IPSASB Update Karen Sanderson Executive Director Industry and
IPSASB Update Karen Sanderson Executive Director, Industry and Government Services New South Wales Treasury and IPSASB Consultative Advisory Group ACCA Global Public Sector Conference Singapore March 1 st and 2018 Page 1 | Proprietary and Copyrighted Information
IPSASB update: Session overview • • • Current work programme overview Draft 2019 -23 Strategy and Work Plan Social Benefits – ED 63 Leases – ED 64 Revenue – ED 62 Public Sector Measurement Page 2 | Proprietary and Copyrighted Information
Current IPSASB work programme: Project Public sector specific IFRS convergence Social Benefits Revenue & Non-Exchange Expenditure Financial Instruments Leases Public Sector Measurement Heritage Infrastructure Assets (started September 2017) Page 3 | Proprietary and Copyrighted Information
IPSASB progress since February 2017 Consultation Papers (CPs) issued: • • • Heritage (closed 30 September 2017) Revenue and Non-Exchange Expenses (closed 15 January 2018) 2019 -23 Strategy and Work Plan (comment deadline 15 June 2018) Exposure Drafts (EDs) issued: • • • Financial Instruments (closed 31 December 2017) Social Benefits (31 March 2018 comment deadline) Leases (30 June 2018 comment deadline) Final pronouncements approved: • Cash Basis IPSAS update Page 4 | Proprietary and Copyrighted Information
Latest projected timelines for current projects Page 5 | Proprietary and Copyrighted Information
2019 -2023 Strategy and Work Plan: Proposed Strategic Objective Strengthening Public Financial Management (PFM) globally through increasing adoption of accrual-based IPSAS. This Strategic Objective will be delivered through two main areas of activity: Developing IPSAS and other highquality financial reporting guidance for the public sector; and Raising awareness of IPSAS and the benefits of their adoption. Page 6 | Proprietary and Copyrighted Information
38% of Governments currently on accrual Page 7 | Proprietary and Copyrighted Information
Accrual implementation: Future plans Trend toward accrual accounting is clear……… Source: PWC Global Survey on Accounting and Reporting by Central Governments (2 nd edition) Page 8 | Proprietary and Copyrighted Information
2019 -23 Strategy and Work Plan: 5 Strategic Themes Theme B: Maintaining IFRS convergence Theme A: Setting standards on public sector specific issues Strengthening PFM globally through increasing adoption of accrual-based IPSAS Theme E: Advocating the benefits of accrual in strengthening PFM Theme C: Developing guidance to meet users’ broader financial reporting needs Theme D: Promoting IPSAS adoption and Implementation Page 9 | Proprietary and Copyrighted Information
2019 -23 Strategy and Work Plan: Criteria for Assessing Projects Consequences Urgency Prevalence Technical & Resource Considerations Page 10 | Proprietary and Copyrighted Information
Strategy and Work Plan: Proposed Projects Theme A: Public Sector Specific Theme B: IFRS Convergence Theme C: Broader Reporting Natural Resources Update of IPSAS 18, Segment Reporting Revising RPG 1, Long-Term Sustainability of an Entity’s Finances Discount Rates IASB 'catch up‘ (ad hoc, narrow scope projects) IASB Initiative – Better Communication in Financial Reporting Differential Reporting IPSAS 1, Presentation of Financial Statements Defining Public Sector Key Financial Performance Indicators Limited Review of the Conceptual Framework IPSAS 20, Related Party Transactions Public Sector Guidance for Cost Accounting for Tax Expenditures IFRS 5, Non Current Assets Held for Sale and Discontinued Operations Military Assets IFRS 6, Exploration for and Evaluation of Mineral Resources Intangible Assets – Public Sector Specific IFRS 14, Regulatory Deferral Accounts Sovereign Powers and their Impact on Financial Reporting IFRS 17, Insurance Contracts IPSAS 22, Disclosure about the General Government Sector IAS 34, Interim Financial Reporting Asset Retirement Obligations Page 11 | Proprietary and Copyrighted Information
Current projects and proposed Work Plan additions: Themes A to C Page 12 | Proprietary and Copyrighted Information
Theme D: Promoting IPSAS adoption and implementation • PFM reform landscape within individual jurisdictions is complex, and the IPSASB’s role is more limited than other groups • Promotion • Technical Guidance ─ Active outreach programme – Chair, Members, TAs, CAG • • • ‘At a Glance’ summaries Webinars Q&A Page 13 | Proprietary and Copyrighted Information
Theme E: Advocating the benefits of accrual in strengthening PFM In order to maximize the benefits of accrual-based information, it should be used for as many purposes as possible: Page 14 | Proprietary and Copyrighted Information
Theme E: Advocating the benefits of accrual in strengthening PFM • Build relationships with key international organisations and donors – IMF, World Bank, IMF, regional development banks etc • Raise awareness among other potential advocates – capital markets, ratings agencies, civil society groups, INTOSAI • Participate in key events • Encourage development of accrual impact evidence base – key role of academic community • Influence guidance development by other professional groups e. g. Government Finance Statistics (GFS) Page 15 | Proprietary and Copyrighted Information
Delivering the Vision: New Strategy and Work Plan for 2019 onwards…. 2017 2018 H 1 2018 H 2 2019 • Task force discussion • Board debate • CAG & PIC input • PSSSF discussions • Consultation Paper • Roundtables • Board outreach • Review responses • Board debate • CAG & PIC input • Final approval • Publication • Project brief development • PSSSF discussions • CAG & PIC input • Projects start… Page 16 | Proprietary and Copyrighted Information
Social Benefits: ED 63 definitions Social risks are events or circumstances that: Social benefits are provided to: (a) Specific individuals and/or households who meet eligibility criteria; (b) Mitigate the effect of social risks; and (c) Address the needs of society as a whole; but (d) Are not universally accessible services. (a) Relate to the characteristics of individuals and/or households – for example, age, health, poverty and employment status; and (b) May adversely affect the welfare of individuals and/or households, either by imposing additional demands on their resources or by reducing their income. Universally accessible services are those that are made available by a government entity for all individuals and/or households to access, and where eligibility criteria (if any) are not related to social risk. Page 17 | Proprietary and Copyrighted Information
Grants, Contributions and Other Transfers Collective Services Universally Accessible Services Social Benefits Other IPSAS or IFRS Employee Benefits Contracts for Insurance Contracts for Goods and Services • Grants to other public sector entities; grants to charities; disaster relief • Defense; street lighting • Universal education • Universal healthcare • State pensions; unemployment benefits; income support • Salaries; employee healthcare schemes; employee pensions Scope of Social Benefits in GFS ED 63 Non-Exchange Expenses Project Social Benefits: Revised coverage • Vehicle insurance; private medical insurance • Purchase of goods; payment for services Page 18 | Proprietary and Copyrighted Information
Which Benefits are Social Benefits? Type of Benefit Retirement Benefits (Government Employees) State Retirement Pensions Universal Healthcare Services Disability Pensions Unemployment Benefits Disaster Relief Defense Services Social Benefit? û ü ü û û Reason Does not address the needs of society as a whole. Paid to all those over a certain age as a means of ensuring those in need are covered. Meet the definition of universally accessible services. Meets the definition of a social benefit – addresses social risk, paid when criteria met. Mitigates the effects of a geographical risk rather than a social risk. Services are not provided to specific individuals but are collective services. Page 19 | Proprietary and Copyrighted Information
Social Benefits CP: Recognition and measurement options (2) Option 1 • Obligating Event Approach X Option 2 Option 3 • Social Contract Approach • Insurance Approach Page 20 | Proprietary and Copyrighted Information
Criteria for Using the Insurance Approach Intended to be Fully Funded from Contributions, Levies, Investment Income Review and Adjust Rates and/or Benefits Managed as Insurer Manages Insurance Contracts Bound by Scheme Separate Fund Enforceable Rights Assess Financial Performance and Position Possibly Separate Entity Page 21 | Proprietary and Copyrighted Information
Social Benefits ED: Obligating event approach Earliest Recognition Point Key Participatory Events Occur Some but not all eligibility criteria may be met Key Participatory Events Latest Recognition Point Eligibility Criteria Initially Met Eligibility Criteria Met to Receive Next Benefit Claim Approved Payment Date Arrived Threshold Eligibility Criteria Met to Receive Benefit Approved Claim Enforceable Claim Eligibility criteria met to receive next benefit Being alive as recognition criterion Page 22 | Proprietary and Copyrighted Information
Obligating Event Approach: Alternative View The obligating event should be dependent on the economic substance of the social benefit scheme. For some social benefits, recognizing a liability when the eligibility criteria for the next benefit are satisfied will be appropriate. For other social benefits, a liability would be recognized at an earlier point. Preparers would determine which obligating event is most appropriate for their social benefit schemes. Criteria met for first time Liability accrued over time as contributions made Page 23 | Proprietary and Copyrighted Information
Obligating event approach: Liability measurement Page 24 | Proprietary and Copyrighted Information
Obligating Event Approach: Disclosures Characteristics of Social Benefit Schemes • • Nature of social benefits provided Key features of social benefit scheme Description of funding Description of significant amendments Amounts in the Financial Statements • Total expense recognized • Reconciliation from the opening balance to the closing balance of the liability Explanation of Future Cash Flows • Best estimate of the undiscounted projected cash outflows • Key assumptions used Page 25 | Proprietary and Copyrighted Information
Social benefits: Balance sheet as basis for financial sustainability projections Inflows Past cash flows Future cash flows Present economic benefits realized in the future (Assets) Assets obtained and realized to date Outflows Expected resources to be realized in the future Liabilities incurred and settled to date Expected obligations to be settled in the future Present economic sacrifices settled in future (Liabilities) Page 26 | Proprietary and Copyrighted Information
ED 63: Next Steps ED 63 issued October 2017 Deadline for comments March 2018 IPSASB considers responses IPSAS issued Page 27 | Proprietary and Copyrighted Information
ED 64: Influences on IPSASB Leases project Development of Exposure Draft 64 IPSASB Conceptual Framework IPSASB Leases Project IPSASB “Rules of the Road” Page 28 | Proprietary and Copyrighted Information
Lessee accounting under ED 64 Development of Exposure Draft 64 Right-of-use model for lessee accounting in IFRS 16 • Is consistent with the IPSASB Conceptual Framework • Prevents arbitrage, gaming and information asymmetry • Improves comparability between public sector entities that lease assets and public sector entities that purchase assets Appropriate for public sector financial reporting Page 29 | Proprietary and Copyrighted Information
Lessor accounting under ED 64 Development of Exposure Draft 64 Risks and rewards model for lessor accounting in IFRS 16 • Is inconsistent with the IPSASB Conceptual Framework • Is inconsistent with IPSAS 32, Service Concession Arrangements: Grantor • Does not distinguish the right-of-use asset from the underlying asset • Derecognizes the underlying asset in a finance lease • Does not recognize the lease receivable in an operating lease • Creates consolidation issues where the lessor and the lessee are part of the same economic entity Not appropriate for public sector financial reporting Page 30 | Proprietary and Copyrighted Information
ED 64: Overview Lessor Accounting for the underlying asset • Lessor recognises and measures according to the applicable IPSAS - different to IFRS 16 Separate accounting for the lease (right-of-use) • • Lessee liability – as per IFRS 16 Lessor receivable – different to IFRS 16 At market terms – unless a concessionary lease At below market terms – concessionary leases Page 31 | Proprietary and Copyrighted Information
ED 64: IPSASB right-of-use model in six steps Lessor Step 1 The identified asset Step 2 The lease contract Simultaneous creation and transfer of right-of-use asset to the lessee. ic nom Eco lue va Step 3 Type of lease Is the lease at market terms or at below market terms? Step 4 Lease terms At market terms: Economic value Cash Step 5 Recognition Lease receivable Liability (unearned revenue) Right-of-use asset Lease liability Lease receivable At below market terms: Economic value Expense or contribution from owners Cash Right-of-use asset Lessee transfers cash to the lessor. Step 6 Measurement Historical cost Liability (unearned revenue) Fair value Lease liability Revenue or liability Lessee Page 32 | Proprietary and Copyrighted Information
ED 64: Next steps Next Steps ED 64 issued January 2018 Deadline for comments June 2018 IPSASB considers responses IPSAS issued Page 33 | Proprietary and Copyrighted Information
Revenue and Non-Exchange Expenditure CP • Current global literature on Revenue: – IPSAS 23 (Non-Exchange Revenue: Taxes and Transfers) – IPSAS 9 (Revenue from Exchange Transactions) – IPSAS 11 (Construction Contracts) – IFRS 15 (Revenue from Contracts with Customers) – Nothing on Non-exchange Expenses • Single CP addressed need for common approach between Non-Exchange Revenue and Expenditure (e. g. transfers / grants) Page 34 | Proprietary and Copyrighted Information
Categorization of Revenue Transactions Current classification CP Revenue Characteristics Examples Non-Exchange Category A Exchange Category B* Category C No performance obligations or stipulations Enforceable agreements, with performance obligations or stipulations to use or consume resources in a particular way; and/or other agreements requiring resources to be used over a specified period of time Enforceable agreements, with performance obligations to transfer goods or services to customers on commercial terms Taxes, transfers Funding to deliver a specified number of vaccinations to the public Sale of goods or services on commercial terms * Whether Category B transactions are considered to be exchange or non-exchange can differ depending on how the characteristics of the transaction are interpreted. Page 35 | Proprietary and Copyrighted Information
Revenue and Non-Exchange Expenditure CP • Initial way forward plan (subject to response analysis): – Replace IPSASs 9 & 11 with IFRS 15 -based standard – Retain IPSAS 23 -based standard - address application issues – Address ‘Category B’ through separate ‘Grants and other transfers’ work stream(s) – need for multiple examples to address range of practical issues – Separate Non-Exchange Expenses (Collective and Universally Accessible Services) project Page 36 | Proprietary and Copyrighted Information
Public Sector Measurement (1): CF measurement bases Assets Historical Cost Current Value measures Liabilities Historical Cost Current Value measures • • Market Value Replacement Cost Net Selling Price Value in Use Market Value Cost of Fulfilment Cost of Release Assumption Price Page 37 | Proprietary and Copyrighted Information
Public Sector Measurement (2): Approach overview • Measurement CP including a draft ED – More detailed and specific measurement proposals than ‘normal’ – “ED Format” will allow Heritage & Infrastructure projects to develop incremental Application Guidance – CP material around ED will discuss impact on other IPSAS – consequential amendments to follow in later ED – Borrowing Costs to be discussed in CP rather than proposals in ED • Heritage and Infrastructure as additional AG material to IPSAS 17 and the new PS Measurement IPSAS – Recognition in IPSAS 17 – Measurement in new PS Measurement IPSAS Page 38 | Proprietary and Copyrighted Information
Good progress, but no shortage of challenges ahead……. Page 39 | Proprietary and Copyrighted Information
Questions, discussion & further information • Visit our webpage http: //www. ipsasb. org/ • Or contact us by e-mail : IPSASB Chair: iancarruthers@ipsasb. org Technical Director: johnstanford@ipsasb. org Page 40 | Proprietary and Copyrighted Information
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