Thank you for subscribing to the eNews from the International Public Sector Accounting Standards Board (IPSASB). This edition provides a summary of decisions made at the IPSASB’s meeting held June 17-20, 2013, in Toronto, Canada. Please visit the IPSASB Meeting Page for the meeting highlights and relevant agenda items.

An audio podcast of Meeting Highlights is also available.

1. Reporting on the Long-Term Sustainability of an Entity’s Finances
2. Financial Statement Discussion and Analysis
3. Reporting Service Performance Information
4. Governance and Oversight Update
5. Relationship to IASB Conceptual Framework and Development of the Preface to the Conceptual Framework
6. IPSAS 6-8 Update
7. First-Time Adoption of Accrual Basis IPSASs
8. Government Business Enterprises
9. Next Meeting

1. Reporting on the Long-Term Sustainability of an Entity’s Finances

The IPSASB reviewed a further version of draft Recommended Practice Guideline (RPG), Reporting on the Long-Term Sustainability of an Entity’s Finances. This version reflected the direction at the March 2013 meeting that capacity and vulnerability are aspects of each of the three dimensions of long-term fiscal sustainability: service, revenue and debt. The IPSASB directed that a definition of the term “current policy assumptions” be inserted and other minor modifications be made. The IPSASB approved RPG 1 for issuance as a final pronouncement; it was published on July 24.

2. Financial Statement Discussion and Analysis

The IPSASB reviewed a further version of draft RPG, Financial Statement Discussion and Analysis, including a substantially modified Basis for Conclusions. The RPG provides guidance to public sector entities for preparing and presenting financial statement discussion and analysis, which will assist users in understanding the financial position and financial performance described by the general purpose financial statements.

The RPG recommends that financial statement discussion and analysis include:

• An overview of the entity’s operations and the environment in which it operates;
• Information about the entity’s objectives and strategies that relate to the financial statements;
• An analysis of the entity’s financial statements, including significant changes and trends; and
• A description of the entity’s principal risks and uncertainties that relate to the financial statements, an explanation of changes in those risks and uncertainties since the last reporting date, and its strategies for bearing or mitigating those risks and uncertainties.

The IPSASB approved RPG 2 for issuance as a final pronouncement; it was published on July 26.

3. Reporting Service Performance Information

The IPSASB considered issues with respect to development of a draft RPG, Reporting Service Performance Information, directing that it should provide a mixture of guidance on decisions and identification of minimum characteristics for reporting service performance information. Additionally, the IPSASB recommended the RPG acknowledge that some selection of services for reporting information will always be necessary. The RPG should, therefore, provide guidance on how this should be done and on relevant factors or criteria for such selection. It should also provide guidance on which types of performance indicators are chosen—inputs, outputs, outcomes, efficiency indicators, and/or effectiveness indicators. The guidance should:

• Tie the choice of indicators back to objectives;
• Encourage reporting that goes beyond outputs to outcomes; and
• Note that the circumstances in which an entity is reporting could be important.

With respect to information organization, the RPG should focus on principles rather than choices between particular approaches to information organization. Information organization will need to be appropriate for the types of services reported, their outcomes, and objectives.

An Exposure Draft (ED) of an RPG will be further developed for consideration at the IPSASB’s September 2013 meeting.

4. Governance and Oversight Update

The IPSASB received an update from the observers from the Organisation for Economic Co-operation and Development (OECD) and the World Bank regarding the formation of the IPSASB Governance Review Group, including a report on their first meeting, held May 31, 2013, in Paris, France. The Review Group will be chaired by representatives of the International Monetary Fund (IMF), the OECD, and the World Bank and its members will include the Financial Stability Board (FSB), International Organization of Securities Commissions (IOSCO), and International Organisation of Supreme Audit Institutions (INTOSAI). A consultation paper is planned for September, with final recommendations anticipated during the first half of 2014. These recommendations will be reported to the G-20 and the FSB.

The review will consider oversight arrangements as well as the broader questions of IPSASB governance and measures to enhance the perceived relevance, quality, and legitimacy of International Public Sector Accounting Standards (IPSASs).

5. Relationship of IPSASB Conceptual Framework to IASB Conceptual Framework and Development of the Preface to the Conceptual Framework

The IPSASB discussed the relationship of the Conceptual Framework to the International Accounting Standards Board (IASB)’s Framework project in light of the anticipated issue of an integrated Discussion Paper by the IASB; it was released in July 2013. The IPSASB reaffirmed that the Conceptual Framework is a critical project for the public sector, and neither an interpretation of the IASB’s current and evolving Framework nor an International Financial Reporting Standards (IFRS) convergence project.

IPSASB staff will review the IASB's Discussion Paper in order to avoid differences in definitions and terminology that are unwarranted by public sector circumstances.

The IPSASB also agreed the reason why the IPSASB Framework will differ from the IASB Framework should be communicated clearly. As part of this communication, the IPSASB agreed to publish The Preface to the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities as a Preliminary Board View in July 2013.

6. IPSAS 6-8 Update

At previous meetings, the IPSASB has considered a range of issues associated with the development of the five EDs to be issued as part of this project. The June meeting focused on which reporting entities should be required to comply with the consolidation requirements in the ED based on IFRS 10, Consolidated Financial Statements.

The IPSASB considered the IASB’s exception from consolidation for investment entities. Although the IPSASB noted that relatively few public sector investment entities are expected to be applying IPSASs, the IPSASB agreed to propose that investment entities be required to recognize their controlled investments at fair value, as required by IFRS 10.

The IPSASB also considered a proposal for optional whole of government consolidated financial statements, in conjunction with mandatory statistical sector reporting. The IPSASB agreed not to proceed with this proposal, although it noted that the interaction between IPSAS 18, Segment Reporting, and IPSAS 22, Disclosure of Financial Information about the General Government Sector, could be explored in the future and might form part of future work program public consultations.

The IPSASB directed staff to proceed with drafting an ED, based on IFRS 10, which:

• Requires that investment entities account for their controlled investments at fair value; and
• Sets out the possibility of permitting the retention of fair value investment entity accounting by a non-investment controlling entity.

The IPSASB is expected to vote on the EDs at its September meeting.

7. First-Time Adoption of Accrual-Basis IPSASs

The IPSASB discussed an analysis of the transitional accounting issues related to IPSAS 28, Financial Instruments: Presentation; IPSAS 29, Financial Instruments: Recognition and Measurement; and IPSAS 30, Financial Instruments: Disclosure, and provided direction to staff on various aspects.

The IPSASB agreed to grant a first-time adopter a three-year relief period for the recognition of financial instruments that were not recognized under its previous basis of accounting. A first-time adopter that recognized financial instruments under its previous basis of accounting may adopt a three-year relief period for the measurement of such financial instruments. The board further agreed that all disclosure requirements relating to financial instruments should be applied prospectively as and when the financial instruments are recognized and/or measured.

The IPSASB debated various overarching issues that impact the finalization of the proposed ED and agreed that a first-time adopter should only apply deemed cost where the cost information of the asset is not available.

The IPSASB reviewed the first draft of the proposed ED and agreed that an updated version should be presented at the September 2013 meeting.

8. Government Business Enterprises

The IPSASB further discussed the Government Business Entities (GBEs) project, commencing with a history of the term, which dates back to 1989. The survey of board members in December 2012 revealed a number of issues with the definition of GBEs, ranging from the inclusion of entities that have a full cost recovery rather than profit objective; the meaning of not being fully reliant on government funding to be a going concern; the consistency in interpreting the definition across jurisdictions; whether the control criterion is appropriate; and whether a definition based on services or objectives would be better.

The IPSASB noted the wide spectrum of entities being treated as GBEs across jurisdictions and considered four options on the way forward:

• Not to define GBEs, leaving jurisdictions to make their own decisions on which entities are profit–oriented and should apply IFRS or national private sector GAAP;
• Clarify the existing definition to make it easier to apply and achieve greater consistency;
• Narrow the existing definition to seek to reduce the current diversity in terminology and practice; or
• Redefine GBEs based on services or objectives.

The IPSASB directed staff to prepare a consultation paper proposing the characteristics of entities which jurisdictions should consider when deciding whether to apply IPSASs to public sector entities.

9. Next Meeting

The next IPSASB meeting will be held in Toronto, Canada, Sept. 16-19, 2013. Members of the public may register to observe the meetings. Registration will close Sept. 9.

The 2012 International Accounting Education Standards Board (IAESB) Annual Report, Enhancing Professional Accounting Education, highlights the IAESB’s work in the public interest to enhance the quality and consistency of accounting education practices throughout the world, and thereby strengthen the public’s confidence in the competence of the global accounting profession.       

The International Federation of Accountants (IFAC), the global organization for the accountancy profession, along with the World Bank, the Inter-American Development Bank, and the Global Public Policy Committee, held the seventh Conference for Accounting and Accountability for Regional Economic Growth, or CReCER (Contabilidad y Responsabilidad para el Crecimiento Económico Regional) in Cartagena, Colombia, this week. IFAC member body the Instituto Nacional de Contadores Públicos de Colombia hosted and executed the 2013 CReCER event.

Themed Integrating Approaches to Financial Reporting to Advance Regional Economic Growth: An Exchange between Public and Private Sector, the conference drew more than 350 attendees and speakers and covered important topics, such as national and regional initiatives to advance adoption and implementation of international standards; global perspectives on the evolving role of auditors and accountants; recent capital market developments to support investment; and the future of business reporting, including integrated reporting.

IFAC supports this important event as part of overall efforts to strengthen professional accountancy organizations and their role in contributing to high-quality financial reporting and serving as centers of excellence for the auditing and accountancy profession. This year’s event was especially important because of the timeliness of the sessions on strategies for integrating International Public Sector Accounting Standards with public sector financial management systems and the recent Exposure Draft on auditor reporting from the International Auditing and Assurance Standards Board.

“The discussions, collaborations, and learning that takes place at CReCER by the profession and its key stakeholders have a lasting impact on accountancy and the economies in the region,” according to IFAC President Warren Allen. “These three days set up the next few years of work on the ground for professional accountancy organizations and international standard setters.”

IFAC looks forward to continuing to collaborate with nations and organizations in the region to advance the global and local issues of importance to accountancy and accountants, especially strengthening public sector financial management.

About IFAC
IFAC is the global organization for the accountancy profession, dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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Globalization is not a new phenomenon but what is new is both its velocity and how it affects small- and medium-sized entities (SMEs). The impact on SMEs has significant implications for the accounting practices, in particular small- and medium-sized practices (SMPs), that typically serve SMEs. According to the Edinburgh Group (EG)’s recently published report, Growing the Global Economy through SMEs, SMPs may need to carefully critique the services they provide to SMEs seeking to internationalize. As a starting point, the report suggests specific actions for SMPs that include developing more understanding and expertise internally, strengthening relationships with funding institutions, and building international networks of trusted professional and business contacts. SMPs have the potential to become a key agent for the internationalization of small business if they are able to provide SMEs with the advice they need.

Globalization of SMEs

SMEs are a vital and integral part of the global economy. According to the OECD, they account for the majority of private sector employment and GDP as well as a disproportionately large share of new jobs; they are a major source of entrepreneurship and innovation. These SMEs are increasingly becoming part of the global business community. Dramatic changes in communications, transportation, and information technology have accelerated the pace of globalization. SMEs now regularly manufacture products and provide services in many countries and sell to customers and clients around the world—just as large multinational companies have been doing for many years.

The EG report reveals a significant amount of international activity among the SME sector. Almost 75% of the SMPs it surveyed have clients that have some sort of international aspect to their business, even if it is simply buying goods or services from abroad.

Role of SMPs

While globalization presents great opportunities for SMEs—not least new markets for their goods and services—it also poses great challenges. Perhaps the greatest challenge SMEs face is the lack of human capital, including managerial expertise, and financial resources to take advantage of these opportunities. IFAC research indicates that SMEs will likely look to SMPs, their trusted business advisors, to fill the resource gap. The EG report, however, suggests that SMPs themselves must ready themselves to capitalize on the opportunities created by the internationalization of small business. 

Recommendations for SMPs from the EG Report            

The EG report (page 5) makes the following recommendations for SMPs:

1. Provide more proactive support to SMEs in their planning for internationalization, including support in identifying the most attractive, fast-growing international markets.
2. Develop knowledge and information resources to guide SMEs through the red tape challenge associated with international activity, and to help them access all appropriate sources of funding.
3. Build relationships with banks and other key financiers of international investment and trade, to facilitate introductions between these funding sources and SME clients.
4. Identify where SMEs are dealing in foreign currency and seek opportunities to provide value-adding advice in areas such as managing foreign exchange risks and forecasting currency needs.
5. Consider whether additional networking opportunities exist to build relationships with other professionals or to help connect SME clients with each other to create mutually supportive environments and information channels.
6. Assess how the proactive delivery of services targeted at SMEs with international ambitions could help to grow practice income, as well as strengthening client relationships and the firm’s wider reputation.
7. Consider whether developing the international resources available to the practice—for example, by participating in an international network of accountancy firms or building more direct close relationships with firms in other countries—could benefit the firm itself, and its SME clients.

SMEs are increasingly being integrated into the global business community. However, in order for SMEs to maximize the opportunities from internationalizing their business, they need timely advice. SMPs are well placed to provide this counsel.

Resources

IFAC’s website hosts a range of resources and tools to help SMPs implement these recommendations. These resources and tools help SMPs enhance their practice management and build their capacity to offer business advisory services.

The latest IFAC SMP Quick Poll showed that the vast majority (73%) of the nearly 4,000 small- and medium-sized accounting practices (SMPs) surveyed are either currently providing or have plans to provide sustainability services to their clients, suggesting that there’s a sizeable market for these services among the small businesses that SMPs typically serve.

Of those who offer sustainability services, many offer more than one service; the most common service provided, indicated by over 75% of respondents, is advisory services. Reporting and assurance are the next most commonly provided services with about 50% and 40%, respectively.

“The widespread provision of sustainability services suggests that small businesses are increasingly recognizing the tangible benefits of operating more sustainably. This, in turn, seems to be fueling a desire to seek advice from their professional accountants,” commented SMP Committee Chair Giancarlo Attolini. “SMPs can help their SME clients in many ways, for example, advising on the costs and benefits of behavioral changes aimed at reducing waste, appraising potential investments in alternate sources of energy, and assisting with the implementation of an environmental management system (EMS). This is a large and growing area of demand that SMPs need to be prepared to meet.”

Results varied somewhat by size of practice and region. The larger the size of the SMP, the more likely it was to be offering sustainability services. More than half of the practices with 21 or more professional accountants currently offer these types of services, compared to 37% of sole practitioners. By region, Asia and Africa/Middle East were most likely to offer sustainability services, while Central/South America and Australasia/Oceania were the least likely.

The report also includes results on the biggest challenges facing SMPs and their clients, among other topics. As in previous polls, burden of regulation and economic pressures ranked highest. However, tensions around rising costs, competitive stresses, and keeping up with technology gained in importance. This changing mix suggests that SMPs are enjoying a more favorable economic climate and planning for growth.

See the full report in the SMP Committee area of the IFAC site: www.ifac.org/SMP. Due to different response rates in different geographic areas, results may not be statistically representative of global or regional populations of SMPs.

The mid-year 2013 poll received 3,678 responses and was conducted in 16 languages from May 29 to July 8. The poll, conducted twice annually, is intended to take a snapshot of key challenges and trends influencing SMPs globally. IFAC wishes to thank the many member and regional organizations that helped with translation and distribution of the poll.

About the SMP Committee
The SMP Committee of the International Federation of Accountants (IFAC) represents the interests of professional accountants operating in small- and medium-sized practices (SMPs). The committee develops guidance and tools and works to ensure the needs of the SMPs are considered by standard setters, regulators, and policy makers. The committee also speaks out on behalf of SMPs to raise awareness of their role and value, especially in supporting SMEs, and the importance of the small business sector overall.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

The International Auditing and Assurance Standards Board (IAASB) today released proposals to enhance the future auditor’s report. The IAASB’s Exposure Draft, Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs), responds to calls from investors, analysts, and other users of audited financial statements in the wake of the global financial crisis for the auditor to provide more relevant information in the auditor’s report based on the audit that was performed.

“We expect the proposed new and revised standards will result in substantive changes to how auditors contemplate and approach communication to users of their reports—the beneficiaries of a financial statement audit,” explained Prof. Arnold Schilder, IAASB Chairman. “These changes are critical to the perceived value of the financial statement audit and thus to the continued relevance of the auditing profession.”

The IAASB’s deliberations on the proposed new and revised ISAs were informed by international research, two public consultations, stakeholder outreach including three public roundtables held in 2012, and the 165 responses to the June 2012 Invitation to Comment: Improving the Auditor’s Report. “The signals from these inputs were clear: Change is essential. There is support for the IAASB’s direction, and for a global solution. Challenges exist, but they can be overcome,” added Prof. Schilder.

The Exposure Draft includes a new proposed ISA titled Communicating Key Audit Matters in the Independent Auditor’s Report. This proposed ISA directs auditors of financial statements of listed entities to communicate in their report those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements. “The intended outcome of this proposal is more informative audit reports, with information about the audit of the financial statements that is unique and more specific to the entity that has been audited,” noted James Gunn, IAASB Technical Director.

Among other enhancements, the IAASB is also proposing requirements for auditors to include specific statements about going concern in their reports, to make an explicit statement about the auditor’s independence from the audited entity and, for listed entities, to disclose the name of the engagement partner in the auditor’s report. The Exposure Draft includes example reports that illustrate the application of the proposed new and revised ISAs in various circumstances.

How to Comment
The IAASB invites all stakeholders to respond to this Exposure Draft, which includes specific questions for respondents on key aspects of the proposals and highlights areas of focus for various stakeholders in responding to the Exposure Draft. To access the Exposure Draft and submit a comment, visit the IAASB’s website at www.iaasb.org. Comments on the Exposure Draft are requested by November 22, 2013.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC).

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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The International Public Sector Accounting Standards Board (IPSASB) has issued Recommended Practice Guideline 1 (RPG 1), Reporting on the Long-Term Sustainability of an Entity’s Finances. RPG 1 provide guidance on reporting on the long-term sustainability of a public sector entity’s finances over a specified time horizon in accordance with stated assumptions on policy and demographic and economic variables.   RPGs are a new type of publication that provides guidance on the broader aspects of financial reporting that are outside the financial statements.

The sovereign debt crisis brought into sharp focus the importance of the fiscal condition of governments and other public sector entities to the global economy. Concerns persist about the ability of governments to meet debt servicing obligations. The extent to which governments can maintain their current levels and quality of service delivery and meet social benefit program obligations—without raising taxes and contributions or increasing debt to unsustainable levels—is a major economic and social issue.

Although such concerns have generally existed in nations with well-established social programs, there is a growing realization that they also extend to fast-developing nations that have recently established such programs.

Policies and decisions current as of the reporting date have a long-term impact on future inflows and outflows of resources. Information on the consequences of such policies and decisions supplements information on liabilities, expenses, assets, and revenue in the financial statements. Flows that are captured by long-term fiscal sustainability reporting include:

• Future tax receipts and intergovernmental transfers that do not meet the definition of an asset
• Obligations relating to social benefits programs that do not meet the definition of a liability

“RPG 1 provides straightforward guidance on presenting information about the capacity of an entity to provide social benefits at existing levels, to maintain existing taxation revenues and to meet its financial commitments,” said IPSASB Chair Andreas Bergmann. “By developing guidance on reporting information about the long-term sustainability of an entity’s finances, RPG 1 reflects the IPSASB Conceptual Framework’s position that, in order to meet users’ needs, the scope of financial reporting is more comprehensive than the financial statements.”

The development  and finalization of the RPG benefited greatly from the oversight of a task force with a wide membership, including representatives of (a) standard setters with involvement in developing guidance for reporting on fiscal condition, (b) governments that have many years’ experience reporting on long-term fiscal sustainability, and (c) supranational organizations such as the International Monetary Fund, the Organisation for Economic Co-operation and Development, and Eurostat, the statistical agency of the European Union.

How to Obtain the RPG
To access the RPG, visit the IPSASB website. The IPSASB encourages IFAC members, associates, and regional accountancy bodies to promote the availability of these documents to their members and employees.

About the IPSASB
The IPSASB develops accounting standards and guidance for use by public sector entities. The structures and processes that support the operations of the IPSASB are facilitated by IFAC. The IPSASB receives support (both direct financial and in-kind) from the World Bank, the Asian Development Bank, the Chartered Professional Accountants of Canada, the South African Accounting Standards Board, and the governments of Canada, New Zealand, and Switzerland.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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RPG 1 provides guidance on reporting on the long-term sustainability of a public sector entity’s finances (“reporting long-term fiscal sustainability information”). It also provides information on the impact of current policies and decisions made at the reporting date on future inflows and outflows and supplements information in the general purpose financial statements (“financial statements”).

IFAC President Warren Allen and IIA President/CEO Richard Chambers discuss the recently signed Memorandum of Understanding with Compliance Week.