Reporting by Not-for-Profit, Public Sector and Specialised Entities: IFRS, IPSAS and the ISSB

Not every reporting entity is a profit-seeking company owned by shareholders. Charities, clubs, ministries, state governments and local authorities also prepare financial reports, and the rules that suit a company do not always suit them.

This topic explains how organisations are classified, how not-for-profit and public sector entities differ from companies, which frameworks they follow International Financial Reporting Standards (IFRS), national standards and the International Public Sector Accounting Standards (IPSAS), and the part played by the International Sustainability Standards Board (ISSB).

Questions are mostly short discussion and recall: differences between the sectors, the features of not-for-profit accounts, the benefits and challenges of IPSAS, and the need for the ISSB. None of the diets reviewed for this page tests the topic directly, so expect it to appear as part of a longer question. Read the legal framework topic first.

The next topic starts the Conceptual Framework with its objective, users and qualitative characteristics.

Classifying organisations

Organisations can be classified in several ways. The two that matter here are the sector they belong to and their purpose.

• The private sector is the part of the economy owned and controlled by private individuals or organisations: limited companies, partnerships and sole traders.
• The public sector is the part of the economy under the control of government: national, regional (state, provincial or territorial) and local governments and their component entities, such as departments and agencies.

Most profit-making entities are in the private sector and most not-for-profit entities are in the public sector, but there are exceptions in both directions. A government may own a trading entity that behaves in practice like a private company, such as an electricity supplier selling to the public. These are government business enterprises (GBEs).

A GBE normally prepares its statements under IFRS, so it is not treated differently in the rest of this topic. Charities are private sector bodies that do not exist to make a profit.

Not-for-profit entities

Not-for-profit entities usually have no transferable ownership interests. They are set up and run exclusively for social, educational, professional, religious or charitable purposes, for the benefit of the public or their members. Some, such as charities, operate under a specific statutory framework that may set its own reporting rules. Their financial reports should reflect the ways they differ from profit-making entities.

1. Surplus is not distributed. A not-for-profit entity seeks to operate at a surplus, but it uses that surplus to pursue its goals. It does not pay it to owners.
2. No revenue in the usual sense. A business earns revenue by supplying goods and services to customers. A not-for-profit entity is financed by donations, members’ contributions and money raised from the public. Gifts are sometimes made for a restricted purpose, and the statements must show that.

The financial statements of a not-for-profit entity therefore commonly:

• identify the different types of income received and the cost of generating each;
• refer to a surplus or deficit instead of a profit or loss;
• show an accumulated surplus or fund instead of accumulated profit; and
• show the net assets split into funds, each held for a specific purpose and each with its own capital balance.

Restrictions arise because assets were donated for a stated purpose, such as money from a donor who specifies how it is used, or because money was raised for a specific purpose, such as an appeal after a natural disaster. The general fund can be used for any of the organisation’s purposes. A restricted fund can be used only for its own purpose. A summary of the funds can look like this.

The Nigerian Accounting Standards Board issued Statement of Accounting Standards (SAS) 32 on accounting by not-for-profit organisations. It is not examined at this level. The IFRS Foundation is itself a not-for-profit organisation that applies IFRS in its own statements.

Public sector entities

A public sector entity here means a body that exists to give a service to the public at large. The table sets out the main differences between a private company and a public sector organisation.

A single public sector organisation often has several objectives. A health ministry, for example, may work on disease prevention, treatment, health initiatives and health education. Every organisation needs management information to achieve its objectives, and the accounting system is an important part of the management information system.

The IPSASB Conceptual Framework

The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities was developed by the International Public Sector Accounting Standards Board (IPSASB) to guide the preparation and presentation of public sector reports. Public sector entities aim to deliver services rather than make profit, so they need a framework that secures transparency, accountability and comparability.

The Framework sets the basic principles for reporting and helps public entities make their statements more credible and consistent. Key terms are:

• Public sector entities: national, regional, state and local governments and the agencies that deliver public services.
• General purpose financial reports (GPFRs): the financial statements and other reports that citizens, donors and creditors use to assess a government’s position and performance.
• IPSAS: accounting standards developed to improve transparency in public sector reporting.
• Non-exchange transactions: transactions in which one party receives a benefit without giving approximately equal value in return, such as taxes, grants and social benefits.
• Accrual basis: revenue and expenses are recorded when earned or incurred, not when cash moves.
• Accountability: the duty to report on the use of resources and their effect on service delivery.
• Sovereign power: the authority of a government to enforce laws, levy taxes and manage public resources for the common good.

How public sector entities differ from private businesses

1. Service-oriented mission. Governments focus on delivering services, not on making profit.
2. Non-exchange transactions. Revenue comes mainly from taxation, grants and transfers, not from direct sales.
3. Budgetary control. Financial management is tied to legally approved budgets, which enforce discipline. A private business’s budget concerns only itself.
4. Long-term sustainability. Many projects and liabilities, such as infrastructure, pensions and social benefits, run over long periods.
5. Regulatory role. Governments regulate markets, enforce laws and supply essential public goods and services, which private businesses do not.

Why the Framework matters

The Framework improves financial reporting, accountability and governance in the public sector by:

• improving financial transparency through comprehensive reporting that builds public trust;
• supporting decisions on policy, budget planning and resource allocation;
• allowing comparison of financial performance across jurisdictions;
• strengthening public accountability for the use of public funds;
• promoting efficient management of assets and liabilities and reducing mismanagement; and
• letting users compare outcomes with approved budgets.

IPSAS in Nigeria

Nigeria has adopted IPSAS to improve public sector financial management and bring it into line with good international practice. The Federal Government, working with the Financial Reporting Council of Nigeria and the Federation Account Allocation Committee, has driven the move to accrual-basis reporting.

The main benefits are better public sector governance and oversight of government finances, standardised statements across federal, state and local governments, more confidence among investors and international donors, better budget implementation, and clearer information on long-term obligations and public debt. The main challenges are limited technical expertise in public sector accounting, resistance to change in bureaucracies, weak financial management information systems, and the cost of training and technology.

The International Sustainability Standards Board

The IFRS Foundation set up the ISSB in November 2021 to develop a global baseline of sustainability disclosure standards, known as the IFRS Sustainability Disclosure Standards. Investors wanted reporting on climate and other environmental, social and governance (ESG) matters that was of high quality, transparent, reliable and comparable.

The ISSB builds on existing frameworks, including the Task Force on Climate-related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB) standards and the Global Reporting Initiative (GRI), to create one unified standard.

The need for the ISSB

• Lack of consistency. Many voluntary frameworks gave inconsistent, non-comparable ESG disclosures.
• Investor demand. Investors need standard information to assess risk.
• Regulatory pressure. Governments are introducing sustainability disclosure rules, so a global standard is needed.
• Link to financial reporting. Sustainability issues such as climate risk affect financial performance and need aligning with financial standards.
• Corporate accountability. Companies must give transparent reports to meet stakeholder expectations.

The roles of the ISSB

• develop global sustainability disclosure standards that give a common framework;
• make disclosures consistent across industries and countries, which improves comparability and transparency;
• work alongside the International Accounting Standards Board (IASB) so that sustainability disclosures complement financial reporting;
• give investors decision-useful ESG information on risks and opportunities;
• work with governments, regulators and standard setters to align requirements across jurisdictions; and
• encourage responsible business practice through standardised disclosure.

The two standards issued so far are IFRS S1, general requirements for disclosure of sustainability-related financial information, which sets the framework for reporting sustainability-related risks and opportunities, and IFRS S2, climate-related disclosures, which deals with climate risks and is aligned with the TCFD recommendations. Later topics in the sustainability area study them in detail.

The ideas in more depth

Why not simply use IFRS for everyone?

IFRS are written for entities that make a profit for owners and are judged on profit, return and financial position. A charity’s success is measured by what it achieves for its beneficiaries. A government’s main performance question is whether it used public money lawfully, within budget, and to deliver services.

Funds, restrictions, non-exchange revenue and budgets have no counterpart in a company’s statements, so these entities need their own framework.

Sources and references

• Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities and the International Public Sector Accounting Standards, issued by the IPSASB.
• Statement of Accounting Standards 32: not-for-profit organisations, issued by the Nigerian Accounting Standards Board.
• IFRS S1 and IFRS S2, issued by the ISSB in 2023, and the IFRS Foundation Constitution.

These points are stated as at 5 November 2026.

Worked examples

1. Bode Logistics. Private sector, profit-seeking. It applies IFRS, or the IFRS for SMEs if it qualifies as a small and medium-sized entity.
2. Lagos Power Distribution. Public sector but profit-seeking, so a government business enterprise. It applies IFRS.
3. Hope Orphanage Foundation. Private sector, not-for-profit. It follows its statutory framework and national guidance, shows a surplus or deficit and accounts for restricted gifts in funds.
4. Federal Ministry of Works. Public sector, service-providing. It applies IPSAS and reports against its approved budget.

1. Opening check.
   ₦15,000,000 + ₦5,000,000 + ₦4,000,000 = ₦24,000,000, which agrees to net assets.
2. Disaster relief fund.
   ₦4,000,000 + ₦3,000,000 gift − ₦1,200,000 spent = ₦5,800,000.
3. Other funds. The general fund and scholarship fund are unchanged at ₦15,000,000 and ₦5,000,000.
4. Total net assets.
   ₦15,000,000 + ₦5,000,000 + ₦5,800,000 = ₦25,800,000.
   The increase of ₦1,800,000 equals the gift of ₦3,000,000 less the spending of ₦1,200,000.

How to answer in the exam

• Distinguish. Use a comparison with a point for each side on each row. Four rows (ownership, objective, funding, management) usually carry the marks.
• Explain. Give the feature and what it does to the statements, for instance restricted gifts and funds.
• State benefits or challenges. One line each, and write one more than the number asked.
• Define. Give a short definition and, for non-exchange transactions, an example such as taxes or grants.

Common mistakes in the exam

• Treating a government business enterprise as a public sector service entity. It applies IFRS.
• Writing “profit” and “accumulated profit” in a charity’s statements. The words are surplus, deficit and accumulated fund.
• Mixing the general fund with restricted funds, or using a restricted fund for another purpose.
• Saying public sector revenue comes mainly from sales. It comes mainly from non-exchange transactions.
• Confusing the IPSASB with the IASB or the ISSB.
• Saying IFRS S2 covers all sustainability topics. It covers climate; IFRS S1 gives the general requirements.

Quick revision

• Classes: private or public sector, profit or not-for-profit. GBEs apply IFRS.
• Not-for-profit: surplus not distributed, funded by donations, restricted funds, surplus or deficit wording.
• Public sector: service objective, grant funding, non-exchange revenue, budget control, long-term obligations, regulatory role.
• IPSAS are issued by the IPSASB. Nigeria adopts accrual IPSAS. Challenges: skills, resistance to change, systems, funding.
• ISSB: set up in November 2021 by the IFRS Foundation. IFRS S1 general, IFRS S2 climate.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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