MEETING HIGHLIGHTS. New IPSASB Chair. Cash Basis Review. September Contact: Leah Weselowski

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1 MEETING HIGHLIGHTS September 2015 Cntact: Leah Weselwski This Meeting Highlights frm the Internatinal Public Sectr Accunting Standards Bard (IPSASB) has been prepared fr infrmatin purpses nly. Except fr apprval f dcuments fr public expsure and issuance f final Standards, Chapters r Guidelines, decisins reprted are tentative, reflect nly the current status f discussins n prjects, and may change after further deliberatin by the IPSASB. Fr mre detailed infrmatin abut IPSASB prjects, please refer t the prject summaries under Current Prjects n the IPSASB website. New IPSASB Chair The current Chair, Andreas Bergmann, acknwledged the appintment f IPSASB member, Ian Carruthers, as the Chair f the IPSASB frm January 1 st 2016 and the reappintment f Jeanine Pggilini as Deputy Chair fr the year cmmencing January 1 st The Chair als nted the appintment f new members frm Australia, Austria, China, Germany and Switzerland. Cash Basis Review The IPSASB cnsidered the first draft f an Expsure Draft (ED) prpsing amendments t the IPSAS, Financial Reprting Under the Cash Basis f Accunting (the Cash Basis IPSAS). The amendments are directed at (a) vercming bstacles t adptin f the Cash Basis IPSAS that arise as a result f the requirements relating t cnslidatin, external assistance and third party payments; and (b) clarifying that the rle f the Cash Basis IPSAS in the IPSASB s standard-setting strategy is as an intermediate step n the transitin t the accrual basis f financial reprting rather than as an end in itself. The IPSASB cnfirmed the brad directin f the amendments prpsed in the draft ED and identified a number f structural and ther refinements t clarify the amendments prpsed. The IPSASB agreed that fr the next meeting it wuld cnsider a revised draft ED that will include prpsals t reflect the matters nted belw. Cnslidatin Part 1 f the Cash Basis IPSAS will nt include requirements fr the preparatin f cnslidated financial statements. Rather, Part 2 f the IPSAS will encurage cntrlling entities t prepare cnslidated financial statements that encmpass all cntrlled entities. Part 2 f the IPSAS will als encurage: (a) (b) A cntrlling entity that des nt present financial statements that cnslidate all its cntrlled entities t present financial statements that cnslidate sub-grups f its cntrlled entities as a useful step in the transitin t full cnslidatin; and The disclsure f infrmatin abut the entities, r classes f entities, included in any cnslidated financial statements that are presented.

2 External Assistance Part 1 f the Cash Basis IPSAS will nt include requirements fr the disclsure f infrmatin abut external assistance. Rather, Part 2 f the IPSAS will encurage the disclsure f certain infrmatin abut such matters as the amunt and frm f assistance received during the reprting perid frm all parties external t the reprting entity, including multilateral and bilateral external assistance agencies, nn-gvernmental rganizatins, public r private sectr rganizatins r individual dnrs. The draft ED will als encurage disclsure f infrmatin abut the purpses fr which such assistance was prvided and the amunt f any undrawn assistance that is available t the entity at reprting date. Third Party Payments Part 1 f the Cash Basis IPSAS will nt include requirements fr the disclsure f third party payments. Rather, the IPSAS will include additinal explanatin f the arrangements that may be in place fr managing the cash flws that result frm the activities f individual gvernment departments r ther gvernment entities. The encuragements in Part 2 f the IPSAS will als encmpass disclsure f infrmatin abut payments that have been made t settle bligatins f the entity r purchase gds and services fr its benefit by parties which are nt part f the ecnmic entity t which it belngs. Husekeeping The IPSASB identified a number f additinal husekeeping type amendments that are necessary t ensure that the requirements and encuragements in the Cash Basis IPSAS are nt cntrary t thse f the equivalent accrual IPSASs, unless intended t be s t reflect the cash basis fcus in this Standard. IPSASB staff member cntact Paul Sutcliffe: paulsutcliffe@ifac.rg Public Sectr Financial Instruments Mnetary Gld Definitins The IPSASB discussed the prpsed mdificatins t the definitin f tangible gld and the inclusin f an additinal descriptin nting that financial instruments which can result in the physical delivery f gld are within in the scpe f the prject. The IPSASB agree with the prpsed changes. Mnetary Gld In June 2015, the IPSASB directed staff t develp and include specific matters fr cnsideratin (SMCs) as each chapter in the Cnsultatin Paper (CP) is develped. The IPSASB agreed that there wuld be a single SMC, asking cnstituents if guidance shuld prescribe an accunting requirement fr measurement at current value r histrical cst, with a further sub-ptin asking if preparers shuld be allwed t select a measurement basis, based n their intentins fr hlding mnetary gld assets. Currency in Circulatin Definitin The IPSASB raised cncerns ver the revised definitin f Dmestic Currency in Circulatin. In particular, the IPSASB directed that the term dmestic shuld be remved frm the definitin because it may create cnfusin in thse ecnmies using a freign currency, such as the US dllar (USD). In such jurisdictins, a freign currency may be used as dmestic currency. Hwever, recgnitin f the related currency liability is a matter fr the issuing freign mnetary authrity rather than the dmestic mnetary authrity. The IPSASB cnsidered the different types f currency arrangements which exist and the directed that the CP mre clearly identify and explain each. The types f currency arrangements are as fllws: 2

3 Currency issued by a mnetary authrity fr its ecnmy; Currency issued by a mnetary authrity fr a currency unin; and Currency issued by a mnetary authrity fr a freign ecnmy which has been adpted withut frmal agreement. Currency in Circulatin Ntes The IPSASB cnsidered the ptins presented in the draft chapter n Currency in Circulatin. The IPSASB agreed that the ptins fcused t much n the current practices f preparers and needed greater cnsideratin f users perspectives. The IPSASB directed that the chapter be further develped t include mre appraches fr accunting fr ntes and, in particular, cnsideratin f the guidance in the Cnceptual Framewrk. Currency in Circulatin Cins The IPSASB believes the discussin n accunting fr cins in the CP shuld reflect the perspective f all users and nt fcus n current practice in accunting fr cins by preparers nly. The IPSASB questined whether there is a cnceptual difference between ntes and cins and directed staff t cnsider this further. Currency in Circulatin Examples The IPSASB directed that generic examples shuld be develped fr each apprach. IPSASB staff member cntact Rss Smith: rsssmith@ipsasb.rg Impairment f Revalued Assets The IPSASB cnsidered prpsals t bring prperty, plant, and equipment and intangible assets n the revaluatin mdel within the scpe f the IPSASB s tw standards n impairment IPSAS 21, Impairment f Nn-Cash-Generating Assets and IPSAS 26, Impairment f Cash-Generating Assets. These changes seek t prvide users with relevant infrmatin n impairment lsses t prperty, plant, and equipment and intangible assets n the revaluatin mdel and t clarify that impairments t individual assets within a class f prperty, plant, and equipment in IPSAS 17, Prperty, Plant, and Equipment, d nt necessitate a revaluatin f the entire class t which that impaired asset belngs. The IPSASB als cnsidered an alternative view that the ratinale fr the current scpe exclusins in IPSAS 21 and IPSAS 26 is rbust. Accrding t this view the ambiguity ver the relatinship between impairments f individual assets and revaluatins culd be addressed thrugh a clarificatin in IPSAS 17, Prperty, Plant, and Equipment. Such a clarificatin wuld be that, fr assets n the revaluatin mdel, the assessment that carrying amunt des nt differ materiality frm that which wuld be determined using fair value at the reprting date precedes impairment testing and that, unless ther assets in the class have similar indicatins f ptential impairment, there is n need fr a revaluatin f the entire class. On balance, the IPSASB cnsidered that the bjectives f financial reprting are best served by bringing prperty, plant, and equipment and intangible assets n the revaluatin mdel within the scpe f IPSAS 21 and IPSAS 26. The IPSASB then reviewed draft Expsure Draft (ED) 57, Impairment f Revalued Assets, t achieve this bjective. Subject t minr changes the IPSASB apprved ED 57. ED 57 will be issued in mid-octber 2015 and pen fr public cmment until mid-january IPSASB staff member cntact Jhn Stanfrd: jhnstanfrd@ipsasb.rg 3

4 Imprvements The IPSASB discussed and cnsidered Expsure Draft 58, Imprvements t IPSASs 2015 (ED 58) fr apprval. The IPSASB agreed t include the fllwing prpsed imprvements: Part I: Cnsequential Amendments Arising frm Chapters 1-4 f the Cnceptual Framewrk Deletin f Appendix A, summarizing the qualitative characteristics (QCs) and cnstraints n relevant and reliable infrmatin (cnstraints), frm IPSAS 1, Presentatin f Financial Statements, and amending references QCs and cnstraints in ther IPSASs t reflect the Cnceptual Framewrk QCs and cnstraints. Amending requirements and guidance relating t the selectin and applicatin f accunting plicies where there is n IPSAS dealing with a transactin, ther event r cnditin t reflect revised QCs and cnstraints and the establishment f the Cnceptual Framewrk in the IPSASB s literature; and An explanatin by ftnte f the term reliable in initial references t recgnitin criteria in individual IPSASs and in brader discussin f measurement in IPSAS, tgether with an explanatin that terms such as reliability and reliably are being retained in IPSAS until recgnitin criteria and measurement guidance are addressed in mre detail. Part II: General Imprvements t IPSASs Remve references t internatinal r natinal standards dealing with nn-current assets held fr sale and discntinued peratins in a number f IPSASs; and Align the requirements regarding the classificatin f assets in IPSAS 32, Service Cncessin Arrangements, and IPSAS 17, Prperty, Plant, and Equipment. Part III: IPSAS/GFS Alignment Replace the term ammunitin in IPSAS 12, Inventries, with the Gvernment Finance Statistics term military inventries and include a descriptin; and Replace the term specialist military equipment in IPSAS 17, Prperty, Plant, and Equipment, with the Gvernment Finance Statistics term weapns systems and include a descriptin. Part IV: IASB Imprvements Incrprate amendments t IPSAS 17, Prperty, Plant, and Equipment and IPSAS 27, Agriculture, derived frm the IASB narrw scpe amendment Agriculture: Bearer Plants (Amendments t IAS 16 and IAS 41 issued in June 2014 by the IASB). Apprval f ED 58 and Expsure Perid The IPSASB cmpleted a page-by-page review and apprved ED 58 subject t amendments agreed during the sessin. ED 58 will be issued in mid-octber 2015 and pen fr public cmment until mid-january IPSASB staff member cntact Rss Smith: rsssmith@ipsasb.rg 4

5 Public Sectr Cmbinatins Staff presented an Issues Paper n the classificatin f public sectr cmbinatins. The Issues Paper als discussed sectins f a draft Expsure Draft (ED) n public sectr cmbinatins. At its June 2015 meeting, the IPSASB agreed that cmbinatins in which n existing entity gained cntrl f peratins shuld be classified as amalgamatins; where an existing entity did gain cntrl f peratins, further cnsideratin f additinal factrs is required. At this meeting, the IPSASB cnsidered hw the interactins f the additinal factrs (cnsideratin and decisin making) shuld be described in the draft ED. Factrs The IPSASB agreed that in assessing the additinal factr f cnsideratin, the reasns fr cnsideratin are helpful in classifying public sectr cmbinatins. The IPSASB cnsidered that this wuld address the situatin where cnsideratin cmpensates an entity fr the csts incurred in effecting a cmbinatin rather fr giving up its rights in the peratins. Appraches At its June 2015 meeting, the IPSASB directed staff t cnsider hw the factrs shuld interact. The Issues Paper utlined tw appraches: Rebuttable presumptin apprach. Under this apprach, when ne party t the cmbinatin gains cntrl f an peratin, there is a rebuttable presumptin that the cmbinatin is an acquisitin. Individual weighting apprach. Under this apprach, the weighting given t the gaining f cntrl, cnsideratin and decisin making is a matter fr prfessinal judgment based n the individual circumstances f the cmbinatin. Preparers wuld identify which (if any) factrs indicate an acquisitin and which (if any) factrs indicate an amalgamatin. Where indicatrs f bth an acquisitin and an amalgamatin are present, the weighting given t the respective factrs wuld determine the classificatin. Members nted that the rebuttable presumptin apprach prvided greater clarity, whereas the individual weighting apprach was likely t be mre subjective in practice. Cntrl was seen by mst members as mre imprtant in determining the classificatin than the ther factrs, and the rebuttable presumptin apprach reflected this. Other members cnsidered that in practice, classificatin decisins are nt straightfrward. The individual weighting apprach might enable practitiners t better reflect the ecnmic substance f the cmbinatin, but culd lead t greater incnsistency. The IPSASB agreed t include the rebuttable presumptin apprach (referring t the reasns why cnsideratin was r was nt given) in the draft ED. The IPSASB als agreed that the rebuttable presumptin apprach shuld als cnsider the ecnmic substance f a cmbinatin by reference t the qualitative characteristics and cnstraints in the Cnceptual Framewrk. Sectins f Draft ED The IPSASB cnsidered the cverage f the Applicatin Guidance, Implementatin Guidance and Illustrative Examples in the draft ED, and prvided staff with directins n what additinal guidance and examples shuld be develped. IPSASB staff member cntacts Jã Fnseca: jafnseca@ipsasb.rg and Paul Masn: paulmasn@ipsasb.rg 5

6 Nn-Exchange Expenses Interactin between Nn-Exchange Expenses and Revenue prjects The IPSASB cntinued its discussin f the Nn-Exchange Expenses prject. The IPSASB first discussed the ptential fr verlap with the Revenue prject. The IPSASB discussed the fllwing issues, and prvided directin fr the future crdinatin and develpment f the Nn-Exchange Expenses and Revenues prjects: Example transactins and variatins; Applicability and ptential challenges f using a perfrmance bligatin apprach t revenue recgnitin in the public sectr; and Additinal factrs present in nn-exchange transactins that may affect the recgnitin f the transactin. Nn-Exchange Expenses The IPSASB discussed hw decisins in bth the Revenue prject and the Scial Benefits prject may affect the nn-exchange expenses prject (and vice-versa). The IPSASB als discussed whether appraches shuld primarily be develped by distinguishing exchange and nn-exchange transactins, which characterizes the IPSASB s current apprach, r by distinguishing transactins with perfrmance bligatins frm transactins withut perfrmance bligatins. The IPSASB suggested that bth appraches shuld be explred at this pint and n decisins were taken. The IPSASB cnsidered ptential clarificatins t the current definitin f nn-exchange transactins that may help better peratinalize the definitin, if the definitin is retained. Several ptential factrs were cnsidered and sme IPSASB members suggested additinal characteristics fr cnsideratin. Sme IPSASB members als suggested that current guidance n exchange expenses shuld be reviewed. N decisins were taken. The IPSASB discussed the types f transactins t be cnsidered in this prject and thse included in scial benefits. The IPSASB prvided examples f additinal transactins that shuld be within the scpe f this prject. N decisins were taken. The next steps are fr Staff t develp an Issues Paper fr the December 2015 meeting with the Revenue prject team t address the definitin f a perfrmance bligatin in the public sectr, as well as cnsider the effects f additinal factrs n recgnitin. Staff als will develp an Issues Paper fr the December 2015 meeting t further clarify the definitin f nn-exchange transactins and als address specific recgnitin and measurement issues. IPSASB staff member cntact Paul Masn: paulmasn@ipsasb.rg 6

7 Revenue The IPSASB cnsidered an Issues Paper abut the requirements fr revenue frm nn-exchange transactins. The Issues Paper cnsidered the main issues that have been raised n nn-exchange revenue (the exchange vs nn-exchange distinctin, interactin between IPSAS 23, Revenue frm Nn- Exchange Transactins (Taxes and Transfers) and ther standards, services in-kind and capital grants). The IPSASB agreed that the perfrmance bligatin apprach shuld be explred, using the definitin in IFRS 15, Revenue frm Cntracts with Custmers, as the starting pint with apprpriate mdificatins fr the public sectr. In the public sectr, the persn receiving the benefit is nt always the same as the persn receiving the funds. There is ften a three way relatinship between funder, recipient f the funds and the beneficiary f the funds. Funder Beneficiary f the funds Recipient the funds f The IPSASB agreed that the perfrmance bligatin apprach and IPSAS 23 apprach shuld be applied t examples f transactins, in rder t cmpare and cntrast each apprach. The fcus needs t be n the substance f the transactins, the practical challenges and the extent f judgement invlved. The resulting analysis shuld include the benefits f each apprach and whether the utcmes under each apprach are apprpriate. The IPSASB agreed that services in-kind shuld be re-examined taking int accunt the Cnceptual Framewrk. There may be circumstances where services in-kind shuld be recgnized, such as where there is cntrl f thse services and they can be measured reliably. An alternative t recgnitin in the financial statements is disclsure r reprting services in-kind as part f service perfrmance. The IPSASB agreed that capital grants shuld be re-examined under the perfrmance bligatin apprach. This included cnsidering presentatin and disclsure t help address sme f the issues. It is abut hw best cmmunicate the perfrmance stry f the entity receiving the capital grant. The IPSASB directed that the use f "ther resurces" and "ther bligatins", as discussed in the Elements chapter f the Cnceptual Framewrk, shuld nly be cnsidered as a last resrt. The IPSASB discussed tax revenue issues and agreed they shuld be cnsidered in the Revenue prject. This includes whether r nt t define taxatin. The IPSASB als nted that recgnitin and measurement f tax revenue is an issue. The taxable event is ften cnsidered t be the pint at which tax revenue shuld be recgnized. Hwever, the submissin f a tax return and tax assessment ften ccurs the year fllwing the taxable event. Recgnizing tax revenue when the taxable event ccurs requires estimatin, which can 7

8 invlve significant uncertainty. A further issue is whether tax revenue shuld be initially recgnized at face value r fair value. The IPSASB received an update n utreach t date fr the Revenue and Nn-Exchange Expenses prjects. Outreach has included preparers and users f public sectr financial statements in rder t identify issues that shuld be cnsidered in bth prjects and t seek feedback n users infrmatin needs. The IPSASB nted that further wrk is required t cnsider alignment with Gvernment Finance Statistics. IPSASB staff member cntact Paul Masn: paulmasn@ipsasb.rg Emissins Trading Schemes The IPSASB cnsidered three issues fr develpment f the Emissins Trading Schemes (ETSs) cnsultatin paper (CP). First, the IPSASB nted recent develpments with respect t the Internatinal Accunting Standards Bard s (IASB) prject, Pllutant Pricing Mechanisms (frmerly Emissins Trading Schemes). IASB staff are develping a new accunting apprach, which treats Emissin Allwances (EAs) granted t ETS participants as lans frm the ETS administratr. The IPSASB emphasized the desirability f develping a cherent accunting apprach that reflects the ecnmic substance f transactins frm bth, administratr and participant perspectives. The IASB Discussin Paper is nw scheduled fr apprval in 2016, and the IPSASB CP will fllw the same timeline. Secnd, the IPSASB reviewed a draft descriptin f the public plicy bjectives f an ETS and identified revisins. The administratr s public plicy bjectives prvide imprtant cntext fr alternative accunting treatments and fr understanding the ecnmic impact f an ETS. The IPSASB directed staff t develp the descriptin int a backgrund paper. The IPSASB then discussed five alternative accunting appraches fr ETS administratrs and nted that ne r mre further appraches may emerge. The discussin included cnsideratin f different ways in which participants receive EAs. Accunting treatments shuld cpe with the variety f different schemes that exist wrldwide and their evlutin ver time. Staff were directed t cntinue t develp the accunting appraches, including pssible further appraches arising frm IASB discussins. Next steps are fr staff t transfrm the descriptin f public plicy bjectives int a backgrund paper and develp a further Issues Paper fr the IPSASB s December 2015 meeting. IPSASB staff member cntact Gwenda Jensen: GwendaJensen@ipsasb.rg Emplyee Benefits The IPSASB discussed key issues in the revisin f IPSAS 25, Emplyee Benefits. The IPSASB cnsidered bth the maintenance f cnvergence with the underlying Internatinal Accunting Standard (IAS) 19, Emplyee Benefits, and the narrwing f differences with Gvernment Finance Statistics Manual 2014 (GFSM 2014). Maintaining cnvergence with IAS 19 The IPSASB agreed t eliminate the crridr ptin in IPSAS 25 and a number f ther recent amendments t IAS 19 relating t definitins, recgnitin and measurement. The IPSASB directed staff t include an explanatin in the Basis fr Cnclusins f hw the eliminatin f the crridr ptin enhances the understandability f financial statements and accuntability f management. 8

9 Net Interest Apprach The IPSASB did nt decide whether t adpt the net interest apprach in the revised IAS 19. The IPSASB directed staff t bring a prpsal t the IPSASB December 2015 meeting fr bridging the difference between IPSASs and GFS reprting guidelines. Disclsures The IPSASB decided t include the disclsure bjective and the disclsures in IAS 19 in the revised versin f IPSAS 25. Hwever, the IPSASB decided that the disclsures in IPSAS 25 shuld als cnsider GFS reprting guidelines, in particular the inclusin f a table that culd bridge the supplementary table that exists in the System f Natinal Accunts Shared risk plans The IPSASB acknwledged that the amendments made n risk sharing in this revisin f IPSAS 25 des nt address in full the issues that shared risk plans raise. Hwever, as IPSAS 25 is a cnverged standard with IAS 19 and this is a limited-scpe prject, the IPSASB decided nt t make a cmprehensive apprach t revise IPSAS 25 and decided t wait fr a future revisin f IAS 19 n this subject. Cmpsite scial security prgrams The IPSASB decided that the Expsure Draft (ED) shuld have a specific matter fr cmment n the existing requirements and guidance n cmpsite scial security prgrams in rder t ascertain whether these requirements and guidance are useful. Future Directins The IPSASB directed staff t develp a draft ED fr the December 2015 meeting. IPSASB staff member cntact Jã Fnseca: jafnseca@ipsasb.rg Heritage Assets The IPSASB discussed fur issues: a draft descriptin f heritage items; the prject s fcus n particular categries f heritage items; whether heritage items meet the asset definitin in the Cnceptual Framewrk; and a prpsed definitin f a heritage asset. The IPSASB indicated supprt fr the prpsed descriptin f heritage items, which takes a wide, inclusive apprach. The descriptin was revised t read: Heritage items are items that, because f their rarity, imprtance and/r significance, are expected t be held fr the benefit f present and future generatins and preserved indefinitely. A staff prpsal that the prject fcus n heritage items that bradly fit int three existing accunting categries prperty, plant, and equipment (tangible physical assets), intangible assets and bilgical assets r natural resurces was rejected n the basis that this apprach takes t narrw a financial reprting categry perspective. The IPSASB cnsidered arguments fr and against heritage items being assets fr financial reprting purpses, applying the asset definitin in the Cnceptual Framewrk. Sme types f heritage items may be assets while thers are nt. Fr the next IPSASB meeting staff shuld prvide specific examples applying the asset definitin t different types f heritage items. Factrs that culd influence whether a heritage item can be classified as an asset shuld be identified. Next steps are fr staff t develp a further Issues Paper fr the IPSASB s December 2015 meeting. IPSASB staff member cntact Gwenda Jensen: GwendaJensen@ipsasb.rg 9

10 Gvernance The Managing Directr, Prfessinal Standards prvided an update n the secnd meeting f the Public Interest Cmmittee (PIC) in Washingtn DC n September 17, The IPSASB nted the PIC s view that the IPSASB cnsider whether certain prjects might be prgressed mre quickly, the additin f prjects t the IPSASB s wrk plan, the PIC s apprach t assessing whether due prcess has been fllwed in the develpment f IPSAS and the apprach t selectin f the Chair and membership f the Cnsultative Advisry Grup. It was nted that the next meeting f the PIC is scheduled fr March IPSASB staff member cntacts Jhn Stanfrd: jhnstanfrd@ipsasb.rg and IPSASB staff member cntact Rss Smith: rsssmith@ipsasb.rg The next IPSASB meeting will be held in Trnt, Canada n December 8 11,