Financial Management Authority
Financial reporting advisory
The Government Financial Management provides government entities in parts A1 and A2 with assistance and advice on accounting and financial reporting. It sets implementation and procedural rules and issues guidance relevant to bookkeeping and the preparation of annual financial statements. The financial statements for part A as a whole must be prepared in accordance with international public sector accounting standards based on accrual accounting.
The Government Financial Management sets more detailed rules for the financial reporting of individual government entities in parts A1 and A2.
Accounting standards are rules for how financial information is recorded and presented in financial statements.
The standards explain, among other things, how assets, liabilities, income and expenses should be recorded and measured. They also set out what information should be included in the financial statements.
The aim is to provide a clear and reliable picture of financial position and financial performance and to make it easier to compare financial information between years and between entities.
The Financial Statements of the Government of Iceland are prepared in accordance with the International Public Sector Accounting Standards (IPSAS).
An accounting policy explains how accounting standards are applied when preparing financial statements.
Accounting standards set the rules that must be followed. An accounting policy explains how these rules are applied in practice, for example how assets are measured, how costs are recorded or when income is recognised.
Using the same accounting policies consistently makes financial statements clearer and easier to compare from one year to another.
IPSAS (International Public Sector Accounting Standards) are a set of international accounting standards developed specifically for public sector entities. They are issued by the International Public Sector Accounting Standards Board (IPSASB) to support transparent, consistent, and reliable financial reporting across the public sector.
IPSAS are largely based on International Financial Reporting Standards (IFRS) but are adapted to the specific characteristics of governments and other public sector organizations. The standards consider factors such as tax revenue, public service obligations, and long-term public commitments.
The aim of IPSAS is to improve financial reporting and strengthen public financial management in governments, municipalities, and other public sector entities.
Key features of IPSAS
Standards for the public sector
IPSAS are designed specifically for governments, municipalities, and international organizations.
Accrual-based accounting
Most IPSAS are based on the accrual basis of accounting, providing a more complete view of assets, liabilities, revenue, and expenses.
Adapted to public sector activities
The standards reflect the unique nature of public sector operations, including taxation, service delivery, and public policy objectives.
Transparency and accountability
IPSAS help improve the quality of financial information and promote transparency and accountability in the use of public funds.
What is IFAC?
IFAC (International Federation of Accountants) is the global organization for the accountancy profession. It supports the development of high-quality international standards, promotes professional excellence, and serves as a global voice for accountants and finance professionals.
IFRS (International Financial Reporting Standards) are international accounting standards used by companies when preparing financial statements. Their purpose is to ensure that financial reporting is clear, reliable and comparable across companies and countries.
The standards define how assets, liabilities, income and expenses should be recognized and presented, as well as how information should be disclosed in financial statements.
The Financial Statements of the Government of Iceland present the Government’s annual financial results and financial position. They show how public funds were used during the year and the Government’s financial position at year-end.
The financial statements are prepared annually in accordance with the Public Finance Act and the International Public Sector Accounting Standards (IPSAS).
What is included in the Financial Statements?
The Financial Statements are divided into three parts, each providing a different view of the Government’s finances.
The Government as a Whole
The first part contains the consolidated financial statements for the Government of Iceland as a whole. These include:
Statement of financial performance
Statement of financial position
Cash flow statement
Statement of changes in net assets/equity
Notes to the financial statements
The consolidation includes entities in Part A, Part B and Part C. Transactions between these entities are eliminated to provide an overall view of the Government’s finances.
General Government Sector (Part A)
The second part contains the consolidated financial statements for the General Government Sector (Part A).Part A is divided into Parts A1, A2 and A3. Most government entities belong to Part A1, which primarily includes entities financed through budget appropriations.
Supplementary Statements for Part A1
The third part contains supplementary statements and detailed breakdowns for Part A1 entities.
These provide additional information on:
Financial performance
Financial position
Cash flows
Part A1 mainly comprises activities financed through tax revenue, statutory service revenues and government contributions and corresponds to the activities presented in the State Budget.
Purpose of the Financial Statements
The Financial Statements provide Parliament, government authorities and the public with a comprehensive overview of the Government’s finances and annual operating results.
See published memoranda and guidance.