GFS and International Public Sector Accounting Standards 345
GFS guidance is that probable exposures such as con-
tingencies and one-off guarantees should be disclosed
in memorandum items, until such time as these are
called. Some liabilities for government employee ben-
efi t payments and certain guarantee schemes are not
contingencies, but instead are recognized as liabilities.
IPSASs require that where there is a present obliga-
tion and an outfl ow will probably occur, the amount
should be estimated and, if it can be reliably estimated,
should be recognized as a liability in the statement of
fi nancial position (balance sheet).
A6.22 Th e key area of diff erence is that of “provi-
sions,” which IPSASs defi ne as liabilities of uncertain
timing or amount (see IPSAS 19, Provisions, Contin-
gent Liabilities and Contingent Assets, paragraph 18).
Provisions include obligations for which there is no
counterparty—for example, provisions for restructur-
ing and environmental restoration. Provisions may
also involve an estimate of economic outfl ow for a
group of obligations (e.g., warranties), on the basis
that it is probable that the entity will have to meet a
claim by a proportion of the overall group.
A6.23 Th is diff erence with respect to liability recog-
nition will have consequential diff erences for expense
and asset recognition. For example, recognition of a
provision for restructuring will, under IPSASs, require
recognition of a related expense, because there is no
compensating increase in asset value. Recognition of a
provision for eventual site restoration during construc-
tion of a landfi ll will, under IPSASs, be capitalized,
adding to the overall investment in the asset. Under
IPSASs, it is also possible for an increase or decrease in
the amount of a provision to occur due to an improved
estimate. An increase could result in expense recogni-
tion, while a decrease could result in revenue recogni-
tion. GFS would not recognize either these changes in
assets/liabilities or the resulting revenue/expense until
a point in the process where another party can be iden-
tifi ed as receiving value.
A6.24 GFS and IPSASs apply the same broad rec-
ognition criteria to assets, with the result that, with a
few exceptions such as assets arising from oil and gas
exploration, the same fi nancial and nonfi nancial as-
sets are recognized. Revenue related to asset recogni-
tion is generally also reported at the same point. But
other diff erences, such as asset measurement diff er-
ences, can aff ect the asset value recognized and there-
fore the amount of revenue recognized. Th e timing
of revenue recognition may diff er due to diff erences
between when GFS and IPSASs consider either that
related obligations have been discharged or that re-
lated conditions have been removed.Valuation (measurement) bases
A6.25 Th e valuation principles in GFS and IPSASs
provide scope for the majority of assets and liabilities
to be valued on the same basis—that is, at current
market values, except where IPSASs require the use of
historic cost or some other measurement basis. Both
GFS and IPSASs allow proxies for current market
value. For example, depreciated replacement cost can
be used as a proxy for the current value of specialized
assets, if no market price information is available.
A6.26 Th e general valuation principle of GFS is to
use current market prices for all assets, liabilities, and
related value changes—that is, for all stocks and fl ows.
As explained in Chapter 3 of the GFSM 2014, where
an active market does not exist, the GFS reporting
guidelines recommend the use of nominal values for
fi nancial instruments, and an estimate of the value of
other assets/liabilities. Th ese estimates could be based
on: (i) prices of similar products in similar markets,
(ii) the costs of production of similar assets at the re-
porting date, or (iii) the discounted present value of
expected future returns on the asset. (See also para-
graphs 3.107–3.129 for a complete discussion of the
valuation principles of GFS.)
A6.27 IPSASs allow, but generally do not require,
the use of “fair value” for many, but not all, assets, lia-
bilities, and related value changes. IPSASs defi ne “fair
value” as the amount for which an asset could be ex-
changed, or a liability settled, between knowledgeable,
willing parties in an arm’s-length transaction. Th is is
similar to the basis for market price used in GFS.
IPSASs also allow assets and liabilities to be valued at
historic cost.
A6.28 Under IPSASs, fi nancial liabilities (with
some exceptions) and fi nancial assets that are (i) held-
to-maturity investments, (ii) loans and receivables,
or (iii) investments in equity instruments that cannot
be measured at fair value because fair value cannot
be determined reliably are measured at either cost or
amortized cost, usually minus impairment losses (see
IPSAS 29, Financial Instruments: Recognition and