IPSAS Outlook IPSAS issues for public finance management executives

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1 ey.com/ipsas July 2014 IPSAS Outlook IPSAS issues for public finance management executives IPSAS adoption in New Zealand - reasons for moving from IFRS to IPSAS Insights into IPSASB s Strategy Consultation paper Our views on ED 54 Reporting Service Performance Information EY offers worldwide training on IPSAS in cooperation with CIPFA and IASeminars IPSASB project update Resources 14 In this issue... IPSAS adoption in New Zealand - reasons for moving from IFRS to IPSAS We are delighted to talk to Kimberley Crook, incoming Chair of the New Zealand Accounting Standards Board, about New Zealand s thinking behind moving from IFRS to IPSAS for public sector entities. Insights into IPSASB s Strategy Consultation paper The IPSASB issued a public consultation IPSASB Strategy Consultation back in March this year, soliciting feedback on its future work program and strategy for the years 2015 to This article provides an overview of that paper. Our views on ED 54 Reporting Service Performance Information Find out why we think the IPSASB s proposed guidance on service performance reporting fills a gap in this crucial area. EY offers worldwide training on IPSAS in cooperation with CIPFA and IASeminars The Chartered Institute of Public Finance & Accountancy (CIPFA), EY and IASeminars have announced they will jointly offer a comprehensive range of training courses on International Public Sector Accounting Standards in selected countries around the world. IPSASB project update See a summary of the recent board discussions on key projects during the March 2014 meetings. Resources Look here for a list of our publications. A message from Thomas Müller-Marqués Berger Welcome to this month s edition of IPSAS Outlook, which brings you insights into recent IPSAS developments and emerging issues. In addition, we bring you regular reports on IPSAS projects from around the world as we share some of the experiences of our Global IPSAS network. I hope you will find this of assistance to your organization. We welcome your feedback on IPSAS Outlook. Please contact us at thomas.mueller-marques.berger@de.ey.com. Thomas Müller-Marqués Berger, IPSAS Global Leader

2 IPSAS adoption in New Zealand reasons for moving from IFRS to IPSAS Having decided in 2011 that two sets of financial reporting standards were needed in New Zealand (NZ), one for for-profit entities and one for public benefit entities (PBEs), NZ s External Reporting Board (XRB) and the NZ Accounting Standards Board (NZASB) have issued a package of new requirements that apply to NZ PBEs from July 1, The new standards are largely based on IPSAS. These standards will also apply to not-for-profit entities. In the not-for-profit sector, the new standards will be applied later, starting with March 2016 year-ends. Kimberley Crook is a partner in EY New Zealand s Financial Accounting Advisory Services team. She provides advice and support on the application of accounting standards on a range of technical issues to clients across the corporate, public and not-for-profit sectors. Kimberley is also the incoming chair (currently Deputy Chair) of the NZASB. Previously, she worked for accounting standard setting bodies in New Zealand and the UK, including four years at the International Accounting Standards Board in London. Kimberley, could you tell us the rationale for the XRB s decision to move public sector entities from IFRS-based standards to IPSAS-based standards for financial reporting purposes? The key reason was that the accounting standards were more tailored to the needs of both the public and the not-for-profit sectors, as well as users of their financial statements. Before IFRS was adopted in NZ, we had a sector-neutral approach to setting standards. This meant that the same suite of accounting standards applied across the sectors, covering the for-profit, public and private not-for-profit sectors. When IFRS was adopted in NZ, we tried to keep to the sector-neutral approach, but it proved problematic. In particular, because IFRS is developed for entities in the for-profit sector, there were concerns that differences between the sectors weren t adequately reflected in the accounting standards applying to the public sector and the not-for-profit sector. After reviewing the NZ financial reporting framework across all sectors, the XRB decided to move to a multi-sector, multi-tiered approach. This allowed for accounting requirements to be more tailored to different types and sizes of entities. More specifically, the XRB decided that a new suite of standards, based on IPSAS, should be developed for large and medium-sized PBEs which have a primary objective of providing goods or services for community or social benefit, rather than making a profit, which covers most of the public sector. IPSAS was seen as a more suitable base for the new PBE standards, compared with IFRS. This is because IPSAS is developed for public sector entities and it focuses on the information needs of a wider range of users of financial statements, including service recipients. Also, IPSAS is regarded as a credible set of international standards and hence a viable alternative to IFRS. Moreover, historical concerns about the lack of a conceptual framework and the IPSASB s governance arrangements are being addressed. Although some residual concerns meant that it was thought somewhat premature to adopt pure IPSAS immediately, overall, IPSAS is considered to be the most suitable basis for the new PBE accounting standards. 2 IPSAS Outlook June 2014

3 What are the major challenges that public sector entities, the parliament/ government and auditors are facing in the move to IPSAS? How are they dealing with these challenges? Because we are moving from standards based on IFRS to standards based on IPSAS, the transition process itself is much less challenging than for other countries that have moved from, say, cash-based accounting systems to accrual accounting under IPSAS. We are essentially moving from one type of accrual accounting to another. In addition, many individual IPSASs are based on IFRSs, so the two suites of standards have a lot in common, especially at the point of transition. Our biggest challenge is not so much the transition process, but more the ongoing consequences of having two separate suites of standards IFRS in the for-profit sector and IPSAS-based standards in the PBE sector. While some differences between the two suites of standards are expected, and indeed welcomed, to ensure that each suite of standards adequately reflect the needs of each sector, there are concerns about unnecessary differences. These are differences arising from the standard setting process, rather than differences between the sectors. In particular, differences could arise because IPSAS tends to lag behind IFRS. Examples include the new IFRSs on consolidation, joint arrangements and disclosure of interests in other entities 1, which are now mandatory for the for-profit sector. The IPSASB project to develop the equivalent IPSASs using IFRSs 10, 11 and 12 as a basis is therefore welcomed, but clearly any new IPSASs will come on stream later, after the IFRSs. Any major unnecessary differences have the potential to create additional cost and complexity during the consolidation process for mixed groups that comprise PBEs and for-profit entities. For example, the NZ Government prepares consolidated financial statements, which include state-owned enterprises and other for-profit entities. Because these for-profit subsidiaries will continue to use IFRS when preparing their own financial statements, the consolidation process becomes more complex as adjustments might be needed to align the accounting policies of subsidiaries with those of the parent. Similarly, in the local government sector, many city and regional councils have for-profit subsidiaries (and interests in joint ventures or associates) that are for-profit entities reporting under IFRS, so they also face similar consolidation issues. Auditors and advisors of public sector entities also need to understand and keep track of differences between the two suites of standards particularly those auditors and advisors that have clients across both sectors. The practical impact of the mixed group issue is still being assessed. There is a range of factors that could help to mitigate any adverse impacts. For example, it is Country: New Zealand Government: Parliamentary democracy and a Commonwealth realm GDP: USD 136 billion (2013 estimate) Population: 4,401,916 (2014 estimate) Source: The World Factbook 1 IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IPSAS Outlook June

4 important to consider materiality as consolidation adjustments aren t necessary if the impacts of applying different accounting standards are immaterial. This point is emphasized in additional NZ-specific application guidance that was added to IPSAS 6 Consolidated and Separate Financial Statements when the NZ version of the standard was developed. Another important factor is how quickly the IPSASB develops a new or amended IPSAS after the equivalent new or amended IFRS has been issued. The fact that the IASB has been providing longer implementation periods also helps. For example, the IASB has recently decided that its new standard on financial instruments, IFRS 9, will not be mandatory until If the IPSASB were to develop an equivalent standard before then, it would eliminate a potential source of major divergence between the two suites of standards. What are the key differences between previous NZ GAAP (IFRS) and IPSASbased standards that will significantly impact the financial statements of entities in NZ on transition to IPSAS? Overall, there are few major differences at the point of transition. There are several reasons for this. Firstly, many IPSASs are based on IFRSs, so there are similarities between IFRS and IPSAS. Secondly, once it was decided that PBEs would move to a new set of standards in the future, NZ IFRS as applied to PBEs was frozen, so PBEs did not need to adopt any new IFRS requirements that were not yet reflected in IPSAS. Thirdly, in developing the NZ equivalents to IPSASs, some modifications were made that eliminated differences between IPSAS and IFRS. For example, PBEs in NZ had adopted the revised version of IAS 1 Presentation of Financial Statements some years ago. This includes the presentation of items of other comprehensive income. However, IPSAS 1 Presentation of Financial Statements is not updated yet, so it doesn t have the same requirements. Rather than require PBEs to revert to the old format of financial statement presentation and potentially change again when the IPSASB updates IPSAS 1 it was decided to incorporate the newer IAS 1 requirements into the NZ version of IPSAS 1. This meant entities transitioning from NZ IFRS to the new PBE standards didn t need to change their financial statement presentation. However, NZ IFRS did not contain an equivalent to IPSAS 23 Revenue from Non-Exchange Transactions. This will be a new standard for PBEs to apply when they move to the new suite of standards. This has resulted in a number of implementation issues that entities (and their auditors and advisors) are currently working through. Firstly, there are questions about whether particular types of revenue are from exchange or non-exchange transactions. This can be a tricky issue, particularly for public sector entities that operate under the purchaser-provider model, i.e. they receive funding from another public sector entity to provide goods or services to members of the public. Secondly, for revenue received in nonexchange transactions, but with stipulations attached on how the funds are spent, the 4 IPSAS Outlook June 2014

5 The fact that major impacts are not expected could cause entities to underestimate the amount of work required to transition to the new suite of standards. question is whether to recognize revenue immediately or when the funds are spent. In some cases, entities will need to change their revenue recognition policies to align with the requirements in IPSAS 23. How did the key stakeholders and users of the financial statements react to the country transitioning to IPSAS? It s still early days. For the public sector, the new standards will be applied for annual periods beginning on or after July 1, 2014, so June 2015 year-ends will be the first set of financial statements under the new standards. In the not-for-profit sector, the new standards will be applied later, starting with March 2016 year-ends. Reactions so far are mixed. On the one hand, any type of change involves costs, so there is some short-term pain during the transition process. There are also concerns about ongoing practical issues arising from the mixed group issue discussed earlier. On the other hand, the idea of having standards more tailored to the needs of the public sector and the not-for-profit sector is welcomed, for example, standards that are more user-friendly, containing terminology more suited to the PBE sector and more guidance on common transactions in the PBE sector. At the current stage of transition to NZ IPSAS, are there any lessons from the NZ experience that would be useful for other transitioning countries? We are fortunate in that we ve been using standards that are broadly similar to IPSAS, so the impact of transition is not as great as it may be in other countries that may have a different starting point. For example, the New Zealand public sector moved to accrual accounting standards in the late 1980s and we ve been using IFRS-based standards since 2007, so our current move to IPSAS-based standards doesn t involve a major shift in accounting requirements. It s more a case of improving what we have, rather than fundamental change. However, that in itself can be a challenge the fact that major impacts are not expected could cause entities to underestimate the amount of work required to transition to the new suite of standards. There are likely to be some entities that don t think about it soon enough, leaving the work to be done well into the annual reporting process. We are trying to encourage entities to start early on the transition process. This will lead to fewer headaches next year, when the public sector will be applying the new standards for the first time. IPSAS Outlook June

6 Insights into IPSASB s Strategy Consultation paper The International Public Sector Accounting Standards Board (IPSASB or the Board) issued a public consultation IPSASB Strategy Consultation back in March this year, soliciting feedback on its future work program and strategy for the years 2015 to Background Interest in IPSAS and its adoption has increased sharply in recent years following the attention focused on governments management of public finances in the wake of the sovereign debt crisis, and is expected to continue in the future. According to the Consultation Paper (CP), over 80 jurisdictions have either adopted, or have processes in place to adopt, IPSAS either directly or indirectly. 1 Such countries include Austria, Brazil, Estonia, Indonesia, Lithuania, Malaysia, New Zealand, Nigeria, Peru, South Africa, Switzerland and Thailand. With the IPSASB s Conceptual Framework project coming to an end, significant resources are expected to be freed up. The Board has been focusing on the Conceptual Framework for the past few years and, with the achievement of a major milestone in its work program, it is now time for the Board to take stock of its standard setting agenda. Proposals of the Board The IPSASB is proposing to sharpen its strategy in the area of communication, focusing on raising awareness with regards to IPSAS, and the benefits of IPSAS adoption by engaging with relevant stakeholders. As the adoption of IPSAS increases, the Board is seeking views on whether and how its feedback processes can be enhanced. The IPSASB is also proposing to explicitly refer to strengthening of public financial management and knowledge globally in its strategic objective. 2 With regard to the IPSASB s work program for , the CP states that once the Conceptual Framework project is completed, the IPSASB will need to assess the impact of the Conceptual Framework on the existing IPSASs. The aim is to identify necessary changes and establish a plan for addressing them. The IPSASB intends to prioritize those consequential changes and address them through the due process mechanism. It is interesting to note that the Board is also addressing the usefulness and relevance of Cash Basis IPSAS. Constituents are being asked whether they think that Cash Basis IPSAS is a valuable resource in strengthening public finance management and knowledge globally, and whether it would provide a helpful transitional step towards the adoption of accrual-based IPSAS. The IPSASB also seeks constituents views on how the Board should prioritize potential new projects for the five-year period from 2015 to Potential projects for that period are grouped in the following four categories: Projects to address public sector specific issues Projects to maintain existing IPSASs Projects to converge with IFRS Other projects The table on the next page provides an overview of the projects proposed by the IPSASB. The appendix to the CP contains a detailed description of the proposed projects. Next steps The IPSASB envisages that it will approve its final strategy for 2015 onwards at its December 2014 meeting, including its standard setting agenda. The consultation period for this CP will end on July 31, Countries that are adopting IPSAS indirectly would develop their own public sector GAAP based on IPSAS requirements. 2 The proposed strategic objective is Strengthening public financial management and knowledge globally through increasing adoption of accrual-based IPSASs by: a) developing high-quality financial reporting standards; (b) developing other publications for the public sector; and (c) raising awareness of the IPSASs and the benefits of their adoption. 3 The CP can be accessed at: Consultation _0.pdf 6 IPSAS Outlook June 2014

7 Overview of projects proposed by the IPSASB Projects to address public sector specific issues Projects to maintain existing IPSASs Projects to converge with IFRS Other projects Biological assets held for the provision or supply of services Heritage assets Infrastructure assets Intangible assets public sector specific Measurement public sector specific Military assets Natural resources Non-exchange expenses Role of government as owner rather than as government Sovereign powers and their impact on financial reporting Trust funds IPSAS 5 Borrowing Costs IPSAS 11 Construction Contracts IPSAS 22 Disclosure of Financial Information about the General Government Sector IPSAS 25 Employee Benefits Improvements to IPSAS 23 Non-exchange Transactions IPSAS 13 Leases IPSAS 1 Presentation of Financial Statements IPSAS 20 Related Party Transactions IPSAS 9 Revenue from Exchange Transactions IPSAS 18 Segment Reporting Extractive industries (IFRS 6 interim standard but no comparable IPSAS) Insurance contracts (IFRS 4 interim standard but no comparable IPSAS) Non-current assets held for sale and discontinued operations (IFRS 5 but no comparable IPSAS) Rate regulated industries Differential reporting Integrated reporting Interim financial reporting IPSAS Outlook June

8 Our views on ED 54 Reporting Service Performance Information General support for the proposal 1 We believe that the IPSASB has filled a gap in the guidance on service performance information reported by public sector entities with this project. Even when such information is required and reported in certain jurisdictions, there is a lack of comparability and consistency in terms of presentation and disclosure content within and across jurisdictions. The principles proposed by the IPSASB, albeit non-mandatory, would give many preparers a good starting point. The Board has proposed that this guidance be issued as a recommended practice guideline (RPG). However, we believe that the IPSASB should revisit this decision at a later stage and elevate it to mandatory status, notwithstanding that service performance information is not part of financial reporting. As the primary function of governments and most public sector entities is to provide services to constituents, in order for financial results to be useful, we believe that users ought to be able to assess the financial performance of a public sector entity against its service delivery objectives. Specific comments on proposed definitions in the RPG The proposal defines outcomes as the impacts on society, which occur as a result of the entity s outputs, its existence and operations. We believe it is important to establish causality between an entity s inputs or actions and the outcomes it reports, with a view to providing quality performance information. The RPG provided an example of a crime reduction agency whose service performance information could be used to demonstrate the extent of the reduction in crime that can be directly attributed to the work of the entity and, hence, the entity s performance. The users of the information need to understand the causal relationships if the information is to be useful. Therefore, we recommend including additional guidance on the causality of an entity s inputs and the reported outcomes and how the relationship between them should be presented in the final RPG. We question how preparers would be able to assess an entity s impact on society as a result of its outputs, existence and operations (emphasis added). In order for an entity to make an impact, existence is a given. An entity has to exist to have outputs and operations. Hence, the reference to existence seems superfluous. Regarding an entity s impact on society, it would be difficult (if feasible at all) for an entity to track its impact beyond identifiable recipients/beneficiaries of its activities. Therefore, we suggest that the Board defines outcomes more narrowly, and includes only identifiable recipients and beneficiaries in the definition. If it is applicable (and feasible) for some agencies to measure its impact on wider society, we recommend that the Board considers exploring that in an explanatory paragraph, instead of including society as part of the definition. Reporting of service performance information by different levels of government We believe that it is important to link service performance reporting of different levels within government to the concepts and principles in IPSAS 24 Presentation of Budget Information in Financial Statements on reporting budget information. Logically, there should be a connection between the resources that are reported under IPSAS 24 and the activities for which those resources are used and reported, in accordance with this proposed RPG. Without the corresponding budget information as context, it may be difficult to adequately assess an entity s performance. More specifically, we recommend that the principle of public availability and/or accountability be included as a guiding principle for determining when and what service performance information should be reported. Next steps The comment period for this ED ended on May 31, The IPSASB staff is currently analyzing feedback from respondents. According to the IPSASB s work plan for 2014/2015, the analysis of comments is expected to be presented to the Board at its September and December 2014 meetings, followed by redeliberations by the Board through to Q Final issuance of the RPG is expected in the second half of Visit for details of our submission to the IPSASB. 8 IPSAS Outlook June 2014

9 EY offers worldwide training on IPSAS in cooperation with CIPFA and IASeminars The Chartered Institute of Public Finance & Accountancy (CIPFA), EY and IASeminars have announced they will jointly offer a comprehensive range of training courses on IPSAS in selected countries around the world. The recent sovereign debt crisis has reinforced the importance of credible transparent reporting of government financial data. IPSAS enhances the quality of financial reporting and is being adopted around the world by an increasing number of governments, public authorities and international organizations - including the United Nations. Additionally, the European Union is considering the development of European Public Sector Accounting Standards (EPSAS) based on similar principles to IPSAS. CIPFA, the leading professional body for public financial management, IASeminars, a worldwide financial training business, and EY, a global leader in assurance, tax, transaction and advisory services have joined forces to offer a series of unique global technical training courses on IPSAS. Courses in 2014 will take place in Geneva, Hong Kong, London, Lagos and Cape Town, on a broad range of IPSAS topics delivered by respected and experienced professionals. These courses offer one of the most comprehensive and topical IPSAS training programs currently available in the market. On June 11, 2014, EY, CIPFA and IASeminars held an official launch event in Abuja, Nigeria, hosted by the British High Commission, where a select group of invitees heard from EY s Thomas Müller-Marqués Berger about the relevance and importance of this international training initiative, and how it could benefit governments and citizens. There were also opening remarks by the hosts at the British High Commission, and IASeminars CEO, Marc Gardiner. Commenting on the joint IPSAS training courses, Ian Carruthers, CIPFA s Policy and Technical Director and a member of the IPSAS Board, said, CIPFA is delighted to be working with EY and IASeminars on this important project. There is a growing international demand for high-quality IPSAS training, and this new collaboration will help provide the skills needed to operate within the increasingly demanding world of international public finance. Thomas Müller-Marqués Berger, Global Leader International Public Sector Accounting at EY and also a member of the IPSAS Board added, As one of the global industry leaders in transparency, EY is pleased to be cooperating with two of the world s leading IPSAS training providers. We also see this joint project as the logical next step in the already successful cooperation between CIPFA and EY, and we look forward to contributing our global knowledge and experience gained from large-scale IPSAS conversion projects. IPSAS Immersion Workshop, London, August 19-29, 2014 Eight days of formal tuition by senior IPSAS instructors Comprehensive course materials (including case studies and examples) Presentation of certificates for participants IPSAS Outlook June

10 The following table provides an overview of the upcoming IPSAS courses in 2014: IPSAS courses in 2014* Course Date Place Course 3000: IPSAS (Accruals Basis) Immersion 19 Aug 29 Aug 2014 London Workshop (8 days) Course 3010: IPSAS Fundamentals - Accruals 15 Sep 17 Sep 2014 Lagos Basis (3 days) Course 3501: IPSAS - First-Time Adoption (1 day) 18 Sep 2014 Lagos Course 3010: IPSAS Fundamentals - Accruals 20 Oct 22 Oct 2014 Hong Kong Basis (3 days) Course 3501: IPSAS - First-Time Adoption (1 day) 23 Oct 2014 Hong Kong Course 3081: IPSAS Technical Update (1 day) 24 Oct 2014 Hong Kong Course 3010: IPSAS Fundamentals - Accruals 17 Nov 19 Nov 2014 London Basis (3 days) Course 3401: IPSAS Financial Statements - 20 Nov 21 Nov 2014 London Disclosures and Management Discussion (2 days) Course 3501: IPSAS First-Time Adoption (1 day) 20 Nov 2014 London Course 3081: IPSAS Technical Update (1 day) 21 Nov 2014 London Course 3290: IPSAS - For Non-Financial Assets (2 24 Nov 25 Nov 2014 London days) Course 3220: IPSAS - For Revenues and Expenses 26 Nov 2014 London (1 day) Course 3285: IPSAS - For Employee Benefits and 26 Nov 2014 London Provisions (1 day) Course 3201: IPSAS Financial Instruments (2 days) 27 Nov 28 Nov 2014 London Course 3405: IPSAS for managers, donors and 28 Nov 2014 London stakeholders (1 day) Course 3010: IPSAS Fundamentals - Accruals 15 Dec 17 Dec 2014 Cape Town Basis (3 days) Course 3501: IPSAS - First-Time Adoption (1 day) 18 Dec 2014 Cape Town Course 3081: IPSAS Technical Update (1 day) 19 Dec 2014 Cape Town * For registration and further details, visit partners/cipfa 10 IPSAS Outlook June 2014

11 IPSASB project update What s new? The following table shows new publications issued by the IPSASB and public consultations published for comment: Project IPSASB Strategy Consultation Publication The IPSASB has published a Consultation Paper (CP) Strategy Consultation on its work program The consultation period for the CP will end on July 31, See page 6 of Outlook for further details. IPSASB Meeting March 2014 current discussions Topic Conceptual Framework Current discussion As the Board approaches finalization of the Conceptual Framework (the Framework), this was the focus at the Board s March meeting. Phase 2 Elements and Recognition At its December 2013 meeting, the IPSASB decided to follow an approach that would not define deferred inflows and deferred outflows as elements, but would acknowledge that there are transactions and events that give rise to economic phenomena that do not meet the definition of any of the elements and that such economic phenomena may need to be recognized in the financial statements in order to meet the objectives of financial reporting. To address such economic phenomena that may need to be recognized in the financial statements within the elements chapter of the Framework, the IPSASB used the terms other resources and other obligations. This implies that the definitions of an asset and a liability do not preclude reporting other resources and other obligations in the statement of financial position. As a consequence, the statement of financial position may display a net position that is not the difference between assets and liabilities, i.e., net assets. The IPSASB decided to use the term net financial position for that economic phenomenon. The Framework will explain what is meant by net financial position, but will not explain the term in detail. As a further consequence, the IPSASB agreed to adapt the definitions of revenue and expense by defining revenue and expense by reference to movements in net financial position. With respect to the definitions of an asset and a liability, the IPSASB confirmed that an asset will be defined as a resource that an entity presently controls as a result of a past event and a liability as a present obligation of an entity for an outflow of resources that results from a past event. On the question of the definition of financial performance, the IPSASB decided that there should be a statement outlining that all items that met the definition of revenue and expenses and the recognition criteria set out in the chapter on recognition are reported on the statement of financial performance. The difference between revenue and expenses is the entity s surplus or deficit for the period. Finally, the IPSASB decided not to insert a capital maintenance concept into the Framework. The IPSASB planned to review a further version of the draft final chapter at the June 2014 meeting. Phase 3 Measurement The IPSASB considered a number of issues related to the measurement phase. First, the measurement objective and descriptions of financial capacity and operational capacity were discussed. The IPSASB reaffirmed that the measurement objective would be defined, as follows: To select those measurement bases that most fairly reflect the financial capacity, operational capacity and cost of the entity in a manner that is useful in holding the entity to account, and for decision-making purposes. However, the descriptions of operational capacity and financial capacity were modified. The revised description for financial capacity is: The capacity of the entity to continue to fund its activities. Operational capacity is defined as: The capacity of the entity to support the provision of services in future periods through physical and other resources. Furthermore, the IPSASB decided to tighten the draft definitions for both asset and liability. Historical cost of an asset should be defined as, the consideration given to acquire an asset, which is the cash or cash equivalents or the value of the other consideration given, at the time of its acquisition or development. With respect to liabilities the IPSASB noted that, in the public sector, in a large number of cases, there is no consideration. In such cases, historical cost will not be a suitable measurement basis; rather, cost of fulfilment will probably be a better option. IPSAS Outlook June

12 IPSASB project update Topic Current discussion With respect to the inclusion of symbolic values in the Framework, the IPSASB concluded that symbolic valuation should not be included as a measurement basis as it does not meet the measurement objective. Phase 4 Presentation in General Purpose Financial Reports (GPFRs) The IPSASB considered three issues related to development of the chapter. The staff was asked to: Include brief text to address the language in which GPFRs are issued Continue with the approach to terminology exposed in CF-ED4, Presentation in General Purpose Financial Reports Further consider the proposed revised structure of the chapter Next step is to revise the draft chapter and submit it for discussion at the IPSASB June 2014 meeting, with a view to obtaining approval. Project plan and timetable Given that more time is required to develop and restructure the chapters on Elements and Recognition, the IPSASB agreed to defer final approval of those chapters until the September 2014 meeting. Strategy Consultation Government Business Enterprises The IPSASB discussed a draft CP which was developed with a view to solicit feedback from stakeholders on its future strategy for the period from 2015 forward. The CP was published by the end of March 2014 and is open for comment until the end of July See page 6 for further details of this project. The Board reviewed a second draft of a CP Government Business Enterprises (GBEs) and considered a number of key issues identified by staff. In comparison to the first draft of the CP, the following changes were made: Indicators for borderline cases in approach 1 were added in which the IPSASB would not retain the definition of a GBE, but would provide the high level characteristics of entities for which the IPSASB is developing standards Replacement of the term non-market basis with the term non-commercial basis in approach 1 A third approach was added with the intention to enhance convergence between IPSASs and Government Finance Statistics (GFS) guidelines Approach 1 does not foresee a formal definition of GBEs in IPSASs, while approach 2 recommends that the IPSASB would continue to define GBEs, but with a modified definition. The third approach intends to promote convergence with GFS, but would not retain the definition of a GBE. Instead, a definition of a public corporation would be introduced. In addition, this definition should be accompanied by characteristics of public sector entities for which the IPSASB is developing IPSASs that approximate those in the GFS and with provided guidance for borderline cases drawn from GFS. Even though the IPSASB generally supported the third approach, it was rather preferred as a second option in approach 1 than as a totally separate approach. In order to provide guidance on borderline cases, four indicators were included in approach 1 to facilitate an assessment of whether the entity is a public sector entity for which the IPSASB is developing IPSASs. The entity: Pursues an economic or social policy stated by the government Follows orders/instructions from the government to pursue its own business Sells goods and services, in the normal course of business, without a profit Is reliant on continuing government funding or guarantees to be a going concern (other than purchases of outputs at arm s length) However, the view of the IPSASB is that further explanation of the indicators is required. Furthermore, the implications of all the options in approach 1 and approach 2 on alignment between IPSASs and GFS should be made explicit. A decision to approve the CP was deferred to the next meeting. 12 IPSAS Outlook June 2014

13 IPSASB project update Topic Social Benefits Public Sector-Specific Financial Instruments Governance and Oversight Update Current discussion The IPSASB discussed an issue paper on social benefits based on the work that had been undertaken in the past, i.e., before Board members were of the view that preliminary research should include national practices, national standards and discussion papers issued by national standard setters on social benefits. The Board noted that GFS reporting guidelines will require compulsory supplementary tables on social benefits starting in With respect to the overall scope of the project, the IPSASB agreed that the CP should contain: A discussion of the scope of the project A preliminary view that the project should be divided in two phases, i.e., a first phase that considers cash transfers and a second phase that deals with individual goods and services. It is envisaged that the two phases should run sequentially rather than in parallel A proposal regarding the current scope exclusion in IPSAS 19 An explanation for the exclusion of collective goods and services Also, the three theoretical approaches identified in the issues paper (the IPSAS 19 basis, grand executory contract and insurance contract) should be part of the CP. Detailed presentation requirements regarding social benefits should not be included in the CP. The focus of the CP should be on information required to meet the objectives of financial reporting and users information needs. And finally, the CP should aim for alignment with the definitions and categorizations used in GFS. Following the approval of a project brief in December 2013, the IPSASB discussed an issues paper on public sector-specific financial instruments. The issues paper focused on (1) monetary gold, (2) currency and coin circulation, and (3) IMF quota subscriptions and special drawing rights (SDRs). Initial research findings on the accounting by central banks showed that these instruments are not limited to central banks and, rather than an entity-specific approach, a transactional-approach should be followed. Given the variations in accounting for transactions related to these instruments, further research should focus on: Accounting for bank notes and coins in circulation The similarity of monetary gold to cash The situation where governments in distress use the IMF loan facilities and SDRs to increase reserve assets (as IMF quota subscription members), to provide better insight on how these liquidity instruments are used The IPSASB tentatively agreed that: A project task force would be established for this project The goal is to develop one or more IPSASs The IPSASB Governance Review Group (Review Group) published a CP in January 2014, for which the comment period ended on April 30, The Review Group is chaired by representatives from the World Bank, International Monetary Fund (IMF), and Organization for Economic Cooperation and Development (OECD), and includes representatives from the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO) and the International Organization of Supreme Audit Institutions (INTOSAI). Members of the Review Group present at the meeting provided an update on the IPSASB Governance Review. For further details on the consultation of the Review Group see the March 2014 issue of IPSAS Outlook. The CP proposed three alternatives for IPSASB governance and oversight: 1. Extend the scope of the IFRS Foundation s monitoring board and trustee activities 2. Establish separate monitoring and oversight bodies for the IPSASB under the auspices of the International Federation of Accountants (IFAC) 3. Re-establish the IPSASB outside of IFAC with its own monitoring and oversight bodies The IPSASB unanimously favoured option 2. The IPSASB is of the view that this alternative fulfills all of the characteristics for strong public interest oversight of the IPSASB. In addition, it is seen as practical and timely. IPSAS Outlook June

14 Resources The publications below are available on ey.com/ipsas IPSAS Explained We have published an updated second edition of our practical guide to IPSAS, IPSAS Explained. This guide provides decision-makers in the public sector with an overview of IPSAS and the International Public Sector Accounting Standards Board. This book is available for purchase from Wiley, at A snapshot of GAAP differences between IPSAS and IFRS This publication summarizes the key differences between IPSAS and IFRS. It further explains the sources and reasons for differences between the two frameworks. Toward transparency EY has undertaken a study to assess the current state of public sector accounting from a global perspective. This new research provides a better understanding of what governments are doing well, and where there is scope for improvement. Model Public Sector Group The aim of this set of financial statements is to bridge the gap between the theory, as outlined in the standards and the way such information needs to be presented in the financial statements. This first edition of illustrative annual consolidated financial statements of Model Public Sector Group are prepared in accordance with International Public Sector Accounting Standards (IPSAS) in issue at June 30, 2013 and effective for annual periods beginning on January 1, IPSAS Outlook June 2014

15 Public Finance International is a website supported by EY and developed in conjunction with the Chartered Institute of Public Finance and Accountancy to provide informed news and comment on developments in public financial management internationally, raise awareness of the need for good governance and connect a global community of like-minded public financial management professionals. IPSAS Poster Since 2010 EY has published a poster outlining key facts about IPSASs and ongoing IPSASB projects. EY s Public Sector Accounting webcast: IPSAS Update 2013 In this webcast, our panel provides an overview on the background, structure and due process of the IPSASB. It also provides an update on key projects on the IPSASB s agenda, including the Conceptual Framework, and outlines some of the current developments on IPSAS adoption and implementation around the world. This webcast provides public sector finance managers with some of the latest developments on the IPSASB s projects and IPSAS implementation globally. This archived webcast can be accessed at public-sector-accounting-ipsas-update-2013-replay IPSAS Outlook June

16 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. About EY s International Public Sector Accounting Standards Group The move to International Public Sector Accounting Standards (IPSAS) is an important initiative in public sector accounting, the impact of which stretches far beyond accounting to affect every key decision you make, not just how you report it. We have developed the global resources people and knowledge to support our client teams. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide. It s how Ernst & Young makes a difference EYGM Limited. All Rights Reserved. EYG No. AU2511 ED None In line with EY s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com