPSAS financial statements: (1) A reconciliation of its net assets/equity reported in accordance

with its previous basis of accounting to its opening balance of net assets/equity at the date of adoption of IPSASs; and

(2) A reconciliation of its surplus or deficit in accordance with its previous basis of accounting to its opening balance of surplus or deficit at the date of adoption of IPSASs. A first-time adopter that has applied a cash basis of accounting in its previous financial statements is not required to present such reconciliations.

(b) The reconciliation presented in accordance with (a) above shall provide sufficient detail, both quantitative and qualitative, to enable users to understand the material adjustments to the opening statement of financial position and, where applicable, the opening statement of financial performance presented in accordance with accrual basis IPSAS – Where narrative explanations are included in other public documents issued in conjunction with the financial statements, a cross reference to those documents shall be included in the notes.

(c) If a Council becomes aware of errors made under its previous basis of accounting, the reconciliations required by (a) above shall distinguish the correction of those errors from changes in accounting policies.

amount of the assets and liabilities that the entity previously proportionately consolidated, including any purchased goodwill arising from acquisition transactions (see IFRS dealing with entity combinations).

(b) The opening balance of the investment determined in accordance with (a) above is regarded as the deemed cost of the investment at initial recognition: (1) A first-time adopter shall test the investment for impairment as

at the date of adoption, regardless of whether there is any indication that the investment may be impaired.

(2) Any impairment loss shall be adjusted to the accumulated surplus or deficit at the date of adoption.

(c) If aggregating all previously proportionately consolidated assets and liabilities results in negative net assets, the first-time adopter shall assess whether it has legal or constructive obligations in relation to the negative net assets and, if so, the first-time adopter shall recognize a corresponding liability. (1) If the first-time adopter concludes that it does not have legal or

constructive obligations in relation to the negative net assets, it shall not recognize the corresponding liability but it shall adjust accumulated surplus or deficit at the date of adoption.

(2) The first-time adopter shall disclose this fact, along with its cumulative unrecognized share of losses of its joint ventures as at the date of adoption of accrual basis IPSASs.

30.7 Disclosures (a) A first-time adopter with financial statements that comply with the

requirements of this Section and IPSAS 33 shall make an explicit and unreserved statement of compliance with this IPSAS in the notes to the financial statements – This statement shall be accompanied by a statement that the financial statements do not fully comply with accrual basis IPSASs.

(b) Where a first-time adopter is not able to present consolidated financial statements because of the transitional exemptions and provisions adopted in IPSAS 33:58 or 62, it shall disclose: (1) The reason why the financial statements, investments in

associates or interests in joint ventures could not be presented as consolidated financial statements; and


(d) If a Council did not present financial statements for previous periods, its transitional IPSAS financial statements or its first IPSAS financial statements shall disclose that fact.

30.7.3 Disclosures where Deemed Cost is Used for Inventory, Investment

Property, Property, Plant and Equipment, Intangible Assets, Financial Instruments or Service Concession Assets

If a first-time adopter uses fair value, or the alternative in IPSAS 33: 64, 67 or 70, as deemed cost for inventory, investment property, property, plant and equipment, intangible assets, financial instruments, or service concession assets, its financial statements shall disclose: (a) The aggregate of those fair values or other measurement alternatives

that were considered in determining deemed cost; (b) The aggregate adjustment to the carrying amounts recognized under

the previous basis of accounting; and (c) Whether the deemed cost was determined on the date of adoption of

IPSASs or during the period of transition. 30.7.4 Disclosures Where Deemed Cost is Used for Investments in

Controlled Entities, Joint Ventures or Associates If a first-time adopter uses fair value as deemed cost in its opening statement of financial position for an investment in a controlled entity, joint venture or associate in its separate financial statements, its separate financial statements shall disclose: (a) The aggregate deemed cost of those investments for which deemed

cost is fair value; and (b) The aggregate adjustment to the carrying amounts reported under the

previous basis of accounting.


APPENDIX 1: FORM 5.3.2 PAYMENT VOUCHER

COUNCILPAYMENT VOUCHER

PV NUMBER: ………….

DATE: ………………….

PREPARED BY: _________________ SIGNATURE: _____________

VERIFIED BY: __________________ SIGNATURE: _____________

APPROVED BY: _________________ SIGNATURE: _____________

NO. PARTICULARS ACCOUNT

CODE DEBIT CREDIT

NARRATION:

(d) If a Council did not present financial statements for previous periods, its transitional IPSAS financial statements or its first IPSAS financial statements shall disclose that fact.

30.7.3 Disclosures where Deemed Cost is Used for Inventory, Investment

Property, Property, Plant and Equipment, Intangible Assets, Financial Instruments or Service Concession Assets

If a first-time adopter uses fair value, or the alternative in IPSAS 33: 64, 67 or 70, as deemed cost for inventory, investment property, property, plant and equipment, intangible assets, financial instruments, or service concession assets, its financial statements shall disclose: (a) The aggregate of those fair values or other measurement alternatives

that were considered in determining deemed cost; (b) The aggregate adjustment to the carrying amounts recognized under

the previous basis of accounting; and (c) Whether the deemed cost was determined on the date of adoption of

IPSASs or during the period of transition. 30.7.4 Disclosures Where Deemed Cost is Used for Investments in

Controlled Entities, Joint Ventures or Associates If a first-time adopter uses fair value as deemed cost in its opening statement of financial position for an investment in a controlled entity, joint venture or associate in its separate financial statements, its separate financial statements shall disclose: (a) The aggregate deemed cost of those investments for which deemed

cost is fair value; and (b) The aggregate adjustment to the carrying amounts reported under the

previous basis of accounting.


APPENDIX 2: FORM 5.3.3 AUTHORIZATION SHEET

AUTHORIZATIONSHEETFORPAYMENTS

Function Name Limit Currency Amount SignatureCouncilDirector expendituresabove TZSCouncilTreasurer expendituresfrom TZS

to TZSCouncilAccountant expendituresfrom TZS

to TZSexpendituresfrom TZS


to TZS

Approvedby Name Date Signature


APPENDIX 3: FORM 5.3.4 BANK ACCOUNTS REVIEW

OVERVIEW BANK ACCOUNTS

Bank Account 1Name of BankAddress of BankBIC / SWIFT-CodeAccount-No.IBAN No.CurrencySignatories Name / Surname Signature DateCouncil Director

Council Treasurer

PO-RALG?

Bank Account 2Name of BankAddress of BankBIC / SWIFT-CodeAccount-No.IBAN No.CurrencySignatories Name / Surname Signature DateCouncil Director

Council Treasurer

PO-RALG?

APPENDIX 2: FORM 5.3.3 AUTHORIZATION SHEET

AUTHORIZATIONSHEETFORPAYMENTS

Function Name Limit Currency Amount SignatureCouncilDirector expendituresabove TZSCouncilTreasurer expendituresfrom TZS

to TZSCouncilAccountant expendituresfrom TZS



to TZS



APPENDIX 4: FORM 5.3.5 BANK ACCOUNT CONTROL SHEET

BANK ACCOUNT CONTROL SHEET (INTERNAL STATEMENT)

Description Rec.No. Voucher No. DEBIT CREDIT BALANCEOPENING BALANCE 0.00

0.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.00

SignatureCouncil Financial Officer: ___________________________ Date: ________ Signature Council Treasurer: ___________________________


APPENDIX 5: FORM 5.3.6 BANK RECONCILIATION STATEMENT

BANK RECONCILIATION STATEMENT

Bank:Account No.Month / Year

BALANCE1 Balance as per accounts2 Balance as per bank statement

3 Difference 0.00

Not yet credited / debited

Date Description Voucher No. DEBIT CREDIT BALANCE0.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.00

Date: _________ Signature Council Financial Officer: ___________________________Date: ________ Council Treasurer: ___________________________

Approved: Date: ________ Council Director: ___________________________

APPENDIX 4: FORM 5.3.5 BANK ACCOUNT CONTROL SHEET

BANK ACCOUNT CONTROL SHEET (INTERNAL STATEMENT)

Description Rec.No. Voucher No. DEBIT CREDIT BALANCEOPENING BALANCE 0.00

0.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000.00

SignatureCouncil Financial Officer: ___________________________ Date: ________ Signature Council Treasurer: ___________________________


APPENDIX 6: FORM 5.3.7 JOURNAL VOUCHER

COUNCIL JOURNAL VOUCHER

JV NUMBER: ………….

DATE: ………………….





CODE DEBIT CREDIT

NARRATION:


APPENDIX 7: FORM 5.3.8 PETTY CASH VOUCHER

PETTY CASH VOUCHERNo.

DATE

PAYEE

AMOUNT

AMOUNT in words

Description of the nature of expenditure

Authorization

Signature of PAYEE

APPENDIX 6: FORM 5.3.7 JOURNAL VOUCHER

COUNCIL JOURNAL VOUCHER

JV NUMBER: ………….

DATE: ………………….





CODE DEBIT CREDIT

NARRATION:


APPENDIX 8: FORM 5.3.9 CASH RECONCILIATION STATEMENT

CASH RECONCILIATION STATEMENT

Month / YearBALANCE

1 Balance as per Petty Cash book2 Balance as per Cash Count

3 Difference 0.00

Cash Count

Number Banknote / Coin Amount10000 0

5000

1000

500

200

100

50

TOTAL 0

Signatures

Council Treasurer

Council Cashier


APPENDIX 9: FORM 5.3.10 APPLICATION FOR CASH ADVANCE

APPLICATION FOR CASH ADVANCE

Council

DATE

NAME of Applicant

PURPOSE of Cash advance

AMOUNT required in figures

AMOUNT required in words

Signature of Applicant

CONFIRMATION The applicant has no outstanding amout. Cash advance can begiven.

Signature

PREPARED by

AUTHORIZED by

APPENDIX 8: FORM 5.3.9 CASH RECONCILIATION STATEMENT

CASH RECONCILIATION STATEMENT

Month / YearBALANCE

1 Balance as per Petty Cash book2 Balance as per Cash Count

3 Difference 0.00

Cash Count

Number Banknote / Coin Amount10000 0

5000

1000

500

200

100

50

TOTAL 0

Signatures

Council Treasurer

Council Cashier


APPENDIX 10: FORM 5.3.11 CASH ADVANCE RETIREMENT

CASH ADVANCE RETIREMENT

Council

DATE

NAME

CURRENCY

CASH ADVANCE From (Date)

CASH ADVANCE (Amount)

Date Receipt No. & Description Amount Account Code

TOTAL EXPENSES 0.00

PREPARED by Date

AUTHORIZED by Date


APPENDIX 11: FORM 5.3.12 TIME SHEET

Timesheet Forms Councils:Name of staffPosition in Council

Monday Tuesday Wednesday Thursday Friday Saturday Sunday Total29 June 30 June 1 July 2 July 3 July 4-Jul 5-Jul

Council managementLLG and SPF supportAdministrationInternal meetingExternal meetingCouncil developmentTransportOffice cleaningHolidaySick leaveTotals

Approved by CD

Date of approval

APPENDIX 10: FORM 5.3.11 CASH ADVANCE RETIREMENT

CASH ADVANCE RETIREMENT

Council

DATE

NAME

CURRENCY

CASH ADVANCE From (Date)

CASH ADVANCE (Amount)

Date Receipt No. & Description Amount Account Code

TOTAL EXPENSES 0.00

PREPARED by Date

AUTHORIZED by Date


APPENDIX 12: FORM 5.3.13 FIXED ASSET REGISTER

Economic Life

Description Make Model Serial Number Foreign Currency TZSexample. Printer ex. HP 4200 1254687 CD office 1/1/2015 3 (see above)

Economic Life (Yr)

Fixed Assets Register (FAR) for CouncilsCouncil Director:Council Treasurer (if applicable):

Supplier Details Cost

Category

Furnishings

Office Machines, Communication systemsVehicles

Hardware

Location Purchased by (Council,

Example

Desk, Tables, Chairs, Bookshelves, etc.


Server, Printer, Laptops, PCs, network components (without wiring)

Date of Purchase


APPENDIX 13: FORM 5.3.14 COUNCILBANK PAY LIST

COUNCILBANKPAYLIST NAMEOFCOUNCIL/LLG/SPFDATE:

S.NO. NameofPayee ChequeNumber Amount Reason DateandSignature


APPENDIX 12: FORM 5.3.13 FIXED ASSET REGISTER

Economic Life

Description Make Model Serial Number Foreign Currency TZSexample. Printer ex. HP 4200 1254687 CD office 1/1/2015 3 (see above)

Economic Life (Yr)

Fixed Assets Register (FAR) for CouncilsCouncil Director:Council Treasurer (if applicable):

Supplier Details Cost

Category

Furnishings

Office Machines, Communication systemsVehicles

Hardware

Location Purchased by (Council,

Example

Desk, Tables, Chairs, Bookshelves, etc.


Server, Printer, Laptops, PCs, network components (without wiring)

Date of Purchase


APPENDIX 14: FORM 5.3.15 CONTRACT REGISTER

TZ

COUNCIL PROJECT

Contract No. Content Contractor Contract Date Contract Start Date Contract Sum Currency Year Type of contract Contract

End Date Comments


-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

#2#1 #2

Gross Payment(s) Final Contract Sum

Amendments

#1 #3 #4

APPENDIX 14: FORM 5.3.15 CONTRACT REGISTER

TZ

COUNCIL PROJECT

Contract No. Content Contractor Contract Date Contract Start Date Contract Sum Currency Year Type of contract Contract

End Date Comments


APPENDIX 15: FORM 5.3.16 CONTRACT PAYMENTS’ CALCULATOR

WITH VAT W/O VATContract Value - - Initial Payment - - - - - Second Payment - - - - - - - Third Payment - - - - - Fourth Payment - - - - - Final Payment - - - - - - Totals - - - - - -

DESCRIPTIONCONTRACTOR

INVOICES SUBMITTEDAMOUNT PAYABLE VAT PAYABLE

LIQUIDATED DAMAGES RETENTION ASKED

ACTUAL AMOUNT PAID

BALANCE VAT BALANCE UNCLAIMED

- - - Total work done todate #DIV/0! % to contract value- Less:

retention money - advance not recovered - first payment - rows can be added here as number of payments incraesefirst payment - second payment -

second payment - third payment - third payment - advance recovery - this payment - total deductions - total payments made - To be paid now - % of contract value #DIV/0!

SUMMARY

AMOUNT OF RETENTION MONEYAMOUNT OF VAT IN CONTRACTTOTAL AMOUNT PAYABLE WITHOUT VATTOTAL AMOUNT OF CONTRACT


APPENDIX 16: FORM 5.3.17 STATEMENT OF INTERIM PAYMENT CERTIFICATE STATEMENT OF INTERIM PAYMENT CERTIFICATE (IPC)

PROJECT: (FILL IN NAME OF PROJECT)

CONTRACT WORK (Fill in description of the Contract)

TITLE: (No. of) PAYMENT Date of Payment: ……………… CONTRACTOR:- NAME

ADDRESS,

Item Description Amount (Tshs.) 1

Total Contract Price

(Amount) (VAT inclusive) (Amount) (VAT exclusive)

2 Value of Work Certified (Amount) (VAT inclusive/exclusive)

3

Total Advance payment

(VAT inclusive/exclusive)

4

(No. of) certificate Total (No. of) payment Less 5% retention (Total value of work certified) = Amount) Less advance recovery Less 18% VAT Paid amount

(Amount) (VAT inclusive/exclusive) (amount of retention) (Amount) (Amount of VAT) (Amount paid) (VAT inclusive/exclusive)

CURRENT PAYMENT (VAT Exclusive) (Amount)

Prepared by: Verified by: Approved by: Accepted by:

…………………. …………………. …………………. ………………….. Site supervisor Senior Engineer Project Manager. Contractor. Date: …………… Date: …………… Date: …………… Date: ……………..

APPENDIX 15: FORM 5.3.16 CONTRACT PAYMENTS’ CALCULATOR

WITH VAT W/O VATContract Value - - Initial Payment - - - - - Second Payment - - - - - - - Third Payment - - - - - Fourth Payment - - - - - Final Payment - - - - - - Totals - - - - - -

DESCRIPTIONCONTRACTOR

INVOICES SUBMITTEDAMOUNT PAYABLE VAT PAYABLE

LIQUIDATED DAMAGES RETENTION ASKED

ACTUAL AMOUNT PAID

BALANCE VAT BALANCE UNCLAIMED

- - - Total work done todate #DIV/0! % to contract value- Less:

retention money - advance not recovered - first payment - rows can be added here as number of payments incraesefirst payment - second payment -

second payment - third payment - third payment - advance recovery - this payment - total deductions - total payments made - To be paid now - % of contract value #DIV/0!

SUMMARY

AMOUNT OF RETENTION MONEYAMOUNT OF VAT IN CONTRACTTOTAL AMOUNT PAYABLE WITHOUT VATTOTAL AMOUNT OF CONTRACT


APPENDIX 17: FORM 5.3.18 SUBSTANTIAL COMPLETION CERTIFICATE SUBSTANTIAL COMPLETION CERTIFICATE

This is to certify that (name of contractor) has executed the project named (Project name and description of the project) at (place where the project was being implemented) at (District Council) to the satisfaction of the (Name of Council) Engineers.

Contract number :

Contract sum : (Amount) VAT Exclusive

Start date :

Completion Date :

Extension of time :

Major activities done: (for example)

Description of Network Water Supply Facilities Quantity

Total pipe work

Installation of elevated storage tank 5m3

Internal Plastering of reservoir tanks

Description of Sanitation Facilities

Installation of Hand washing Facilities

Construction of off pit latrines (two holes)

Construction of bathroom

Construction of placenta pit

Construction of gravel pit

Rehabilitation of Labour room

Rehabilitation of Latrine (4holes)

The Employer hereby declares that (Name of Contractor) substantially completed the above

mentioned project successfully on (date of completion).

Prepared by Accepted by Approve by

…………………………. ………………… …………..………..

(name of supervising engineer) (name of contractor) (Name of Council Director)

Project Supervisor Contractor Council Director


APPENDIX 18: FORM 5.3.19 FINAL INSPECTION REPORT COUNCIL NAME AND LOGO

DESCRIPTION OF THE CONTRACT

FINAL INSPECTION REPORT-CONTRACT NUMBER

Contractor: NAME AND ADDRESS

Inspection Date:

1.0 INTRODUCTION

1.1 Description of Scope of Work

1.2 Aim of site inspection:

1.3 Site inspection was conducted by: Name(s) of staff conducting final inspection

2. Works, Machinery or Equipment Inspected

What were inspected?

Method used in inspection

What was observed during inspection, per location: (name of location, item inspected, and

what was observed during inspection.

3. Challenges and recommendation

3.1: Challenges

List of challenges encountered during inspection.

APPENDIX 17: FORM 5.3.18 SUBSTANTIAL COMPLETION CERTIFICATE SUBSTANTIAL COMPLETION CERTIFICATE

This is to certify that (name of contractor) has executed the project named (Project name and description of the project) at (place where the project was being implemented) at (District Council) to the satisfaction of the (Name of Council) Engineers.

Contract number :

Contract sum : (Amount) VAT Exclusive

Start date :

Completion Date :

Extension of time :

Major activities done: (for example)

Description of Network Water Supply Facilities Quantity

Total pipe work

Installation of elevated storage tank 5m3

Internal Plastering of reservoir tanks

Description of Sanitation Facilities

Installation of Hand washing Facilities

Construction of off pit latrines (two holes)

Construction of bathroom

Construction of placenta pit

Construction of gravel pit

Rehabilitation of Labour room

Rehabilitation of Latrine (4holes)

The Employer hereby declares that (Name of Contractor) substantially completed the above

mentioned project successfully on (date of completion).

Prepared by Accepted by Approve by

…………………………. ………………… …………..………..

(name of supervising engineer) (name of contractor) (Name of Council Director)

Project Supervisor Contractor Council Director


3.2: Recommendations

List of recommendation(s) that Council, contractor or any other Authority will have to

consider on the way forward.

Prepared by: Site Engineer or Contract Supervisor

Signature: …………………………………….

Date: ……………………………….........

Approved by: Senior Engineer, Council Treasurer

Signature: …………………………………….

Date: …………………………………….

ANNEX 1: PICTURES OR ANY OTHER DOCUMENTARY EVIDENCE


APPENDIX 19: FORM 5.3.20 CASH ADVANCE REQUISITION FORMS CASH ADVANCE REQUISITION FORM

NAME:

POSITION:

ITEM DESCRIPTION AMOUNT

TOTAL

SIGNATURE DATE:

3.2: Recommendations

List of recommendation(s) that Council, contractor or any other Authority will have to

consider on the way forward.

Prepared by: Site Engineer or Contract Supervisor

Signature: …………………………………….

Date: ……………………………….........

Approved by: Senior Engineer, Council Treasurer

Signature: …………………………………….

Date: …………………………………….

ANNEX 1: PICTURES OR ANY OTHER DOCUMENTARY EVIDENCE


`

SUPERVISION AND TRAVEL AND DSA REQUEST FORM: SECTION A: Name of Applicant Signature of Applicant Date of Application SECTION B: REQUISITION FOR AUTHORIZATION TO TRAVEL Purpose of Travel Number of People Travelling SECTION C: STAFF EXPECTED TO TRAVEL Names and Positions of People travelling: Signatures/ Initials: 1:

2: 3: 4: 5: 6: SECTION D: LOGISTIC PROJECTIONS DATE OF: DEPARTUR E RETURN NUMBER OF: DAYS NIGHTS VEHICLE TO BE USED KMS SECTION E: FINANCIAL PROJECTION

NAME

PER DIEM

FUEL

STATIONERIES

TOTAL

TOTAL

Comment Signature Date Head of Department Council Director


APPENDIX 20: FORM 5.3.21 PURCHASE REQUISITION FORM COUNCIL

PURCHASE REQUISITION FORM

No. Category Description Specification/

Catalogue No.

SupplierName, Address,

Phone No.

Quantity /

Units

Price

(if known)

Approval

Date Supplies Officer Date CouncilDirector

Date Requested from Requested for

Categories:

HSE = Housing material BLD = Building

OFF = Office material ELE = Electricity

PRN = Printing VAR = Various

No.

`

SUPERVISION AND TRAVEL AND DSA REQUEST FORM: SECTION A: Name of Applicant Signature of Applicant Date of Application SECTION B: REQUISITION FOR AUTHORIZATION TO TRAVEL Purpose of Travel Number of People Travelling SECTION C: STAFF EXPECTED TO TRAVEL Names and Positions of People travelling: Signatures/ Initials: 1:

2: 3: 4: 5: 6: SECTION D: LOGISTIC PROJECTIONS DATE OF: DEPARTUR E RETURN NUMBER OF: DAYS NIGHTS VEHICLE TO BE USED KMS SECTION E: FINANCIAL PROJECTION

NAME

PER DIEM

FUEL

STATIONERIES

TOTAL

TOTAL

Comment Signature Date Head of Department Council Director


APPENDIX 21: FORM 5.3.22 PLANNING AND PROGRESS REVIEW PLANNING AND PROGRESS REVIEW SYSTEM FORM (PPR)

Council Planning and Progress review form

Employee name :

Start date :

Meeting date :

Review period :

Reviewed by :

Planning meeting

Date report :

Agreed by HR manager :

Agreed by employee :

Progress meeting

Date report :



Appraisal

Date report :


Seen by employee :

Comment :


Result Areas Review

I P G VGE

1 Result Areas

Meeting to discuss achieving personal results (SMART) and activities for the coming year (January)

Notes on progress meeting (June)

End of year review (December)

-----

Review

I P G VGE

2 Result Areas


APPENDIX 21: FORM 5.3.22 PLANNING AND PROGRESS REVIEW PLANNING AND PROGRESS REVIEW SYSTEM FORM (PPR)

Council Planning and Progress review form

Employee name :

Start date :

Meeting date :

Review period :

Reviewed by :

Planning meeting

Date report :



Progress meeting

Date report :



Appraisal

Date report :


Seen by employee :

Comment :




-----

Review

I P G VGE

3 Result Areas




-----

Review

I P G VGE

4 Result Areas


Overall assessment result areas:

Explanation (supervisor):

Comments (employee):




-----



-----

Review

I P G VGE

3 Result Areas




-----

Review

I P G VGE

4 Result Areas


Core competencies

Review

I P G VGE

1 Independent enterprise/actions




-----

Review

I P G VGE

2 Working together/collaboration skills





-----

Review

I P G VGE

3 Result-oriented




-----

Review

I P G VGE

Core competencies

Review

I P G VGE

1 Independent enterprise/actions




-----

Review

I P G VGE

2 Working together/collaboration skills



4 Integrity




-----


Function-based competencies

Review

I P G VGE

1 …




-----

Review

I P G VGE

2 …


4 Integrity




-----




-----

Review

I P G VGE

3 ….




-----

Review

I P G VGE


Overall assessment of competency-based development:

Explanation (supervisor):


Training

What training/coaching do you feel you need to achieve the above stated goals and objectives?

Progress Result

1.

4 …




-----



-----

Review

I P G VGE

3 ….




-----

Review

I P G VGE


2.

3.

Where do you see yourself in 5 years?

Feedback to my manager:

Overall summary:



APPENDIX 22: FORM 5.3.23 ADVANCE CONTROL REGISTER

DisbursedRetirement

VoucherAmount Retired

Amount Not

Retired Per diem AccommodationPrinting &

Copying Transport FuelAllowanceNot Used

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - -

- - - - - - - - -

STAFF CODE NAME OF STAFF TZS

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Total -

Amount UsedREF (PV No.)Name of Staff

SUMMARY OF AMOUNTS NOT RETIRED

Date Reason

Amount Retirement Analysis

2.

3.

Where do you see yourself in 5 years?

Feedback to my manager:

Overall summary:



APPENDIX 23: FORM 5.3.24 COUNCIL ASSET LOSS REPORT

Memo

Date :

To : Council Director

From :

Concerning : LOSS OF COUNCIL ASSET/DOCUMENT

I, (name of staff), wish to report the loss of (insert the type of asset or document) on (insert date of loss) at (insert location of loss if known and time of loss).

I notified the Police about the loss on (insert date of notification) and obtained Police RB number (insert number of the Police RB).

The Council has also notified the (insert name of insurance firm, if asset or document was insured) and the general public about the loss.

_______________________________ __________________________

Name of staff Signature of staff


APPENDIX 24: FORM 5.3.25 COUNCIL FINANCIAL STATEMENTS PUBLIC SECTOR COUNCIL – STATEMENT OF FINANCIAL POSITION

AS AT DECEMBER 31, 20X2 (in thousands of currency units) 20X2 20X1 BUDGET VARIANCE

ASSETS Current assets Cash and cash equivalents XXX XXX XXX XXX Receivables XXX XXX XXX XXX Inventories XXX XXX XXX XXX Prepayments XXX XXX XXX XXX Other current assets XXX XXX XXX XXX

XXX XXX XXX XXX Non-current assets Receivables XXX XXX XXX XXX Investments in associates XXX XXX XXX XXX Other financial assets XXX XXX XXX XXX Infrastructure, plant and equipment XXX XXX XXX XXX Land and buildings XXX XXX XXX XXX Intangible assets XXX XXX XXX XXX Other non-financial assets XXX XXX XXX XXX

XXX XXX XXX XXX Total assets XXX XXX XXX XXX LIABILITIES Current liabilities Payables XXX XXX XXX XXX Short-term borrowings XXX XXX XXX XXX Current portion of long-term borrowings XXX XXX XXX XXX Short-term provisions XXX XXX XXX XXX Employee benefits XXX XXX XXX XXX Superannuation XXX XXX XXX XXX

XXX XXX XXX XXX Non-current liabilities Payables XXX XXX XXX XXX Long-term borrowings XXX XXX XXX XXX Long-term provisions XXX XXX XXX XXX Employee benefits XXX XXX XXX XXX Superannuation XXX XXX XXX XXX

XXX XXX XXX XXX Total liabilities XXX XXX XXX XXX Net assets XXX XXX XXX XXX NET ASSETS/EQUITY Capital contributed by Other Government entities XXX XXX XXX XXX Reserves XXX XXX XXX XXX Accumulated surpluses/(deficits) XXX XXX XXX XXX Minority interest XXX XXX XXX XXX Total net assets/equity XXX XXX XXX XXX

APPENDIX 23: FORM 5.3.24 COUNCIL ASSET LOSS REPORT

Memo

Date :

To : Council Director

From :

Concerning : LOSS OF COUNCIL ASSET/DOCUMENT

I, (name of staff), wish to report the loss of (insert the type of asset or document) on (insert date of loss) at (insert location of loss if known and time of loss).

I notified the Police about the loss on (insert date of notification) and obtained Police RB number (insert number of the Police RB).

The Council has also notified the (insert name of insurance firm, if asset or document was insured) and the general public about the loss.

_______________________________ __________________________

Name of staff Signature of staff


PUBLIC SECTOR COUNCIL – STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED DECEMBER 31,

20X2 (Illustrating the Classification of Expenses by Nature IPSAS 1: 112)

(in thousands of currency units) 20X2 20X1 BUDGET VARIANCE

Revenue Taxes XXX XXX XXX XXX Fees, fines, penalties and licenses XXX XXX XXX XXX Revenue from exchange transactions XXX XXX XXX XXX Transfers from other Government entities XXX XXX XXX XXX Other revenue XXX XXX XXX XXX Total Revenue XXX XXX XXX XXX Expenses Wages, salaries and employee benefits (XXX) (XXX) XXX XXX Grants and other transfer payments (XXX) (XXX) XXX XXX Supplies and consumables used (XXX) (XXX) XXX XXX Depreciation and amortization expense (XXX) (XXX) XXX XXX Impairment of property, plant and equipment* (XXX) (XXX) XXX XXX Other expenses (XXX) (XXX) XXX XXX Finance costs (XXX) (XXX) XXX XXX Total Expenses (XXX) (XXX) XXX XXX Share of surplus of associates XXX XXX XXX XXX Surplus/(deficit) for the period XXX XXX XXX XXX Attributable to: Owners of the controlling Council XXX XXX XXX XXX Minority interest XXX XXX XXX XXX

XXX XXX XXX XXX

* In a statement of financial performance in which expenses are classified by nature, an impairment of property, plant and equipment is shown as a separate line item. By contrast, if expenses are classified by function, the impairment is included in the function(s) to which it relates.


PUBLIC SECTOR COUNCIL – STATEMENT OF FINANCIALPERFORMANCE FOR THE YEAR ENDED DECEMBER 31, 20--

(in thousands of Shillings) (Illustrating the Classification of Expenses by Function IPSAS 1: 113)

Current Previous BUDGET VARIANCE Revenue

Taxes

Fees, fines, penalties and licenses

Revenue from exchange transactions

Transfers from other Government entities

Other revenue

Total revenue

Expenses

General public services

Defense

Public order and safety

Education

Health

Social protection

Housing and community amenities

Recreational, cultural and religion

Economic affairs

Environmental protection

Other expenses

Finance costs

Total expenses Share of surplus of associates*

Surplus/(deficit) for the period

Attributable to:

Owners of the controlling Council

Minority interests

* This means the share of associates’ surplus attributable to owners of the associates, i.e., it is after tax and minority interests in the associates.

IPSAS 1: 115. Entities classifying expenses by function shall disclose additional information on the nature of expenses, including depreciation and amortization expense and employee benefits expense.

PUBLIC SECTOR COUNCIL – STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED DECEMBER 31,

20X2 (Illustrating the Classification of Expenses by Nature IPSAS 1: 112)

(in thousands of currency units) 20X2 20X1 BUDGET VARIANCE

Revenue Taxes XXX XXX XXX XXX Fees, fines, penalties and licenses XXX XXX XXX XXX Revenue from exchange transactions XXX XXX XXX XXX Transfers from other Government entities XXX XXX XXX XXX Other revenue XXX XXX XXX XXX Total Revenue XXX XXX XXX XXX Expenses Wages, salaries and employee benefits (XXX) (XXX) XXX XXX Grants and other transfer payments (XXX) (XXX) XXX XXX Supplies and consumables used (XXX) (XXX) XXX XXX Depreciation and amortization expense (XXX) (XXX) XXX XXX Impairment of property, plant and equipment* (XXX) (XXX) XXX XXX Other expenses (XXX) (XXX) XXX XXX Finance costs (XXX) (XXX) XXX XXX Total Expenses (XXX) (XXX) XXX XXX Share of surplus of associates XXX XXX XXX XXX Surplus/(deficit) for the period XXX XXX XXX XXX Attributable to: Owners of the controlling Council XXX XXX XXX XXX Minority interest XXX XXX XXX XXX

XXX XXX XXX XXX

* In a statement of financial performance in which expenses are classified by nature, an impairment of property, plant and equipment is shown as a separate line item. By contrast, if expenses are classified by function, the impairment is included in the function(s) to which it relates.


PUBLIC SECTOR COUNCIL – STATEMENT OF CHANGES IN NET ASSETS/EQUITY FOR THE

YEAR ENDED DECEMBER 31, 20X1

(in thousands of currency units)

Attributable to owners of the controlling

Council Minorit

y interest

Total net assets/eq

uity

Contributed capital

Other Reserv

es

Translation

Reserve

Accumulated

Surpluses/(Deficit

s) Total Balance at December 31, 20X0 Changes in accounting policy Restated balance Changes in net assets/equity for 20X1 Gain on property revaluation Loss on revaluation of investments Exchange differences on translating foreign operations Net revenue recognized directly in net assets/equity Surplus for the period Total recognized revenue and expense for the period Balance at December 31, 20X1 carried forward

Other reserves are analyzed into their components, if material.


APPENDIX 25: FORM 5.3.26LLG/SPF PAYMENT APPROVAL This form is a payment approval to be processed at the Council Departments.

PAYMENT APPROVAL – AT COUNCIL LEVEL To be filled in by Council Department Head only Date : Amount : Currency : Installment no. : Payment to Organization : Type of organization : Attachments: Description of payment: APPROVAL Signature Council Accountant : Signature Council Treasurer : Signature Council Director :

PUBLIC SECTOR COUNCIL – STATEMENT OF CHANGES IN NET ASSETS/EQUITY FOR THE

YEAR ENDED DECEMBER 31, 20X1

(in thousands of currency units)

Attributable to owners of the controlling

Council Minorit

y interest

Total net assets/eq

uity

Contributed capital

Other Reserv

es

Translation

Reserve

Accumulated

Surpluses/(Deficit

s) Total Balance at December 31, 20X0 Changes in accounting policy Restated balance Changes in net assets/equity for 20X1 Gain on property revaluation Loss on revaluation of investments Exchange differences on translating foreign operations Net revenue recognized directly in net assets/equity Surplus for the period Total recognized revenue and expense for the period Balance at December 31, 20X1 carried forward

Other reserves are analyzed into their components, if material.


APPENDIX 26: FORM 5.3.27 REVIEW OF AUDIT PROCESS AND REPORT

Council

Date of finalisation of audit plan:

Select

Select

SelectSelectSelectSelectSelectSelectSelectSelectSelect

B. Other Comments (e.g. on the process of preparing Terms of References for the audit, contextual information, any other additional comments)

e. Scope of work for audit

g. Requirements and timeline for the audit report

CommentsPlease state clearly any issues and risks

The Audit ToR has been finalised in line with the agreed timeframe.

Select

A. Checklist

a. Background information on Council/Project

The PR's Terms of References for the audit cover all relevent elements, including:

d. Description of the nature and location of all records

i. Required qualifications and experience of the auditorh. Requirements and timeline for the auditor's management letter

f. Quality control and documentation procedures for the audit

Section 1: Audit Terms of Reference

Cover Period of the Previous Audit:Cover Period of the Current Audit:

c. Audit methodology and testing techniques as per ISA or INTOSAI standardsPR Audit ToR

b. Accounting standards used

Council

Date of auditor selection

1

2

Cover Period of the Previous Audit:

Select

CommentsPlease state clearly any issues and risksA. Checklist

Name of the Selected Auditor:

Has the selection process been approved by the funding agency (if Council is auditing a project funded by Development Partner) and if so when?

Select

Cover Period of the Current Audit:

Section 2: Review of the Auditor Selection

Was the auditor selection process conducted in accordance with best practice (fair, transparent and objective) and based on agreed minimum requirements for the auditor, such as professional qualification, experience, independence etc? Please review the tender documents and give a brief description of the auditor selection and evaluation process. Highlight any issues and risks arising from this review, as relevant.

Select

B. Other comments (e.g. on the process to select the auditor, the auditor's qualification/experience, contextual information, any other additional comments)


Council

Submission Date of the Audit Report:

Select

Timeliness Select

Select

Select

Select

Select

Select

b. Recommendations to resolve/eliminate internal control weaknesses Select

Select

Submission Date of Management Letter:

Was the Management Letter produced according to the Audit ToR and does it reflect good practice?

Select

Select


As part of the audit opinion has the auditor indicated which standards of auditing were applied ( INTOSAI or ISA)? Where national auditing standards have been applied, please provide a general comment whether these meet international auditing standards.

c. Audit recommendations (Clear, actionable, time-bounded, specific, etc)

Select

Was the audit report produced according to the Audit ToR and in line with the Council's Guidelines for Annual Audits?

Select

a. A description of specific internal control weaknesses identified during the conduct of the audit

It covers the following as a minimum:

b. Audit findings

Section 3: Review of the PR's Audit Report and Management Letter

A. Checklist Comments

Please state clearly any issues and risks

Content of PR Audit

Repot

a. the period covered by the audit opinion

Does the Council's Cash flow statement present fairly the cash receipts and disbursements of the Council and that the funds were utilized for the purposes defined by the grant agreement?

Was the audit conducted according to the agreed timeframe? If not, please comment on the reasons for the delay.

The Audit Report includes as a minimum:

B. Other comments on the audit report and management letter

Management Letter

Are there any errors or mistatements in the audited financial accounts (i.e. casting errors)?

Is the audit opinion consistent with the financial information presented in the report, especially the Cash Flow Statement, the Statement of Financial Position and Statement of Financial Performance, where applicable?

APPENDIX 26: FORM 5.3.27 REVIEW OF AUDIT PROCESS AND REPORT

Council

Date of finalisation of audit plan:

Select

Select

SelectSelectSelectSelectSelectSelectSelectSelectSelect

B. Other Comments (e.g. on the process of preparing Terms of References for the audit, contextual information, any other additional comments)

e. Scope of work for audit

g. Requirements and timeline for the audit report

CommentsPlease state clearly any issues and risks

The Audit ToR has been finalised in line with the agreed timeframe.

Select

A. Checklist

a. Background information on Council/Project

The PR's Terms of References for the audit cover all relevent elements, including:

d. Description of the nature and location of all records

i. Required qualifications and experience of the auditorh. Requirements and timeline for the auditor's management letter

f. Quality control and documentation procedures for the audit

Section 1: Audit Terms of Reference


c. Audit methodology and testing techniques as per ISA or INTOSAI standardsPR Audit ToR

b. Accounting standards used

Council

Date of auditor selection

1

2

Cover Period of the Previous Audit:

Select

CommentsPlease state clearly any issues and risksA. Checklist

Name of the Selected Auditor:

Has the selection process been approved by the funding agency (if Council is auditing a project funded by Development Partner) and if so when?

Select

Cover Period of the Current Audit:

Section 2: Review of the Auditor Selection

Was the auditor selection process conducted in accordance with best practice (fair, transparent and objective) and based on agreed minimum requirements for the auditor, such as professional qualification, experience, independence etc? Please review the tender documents and give a brief description of the auditor selection and evaluation process. Highlight any issues and risks arising from this review, as relevant.

Select

B. Other comments (e.g. on the process to select the auditor, the auditor's qualification/experience, contextual information, any other additional comments)


Council Cover Period of the Previous Audit:Cover Period of the Current Audit:Submission Date of the Audit Report:Submission Date of Management Letter:

Select

Select

Select

Fulfilled?

SelectSelectSelectSelectSelectSelectSelect

Recommendation 4

Are there any recommendations from the prior audit that have not been implemented? If so, please state which and the reasons why the project has not implemented them.

Status of Implementation

Recommendation 2Recommendation 3

Section 4: Progress in Implementing the Recommendations of the Previous Year's Audit Report and Management Letter

A. Status of Implementing Audit Recommendations Comments on Progress and timelines for take-up

Recommendation 1

Were there any major issues identified in the audit report of the past year?

Recommendation 5

B. Other comments on the progress in implementing the audit recommendations

Recommendation 6Add any recommendation as appropriate


APPENDIX 27: FORM 5.3.28 INTERNAL CONTROL SYSTEM

Internal Control System

Process: Councils Responsible: Council Director

Last Update:

RisksResponsible

PersonControl -

frequency Control-type

Description of Risks and possible causes

Existence

Com

pleteness

Valuation or allocation

Rights and O

bligations

Presentation and disclosure

Nr. Description of controls CD = Council DirectorCT = Council Treasurer

D = DailyW = WeeklyM = MonthlyQ = QuarterlyY = Yearly

M = Manual/AutomatedP = Preventive/Detective

Bank

Bank statements are inconsistent general ledger accounts x C_01 Bank reconciliation statement CT M MUnknown entries are recorded in bank statement C_02 Follow up with Bank CT M M

Bank reconciliation statement does not correspond to Bank statement and general ledger accounts

C_04

C_03

All payments are entered in the bank account control sheetBank reconcilliation is scrutinized CT

D

M

M

M

Cash / Cheque payments

x x C_21 Check arithmetic calculation of invoices, receipts etc. CT / Cashier D P

x C_22 Scrutinizing validity and accounts coding CD D MCheques are correctly and completely established x x C_23 Countersignature of cheques CD P

x C_24 Cash Count Cashier W P

x C_25 Cash reconcilliation Cashier M M

x C_26 Unannounced cash checks CR Q P

x x C_27 Storage in a safe place / to be verified regularly CR W P

x C_04All payments are entered in the bank account control sheet CT P

Liquidity problems because of outstanding imprestsx C_28

Cash advances/imprests will only be given when all previous CT D P

Financial statement preparation

Personnel do not understand the accounting policies which may lead inconsistencies and misapplication of policies x x x x x C_41 Control and sign all financial statements CD M MCash/Cheque payment vouchers and other entries are not processed accurately in the proper accounting period which may lead to incomplete or inaccurate financial statements. x x C_42 Check CTPeriod end closing accruals / adjustments are not recorded all into the general ledger, which may x x x C_43 Check CTJournal Entries into the general ledger do not balance, leading to inaccurate financial statements x C_44 Check CT

Supplies

Prices used for Supplies are accuratex C_51

Tendering process for more expensive goods, comparison with other approved CD M M

Incorrect items are buyed x x C_52 Check all items purchased Supplies Officer D MProof of supply is missing x C_53 All relevant documents are checked CT

Payroll

salaries are paid for non authorized working hours x C_61 CD M Mwages paid are incorrect x C_62 CTpersons on payroll are existing and entitles to salary x x Supplies D M

Internal Controls

Cash/Cheque payment vouchers are inaccurately or incompletely recorded

Recorded cash amounts exists (cash is subject to theft)

Misappropriate use of cheque book, forged signatures

Significant Assertions

Business Risk Inventory

Controls

Council Cover Period of the Previous Audit:Cover Period of the Current Audit:Submission Date of the Audit Report:Submission Date of Management Letter:

Select

Select

Select

Fulfilled?

SelectSelectSelectSelectSelectSelectSelect

Recommendation 4

Are there any recommendations from the prior audit that have not been implemented? If so, please state which and the reasons why the project has not implemented them.

Status of Implementation

Recommendation 2Recommendation 3

Section 4: Progress in Implementing the Recommendations of the Previous Year's Audit Report and Management Letter

A. Status of Implementing Audit Recommendations Comments on Progress and timelines for take-up

Recommendation 1

Were there any major issues identified in the audit report of the past year?

Recommendation 5

B. Other comments on the progress in implementing the audit recommendations

Recommendation 6Add any recommendation as appropriate


APPENDIX 28: FORM 5.3.29 COUNCIL FINANCIAL OVERVIEW REPORT

COUNCIL FINANCIAL OVERVIEW REPORT

BUDGET LINE AMOUNT JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN TOTAL %- #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! -

- - - - - - - - - - - - - - #DIV/0! - TOTAL

EXPENDITURES ALREADY INCURRED BUDGET DIFFERENCECouncil Budget Description

20 - - BUDGET


INDEX

APPENDIX 28: FORM 5.3.29 COUNCIL FINANCIAL OVERVIEW REPORT

COUNCIL FINANCIAL OVERVIEW REPORT

BUDGET LINE AMOUNT JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN TOTAL %- #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! - - #DIV/0! -

- - - - - - - - - - - - - - #DIV/0! - TOTAL

EXPENDITURES ALREADY INCURRED BUDGET DIFFERENCECouncil Budget Description

20 - - BUDGET