How to navigate transition to CGAS

This standard addresses the recognition and disclosure of revenue and expenses related to construction contracts, including guidance on identifying such contracts and addressing the allocation of costs and revenues across reporting periods. It emphasises the importance of accurately reflecting construction costs in the period the work is performed, regardless of how revenue is funded, while distinguishing between commercial and non-commercial contracts. This shift necessitates robust project management and accounting systems to track progress and costs effectively.

Revenue from exchange contracts, where goods or services are exchanged for consideration, will also follow an accruals-based approach. This means that revenue will be recognised when the transaction occurs, rather than when cash is received. Departments must ensure that their financial reporting processes are capable of capturing these transactions in real time to maintain accuracy and compliance.

Non-exchange transactions, where the government department receives value without directly providing equal value in return, will require careful consideration under CGAS. Revenue recognition in these cases will depend on the specific terms of the contract and the timing of the benefits received. This aspect of CGAS emphasises the need for clear guidelines and training to ensure that staff can navigate the complexities of non-exchange revenue recognition.

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The importance of materiality

A key principle embedded in the CGAS is the concept of materiality. This principle underscores the need for accuracy and diligence in financial reporting, ensuring that stakeholders can rely on the information presented.

Temporary derogation is still applicable

Temporary derogation may still be sought. However, it requires departments to submit a plan outlining a reasonable timeline for compliance, emphasising the importance of proactive planning and communication.

The departments and offices preparing the 2024 Appropriation accounts are expected to implement the nine accrual-based accounting standards issued in 2023. However, as the adoption may present challenges, a provision for derogation exists for those unable to meet the effective date. Departments seeking this concession must disclose whether they have received sanction for a temporary derogation and must submit a comprehensive plan outlining their timeline for adopting the standards.

Future developments

Looking ahead, additional CGAS standards will be introduced through a future circular issued by the DPENDR. These standards will replace the current operating cost statement with a Revenue and Expenditure Statement and a Cash Flow Statement, further aligning Ireland’s financial reporting with international best practices. Until these standards come into effect, references to the Revenue and Expenditure Statement and Cash Flow Statement in the standards will be interpreted as the Operating Cost Statement.

Key reminders to consider through the phased approach

The phased implementation of CGAS is designed to facilitate a smooth transition. Government departments need to continually assess the approach they will be taking as new standards come into effect that include:

Training and Understanding GAAP Differences: Understanding the changes from the current accounting practice relating to a specific topic and what the accounting guidance is under the new CGAS standard.
Potential Capacity Building: Organisation of workshops that facilitate the exchange of experiences between peer entities.
IT System Adaptation: Departments must assess and, in some cases, may need to upgrade their IT systems to ensure they can handle the complexities of the new requirements. This process may necessitate data gathering and documentation support that are critical for ensuring compliance and facilitating informed decision-making, potentially requiring additional investment in technology and resources.
Stakeholder Engagement: Managing stakeholder expectations throughout the transition is vital. Clear communication about the changes and their implications will help build trust and understanding among all parties involved.