FOUR-QUADRANT_BALANCE_SHEET_MATRIX/docs/IPSAS_COMPLIANCE.md

# IPSAS Compliance Assessment — FQBM Framework

This document assesses the Four-Quadrant Balance Sheet Matrix (FQBM) against **International Public Sector Accounting Standards (IPSAS)** issued by the IPSASB. The FQBM is a macroeconomic and institutional simulation framework; IPSAS applies to **entity-level general purpose financial reporting** by public sector entities. The assessment clarifies scope, alignment, and gaps.

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## 1. Scope and applicability

| Aspect | FQBM | IPSAS |
|--------|------|--------|
| **Primary purpose** | Monetary/fiscal simulation, stress testing, open-economy dynamics | Entity financial statements (audit-ready, general purpose) |
| **Unit of account** | Sectoral balance sheets (CB, banks, sovereign), state vector **X** | Single public sector entity or consolidated government |
| **Basis** | Identities (A = L + E), differentials, stochastic shocks | Accrual (or cash) basis, recognition, measurement, presentation |
| **Output** | Time paths, ratios, stress tables, Monte Carlo distributions | Statement of financial position, statement of financial performance, cash flow statement, budget comparison |

**Conclusion**: FQBM supports **analysis that can feed into** IPSAS-consistent reporting (e.g. central bank or government balance sheet layout, budget vs actual structure). It is not a substitute for full IPSAS-compliant financial statements. Compliance is assessed for **presentation and disclosure structures** that can be derived from or aligned with FQBM outputs.

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## 2. IPSAS standards relevant to FQBM

| Standard | Relevance | FQBM alignment / gap |
|----------|-----------|------------------------|
| **IPSAS 1** — Presentation of Financial Statements | Statement of financial position (balance sheet) structure, current/non-current classification, minimum line items | **Partial**: We provide an IPSAS 1-style layout (current/non-current) for central bank and commercial bank from state **X**. Minimum line items satisfied where FQBM has data (financial assets, cash/reserves, liabilities, net assets). |
| **IPSAS 2** — Cash Flow Statements | Operating, investing, financing cash flows | **Gap**: FQBM does not model cash flows by activity. Cash flows can be inferred from balance sheet changes (e.g. ΔR, ΔC) but not classified by IPSAS 2 categories. |
| **IPSAS 4** — Effects of Changes in Foreign Exchange Rates | FX translation, functional currency, presentation of FX differences | **Partial**: FQBM has exchange rate **S** and FX pass-through; no explicit translation of foreign-currency assets/liabilities or disclosure of FX gains/losses. |
| **IPSAS 15 / 28 / 29 / 41** — Financial Instruments | Classification, measurement, disclosure of financial assets/liabilities | **Partial**: State variables (B, R, Loans, Deposits) map to financial instruments; no classification (amortised cost vs FVOCI etc.) or impairment model. |
| **IPSAS 22** — Disclosure of Financial Information About the General Government Sector | Sectoral disaggregation (e.g. general government) | **Partial**: FQBM distinguishes CB, banks, sovereign; can support GGS-style disclosure structure if sector definitions are aligned. |
| **IPSAS 24** — Presentation of Budget Information in Financial Statements | Budget vs actual comparison, material variances, comparable basis | **Gap**: No budget or appropriation model in FQBM. We provide a **structure** (budget, actual, variance) for users to populate from external budget data. |
| **Conceptual Framework** | Definitions of assets, liabilities, net assets, revenue, expense | **Partial**: A = L + E and four-quadrant identity align with “assets” and “liabilities”; no revenue/expense or surplus/deficit from operations. |

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## 3. Current/non-current classification (IPSAS 1)

IPSAS 1 requires **current** and **non-current** classification for assets and liabilities unless a liquidity presentation is more appropriate.

**Central bank (from FQBM state)**:

| IPSAS 1-style line item | FQBM variable | Suggested classification | Notes |
|-------------------------|---------------|---------------------------|--------|
| Financial assets (at amortised cost / FV) | B (government bonds), L_cb (loans) | Non-current (hold-to-maturity / policy portfolio) or split by maturity | L_cb is in state (`FQBMState.L_cb`). |
| Cash and cash equivalents / Reserves | R | Current | |
| Currency in circulation | C | Liability (current) | |
| Liabilities (reserve accounts) | R (bank reserves) | Current | |
| Net assets / Equity | E_cb | — | |

**Commercial bank**:

| IPSAS 1-style line item | FQBM variable | Suggested classification |
|-------------------------|----------------|---------------------------|
| Loans and receivables | Loans | Current / non-current by behavioural maturity if available |
| Cash and balances at central bank | R (if attributed to bank) | Current |
| Deposits from customers | Deposits | Current |
| Net assets / Equity | E_b | — |

The module `fqbm.ipsas.presentation` produces statement-of-financial-position layouts with these classifications where applicable.

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## 4. Budget vs actual (IPSAS 24)

IPSAS 24 requires comparison of **approved budget** (original/final) with **actual** amounts on a comparable basis, with explanations of material variances.

**FQBM**: No budget or appropriation data. We provide:

- A **template** for budget vs actual: line item, original budget, final budget, actual, variance, material (e.g. >10%).
- **Actual** amounts can be filled from FQBM state (e.g. total assets, total liabilities, key aggregates). **Budget** columns must be supplied by the reporting entity.

See `fqbm.ipsas.presentation.budget_vs_actual_structure()`.

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## 5. Financial instruments (IPSAS 15, 28, 29, 41)

- **Presentation**: Financial assets vs liabilities, and (where applicable) current vs non-current — supported by the IPSAS 1-style layout.
- **Recognition and measurement**: FQBM does not implement measurement bases (amortised cost, FVOCI, FVPL) or impairment (e.g. ECL). **Gap** for full IPSAS 41 compliance.
- **Disclosure**: Maturity and risk templates in `maturity_risk_disclosure_structure()`; extend with user-supplied data for full interest rate sensitivity and credit risk/ECL disclosure.

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## 6. Foreign exchange (IPSAS 4)

- FQBM has **S** (exchange rate) and **FX pass-through** (e.g. π_import = β ΔS). Useful for **analysis** of FX effects on inflation and balance sheets.
- **Gap**: No explicit translation of foreign-currency-denominated assets/liabilities, or separate disclosure of FX gains/losses in a performance statement.

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## 7. Consolidation and general government (IPSAS 6, 22, 35)

- FQBM **A_dom + A_ext = L_dom + L_ext + E** and sectoral breakdown (CB, banks, sovereign) support **consolidation logic** and sectoral views.
- **IPSAS 22** (general government sector disclosure): FQBM can feed sectoral totals; exact GGS boundary and entity list must be defined by the reporting jurisdiction.

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## 8. Compliance checklist (summary)

| Requirement | Status | Notes |
|-------------|--------|--------|
| Statement of financial position (IPSAS 1) structure | **Supported** | Via `fqbm.ipsas.presentation.statement_of_financial_position()` |
| Current/non-current classification | **Supported** | Applied in presentation layer for CB and bank |
| Minimum line items (IPSAS 1) | **Partial** | Satisfied for items present in FQBM; no PP&E, inventories, etc. |
| Cash flow statement (IPSAS 2) | **Not supported** | No activity classification of cash flows |
| Budget vs actual (IPSAS 24) | **Structure only** | Template provided; budget data external |
| Financial instrument measurement (IPSAS 41) | **Not supported** | No measurement basis or ECL |
| FX translation (IPSAS 4) | **Partial** | Exchange rate and pass-through only |
| Disclosure of GGS (IPSAS 22) | **Partial** | Sectoral structure supported |
| Reporting period / reporting date | **Supported** | `FQBMState.reporting_date`; `statement_of_financial_position(..., reporting_date=)` |
| Comparative period (prior/current) | **Supported** | `statement_of_financial_position_comparative()` |
| Notes and maturity/risk disclosure | **Structure** | `notes_to_financial_statements_structure()`, `maturity_risk_disclosure_structure()` |
| Cash flow from balance sheet changes | **Supported** | `cash_flow_from_state_changes()`; FX: `fx_translate()` |
| Additional IPSAS structures (3, 5, 9, 10, 14, 19, 20, 23, 29/41, 38, 46, 48, cash basis, RPG 2, functional/presentation currency) | **Structure** | Templates in `fqbm.ipsas.presentation`; budget vs actual from state: `budget_actual_from_state()` |

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## 9. How to use the IPSAS layer in this codebase

1. **Run the workbook** (or differential model) to obtain **state** (and optional stress, MC).
2. **Call** `fqbm.ipsas.presentation.statement_of_financial_position(state, entity="central_bank")` (or `"commercial_bank"`, `"consolidated"`) to get an IPSAS 1-style layout.
3. **Call** `fqbm.ipsas.presentation.budget_vs_actual_structure()` to get an empty DataFrame/template for IPSAS 24; fill budget from external source, actual from state where applicable.
4. **Export** presentation outputs to Excel or include in reports alongside FQBM dashboards.

For **full IPSAS compliance** at entity level, the reporting entity must:

- Maintain recognition and measurement in line with IPSAS (e.g. IPSAS 41, 46).
- Prepare cash flow statement (IPSAS 2) and statement of financial performance.
- Populate budget information (IPSAS 24) and provide variance analysis.
- Apply IPSAS 4 for FX and other standards as applicable.

The FQBM IPSAS layer supports **presentation consistency** and **structural alignment** with IPSAS 1 and IPSAS 24, not end-to-end compliance by itself. For a consolidated list of recommendations (e.g. full CCP balance sheet, FX disclosure, white paper), see [RECOMMENDATIONS.md](RECOMMENDATIONS.md).

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## 10. References

- IPSASB (2025). *Handbook of International Public Sector Accounting Pronouncements*. IFAC.
- IPSAS 1, *Presentation of Financial Statements*.
- IPSAS 2, *Cash Flow Statements*.
- IPSAS 4, *The Effects of Changes in Foreign Exchange Rates*.
- IPSAS 24, *Presentation of Budget Information in Financial Statements*.
- IPSAS 22, *Disclosure of Financial Information About the General Government Sector*.
- IPSASB Conceptual Framework, *General Purpose Financial Reporting by Public Sector Entities*.

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## 11. Complete IPSAS and Matrix gaps

For a **full list of all remaining IPSAS standards** (1–50, cash basis, RPGs, Conceptual Framework) with status (supported / partial / missing) and **all FQBM/Matrix gaps** (L_cb, open-economy split, Parts VII–IX, reporting period, etc.), see **[GAPS_AND_MISSING.md](GAPS_AND_MISSING.md)**.