Improvements to IPSAS, 2023 was approved in March by the IPSASB and is expected to be published in April 2024. This new pronouncement includes amendments to IPSAS to add guidance related to the classification of liabilities and accounting for the lease liability in a sale and leaseback.
IFRIC Alignment–Narrow Scope Amendments
The IPSASB approved Exposure Draft (ED) 89, Amendments to Consider IFRIC Interpretations. This ED proposes to clarify the application of existing principles in IPSAS, based on five IFRIC Interpretations. ED 89 will be published in April 2024 for a 60-day exposure period.
Other Lease-Type Arrangements
The IPSASB approved ED 88, Arrangements Conveying Rights over Assets (Amendments to IPSAS 47 and IPSAS 48). ED 88 will be published at the end of March 2024 for a 60-day exposure period.
Sustainability-Climate-Related Disclosures
The IPSASB agreed that a government’s ability to set policy is unique to the public sector and specific guidance for governments’ policy setting activities that influence other entities, including other economic sectors, is necessary. The IPSASB also held initial discussions with breakout groups on public sector specific climate-related metrics and transitional provisions.
Natural Resources
The IPSASB agreed the derecognition requirements for natural resources, the transitional provisions, and with the description of conservation to be included in the ED, Natural Resources. The IPSASB also agreed with the subsequent measurement of natural resources and what should be excluded from the ED’s scope.
Measurement-Application Phase
The IPSASB discussed the applicability of current operational value for assets in scope of IPSAS 31, Intangible Assets, and reviewed the draft ED that includes amendments to inventories, intangible assets, impairment of non-cash-generating assets, accounting estimates, and current value measurement disclosures.
IPSAS 33–Limited Scope Update
The IPSASB agreed that IPSAS 33, First-Time Adoption of Accrual Basis IPSAS, should be enhanced by proposing guidance to support the pre-adoption phase of IPSAS implementation. The IPSASB also agreed to explicitly encourage early application of IPSAS during the transitional relief period.
Presentation of Financial Statements
The IPSASB continued its discussion of issues to advance the development of a new IPSAS to replace IPSAS 1, Presentation of Financial Statements. This included consideration of definitions and overarching presentation requirements and was supported by breakout group discussions on the presentation of revenue and expense items outside the statement of financial performance.
Meeting Videos
Recordings of the meetings are available on our YouTube channel.
Next Meeting
The second IPSASB meeting of 2024 will take place in Toronto, Canada from June 25 – 28. For more information, or to register as an observer, please visit the IPSASB website.
Pathways to Accrual: Find resources helpful for planning and undertaking a transition from cash to accrual accounting including adopting and implementing IPSAS.
e-International Standards: Access the IPSASB’s standards and pronouncements on a convenient digital platform.
Train the Trainer: Download a package of training materials on IPSAS that can be tailored to the needs of training participants. A new edition will be released later this month.
The IPSASB approved Exposure Draft (ED) 86, Exploration for and Evaluation of Mineral Resources, which provides the accounting guidance related to the costs incurred in the exploration and evaluation of mineral resources, and ED 87, Stripping Costs in the Production Phase of a Surface Mine (Amendments to IPSAS 12, Inventories), which provides guidance on how to account for costs incurred to remove waste material in a surface mining operation.
ED 86 and ED 87 will be exposed in Q1 2024, with a four-month comment period.
IPSAS 33–Limited Scope Update
Following the completion of an initial research phase on the implementation experience of IPSAS 33, First Time Adoption of Accrual Basis IPSASs for a group of countries, the IPSASB approved a project brief for a limited-scope project to update and enhance IPSAS 33 to help ensure it is more helpful to initial adopters.
Sustainability-Climate-Related Disclosures
The IPSASB reviewed the objectives, scope and conceptual foundations for the development of the draft Climate-related Disclosures standard for the public sector. The IPSASB emphasized the public sector specificities, including its main objective to deliver services, its role as a policy setter and regulator, and its various responsibilities at different levels of government. In breakout sessions that included all members, technical advisors, observers and staff, the IPSASB sought feedback on technical topics and issues planned for consideration in March 2024 related to governance, strategy and risk management sections of the developing draft standard.
Natural Resources
The IPSASB agreed on revised recognition criteria and initial measurement proposals, consistent with the Conceptual Framework and IPSAS for tangible assets. The IPSASB also decided that the guidance on natural resources should be in a standalone IPSAS.
Measurement-Application Phase
The IPSASB continued its discussion on the applicability of Current Operational Value (COV) to various IPSAS. The IPSASB decided to amend IPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors to clarify that a change in the measurement model is a change in accounting policy. The IPSASB also considered COV examples related IPSAS 21, Impairment of Non-Cash-Generating Assets to better understand how adding it might work when undertaking impairment testing.
Presentation of Financial Statements
The IPSASB agreed its Consultation Paper (CP) would explore an approach that allows different presentation approaches in IPSAS. The provision of different presentation approaches was supported based on the increased flexibility it would provide to public sector entities to provide a presentational approach more useful to the entities specific users. In breakout sessions, IPSASB members, technical advisors, observers and staff considered topics related to potential categorization and sub-totals in the statement of financial performance.
IFRIC Alignment–Narrow Scope Amendments
The IPSASB began to review those IFRIC and SIC Interpretations not yet considered by the Board to determine whether they were public sector relevant. The IPSASB concluded on how it would determine which IFRIC and SIC Interpretations to propose for inclusion in IPSAS, and decided that IFRIC 7, Applying the Restatement Approach Under IAS 29, Financial Reporting in Hyperinflationary Economies is applicable to the public sector, and should be incorporated into IPSAS 10, Financial Reporting in Hyperinflationary Economies. The remaining outstanding items not yet considered will be discussed by IPSASB in March 2024.
Navigating IPSAS–Practical Support Material
The IPSASB considered a draft of a feedback statement to communicate to constituents the IPSASB’s decision to support development of practical support material by a strategic partner organization as opposed to pursuing a Differential Reporting standard-setting project.
The Differential Reporting Feedback Statement is planned for publication in January 2024.
Other Lease-Type Arrangements
The IPSASB continued the review of responses to ED 84, Concessionary Leases and Right-of-Use Assets In-Kind. The IPSASB decided to develop and then expose a standalone ED with non-authoritative guidance on the remaining arrangements included in the Request for Information, Concessionary and Other Arrangements Similar to Leases. The new ED will complement ED 84 and propose to update the most recent IPSAS on Revenue and Transfer Expenses on this topic.
Meeting Videos
Recordings of the meetings are available on our YouTube channel.
Next Meeting
The first IPSASB meeting of 2024 will take place in New York, USA from March 12 – 15. For more information, or to register as an observer, visit the IPSASB website.
The IPSASB held its third meeting of the year from September 12-15 in Switzerland hosted by the Canton of Zurich.
The IPSASB’s Next Strategy and Work Program
The IPSASB approved the 2024-2028 Strategy and Work Program Consultation. The proposals emphasize a greater focus on maintenance of IPSAS, including developing a Post-Implementation Review process and reaffirms the IPSASB decision to develop public sector sustainability reporting standards.
The IPSASB will hold in-person regional roundtables during the Consultation which will be open for 4-months.
Retirement Benefit Plans
The IPSASB approved IPSAS 49, Retirement Benefit Plans. This pronouncement provides accounting and reporting requirements for plans that provide retirement benefits to public sector employees.
IPSAS 49 will be effective for periods beginning on or after January 1, 2026.
Other Lease-Type Arrangements
The IPSASB continued to review the responses to Exposure Draft (ED) 84, Concessionary Leases and Right-of-Use Assets In-kind. During the meeting, the IPSASB agreed to proceed with the proposed principles with an aim to finalize the amendments to the Leases and Revenue Standards by March 2024.
Measurement-Application Phase
The IPSASB reviewed the applicability of current operational value to several IPSAS and concluded it applies to assets within the scope of IPSAS 32, Service Concession Arrangements: Grantor, but decided to perform further analysis on its applicability for IPSAS 12, Inventories, and IPSAS 43, Leases.
The IPSASB considered proposals to revise the definition of, and guidance on, recoverable service amount in IPSAS 21, Impairment of Non-Cash-Generating Assets. The IPSASB will consider illustrative examples at the December meeting.
Differential Reporting
The IPSASB reflected on the findings from its research and scoping phase and decided not to pursue a standard setting solution. Instead it decided to seek a partner to help develop practical application material to help preparers more easily navigate and apply IPSAS. The IPSASB aims to publish a feedback statement by early 2024 to summarize the full rationale supporting its decision.
Presentation of Financial Statements
The IPSASB received an education session on IPSAS 22, Disclosure of Financial Information about the General Government Sector and IPSAS 24, Presentation of Budget Information in Financial Statements and concluded the scope of the project should be consistent with the scope of IPSAS 1, Presentation of Financial Statements. The IPSASB approved the project brief for the Presentation of Financial Statements project.
Improvements to IPSAS 2023
The IPSASB approved ED 85, Improvements to IPSAS, 2023. ED 85 is expected to be published in October 2023 with a consultation period of 60 days.
Sustainability-Climate-Related Disclosures
The IPSASB received presentations from the IFRS Foundation, International Sustainability Standards Board, and New Zealand External Reporting Board to receive updates on their work related to sustainability reporting guidance and better understand their journeys specifically related to development of climate-related reporting standards.
Using the project brief approved in June 2023, the IPSASB agreed on its approach to developing its climate-related disclosure standard, including how it would incorporate climate expertise into the process.
Natural Resources
The IPSASB agreed to revise the definition of a natural resource as a naturally occurring item which embodies service potential or the capability to generate economic benefits.
The IPSASB also decided to reconsider the proposals on recognition and measurement, and whether the proposed guidance should be located in a standalone standard or as amendments to existing IPSAS.
Natural Resources-IFRS 6 Alignment
In response to comments received to the Natural Resources Consultation Paper, the IPSASB reviewed a first draft of an ED aligned with IFRS 6, Exploration for and Evaluation of Mineral Resources, including guidance aligned with IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine.
First-Time Adoption of Accrual Basis IPSASs
The IPSASB considered several alternatives to address the public need to clarify and make IPSAS 33, First-time Adoption of Accrual Basis IPSASs, more user friendly and effective. The IPSASB will review a proposal for updates to IPSAS 33 at its December meeting where material will be rearranged by topic and supported by non-authoritative guidance.
Board Appointments and Chair Extension
Following a rigorous nominations and interview process involving the IFAC Nominating Committee and IPSASB leadership, overseen by the Public Interest Committee and approved by the IFAC Board, the IPSASB announced its new and reappointed Board members and Deputy Chair for 2024, as well as the extension of its Chair through 2025.
Meeting Videos
Recordings of the meetings are available on our YouTube channel.
The IPSASB decided to move forward with the development of a public sector specific Climate-Related Disclosures standard and approved a project brief related to this major initiative. The IPSASB hopes to be able to initiate other sustainability-related projects in the coming months, subject to funding and resource availability. See the recent announcement for further information on how to get involved and support this critical initiative.
The IPSASB approved the updated Chapter 3, Qualitative Characteristics, which clarifies the role of prudence in public sector financial reporting and updates the guidance on materiality to better serve the users of financial information. The updated chapter is expected to be published in July 2023, and the project to revise the IPSASB’s Conceptual Framework is now complete.
Natural Resources
The IPSASB revised the project timelines to develop by March 2024 two EDs:
One to propose IPSAS guidance on natural resources; and
Another to propose an aligned IPSAS with IFRS 6, Exploration for and Evaluation of Mineral Resources.
The IPSASB intends to refine the definition and guidance on the accounting for natural resources to reflect the recognition challenges raised by constituents in comment letters to the 2022 Consultation Paper, Natural Resources.
Other Lease–Type Arrangements
The IPSASB undertook a first review of the responses to ED 84, Concessionary Leases and Right-of-Use Assets In-kind. The IPSASB agreed that the ED 84 proposals received strong support on balance, and that it should undertake a detailed review of the issues highlighted in the comments letters starting at the September 2023 meeting.
Measurement–Application Phase
The IPSASB agreed current operational value is not an applicable measurement basis for IPSAS 16, Investment Property; IPSAS 26, Impairment of Cash-Generating Assets; IPSAS 27, Agriculture; IPSAS 36, Investments in Associates and Joint Ventures; IPSAS 37, Joint Arrangements; and IPSAS 41, Financial Instruments. The IPSASB also decided the scope of its IPSAS 21, Impairment of Non-Cash-Generating Assets update should focus on the definition and components of ‘recoverable service amount’.
Retirement Benefit Plans
The IPSASB decided to update the disclosure requirements in [draft] IPSAS 49, Retirement Benefit Plansand clarify the objective and scope, by highlighting the requirements are only applicable to retirement benefit plans in the public sector. The IPSASB agreed this clarification would address concerns identified by respondents related to definitions and consolidation. The IPSASB plans to approve this new IPSAS at its September 2023 meeting.
Presentation of Financial Statements
The IPSASB decided the scope of the project is to replace IPSAS 1, Presentation of Financial Statements with a new IPSAS. The IPSASB further decided that because of the complexity of the topic, the use of a consultation paper is warranted to obtain stakeholder input to support the development of an ED. The IPSASB will further consider a draft project brief at the September 2023 meeting.
Differential Reporting
The IPSASB reflected on the findings and constituent input from the research and scoping activities, and how to best address the public needs that gave rise to a call for an international differential reporting model. The IPSASB agreed the development of other forms of guidance, rather than a standard-setting solution, may be more feasible and better address the public interest needs. The IPSASB will consider the types of guidance and the future approach for this project at its September 2023 meeting.
First-Time Adoption of Accrual Basis IPSASs
The IPSASB discussed feedback from jurisdictions with experience applying IPSAS 33. The IPSASB agreed steps should be taken to better enable the use of IPSAS 33 in practice. The IPSASB decided to consider alternatives on how it could improve IPSAS 33 at its September 2023 meeting.
Welcome to the eighth market scan from the IAASB's Disruptive Technology team. Building on our ongoing work, we issue Market Scans covering exciting trends, including new developments, corporate and start-up innovation, noteworthy investments and what it all might mean for the IAASB.
In this Market Scan, we explore the Internet of Things, focusing on Networks for Asset Monitoring and Data Generation, a technology that enables real time tracking, managing and monitoring of business processes and assets. It also may form part of an entity’s internal control system and may provide data inputs to non-financial reporting, such as emissions reporting.
We cover:
What is the Internet of Things? Why is it important?
The latest developments
What this might mean for the IAASB
What is the Internet of Things? Why is it important?
The Internet of Things (IoT) is a system of interconnected computing devices, mechanical and digital machines or devices in objects, animals, or people that are provided with unique identifiers and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction. IoT devices include consumer products, such as smart home and personal devices (e.g., Ring Doorbell, Apple Watch), and industrial products, such as medical monitoring applications or control sensors and systems used in transportation, manufacturing, and agriculture.
Digital Twin is a digital representation of a physical entity, such as an asset, process, system, device or even a person, and is an emerging technology related to the Internet of Things. This technology, coupled with other technologies, like artificial intelligence, machine learning or process mining, can be used to drive business and operational process efficiencies. For example, a digital twin of a wind turbine can be used to simulate component wear and tear in order to predict turbine performance and make assessments of optimal maintenance strategies and return on investment expectations.
What is IoT? | IoT - Internet of Things | IoT Explained in 6 Minutes | How IoT Works? | Simplilearn
The commercial benefits associated with deploying IoT technology include:
There are some challenges associated with these technologies, such as managing and maintaining all the devices in the network and ensuring the network operates securely, as well as safeguarding data quality and governance. The growth in IoT system complexity has given rise to IoT system management innovations to manage both internal device needs, such as software updates, as well as how those devices communicate across an IoT network. This may be done using a combination of interconnected information systems, for example, as shown in the diagram below.
From an audit and assurance perspective the implications related to an entity’s use of IoT devices and systems broadly are twofold. Firstly, these technologies may form part of the entity’s internal control system and, therefore, require consideration when identifying and assessing risks of material misstatement, including considerations around cybersecurity risks. Secondly, the data generated and collected may be used within the entity’s financial or non-financial reporting, such as sustainability-related disclosures and commentary, which warrants the auditor or assurance practitioner’s consideration of information intended to be used as evidence and the design and performance of audit/assurance procedures.
Recent Noteworthy Developments in Internet of Things
This section is designed to provide examples of recent developments that may signal future disruption in this area. It is not a complete list of all activities related to the IoT.
1. NIST selects ‘Lightweight Cryptography’ Algorithms to Protect Small Devices
In February 2023, the US National Institute of Standards and Technology (NIST) announced it had selected ASCON as having the winning bid for the "lightweight cryptography" program to find the best algorithm to protect small IoT devices with limited hardware resources.
In the announcement, NIST said, "The algorithm ensures that all of the protected data is authentic and has not changed in transit. AEAD [authenticated encryption with associated data] can be used in vehicle-to-vehicle communications, and it also can help prevent counterfeiting of messages exchanged with the radio frequency identification (RFID) tags that often help track packages in warehouses."
2. Start-up activity related to IoT systems and associated technologies
In May 2022, sustainability platform Sustain.Life raised USD $16m in seed funding to support its hiring, software development and customer growth. The platform is designed to help small- and medium-sized entities measure and report their carbon emissions and environmental impact.
In January 2023, Memfault, a platform that enables IoT device monitoring and maintenance over the cloud, secured USD $24m in Series B funding to expand its platform’s software support and invest in out-of-the-box integrations.
In January 2023, Forward Networks Inc, a US-based start-up, raised USD $50m in a Series D funding round to enable it to grow its digital twin technology. The technology creates “mathematically accurate digital twin models for sprawling enterprise networks that can drive actionable insights”.
What this might mean for the IAASB
The IAASB is interested in maintaining its collective knowledgebase on digital technologies (including on specific sub-topics such as the IoT), promoting digital readiness and enablement through its engagement with stakeholders, and encouraging action by others to supplement and support the IAASB’s standard-setting activities.
Subject to the IAASB’s work plan decisions, possible digital technologies use cases for audited entities, and audit or assurance engagements might provide input for further modernizing the IAASB’s standards to be adaptable to and reflect the current business and audit environment, while remaining principles based.
When deployed by entities, IoT devices and networks have the potential to create increased complexity in information systems due to the volume of interconnected devices that require appropriate consideration by the auditor when performing risk identification and assessment procedures. As this technology becomes more sophisticated, particularly where coupled with artificial intelligence technology, it may present novel risks, for example, where real-time analysis and refinement of the device occurs. This may present new challenges for the auditor and may, therefore, have implications for the IAASB’s work, whether in terms of future standard setting related to technology or facilitating or supporting action by others (e.g., developing guidance).
Regarding non-financial information assurance, audited entities are beginning to develop and implement technologies such as smart sensors to measure individual product’s carbon emissions as they move through the supply chain to gather data to measure carbon footprint. Assurance providers will need to develop approaches to evaluate the relevance and reliability of such information from IoT devices intended to be used as evidence and how the nature and source of this information affect the design and performance of procedures for identified disclosures of non-financial information.
The IAASB is currently working on a project to develop an overarching standard for assurance on sustainability reporting as a global baseline for sustainability assurance engagements, while anticipating the need to develop further standards as part of a suite of standards for sustainability assurance. Providing more specificity in relation to the implications of technology, such as the entity’s use of IoT technology and the assurance provider’s use of information produced from IoT sources, may prompt certain candidate topics for future standard-setting activities.
The growing reliance on IoT devices has created an unintended consequence for consumers, with large volumes of IoT devices no longer supported by their manufacturers. This has led to issues around security and waste, which are discussed in this article
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Caption
IAASB Audit & Assurance Technology Landscape, September 2022
The first IPSASB meeting of the year was hosted in the offices of the International Monetary Fund in Washington, D.C., USA on March 14-16, 2023.
Measurement
The IPSASB approved IPSAS 46, Measurement, which brings measurement guidance together in a single standard, and introduces a public sector specific current value measurement basis for assets held for their operational capacity and provides additional generic guidance on fair value. This completes the initial phase of the measurement project, now the IPSASB will consider the broader impact of this new guidance across IPSAS in the ongoing Measurement – Application Phase project.
IPSAS 46 will be effective for periods beginning on or after January 1, 2025.
Revenue
The IPSASB approved IPSAS 47, Revenue, which is a single standard to account for revenue transactions in the public sector. IPSAS 47 replaces the existing three revenue standards, and presents accounting models which will improve financial reporting and support effective public sector financial management.
IPSAS 47 will be effective for periods beginning on or after January 1, 2026.
Transfer Expenses
The IPSASB approved IPSAS 48, Transfer Expenses, which provides guidance on a major area of expenditure for governments and other public sector entities. IPSAS 48 fills a gap which had previously led to ambiguity and inconsistency of accounting policies in the public sector.
IPSAS 48 will be effective for periods beginning on or after January 1, 2026.
Reporting Sustainability Program Information
The IPSASB reviewed the responses to Exposure Draft (ED) 83, Reporting Sustainability Program Information–RPGs 1 and 3: Additional Non-Authoritative Guidance. The IPSASB considered the strong support from respondents on the ED 83 proposals, and approved Amendments to Recommended Practice Guideline 1, Reporting on the Long-Term Sustainability of an Entity’s Finances and Recommended Practice Guideline 3, Reporting Service Performance Information. These amendments help to highlight the applicability of existing concepts and principles in the respective RPGs which public sector entities can apply for reporting sustainability program information.
These amendments will be issued in the second quarter of 2023.
Sustainability Reporting
The IPSASB discussed findings from the initial research and scoping activities performed in Q1 2023. In light of current available resources, the IPSASB agreed to focus initially on a Climate-Related Disclosure project, as this was the most urgent issue identified in the feedback received to the Consultation Paper, Advancing Public Sector Sustainability Reporting.
The initial research and scoping activities will continue in Q2 2023 while the IPSASB continues to source incremental funds to support its sustainability standard setting.
Natural Resources
The IPSASB completed a first review of the responses to its Natural Resources Consultation Paper. The IPSASB agreed to develop an ED to propose accounting requirements for natural resources, including a principled approach to describing and identifying natural resources. The IPSASB also decided to develop a separate ED based on IFRS 6, Exploration for and Evaluation of Mineral Resources to introduce IPSAS guidance on accounting for the costs incurred during exploration, evaluation, and extraction activities.
The IPSASB approved updated Chapter 5, Elements in Financial Statements, which introduces minor changes to the definition of an asset and a liability, and adds new guidance on a transfer of resources, unit of account and binding arrangements that are equally unperformed.
Chapter 5 will be issued in the second quarter of 2023.
The IPSASB reviewed responses to ED 81, Conceptual Framework Update: Chapter 3, Qualitative Characteristics. The IPSASB agreed to update the qualitative characteristic of faithful representation to discuss prudence, and added guidance to clarify that omitting, misstating or obscuring information are factors relevant to consider when making materiality judgments.
Retirement Benefit Plans
The IPSASB performed an initial review of the responses to ED 82, Retirement Benefit Plans. While the overall proposals in ED 82 were strongly supported by respondents, the IPSASB agreed to analyze further specific issues raised at its next meeting in June 2023.
Measurement – Application Phase
The IPSASB agreed which IPSAS are in the scope of the application phase of the Measurement project. The IPSASB also concluded that the applicability of current operational value should be evaluated at initial and subsequent measurements for each IPSAS in scope of the project.
The IPSASB’s Next Strategy and Work Program
The IPSASB discussed the development plan for its next Strategy and Work Program. The IPSASB considered the environmental differences between 2023 and when the 2019-2023 Strategy was developed. The IPSASB agreed its current strategy, and its delivery through five themes, continued to be relevant, however, needed to evolve to address changing stakeholder expectations. The IPSASB aims to approve a Consultation at its September 2023 meeting and is planning outreach during the consultation period in Q4 2023.
Next Meeting
The next meeting of the IPSASB will take place in June 2023 in Toronto, Canada. For more information, or to register as an observer, visit the IPSASB website.
Welcome to the seventh Market Scan from the IAASB's Disruptive Technology team. Building on our ongoing work, we will issue a Market Scan every 2-3 months. Market Scans cover exciting trends, including new developments, corporate and start-up innovation, noteworthy investments and what it all might mean for the IAASB.
In this Market Scan, we explore Digital Assets, with a focus on recent developments within the Cryptocurrency market and what it might mean for the audit and assurance ecosystem. Future Market Scans will build on this area by focusing on related technologies, such as blockchain and smart contracts.
Technology Landscape, September 2022
We cover:
What are digital assets and why are they important?
The latest developments
What this might mean for the IAASB
What Are Digital Assets and Why Are They Important?
A digital asset is anything that exists in digital form only, has or provides value, is identifiable and discoverable, and is associated with ownership or use rights. Types of digital asset include cryptocurrencies and non-fungible tokens (NFTs) as well as digital content like photos, audio files, videos, websites, presentations, spreadsheets, or text files.
Cryptocurrencies (or crypto-assets) such as Bitcoin, Ethereum and Solana use blockchain technology, a distributed ledger that is a computerized database using strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership. Using this decentralized approach eliminates the need for traditional intermediaries, such as banks, to enable funds to be transferred between two parties. Cryptocurrencies can be bought and sold using accounts with cryptocurrency exchange platforms (e.g., Coinbase, Crypto.com) or through a standalone digital wallet.
Stablecoins are a type of cryptocurrency whose value is pegged to that of another currency, commodity or financial instrument. Stablecoins seek to offer price stability by maintaining reserve assets as collateral or through algorithmic formulas designed to control supply. Examples of stablecoins include Tether, USD Coin and TerraUSD.
Cryptocurrency coins are native to their own blockchain (e.g., Ether on the Ethereum blockchain) and are mainly used for payments, investments and trading.
Cryptocurrency tokens have many uses, such as for buying products (transactional tokens), representing ownership (security tokens), conferring voting rights (governance tokens), accessing services (utility tokens) or supporting decentralized applications on the blockchain (platform tokens).
Coins vs Tokens: What’s the Difference? Three-minute watch, Coin Gecko
The advantages of cryptocurrencies include less expensive and faster money transfers and decentralized systems that are not reliant on a central intermediary. Disadvantages of cryptocurrencies include their price volatility, high energy consumption for mining activities (where proof of work is the consensus mechanism used to confirm values on the blockchain) and how easy it is to use crypto for criminal activities.
From an audit and assurance perspective, there is an ever-increasing likelihood that audited entities may be engaged in digital asset related activities, such as holding, transacting or using digital assets; facilitating trading of digital assets on customers’ behalf; or creating digital assets for sale or distribution to third parties. These activities may have unique risks of material misstatement that need to be understood and appropriately addressed as part of a financial statement audit. For example, where digital assets are held by third parties (such as trading platforms or other custodians), obtaining an understanding of the material custodial arrangements and relevant controls related to safeguarding and maintaining records of those assets may be appropriate.
In its Inspections Insights publication in November 2019, the Canadian Public Accountability Board noted certain recurring findings in its inspections of audit files of reporting issuers with activities in the crypto-asset sector. Areas for improvement included:
Obtaining an adequate understanding of audit risks when designing the audit approach;
Evaluating the reliability of information to be used as audit evidence obtained from crypto-exchanges and custodians, as well as from blockchains;
Obtaining sufficient evidence to support an entity’s ownership claims to self-custodied crypto-assets; and
Performing procedures in addition to vouching crypto-assets received to the blockchain, for entities engaged in crypto-asset mining activities.
A follow-up publication in August 2022, Auditing in the Crypto-Asset Sector, highlighted considerations for auditors when auditing the financial statements of reporting issuers that use custodians to safeguard their crypto-assets.
Recent Noteworthy Developments in Digital Assets
These recent developments may signal ongoing or future disruption in this area. It is not a complete list of all activities related to digital assets.
How Terra's UST and LUNA Imploded |Decrypt – In May 2022, Terra’s UST stablecoin and governance token LUNA collapsed, sending shockwaves through the cryptocurrency market and leading to the fall in price of Bitcoin and other cryptocurrencies as investors started to pull their investments. This in turn led to crypto hedge fund Three Arrows Capital falling into liquidation and affected cryptocurrency lenders, including Voyager Digital, Celsius Network and BlockFi, which all subsequently filed for bankruptcy protection.
The Global Digital Assets and Cryptocurrency Association, a global self-regulatory association for the digital asset and cryptocurrency industry published an open letter calling for agreement on a set of fundamental core principles for the industry, including appropriate customer protection, governance and risk management procedures.
2. Crypto audits under scrutiny
Crypto Exchanges’ A La Carte Approach To Audits A Recipe For Disaster | MSN – A Forbes survey of the world’s largest cryptocurrency exchanges highlighted that not all are subject to full financial statement audits. The article noted that, “depending on where they are based, cryptocurrency exchanges do not have to submit to audits. If they do, their financial statements can remain private or be shared only with regulators. This is in stark contrast to issuers of publicly traded securities in major developed markets whose accounts must be regularly audited and made public.”
SEC Increases Scrutiny of Audits of Cryptocurrency Companies | WSJ – In the wake of the FTX collapse, a number of cryptocurrency exchanges sought to reassure investors by providing transparency reports or proof of reserves information, some of which had been subject to agreed-upon procedures (AUP) reporting by an independent auditor. However, the US Securities and Exchange Commission (SEC) raised concerns about investors placing too much confidence on the reporting, which Paul Munter, the SEC’s chief accountant, said, “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities.” Several audit firms have stopped providing proof-of-reserves work in light of concerns over investor overreliance and reputational risk.
What This Might Mean for the IAASB
The IAASB is interested in maintaining its collective knowledgebase on digital technologies (including on specific sub-topics such as digital assets), promoting digital readiness and enablement through its engagement with stakeholders, and encouraging action by others to supplement and support the IAASB’s standard-setting activities.
Subject to the IAASB’s work plan decisions, possible digital technologies use cases for audited entities and audit or AUP engagements might provide input for further modernizing the IAASB’s standards so they are adaptable to and reflect the current business and audit environment, while remaining principles-based.
Despite the turbulence in the digital asset and cryptocurrency industry over the last year, there continues to be more than 300 million individual cryptocurrency users and approximately 18,000 businesses accepting crypto payments. The corporate failures experienced in this industry bring into focus audit’s important role in enhancing confidence in financial statements, thereby contributing to capital markets’ effective functioning and stability. In addition, it highlights the need for a consistent approach to financial reporting by, and regulation of, entities in the industry. Building suitable skills and expertise in this increasingly complex area is also necessary to enable audit and assurance professionals to act appropriately.
As this space evolves, the IAASB may need to consider how best to highlight the application of its principles-based standards in providing audit, assurance or related services to businesses operating in the digital asset ecosystem, including facilitating and supporting actions by others (e.g., in developing non-authoritative guidance).
British rock band Muse released their ninth studio album, Will of the People, in NFT form in August 2022 and it became the first NFT album to reach number 1 in the music charts.
The IPSASB held its second meeting of the year in New York on June 21-24, 2022.
Transfer Expenses
The IPSASB made significant progress in finalizing its transfer expense model. The IPSASB confirmed that a transfer provider’s enforceable rights in a binding arrangement is an asset that is derecognized as the rights are extinguished. For transfers without binding arrangements, the board decided the transfer expense is recognized when control of the transferred resources is lost.
Revenue
With the revenue accounting models largely shaped in 2021, the IPSASB focused on the application to public sector specific issues. The IPSASB confirmed that existing proposals related to the subsequent measurement of non-contractual receivables and disclosure requirements remain appropriate from a principled perspective. The board also confirmed that accounting principles for binding arrangements should be applied to account for capital transfers.
Measurement
After analyzing the additional information and perspectives from respondents, the IPSASB agreed to continue developing its public sector measurement basis, Current Operational Value (COV), for assets held for their operational capacity. The IPSASB confirmed the core principles of COV and agreed they should be clarified to enhance understandability. With the core principles agreed, the IPSASB will next focus their attention on developing the non-authoritative text to ensure clarity in their intended application in practice.
Conceptual Framework – Phase I
The IPSASB continued its analysis of assumption price, cost of release and net selling price. The IPSASB considered the approach of the International Accounting Standards Board and the broader relevance of these measurement bases to public sector financial reporting and decided not to include these measurement bases in a revised chapter on measurement.
Other Lease–Type Arrangements
The IPSASB agreed on the accounting for concessionary leases. For lessees, the IPSASB agreed to measure the right-of-use asset at fair value on initial recognition. For lessors, the IPSASB decided that the current IPSAS guidance is appropriate for concessionary leases.
ED 78, Property, Plant, and Equipment
The IPSASB performed a detailed review of the responses to ED 78, Property, Plant, and Equipment. The proposals in ED 78 were strongly supported by respondents. The IPSASB agreed to move forward with the proposals related to the structure of the guidance, characteristics of infrastructure assets, additional disclosure of unrecognized heritage assets, and non-authoritative guidance.
The IPSASB agreed to proposerevised definitions for an asset and a liability for inclusionin the Exposure Draft planned for approval in December 2020.
The IPSASB agreed to add obscuring information to theexisting factors influencing materiality—omissions and misstatements. The IPSASB also agreed to insert a new section on unit of account. Staff will carry out further work on the case for addressing executorycontracts explicitlyin the Framework.
Revenue and Transfer Expenses
The IPSASB clarified principles related to the existence and recognition of liabilities and assets in transactions arising with binding arrangements (in revenue and transfer expenses respectively). The IPSASB reconsidered and concluded that the distinction between transfer expenses with and without performance obligations is not useful from the transfer provider perspective.
Draft guidance in both standards will be revised to first require an entity to assess whether a binding arrangement exists, and clarify the scope of the proposed transfer expenses standard.
Natural Resources
The IPSASB reviewed the draft Consultation Paper(CP) and considered the proposals on the presentation of information on natural resources. The IPSASB also reviewed the revised chapters on living resources and water, as well as other miscellaneous changes to the CP. The IPSASB plans to continue development of the CP at its December 2020 meeting, with an aim to approve it at its March 2022 meeting.
Leases
The IPSASB decided to proceed with the proposals from Exposure Draft 75, Leases, including reconfirming those related to COVID-19 requirements, definition of a lease, lessee’s discount rate, and fair value definition. Further, the IPSASB decided that it will continue development of the leases guidance at its October check-in meeting with a plan to approve the new final Standard at its December meeting.
Accounting and Reporting by Retirement Benefit Plans
The IPSASB decided that the title for the standard being developed through this project should be Retirement Benefit Plans.The IPSASB also reviewed the options in IAS 26 and decided thatto provide better information and improve accountability and transparency, some of the options should be removed from the Exposure Draft under development. These options relate to the measurement and presentation of the actuarial present value of promised retirement benefits, and the valuation of plan assets.
Next Meeting
The next full-meeting of the IPSASB will take place virtually in December, 2021. For more information, or to register as an observer, visit the IPSASB website (www.ipsasb.org)
The IPSASB held its first meeting of the year virtually on March 16-19 and 23, 2021.
Accounting and Reporting by Retirement Benefit Plans
The IPSASB approved a Project Brief on Accounting and Reporting by Retirement Benefit Plans. In adapting IAS 26, Accounting and Reporting by Retirement Benefit Plans to the public sector, the IPSASB agreed to consider alternatives developed by National Public Sector Standard Setters to address the public sector issues identified.
IFRS 8, Operating Segments
The IPSASB received an educational session on a proposed limited-scope project to develop an IPSAS aligned with IFRS 8, Operating Segments. The session provided an overview of the requirements of IPSAS 18, Segment Reporting, IFRS 8, and public sector specific issues identified by stakeholders. The IPSASB decided to undertake more research and specifically gather further information related to the challenges in applying IPSAS 18 in practice before it decides whether to add the project to the Work Program.
Revenue
The IPSASB discussed several key topics arising from the responses received on the revenue Exposure Drafts (ED) 70 and ED 71. The IPSASB:
Decided that the proposed standards should be named and presented to reflect the prevalence of different types of revenue transactions in the public sector; and
Clarified the accounting principles related to the concepts of binding arrangements, performance obligations, and what gives rise to a liability in a binding arrangement without performance obligations.
Natural Resources
The IPSASB continued its review of the draft Consultation Paper (CP) and provided feedback on the measurement of subsoil resources, the approach used to draft the chapter on living resources, and the description of living resources. In addition, the IPSASB decided the CP will:
Include guidance on the costs of exploration, evaluation, development, and production activities;
Provide potential options on how this guidance could be incorporated into IPSAS literature; and
Solicit constituents’ views on these options.
Mid-Period Work Program Consultation
The IPSASB received presentations on its 2019-2023 Strategy and Work Plan and academic outreach initiatives, including three research papers on proposed projects. These presentations set the stage for a robust discussion on prioritizing projects to be proposed in the Mid-Period Work Program Consultation. The work to develop the Mid-Period Work Program Consultation will continue during Q2 2021, and it is expected to be approved in June 2021.
Conceptual Framework-Limited Update-Next Stage
The IPSASB agreed to the grouping of topics proposed for the next stage of the project. The topics are those in the original project brief not addressed in the first stage of the project, except for concepts of capital and capital maintenance, which, because of their complexity, should be taken forward separately on a longer timeframe. The IPSASB also agreed to add the description of service potential in the context of an asset to the list of topics.
Next Meeting
The next full-meeting of the IPSASB will take place virtually in June 2021. For more information, or to register as an observer, visit the IPSASB website.
