First-Time Adoption of Accrual Basis IPSASs
The Task-Based Group consists of Mariano D'Amore (Italy), Rachid El Bejjet (Morocco), Anne Owuor (Kenya) and Jeanine Poggiolini (South Africa).
Objective(s) of project
The aim of the project is to develop a standard that provides requirements for the first-time adoption of accrual basis IPSASs.
This project will consider issues related to public sector entities that are moving from an accrual basis of accounting to accrual basis IPSASs. It will also consider public sector entities that are moving from a cash basis, modified cash basis or partial accrual basis of accounting, to accrual basis IPSASs.
The IPSASB does not have a standard focusing on the first-time adoption of IPSASs. As a standard in this area will help in the implementation of accrual basis IPSASs, it has become a high priority to commence a project on this topic. This project is consistent with the IPSASBs strategic priority of developing requirements and guidance on public sector specific issues.
Issues the project needs to take into consideration include (but are not necessarily limited to):
- What are the issues relating to the implementation of IPSASs for those entities that are not already using the accrual basis of accounting?
- For those entities already on an accrual basis of accounting, should the requirements be converged to IFRS 1, First-Time Adoption of International Financial Reporting Standards or are there public sector specific reasons for departures?
- Should there be specific requirements for entities that adopt IPSASs over a number of reporting periods?
Task Force progress / Board discussions to date
December 2012: Regarding the revised approach for the assessment of transitional provisions the IPSASB broadly agreed that the basket classifications for transitional provisions should be labeled as category 1 and category 2 transitional provisions. Members generally supported the view that category 2 transitional provisions should be provided because of practical considerations, but used cautiously by entities. Members generally supported the view that, while applying a category 2 transitional provision, entities should not be allowed to assert compliance with IPSASs and to claim fair presentation. It was proposed that entities which use category 2 transitional provisions should declare to be “in transition to accrual basis IPSASs”.
The IPSASB discussed the revised assessments of proposed transitional provisions for IPSAS 1 to IPSAS 18. The Board provided staff with further directions for refinement of the proposed transitional provisions.
The IPSASB took a first look at the assessments of proposed transitional provisions for IPSASs 19 to 22, IPSAS 24, IPSASs 26 to 27 and IPSAS 31 and provided staff with further directions.
Finally, the IPSASB considered reconciliation requirements at first-time adoption of accrual basis IPSASs and expressed the view that entities should only be required to present a reconciliation of its net assets/equity reported in accordance with its previous basis of accounting to their net assets/equity in accordance with IPSASs for the date of transition to IPSASs. Entities which have applied the cash basis under their previous basis of accounting are required to present a reconciliation of its cash balances if the ending cash balance under their previous basis of accounting and the cash balance in the opening IPSAS statement of financial position are different.
In 2013 the project will be taken over by a staff member of the South African Accounting Standards Board (ASB).
September 2012: The Board considered the approach applied for the assessment of transitional provisions for first-time adoption of accrual basis IPSASs. The Board confirmed the outlined minimum information required in an entity’s first IPSAS financial statements besides the requirement to present a comparison of budget and actual information (when the entity makes publicly available its approved budget). A discussion whether an entity should be required to present such a comparison at first-time adoption was deferred to the December meeting. The Board also confirmed the proposed set of criteria for the assessment of transitional provisions as well as the use of the ‘Qualitative Characteristics of, and Constraints on, Information Included in GPFRs’ as outlined in CF–ED1. As the fair presentation consideration might lead to the conclusion that specific transitional provisions could not be provided it was suggested that practical complexities/difficulties of a transitional accounting issue should be considered as a separate criterion in the assessment of transitional provisions. Furthermore, it was recommended to differ between transitional provisions which allow for fair presentation and transitional provisions where an entity will likely not be able to assert fair presentation at first-time adoption.
In the second part of the session the IPSASB discussed (a) the assessment of proposed transitional provisions of IPSAS 1 to IPSAS 18 based on the predefined set of criteria and (b) the relief proposed for the ED on First-time Adoption of Accrual Basis IPSASs. The Board provided staff with directions for refinement of the proposed transitional provisions and added some additional transitional accounting issues for consideration by staff. It was noted that staff should also bring back to the next IPSASB meeting the analysis of those IPSASs which have not been included in the Issues Paper for consideration by the Board at the September meeting.
The next steps of the project are to (a) analyze the transitional accounting issues for IPSAS 19 to IPSAS 32 and (b) re-draft the Exposure Draft based on results achieved at the September meeting.
The aim of the IPSASB is to approve an ED on First-time Adoption of Accrual Basis IPSASs at its March 2013 meeting.
June 2012: At its June 2012 meeting the IPSASB discussed the issue of first-time adoption of IPSASs for the second time. Based on the views taken at the Duesseldorf meeting the Board had no objections to rename the title of the project/Exposure Draft to “First-Time Adoption of Accrual Basis IPSASs”.
With respect to the presentation of comparative information and reconciliations in an entity’s first IPSAS financial statement the IPSASB concluded that all public sector entities should only be encouraged to present comparative information. Therefore, no entity should be required to present comparative information in its first IPSAS financial statements. The IPSASB expressed the view that the ED should favor the IFRS 1-approach towards presentation of comparative information and reconciliations. Based on the fact that entities transition from different basis of accounting the Board recommended to consider these different starting points and their implications towards the presentation of comparative information and reconciliations in the application guidance section of the ED.
The Board supported the presented approach in case that an entity elects to not present a full set of comparative information (according to the IFRS 1-approach). Based on the proposed minimum requirement, an entity’s first IPSAS financial statements contain two statements of financial position, one of them being the opening IPSAS statement of financial position.
With respect to the discussion of selected transitional provisions, the Board recommended that a broader approach should be taken than staff has used for this meeting. It was suggested to define a set of fixed criteria based on user needs in the context of an entity’s first IPSAS financial statements. Mainly the user needs as outlined in phase 1 of the Conceptual Framework should form the basis to come up with these criteria. As the preparer-dimension will also need to be reflected, the evaluation of the proposed transitional provisions will result in some sort of cost-benefit analysis.
Regarding the review of the structure of the ED, the Board generally agreed with the changes currently made by staff.
March 2012: It was the first time that the IPSASB had an extensive discussion of the issues involved with the first-time adoption of accrual IPSASs. The IPSASB discussed the scope of a possible standard on first-time adoption of accrual IPSASs and confirmed that this paper will not consider transitional arrangements from a non-IPSAS compliant cash basis to the IPSAS compliant cash basis. In addition, the Board confirmed that the transition to a non-IPSAS compliant accrual basis is also not in the scope of the project and concluded that no matter which accounting basis an entity had applied before its transition, the standard should focus on the end result of a transition, i.e., IPSAS compliant financial reports. Members of the IPSASB acknowledged that the two transition scenarios, scenario 1: Transition from the (modified) cash basis (non-IPSAS, IPSAS) to the IPSAS accrual basis; and scenario 2: Transition from the non-IPSAS or IPSAS-like (modified) accrual basis to the IPSAS accrual basis, as described in the Issues Paper might have different accounting implications for a standard on first-time adoption of accrual IPSASs. The objective of the standard on first-time adoption of accrual IPSASs should be to provide relief to entities in order to be able to comply with IPSASs. Based on the view that a standard on the first-time adoption of accrual IPSASs should focus on the end result of a transition, the Board considered approach No. 2, i.e., to develop transitional arrangements with no specific distinction between scenario 1 and scenario 2, most appropriate.
The IPSASB members expressed their need to see the relief and transitional arrangements which would be provided in the Exposure Draft (ED). Based on this observation and the fact that the project has a more technical focus, the IPSASB concluded that the development of an ED would be advisable. It was however noted that if the Board does not agree on the proposed transitional provisions, a Consultation Paper could be issued instead of an ED.
With respect to public sector statistical reporting guidance the Board recommended that this issue should be neutrally addressed in an ED on first-time adoption. The Board also advised that Study 14, Transition to the Accrual Basis of Accounting: Guidance for Governments and Government Entities (Third Edition) should include a full discussion on the issues related to alignment of IPSASs and public sector statistical reporting guidance.
Based on the approach that the focus of an ED on first-time adoption will be on the achievement of IPSAS compliance irrespective of the accounting bases an entity has used before, transitional arrangements that allow a period of time to comply with IPSASs were considered as inappropriate. Exceptions for specific items that allow a period of time to comply with the requirements of the Standards should be avoided. The aim of a standard on the first-time adoption is to assert IPSAS compliance and to provide appropriate relief to preparers. The IPSASB confirmed the need to provide guidance on the preparation of an opening IPSAS Statement of Financial Position on first-time adoption of accrual IPSASs. It was recommended that the ED should encourage the provision of comparative figures but there should be no requirement to provide them.
June 2011: The IPSASB approved a Project Brief, First-Time Adoption of IPSASs. The IPSASB identified the issues outlined above as relevant to this project.