The International Public Sector Accounting Standards Board (IPSASB) has published the following five exposure drafts (EDs):

• ED 48, Separate Financial Statements;
• ED 49, Consolidated Financial Statements;
• ED 50, Investments in Associates and Joint Ventures;
• ED 51, Joint Arrangements; and,
• ED 52, Disclosure of Interests in Other Entities.

These five EDs will replace current requirements in three International Public Sector Accounting Standards (IPSASs):

• IPSAS 6, Consolidated and Separate Financial Statements;
• IPSAS 7, Investments in Associates; and,
• IPSAS 8, Interests in Joint Ventures. 

A key part of the IPSASB’s strategy is to converge IPSASs, to the extent appropriate, with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). The IPSASB developed these EDs in light of the relevant IFRSs, while also considering public sector-specific differences and, as a result, these five EDs propose some important changes to make the standards appropriate for application in the public sector.

“These five EDs present proposals on how public sector entities, including governments, should account for their interests in other entities,” said IPSASB Chair Andreas Bergmann. “Comprehensive and transparent reporting of interests in other entities is essential given the wide range of government interventions in the economy and the scale of those interventions.”

The following highlights particular aspects of each ED:

ED 48, Separate Financial Statements

The requirements for separate financial statements in ED 48 are very similar to the current requirements for separate financial statements in IPSAS 6.

ED 49, Consolidated Financial Statements

ED 49 will supersede the requirements in IPSAS 6 regarding consolidated financial statements. ED 49 still requires that control be assessed having regard to benefits and power, but it proposes a new definition of control and considerably more guidance on assessing control. The definition of control focuses on an entity’s ability to influence the nature and amount of benefits through its power over another entity. This new definition of control may introduce additional requirements that could impact previous assessments of control.

ED 49 introduces the concept of investment entities. Generally an investment entity measures its investments in controlled entities at fair value through surplus or deficit. An entity that controls an investment entity retains this method of accounting for an investment entity’s investments in its consolidated financial statements.

In contrast with IPSAS 6, ED 49 no longer permits an exemption from consolidation for temporarily controlled entities. Consistent with its goal of minimizing differences between IPSASs and statistical reporting guidance, the IPSASB has aligned the principles in ED 49 with the Government Finance Statistics Manual 2013 (GFSM 2013) where feasible.

ED 50, Investments in Associates and Joint Ventures

ED 50 explains the application of the equity method of accounting, which is to be used in accounting for investments in associates and joint ventures. The proposals are very similar to the current guidance in IPSAS 7; the key difference is that the ED encompasses joint ventures. ED 50 and ED 51 propose that investments in joint ventures be accounted for using the equity method of accounting.

In contrast with IPSAS 7, ED 50 does not permit a different accounting treatment for temporary investments. 

ED 51, Joint Arrangements

ED 51 contains proposals for classifying and accounting for different types of joint arrangements. It proposes that joint arrangements be classified as either joint operations or joint ventures. In a joint operation, the parties to the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. In a joint venture, the parties to the arrangement have rights to the net assets of the arrangement. This proposed classification differs from IPSAS 8, which referred to three types of arrangements (jointly controlled entities, jointly controlled operations, and jointly controlled assets).

ED 51 proposes that an entity account for its interest in a joint operation by recognizing its share of the assets, liabilities, revenue, and expenses of the joint arrangement and that joint ventures be accounted for in consolidated financial statements using the equity method. Previously, IPSAS 8 permitted jointly controlled entities to be accounted for using either the equity method or proportionate consolidation.

ED 52, Disclosure of Interests in Other Entities

ED 52 brings together the disclosures that were previously included in IPSASs 6–8 and introduces certain new disclosure requirements, including those related to structured entities that are not consolidated.

How to Comment
To access the EDs and the At-a-Glance document, which provides a summary of the EDs, or to submit a comment, please visit the IPSASB website at www.ipsasb.org. Comments on the EDs are requested by February 28, 2014. The IPSASB encourages IFAC members, associates, and regional accountancy bodies to promote the availability of these EDs 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.

This summary provides an overview of five Exposure Drafts (EDs): ED 48, Separate Financial Statements; ED 49, Consolidated Financial Statements; ED 50, Investments in Associates and Joint Ventures; ED 51, Joint Arrangements; and ED 52,

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.

This version of The Preface to the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities is a Preliminary Board View. The Preface highlights characteristics of the public sector that underpin the development of International Public Sector Accounting Standards (IPSASs) and Recommended Practice Guidelines (RPGs). The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities (Conceptual Framework) acknowledges and responds to these characteristics.