First-Time Adoption of Accrual IPSASs

Staff

Stephenie Fox

Objective(s) of project

To develop a standard that provides requirements for the first-time adoption of accrual IPSASs.

Scope

This project will consider issues related to public sector entities that are moving from an accrual basis of accounting to accrual 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 IPSASs.

Background

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 IPSAS, 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

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

January 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.

The aim of the IPSASB is to approve an ED at the December 2012 meeting.

June 2011: The IPSASB approved a Project Brief, First-Time Adoption of IPSASs. The IPSASB identified the issues above as relevant to this project.