Comments on the Exposure Drafts

Transcription

1 REPUBLIQUE TUNISIENNE Conseil d Etat Cour des comptes Tunis, The Technical Director International Public Sector Accounting Standards Board Comments on the Exposure Drafts Dear Madam or Sir: The Tunisian Court of Accounts has received your letter inviting her comments on the different exposure drafts issued by the International Public Sector Accounting Standards Board. In response to your request for comments on exposure drafts 25- Equal Authority of paragraphs in IPSASs, exposure draft 26- Improvements to International Public Sector Accounting standards, draft 27 Presentation of Budget Information In financial Statements, and exposure draft Disclosure Of Financial Information about the General Government Sector, please find out detailed comments in the attached note prepared by the Tunisian Court of Accounts.

2 2 We would like to thank you for the opportunity to provide comments to the Board s projects. We appreciate the considerable efforts that have been put into the production of the exposure drafts and the consideration you give to our input. comments. Please do not hesitate to contact us if you wish to discuss any of our NAÏMA BOULILA PRESIDENT OF CHAMBER WITHIN THE TUNISIAN COURT OF ACCOUNTS

3 3 REPUBLIQUE TUNISIENNE Conseil d Etat Cour des comptes The Tunisian Court of Accounts comments on the exposure drafts issued by the International Public Sector Accounting Standards Board For over three decades the Tunisian Court of Accounts has been issuing guidance and standards and policy papers on different matters related to controlling fields which include the topics submitted to comments by the International Public Sector Accounting Standards Board of the international federation of accountants. Moreover, the purposes posted up by the board by issuing the exposure drafts submitted to comments coincide with the approach adopted by the Tunisian Court of Accounts which is based on the development of transparency and accountability. For the sake of clarity the Tunisian Court of Accounts comments will be divided in 4 sections. The four sections provide comments respectively on the exposure draft, 25, 26, 27 and 28. Some sections contain both general comments and answers to the specific questions raised by the board. These answers should be read in the context of the general comments. Section 1- Comments on exposure Draft 25, Equal Authority of paragraphs in IPSASs,

4 4 As a supreme audit institution, The Tunisian Court of Accounts submits the following comments. The ED 25 has been issued to clarify with the proposed amendments within the preface to international Public sector standards that all paragraphs within IPSASs have equal authority. The Tunisian Court of Accounts agrees with the proposed amendments to the preface to clarify that the paragraphs in bold type and plain type in the IPSASs have equal authority. However we suggest that the Board consider to specify that paragraphs in bold type should be read in the context of the commentary of the paragraphs in plain type. Section 2- Comments on exposure Draft 26, Improvements to International Public Sector Accounting Standards issued by the International Public Sector Accounting Standards Board The ED26, Improvements to International Public Sector Accounting Standards issued by the International Public Sector Accounting Standards Board is intended to update 11 IPSASs in order to better converge with the IAS. Collecting comments from interested parties about changes to these standards will contribute to the improvement of the standards quality which will systematically lead to better financial information reported by public sector entities. After exam of ED 26 we declare that the amendments proposed to IPSAS do not raise any especial objection or reserve from our institution.

5 5 Concerning the question whether the proposed changes to IPSAS will enhance convergence with the equivalent IAS we estimate that they do so. Although, we think that a great effort is to be made in order to encourage governments to harmonize national requirements with IPSAS. Concerning the question whether extraordinary items should not be defined and their presentation either in the face of the statement of financial performance or in the notes should not be explicitly required or prohibited, we share the view of the majority of IPSASB members who think that IPSAS should not prohibit entities from disclosing extraordinary items in the notes or in the face of financial statement. In fact, there may be user needs for information about extraordinary items. A little comment has to be made about paragraphs 66 and 116. In fact, since IPSAS1 is intended to enhance the comparability of financial statements not only over time but also with financial statements of other entities it would be preferable at least to entities belonging to the same sector of activity to adopt the same reporting date and to adopt the same method of analysis (the nature of expense method or the function of expense method.) From an other side and concerning Identification of the financial statements in IPSAS 1 we can add that many entities used to publish a summary or highlights of their financial statements in their annual activity reports or in other documents and by this way users might not find the information and if it is found many aspects are omitted. In the same subject, publishing financial statements in a web site should be encouraged in order to allow for users a direct and immediate access to information.

6 6 We highly appreciate the efforts of the IPSASB through this ED to better clarify the requirements of IPSAS through illustrative examples and implementation guidance. Although, it would be preferable to add an implementation guidance for IPSAS 4 (the effects of changes in foreign exchange rates) in order to simplify through examples many technical aspects mainly in the paragraphs related to Translation to the Presentation Currency. It would be also interesting to precise, if possible, in paragraphs 24 and 45 of IPSAS 4 the degree of fluctuation that is often retained and since which an average rate of exchange rates should not be used because the term significantly used is broad. Finally, IPSASs use different terminology from IAS for income statement ( financial performance), balance sheet (financial position) and equity. It would be interesting to precise the reasons of this choice with regard to the objectives of the current ED which is to enhance convergence of international standards. Section 3-Comments upon the Exposure draft 27 related to the presentation of budget Information In financial Statements The named exposure draft seems to have embraced the main issues that the presentation of budget information in financial statements is expected to deal with. However, we have noted some areas where further clarifications or amendments are required in order to render the exposure draft more precise and complete. General comments As one of the potential users of the future standard, the Tunisian Court of Accounts strongly supports the overall objectives of the exposure draft, which

7 7 are to ensure that governments are accountable for their performance against their budgets. The exposure draft seeks to do this by proposing the disclosure of the original and final approved budgets and actual financial information on a comparable basis to the budget. Given these objectives, we suggest to put in evidence that accountability of governments against their budgets should be submitted to the legislative power. We also see fit to precise that this standard aims to allow the SAI to assist parliaments to control the budget execution. We do also think that some terms, definitions and concepts used within the exposure draft don t fit with the context of the all the supreme audit institutions especially those organised as courts. The context of the SAI organised as courts might be eloquent for more explanation. In the matter of fact, the Tunisian Court of Accounts audits the budget execution on the basis of the provisions laid down in an Organic budgetary law which is to say that the procedure set to be followed is slightly different from that one set out within the exposure draft. The procedure is based on the following phases. The draft outturn review law reports on the final amount of receipts and expenses paid within the year, cancel the non used credits and allow to transfer the year s result to the treasury permanent account. The minister of finance prepares the draft of the outturn review law on the basis of the special accounts related to expenses that the commitments officers (officers entitled to order payment of expenses) have to produce and the

8 8 management accounts produced by public accountants. These are firstly submitted to the Accountings Court. As a result, the board should consider how to incorporate the specificities of the SAI organised as courts within the exposure draft so to increase the applicability of the standard. We might also see fit to develop, if possible, a separate appropriate standard for the SAI context. Specific comments: Definitions: The annual budget: The ED defines the annual budget as an approved budget for one year We suggest to cancel the term approved since we do think that the term budget involves the fact of being approved. The approved budget: We suggest to add the term all so the definition will be as follows approved budget means all the expenditures related to all the anticipated. This addition is justified with the view to the budgetary principle of universality which stipulates that a budget must contain all the receipts and expenditures of a given entity. The Tunisian Court of Accounts supports distinction made within the ED ( paragraph 9) between approved budget and a forward estimate or projections

9 9 made on the basis of assumptions. It also makes a distinction with prospective financial information. However, we believe it would be interesting to specify the methods used to anticipate revenues or receipts expected to be collected which would render the comparison with forward estimate and prospective financial information more clear. Responses to specific matters of comments: 1-comparison of actual amounts with the original and final budget In response to the question whether or not to require a comparison of actual amounts with amounts in the original and the final budget as a part of the general purpose financial statements, we do note that in the Tunisian context this comparison is laid down within a special report. In fact, once a year the Court of Accounts prepares a report on how resources have made available by the previous year s finance act and controls the way resources have been used and expenditures have been paid. The report deals also with the differences between actual amounts and those in the original and final budget. In addition, the comparison is so much important that the Court of Accounts delivers a judicial report: the general statement of concordance ( compliance) between the general account of the finance departments and the accounts prepared by public accountants. This certificate is issued before the parliament votes the outturn review law. With regard to paragraph 12, we do note that this paragraph includes the Tunisian case since it is specified that unless such explanation is included in other public documents issued at same time, or in conjunction with, the general purpose financial statements.

10 10 However, we would like to notice that in some circumstances the two cases can be available. A note of disclosure within a special report can be associated to a comparison within the general purpose financial statements. This comparison is inserted in the outrun review draft prepared by the minister of finances. 2- the disclosure of the reasons for material differences As it is noticed before, this disclosure should not be required, it would be better to be encouraged. The reasons of that point view are related to the context of each entity. In the matter of fact, the decision to disclose the reasons for materials differences between budget and actual amounts should be left to the entities which are accountable for their performance against their budget. This alternative would increase credibility of the future standard and would not entertain problems when users are called to implement the standard. We also recommend that the IPSASB to reconsider, if the final decision is to require disclosure, to categorize it into those that are mandatory, and those that are voluntary. This should take into account the limited capacity of some entities to disclose the reasons for materials differences between budget and actual amounts. We also suggest to the board to invite all the potential users of the future standard to define the items for which the disclosure would be mandatory and those for which the disclosure would be optional. 3- the budget figures

11 11 In response to the question whether the budget figures should be required to be presented on the face of the primary financial statements when the budget amounts and the actual amounts in the GPFSs are prepared on a comparable basis, we do believe that budget figures can also be required even if the budget amounts and actual amounts are not prepared on a comparable basis. The reasons which lead us to require budget figures in such contexts are the followings: - the budget figures can be interesting for a first level of analysis which can be made in a separate way in the framework of the primary financial statements; - the budget figures can be translated in a comparable basis with the GPFSs; - the budget figures can be an important source of financial data to clarify at a first level how the expenditures or receipts have been used. 4- Reallocation within the budget Now that the proposed requirements have been promulgated in the exposure draft, we would note that an explanation of differences between the original and the final budget arisen from reallocations or due to other factors such as policy shift, natural disasters, or another unforeseen events, would be welcomed since the mentioned factors seem to be the most important ones which are likely to lead to big differences in that sense. We notice that the explanation given at the very last phrase of the

12 12 paragraph 26 such disclosures are made in a management, operating or budget outrun report issued by the government is quite accurate. Even though, we do agree with the fact that the board considers that this kind of reports are prepared by governments. We may suggest to the board to precise that jurisdictions, as it is the case in Tunisia, assists the parliament in coping with the technical matters related to this topic. 5-comparision to be made on the same basis of accounting as adopted for the budget In our view it is an essential topic for the board to put in evidence that an outrun report shout mostly emphasize comparison between the actual amount and previous amounts. It is to say that the proposed point has to be considered as the rule in disclosure information about budget execution. 6- Reconciliation of actual amounts on budget basis Given the topic of the exposure draft, in our view the requirement of a reconciliation of actual amounts on a budget basis with actual amounts presented in the G.P.F.Ss is quiet justified. This requirement should not be however systematic. It should be linked with the availability of data. Section 4 -comments on the exposure draft related to the disclosure of financial information about general Government sector General comments The exposure draft represents an attempt to set a very important

13 13 international standard, for instance, disclosure of financial information about the general government sector, and in our view has a number of positive aspects. In the matter of fact, the purpose posted up by issuing this exposure draft is to prescribe the basis on which the information about the general government sector is to be disclosed in the general purpose financial statements. This purpose is to be encouraged. However, we note that significant additional improvements would be likely to be achieved. We also recommend that some wordings need to be reviewed. -The objective It is indicated within the paragraph consecrated to set out the objective of the exposure draft, that disclosure can provide for better understanding of the relationship between the market and the non market activities of the government. We do support the point of view related to the relationship cited within the mentioned paragraph between the market and the non market activities of the government but we suggest to propose definitions of the two concepts in order to put in evidence their differences in the framework of financial data. Interrelationship between Exposure draft 27 and the exposure draft 28 It is explained within the current exposure draft that ( paragraph 10) the disclosure of information required about the GPFSs will assist users in reconciling information. This requirement will be relevant to the comparison required by ED-27. The board should consider that the reconciliation of information explained

14 14 within ED 27 is presented as adjunct to, and should be read in conjunction with ED 28. -Definitions: The general government sector The exposure draft gives a definition of the general government which involves the concept of the general government sector. Since this concept is expected to deal with many forms and contents, it would be interesting to propose a specific definition of it within the current ED. Generally, we face difficulties to set in a precise way the general government contents. The concept is expected to be close to the public sector which, in the Tunisian context, means the activities aiming a public interest which is to say that these activities render a public service and don t seek basically profit. We suggest indicating within the exposure draft the exact difference between the general government and the public interest sector. If the board estimates that two concepts are synonyms, it would be interesting, that the equivalence is mentioned within the current ED. Accounting policies It is indicated that financial information about general government sector shall be disclosed in conformity with accounting policies adopted for preparing and presenting the financial statements of the consolidated whole-of-government entity. The current ED deals with the concept of accountings policies without providing an exact definition of it.

15 15 Although we are very supportive of the interest of such requirement in allowing the disclosure of a significant financial data, we are extremely concerned with the probability of this standard to be applied. In the matter of fact, the general government which incorporates different kind of bodies with different status and different accountings standards. This leads inevitably to different standards and by consequent, to different accountings policies. This situation has led to different financial statements to be prepared and so to different financial data. That s why verifying whether the financial statements are in compliance with the accountings policies seems to be a hard task. We suggest that the board reconsider to not to require conformity with accountings policies in order to increase the probability of implementing easily the current exposure draft. The board can content to encourage the conformity without requiring it. Specific matters for comments 1- Whether requirements for the disclosure of financial information about GGS should be included in GPFSs The board proposes to comment whether requirements for the disclosure of financial information about GGS should be included in GPFSs in accordance IPSASs. We support this point of view and we find it indispensable in order to enhance transparency when dealing with general government sector. However, we estimate that this disclosure should be only encouraged in

16 16 order to permit the standard to be enough flexible and so to be implemented in different contexts whether in developing or in developed countries. 2- Whether the proposed definition of the GGS is appropriate The definition proposed seems to be quite appropriate. It takes into account many potential differences and it is likely to be implemented within different contexts. 3- Whether the proposed treatment of investments in public corporations in the GGS disclosure is appropriate As it is explained in the paragraph 24, this requirement shall be available for both public financial corporations and public non financial corporations. This seems to be plausible and appropriate. We also support that the investment shall be presented as an asset which is likely to permit to more liable data and allow increase of transparency about the government activities when dealing with financial statements. We think that the currying amount of the net assets of investees is appropriate to account the investment of the general government sector. 4- the disclosure of information about GGS of each level of government It goes without saying that in some specific context a general government sector contains different levels with, in some cases, huge differences in activities and in accountings policies. This requires to treat the financial information of each level separately in order to permit the disclosure of a significant information for potentials users.

17 17 In the Tunisian context, the general government sector is composed of central, regional and local entities. These three levels of activities are submitted to different accountings policies. That s why information is treated at a first level and then centralised within specific statements to be consolidated within a general financial statement called the general account of the financial administration. As a result, we do believe that the disclosure information in this context should be encouraged rather than required. This would be helpful for the standard to be easily applied in different context depending whether such kind of data is available or not. 5- whether a reconciliation to statistical reporting should be required. The board proposes a reconciliation to statistical reporting to be presented but does not require it. The standard explains that this point of view is justified with regard to the costs and benefits of such requirement in all jurisdictions. It is also due to the risk of non practicability of the standard. We strongly support the point of view of the board since we share the same concerns about the opportunity of the requirement. We, thus, think that the reconciliation should be only encouraged. Moreover, we are supportive to the proposition for an inclusion of a note disclosure dealing with the reconciliation. 6- the standard to be included as an addition to IPSAS1 presentation of financial statements.

18 18 Since the standard is dealing with a very important financial topic, we do think that issuing the standard separately would be quite efficient for users. We don t see also fit to content of considering the current standard as an addition to the presentation of financial information because there s no need to render this standard more complex which can reduce its applicability. 7-the development of disclosure of financial information of the GGS under a cash basis We do support the development of requirements for disclosure of the general government sector financial information under a cash basis. This should allow to render the current standard more complete for all different contexts whether the financial information is presented under accrual or cash basis.

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