Chartered Institute of Public Finance and Accountancy (CIPFA) Public Sector Financial Reporting Syllabus

How is the "taxable event" relevant to recognising tax revenue under IPSAS 23?

Tax revenue is recognised when the taxable event occurs and the asset recognition criteria are met. The taxable event is the event the government has determined gives rise to the tax (e.g. earning income for income tax, a sale for VAT, property ownership at a date for property tax).

What is a Service Concession Arrangement (e.g. under IPSAS 32 / the Code), in simple terms?

An arrangement where a grantor (public body) contracts a private-sector operator to construct/upgrade, operate and maintain infrastructure used to deliver public services (e.g. a PFI/PPP), with the grantor controlling the service and any significant residual interest in the asset.

Under IPSAS 32, what is the "control" test that determines whether the grantor recognises the service concession asset?

The grantor recognises the asset if (a) it controls or regulates what services the operator must provide with the asset, to whom, and at what price; and (b) it controls — through ownership, beneficial entitlement or otherwise — any significant residual interest in the asset at the end of the arrangement.

When a grantor recognises a service concession asset, what corresponding liability models may apply?

The "financial liability model" (grantor pays the operator cash, recognising a liability), the "grant of a right to the operator model" (operator earns revenue from third-party users, grantor recognises a liability/deferred income for the right granted), or a combination/divided model.

How does a PFI/service concession asset get reflected on a UK local authority balance sheet under the Code?

The authority recognises the underlying property/infrastructure asset (it controls it) and a corresponding finance-lease-type liability. Unitary charge payments are split between repaying the liability, interest (finance cost), and service/operating charges.

What is meant by "convergence between IPSAS and IFRS"?

The IPSASB's strategy of basing accrual IPSAS on equivalent IFRS, adapting them for public sector issues, so that public and private sector reporting are aligned where transactions are similar, while developing public-sector-specific standards where IFRS has no equivalent.

Give two examples of public-sector-specific topics where IPSAS exists but there is no direct IFRS equivalent.

Revenue from non-exchange transactions/taxes (IPSAS 23) and the presentation of budget information in financial statements (IPSAS 24). Service concession arrangements from the grantor's perspective (IPSAS 32) is also public-sector-specific, as IFRS only addresses the operator (IFRIC 12).

Why might full convergence between IPSAS and IFRS not always be appropriate for the public sector?

Because public sector objectives differ: non-exchange revenue, the absence of a profit motive, the importance of budgetary accountability, sovereign powers (taxation), community/heritage and infrastructure assets, and stewardship over decision-usefulness require modified or distinct treatments.

In group accounting, what is the "group boundary" of a local authority?

The set of entities (subsidiaries, associates and joint ventures) over which the authority has control, significant influence or joint control, and which must therefore be brought into the authority's group financial statements, in addition to the single-entity accounts.

What is the key criterion for classifying an entity as a subsidiary within the group boundary?

Control. The authority has the power to govern the financial and operating policies of the entity so as to benefit from its activities — assessed via power over the entity, exposure to variable returns, and the ability to use power to affect those returns.

Distinguish a subsidiary, an associate and a joint venture for group boundary purposes.

A subsidiary is controlled by the authority (consolidated line-by-line). An associate is subject to significant influence, not control (equity method). A joint venture is subject to joint control under a contractual arrangement (equity method for the venture; joint operations are accounted for share of assets/liabilities).

What method is used to bring a subsidiary into the group accounts?

Full (acquisition-basis) consolidation: the parent and subsidiary assets, liabilities, income and expenses are added together line by line, intra-group transactions/balances are eliminated, and any non-controlling interest is separately identified.

What method is used to bring associates and joint ventures into the group accounts?

The equity method: the investment is initially recognised at cost and adjusted thereafter for the group's share of the investee's post-acquisition profits or losses and other changes in net assets, with the share of results shown in the group income statement.

In consolidation, how is goodwill on acquisition calculated?

$$\text{Goodwill} = \text{Consideration transferred} + \text{NCI} + \text{FV of previously held interest} - \text{FV of identifiable net assets acquired}$$ A positive figure is recognised as an asset (tested for impairment); a negative figure (bargain purchase) is recognised in income.

In full consolidation, how is the non-controlling interest (NCI) in net assets typically measured?

Either at the NCI's proportionate share of the subsidiary's identifiable net assets, or at full (fair value) including the NCI's share of goodwill. NCI represents the equity in a subsidiary not attributable, directly or indirectly, to the parent.

What is the basic consolidation procedure for eliminating an intra-group sale of inventory still held at year end?

Eliminate the intra-group revenue and cost of sales, and remove any unrealised profit included in the carrying amount of closing inventory, so that inventory is stated at original group cost. The adjustment also reduces consolidated retained earnings (split with NCI if the seller is the subsidiary).

Which accounting standard governs local authority pension scheme accounting, and what is the underlying principle?

IAS 19, Employee Benefits, as adopted by the Code. The principle is that the cost of providing post-employment (pension) benefits is recognised in the period in which employees earn the benefit (accrual), not when contributions are paid or benefits are settled.

Distinguish a defined contribution scheme from a defined benefit scheme.

In a defined contribution scheme the employer pays fixed contributions and bears no further obligation, so the expense equals the contributions. In a defined benefit scheme the employer guarantees a benefit (e.g. based on salary/service), bearing the actuarial and investment risk, requiring a net pension asset/liability on the balance sheet.

How is the net defined benefit pension liability (asset) measured under IAS 19?

$$\text{Net liability} = \text{PV of defined benefit obligation} - \text{Fair value of plan assets}$$ The obligation is measured using the projected unit credit method and discounted at a high-quality corporate bond rate.

What are the main components of the defined benefit pension cost recognised under IAS 19?

(1) Service cost (current and past service cost, plus any settlement gains/losses) in surplus/deficit; (2) Net interest on the net liability/asset in surplus/deficit; and (3) Remeasurements (actuarial gains/losses and return on plan assets above interest) in other comprehensive income.

In local authority accounts, what is the role of the Pensions Reserve, and why does council tax not bear the IAS 19 charge?

Statutory arrangements require the General Fund to be charged with the employer's cash contributions payable, not the IAS 19 accounting cost. The difference is reversed out through the Pensions Reserve (an unusable reserve), which absorbs the net pension liability and remeasurements so council tax is unaffected.

What are heritage assets, per the Code/FRS 102?

Assets with historical, artistic, scientific, technological, geophysical or environmental qualities that are held and maintained principally for their contribution to knowledge and culture (e.g. museum collections, monuments, civic regalia, historic buildings).

How are heritage assets measured and treated in local authority accounts?

Carried at valuation (or cost) where information is available; valuations may use any method appropriate and need not follow the formal RICS rules required for operational property. Where cost/value is not available and obtaining it would not be cost-beneficial, the asset may not be recognised but is disclosed.

What distinguishes infrastructure assets, and how are they typically measured?

Infrastructure assets are inalienable assets, expenditure on which is recoverable only by continued use of the asset created (e.g. highways, roads, bridges, drainage). They are measured at depreciated historical cost and depreciated over their useful lives.

What is "componentisation" and why is it relevant to infrastructure and other PPE?

Componentisation requires that where an item of property, plant and equipment has significant parts with different useful lives or depreciation patterns, each significant component is depreciated separately. It improves the accuracy of depreciation for complex assets like roads and buildings.

What is the Capital Adjustment Account (CAA) in local authority accounts?

An unusable reserve that absorbs the timing differences between the accounting cost of non-current assets (depreciation, impairment, revaluation losses, disposals) and the statutory capital charges to the General Fund (Minimum Revenue Provision and capital financing applied). It accumulates resources used to finance capital expenditure.

What is "charging for capital" and why are accounting capital charges reversed out of the General Fund?

The CIES is charged with depreciation, impairment and amortisation (the accounting cost of using assets). Because council tax should not fund these accounting entries, they are reversed out via the Movement in Reserves Statement to the Capital Adjustment Account, and a statutory charge (MRP) is made instead.

What is the Minimum Revenue Provision (MRP), and what is its purpose?

A statutory annual charge to the General Fund (revenue) that sets aside a prudent provision to repay the principal of debt used to finance capital expenditure. It replaces depreciation as the real charge to taxpayers for capital financed by borrowing, ensuring debt is repaid over the asset's useful life.

How does the Revaluation Reserve interact with the Capital Adjustment Account on disposal of a revalued asset?

Accumulated revaluation gains held in the Revaluation Reserve for the disposed asset are transferred to the Capital Adjustment Account (a movement between unusable reserves). The carrying amount derecognised and any gain/loss are dealt with through the CIES and reversed via the CAA, with capital receipts taken to the Capital Receipts Reserve.

What is narrative reporting in a local authority's published accounts, and what is its main vehicle?

Narrative reporting provides commentary, context and analysis to help users understand the financial statements and the authority's performance, financial position, and future prospects. Its main vehicle in the Code is the Narrative Report (formerly the Explanatory Foreword) that accompanies the statements.

What is the Annual Governance Statement (AGS), and on what is it based?

A statutory statement, published with the accounts, in which the authority reports on the adequacy and effectiveness of its governance framework and internal control. It is informed by the CIPFA/SOLACE Delivering Good Governance in Local Government framework and reviewed annually, including by internal audit.