This updated Questions and Answers publication has been issued by IPSASB staff to highlight how IPSAS reflect the accounting consequences of sovereign debt restructuring transactions.
IPSAS 41 substantially improves the relevance of information for financial assets and financial liabilities. It will replace IPSAS 29, Financial Instruments: Recognition and Measurement, and improves that Standard’s requirements by introducing:
Simplified classification and measurement requirements for financial assets;
A forward looking impairment model; and
A flexible hedge accounting model.
“The significance of government debt to global capital markets can often be ignored,” said IPSASB Chair Ian Carruthers. “IPSAS 41 is a major step forward in accounting for financial instruments, and responds to the problems with IPSAS 29 that were exposed by the global financial crisis. It provides principles that appropriately reflect the economics of transactions involving financial instruments, replacing the more rules-based approach of its predecessor.”
IPSAS 41 is based on International Financial Reporting Standard (IFRS) 9, Financial Instruments, developed by the International Accounting Standards Board (IASB®), but it also includes public sector-specific guidance and illustrative examples on:
Financial guarantees issued through non-exchange transactions;
Concessionary loans;
Equity instruments arising from non-exchange transactions; and
Fair value measurement.
About the IPSASB The International Public Sector Accounting Standards Board (IPSASB) works to strengthen public financial management globally through the development of accrual-based International Public Sector Accounting Standards® (IPSAS®) and other guidance for use by governments and other public sector entities. It receives support from the Asian Development Bank, the Chartered Professional Accountants of Canada, the New Zealand External Reporting Board, and the governments of Canada and New Zealand. The structures and processes that support the operations of the IPSASB are facilitated by the International Federation of Accountants (IFAC). For copyright, trademark, and permissions information, please go to permissions or contact permissions@ifac.org.
About the Public Interest Committee The governance and standard-setting activities of the IPSASB are overseen by the Public Interest Committee (PIC), to ensure that they follow due process and reflect the public interest. The PIC is comprised of individuals with expertise in public sector or financial reporting, and professional engagement in organizations that have an interest in promoting high-quality and internationally comparable financial information.
IPSAS 41, Financial Instruments, establishes new requirements for classifying, recognizing and measuring financial instruments to replace those in IPSAS 29, Financial Instruments: Recognition and Measurement.
IPSAS 41 provides users of financial statements with more useful information than IPSAS 29, by:
The IPSASB held its second meeting of the year from June 19-22, 2018 in Toronto, Canada.
Governance
The Chair of the IPSASB Consultative Advisory Group (CAG) provided an overview and update of the June 18, 2018 CAG meeting held in Toronto. The CAG meeting agenda, papers and presentations are available online here.
Update to IPSAS 28-30, Financial Instruments
The IPSASB reviewed the recommendations developed by the Financial Instruments Task Force to address the responses to ED 62, Financial Instruments. The IPSASB agreed that the recommendations addressed the concerns raised by stakeholders and approved IPSAS 41, Financial Instruments. IPSAS 41 will have an effective date of January 1, 2022.
Social Benefits and Non-Exchange Expenses: Scope and Definitions
The IPSASB discussed responses to ED 63, Social Benefits, beginning with its scope and definitions. The IPSASB noted that while respondents generally supported the scope of ED 63, a number considered that some definitions of key terms need to be clearer. The IPSASB agreed to retain the scope proposed in ED 63, but to clarify some definitions. In particular, the definition of social benefits will refer to cash transfers. In the context of non-exchange expenses a definition of collective services will also be developed.
Social Benefits: Insurance Approach, Recognition Measurement and Financial Sustainability Reporting
The IPSASB continued to review other issues raised by respondents to ED 63, Social Benefits. The IPSASB agreed that the insurance approach should remain optional. The IPSASB will not develop mandatory requirements for financial sustainability reporting.
On recognition and measurement, there was roughly equal support for both the proposals in ED 63 and the Alternative View. The IPSASB agreed to proceed on the basis of the proposals in ED 63 and will further discuss the possibility of post implementation reviews more broadly.
The IPSAB decided that, in dealing with commercial-style transactions, there are no major public sector issues that warrant departure from IFRS 15, Revenue from Contracts with Customers. As a result, the only changes that will be made are to terminology. IFRS 15 introduces some new definitions, and the IPSASB discussed how to incorporate these into a new IPSAS in order to ensure that the definitions reflect the public sector context. The IPSAS that is being developed will replace IPSAS 9, Revenue from Exchange Transactions and IPSAS 11, Construction Contracts.
Revenue and Non-Exchange Expenses: Public Sector Performance Obligation Approach
The IPSASB decided to proceed with the Public Sector Performance Obligation Approach for transactions with performance obligations, which do not have the characteristics to be accounted for under an IPSAS IFRS 15- aligned standard. The Board agreed that Steps 1 and 2 of the performance obligation approach model will require careful consideration, as these steps drive the rest of the five-step model.
Application of the PSPOA to non-exchange expenses depends on whether the transferor entity has an asset for the services, which the recipient will provide. The IPSASB will discuss this issue further at its September meeting.
The IPSASB agreed to include guidance on accounting for social contributions in an amended IPSAS 23, Revenue from Non-Exchange Transactions (Taxes and Transfers). Social contributions and similar compulsory levies will be accounted for using the same principles as taxation revenue.
Following discussion, the IPSAB decided not to amend the existing discretionary recognition requirements in IPSAS 23 for services in-kind. The IPSASB decided to add an encouragement for entities to disclose qualitative information on volunteer services received.
The IPSASB confirmed that no liability to the public for collective services arises prior to the delivery of those services. The IPSASB agreed to provide guidance on this issue through a narrow scope amendment adding application guidance to IPSAS 19. The IPSASB also agreed to extend this guidance to universally accessible services.
The IPSASB provided instructions on development of a flow chart on the subsequent measurement of assets. A table of equivalence comparing and contrasting terms from IPSAS, International Valuation Standards, and the Government Finance Statistics Manual will be further developed. The IPSASB directed the Financial Instruments Task Force to provide a recommendation on public sector modifications to IFRS 13, Fair Value Measurement, so that requirements and guidance from IFRS 13 can be included in a future ED, Measurement. The IPSASB held a preliminary discussion on the subsequent measurement of liabilities.
The IPSASB decided to replace the IPSAS-IFRS Tracking Table with the IPSAS-IFRS Alignment Dashboard as a standing agenda item. The IPSASB decided to adopt provisionally the term ‘alignment’ instead of ‘convergence’ in the context of standards drawn from IFRS but will make a final decision at its September meeting, when reviewing the comments on the Strategy and Work Plan consultation.
The next meeting of the IPSASB will be in Toronto, Canada from September 18-21, 2018. For more information, or to register as an observer, visit the IPSASB website.
Todd Beardsworth, FCA, was a member of the IPSASB until 2023. Ms. Beardsworth became a member of the IPSASB during 2018 to fill a casual vacancy. He was nominated by the External Reporting Board in New Zealand.
He is currently the Assistant Auditor-General, Audit Quality at the Office of the Auditor-General, where he is responsible for leading the Office on all audit quality matters. This includes ensuring that auditors are appointed and supported to carry out high quality audits of public sector entities on behalf of the Auditor-General.
He has worked in the New Zealand public sector for more than 20 years, mostly at the Office of the Auditor-General. Mr. Beardsworth's roles in standard setting include six years as a member of the Financial Reporting Standards Board from 2003 to 2008, and two and a half years as a member of the New Zealand Accounting Standards Board between 2016 and 2018. Also, he worked for the External Reporting Board as the Director of Accounting Standards from 2014 to 2015. During 2015, he provided technical support to Angela Ryan, a former member of the IPSASB.
He has a bachelor's degree in business studies from Massey University in New Zealand.
This Q&A discusses the compatibility for consolidation purposes of IPSAS and commercial public sector entities. The use of IPSAS for non-profit-seeking entities should not give rise to significant compatibility issues when SoEs reporting under IFRS, or a similar national framework, are consolidated into a government’s financial statements.
The IPSASB discussed responses to ED 63, Social Benefits, beginning with its scope and definitions. The IPSASB noted that while respondents generally supported the scope of ED 63, a number considered that some definitions of key terms need to be clearer. The IPSASB agreed to retain the scope proposed in ED 63, but to clarify some definitions. In particular, the definition of social benefits will refer to cash transfers. In the context of non-exchange expenses a definition of collective services will also be developed.
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