IPSAS - Financial Instruments (2 days)

Introduction

Before IPSAS 41 became mandatory for annual periods beginning on or after 1 January 2023, three International Public Sector Accounting Standards applied: IPSAS 28, Financial Instruments: Presentation; IPSAS 29, Financial Instruments: Recognition and Measurement; and IPSAS 30, Financial Instruments: Disclosures.

The International Accounting Standards Board, the private sector standard setting body, replaced its equivalent standard to IPSAS 29 with IFRS 9. In line with its practice, where appropriate, of maintaining consistency with IFRSs, the IPSASB published IPSAS 41. It is closely based on IFRS 9 but also includes public sector-specific guidance and illustrative examples. IPSAS 41 replaces IPSAS 29 for annual periods beginning on or after 1 January 2023 and was available for early adoption.

IPSAS 41 has a principles-based approach to classification and measurement of financial assets based on the management model and nature of the cash flows. The new forward-looking impairment model requires earlier recognition of credit losses. Hedge accounting requirements are more principles-based and aligned to common risk management activities. This two-day course provides in-depth reviews of IPSAS 41, 28 and 30.

The guidance published on some transactions which are unique to the public sector (Public Sector Specific Financial Instruments), such as monetary gold, currency in circulation and IMF Special Drawing Rights (SDRs) is also covered.

This program answers questions such as:

• What are financial instruments?
• How should financial instruments in the public sector be classified and measured?
• How to measure the fair value of financial instruments?
• How to account for and disclose concessionary loans?
• What are the recognition, measurement and accounting requirements for public sector-specific financial instruments, such as monetary gold, currency in circulation, IMF Special Drawing Rights (SDRs)?
• What are the principles for application of the expected credit loss impairment model in IPSAS 41 and how does it differ from the IPSAS 29 impairment model?
• What are the requirements for hedge accounting in IPSAS 41 and how do they differ from IPSAS 29?
• What are the requirements for transition to IPSAS 41 from IPSAS 29?
• What are the principal similarities and differences between IPSAS and IFRS in the area of financial instruments?

Learning Objectives

• Apply the principles for presenting financial instruments as liabilities or equity
• Comply with the principles for offsetting financial assets and financial liabilities
• Classify and measure financial assets and financial liabilities in accordance with IPSAS 41
• Evaluate the principles of fair value measurement
• Understand and analyse in-depth the principles in relation to the requirements for the measurement of expected credit losses (impairment allowance) in IPSAS 41
• Analyse the principles of accounting for the buying or selling non-financial items
• Understand the uses of derivatives to manage risk
• Determine whether to use hedge accounting
• Understand the IPSAS 41 transition requirements
• Learn how to implement the changes in IPSAS 41 and its impact on the financial statements
• Evaluate the significance of the financial instruments in the entity's financial position and performance
• Understand the nature and extent of risks arising from financial instruments to which the entity is exposed and how those risks are managed

Who Should Attend

Individuals with interests in or responsibilities for accounting for financial instruments in the public sector including:

• Finance and accounting managers
• Government officials and project managers responsible for IPSAS transition
• Accountants and finance staff of entities in the process of adopting IPSAS or IPSAS 41
• Internal and external auditors of entities that have adopted IPSAS or are in the process of doing so
• Accounting academics
• Staff with treasury responsibilities who wish to enhance their understanding of accounting
• Risk and IT staff involved in IPSAS 41 implementation projects
• First-time adopters of IPSAS, seeking to analyse the implications of adopting IPSAS 41 initially for accounting for their financial instruments

Topics

• Introduction
  • Issues with IPSAS 29 Financial Instruments: Recognition and Measurement
  • Overview of IPSAS 41
  • Measurement bases in the Conceptual Framework, measurement of fair value and application to financial instruments
  • IPSAS 28 Financial Instruments: Presentation
    • Scope of the standard; defining and identifying financial instruments
    • Distinguishing between financial liabilities and equity instruments
    • Offsetting financial assets and financial liabilities
• IPSAS 41 Classification and Measurement
  • Recap of IPSAS 29 approach to classification
  • IPSAS 41 Classification: Amortised cost, Fair value through net assets/equity, Fair value through surplus or deficit
    • Management Models criteria
    • Solely Payments of Principal and Interest (SPPI)
    • Classification of financial liabilities
  • Measurement of financial assets and financial liabilities
    • Initial recognition including treatment of transaction costs
    • Subsequent measurement
      • Amortised cost
      • Fair value
    • Reclassification of financial assets
    • Fair value movements due to own credit risk in financial liabilities at fair value through surplus or deficit
• Amortised cost financial instruments
  • Computing the effective interest rate
  • Applying the effective interest method to fixed and variable rate instruments
  • Accounting for financial guarantees granted
  • Accounting for concessionary loans and waivers by the grantor and grantee
  • Loan commitments
• Public sector specific financial instruments
  • Types of instruments
  • Guidance on classification, recognition and measurement
• Derecognition principles
  • Derecognition of financial assets
    • Transfers of financial assets and the evaluation of risks and rewards of ownership
    • Retaining “control” and measurement of continuing involvement
  • Derecognition of financial liabilities
•  Impairment of financial assets
  • Recap of IPSAS 29 impairment based on incurred losses
  • Introduction to IPSAS 41 expected credit loss model – background, scope and impact of the model
  • Application of IPSAS 41 expected credit loss model
    • 12-month and lifetime expected credit losses
    • Staging of financial assets
    • Determination of significant increases in credit risk
    • Measurement of expected credit losses
    • Modified financial assets
    • Simplification and practical expedients
    • Purchase/origination of credit-impaired financial assets
    • Loan commitments and financial guarantee contracts
•  Derivatives and hedge accounting
  • Accounting for derivatives and embedded derivatives in IPSAS 41 and IPSAS 29
  • Impact of embedded derivatives on the SPPI test in IPSAS 41
  • Overview of hedging and accounting for three types of hedges – fair value, cash flow and net investment hedge
  • Impact of hedge accounting for interest rate and foreign exchange risk
  • Overview of changes in IPSAS 41 hedge accounting model
• IPSAS 30 Disclosures (including updates as a result of IPSAS 41)
  • Scope of disclosure
  • Significance of financial instruments
  • Risks of financial instruments
• IPSAS 41 Transition
  • Effective date
  • Transition requirements for classification, expected credit loss impairment and hedge accounting
• Implications of applying IPSAS 41 initially for first-time adopters of IPSAS

Teaching Method

• Group live instruction, cases, examples, group work, open discussions
• Descriptions and explanations of accounting principles
• Analysis and mechanics of common financial instruments
• Practical illustrations using model journal entries, model financial statement disclosures, case studies, and real-world examples
• Interactive participation is encouraged
• All participants receive a comprehensive binder containing copies of the presentation slides, handouts and other course materials

Instructors

Venue

CPE/CPD Accreditation

IASeminars is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

 

Field of study: Accounting

Prerequisites

A basic understanding of IPSAS or IFRS accounting and reporting principles. No advance preparation is required for this course.