The core difference is timing of recognition: the accrual basis recognizes transactions when they occur, regardless of when cash is received or paid, while the cash basis recognizes them only at the moment cash is actually received or paid. The numbered IPSAS (such as IPSAS 1 onward) are built on the accrual basis, while a separate standard exists for entities that still report on the cash basis.
How Does the Standard Define the Accrual Basis?
The Standard states that "accrual basis means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid)." This same definition also clarifies, by contrast, the essence of the cash basis: recognition under it occurs only upon actual receipt or payment of cash, regardless of when the underlying transaction or obligation arose. In practice, this means a due invoice or an obligation that has arisen is recorded in the accounting records and financial statements when it arises, not when it is later paid or collected.
What Elements Does the Accrual Basis Recognize?
According to the Standard, "the elements recognized under accrual accounting are assets, liabilities, net assets/equity, revenue, and expenses." This means the accrual basis allows receivables, payables, and non-cash assets to be shown in the financial statements, which is not necessarily shown in the same detail in a purely cash receipts and payments statement. Under the cash basis, such non-cash elements are typically not presented in the same detail, since the focus there is on cash inflows and outflows during the period.
To Whom Does Each Basis Apply?
IPSAS 1 states that "this Standard shall be applied to all general purpose financial statements prepared and presented under the accrual basis of accounting in accordance with IPSAS," confirming that the entire numbered IPSAS suite (starting with IPSAS 1) is directed at entities preparing their statements on the accrual basis. A separate introductory text also states that "the IPSASB develops IPSAS Accounting Standards which apply to the accrual basis of accounting," distinguishing them from the sustainability-reporting standards.
Is There a Dedicated IPSAS Document for the Cash Basis?
Yes; there is a separate document within the IPSAS collection whose illustrative example states that "the financial statements have been prepared in accordance with Cash Basis IPSAS, Financial Reporting under the Cash Basis of Accounting." This document is directed at government entities that still prepare their financial statements on the cash basis, ahead of a later move to the accrual basis.
Why Does This Distinction Matter in Practice?
Because accrual recognition covers assets and liabilities and not only cash flows, financial statements prepared on that basis give a fuller picture of a public sector entity's financial position, including outstanding debts and receivables not yet collected, which a cash receipts and payments statement alone does not necessarily reflect.
Legal References
- IPSAS 1 Presentation Of Financial Statements, paragraphs 2 and 7
- IPSASB — Preface To IPSAS Accounting Standards And IPSASb SRS Standards, paragraph 8
- IPSASB — Financial Reporting Under The Cash Basis Of Accounting, illustrative example
For questions about your specific situation, you can ask the Public Sector Accounting Helper on Helpers, or consult a licensed chartered accountant.