An update on International Public Sector Accounting Standards

I am the technical advisor to UK’s member of the International Public Sector Accounting Standards Board (IPSASB) and this is an update of the last IPSASB meeting which took place in June. The Board always meet for four days (four times a year) so this is a heavily summarised version of events. The aim is to provide you with the key points raised and to give you a flavour of the direction of travel of these important accounting standards. 

Leases

Mindful of not wanting to repeat myself from the last update (see previous blog), I will keep the introduction short.

IPSASB are in progress of updating their leasing standard following the introduction of IFRS 16 Leases. Their initial proposal was to mirror the IFRS 16 lessee accounting model but to deviate from the IFRS 16 lessor accounting model which is still based on risks and rewards.

The subsequent consultation responses showed an appetite to deviate from IFRS 16 lessor model but rejected the proposed model put forward by IPSASB. Unfortunately, the responses were too varied for IPSASB to proceed with an alternative model and are now on a fact-finding mission to outline the pros and cons of various options. The taskforce set up for this project is due to present the various options at the next meeting, due to be held in September.

Infrastructure assets

Infrastructure assets have been identified as being of particular interest to public sector account preparers as there is currently little guidance within the property, plant and equipment standard.

The project is likely to result in an update of one or more existing standards, primarily through the creation of application guidance. The bulk of the issues raised (so far) relate to measurement rather than recognition of infrastructure assets.

The project is at a fairly early stage but the following key issues have been identified:

  • Definition
  • Control of Infrastructure Assets
  • Distinguishing between capital and maintenance expenditure
  • Measurement at initial recognition and subsequently

Heritage assets

The Board concluded that the distinction between operational and non-operational heritage assets is not useful for recognition but may be helpful in thinking about measurement since operational heritage assets may be measured more reliably. However, it is unlikely that the UK’s distinction will make its way into the final standard.

Another key development is the lack of support of symbolic values where assets are difficult to value. It was agreed that the use of symbolic values is a practical expedient but unlikely to result in information that is useful to users. Symbolic values are not a measure of the value of the asset.

Revenue

IPSASB are looking to adopt IFRS 15 Revenue from Contracts with Customers but with a few amendments to widen the scope for public sector specific transactions.

One key discussion point was on the timing of revenue recognition for transactions that contain performance obligations and those that don’t - such as general grants. It is clear that if performance obligations exist, that these would be recognised over time if the performance obligations are satisfied over time, as per IFRS 15 However, in other situations the terms of the arrangement would need to be evaluated carefully to ascertain whether or not the definition of a liability is met and that therefore any income received should be deferred. Currently, the deferral of grants received is widespread in the public sector (to match future expenditure with income) but this may not be in line with a future IPSAS on revenue.

Other remarks

At the next IPSASB meeting in September, HM Treasury is due to provide evidence on the implementation progress of the leasing standard in the public sector in the UK. This should be interesting and I will report back on this.

In the meantime, if there are any topics that you would like covered in relation to financial reporting in the public sector please leave a comment. Any additional comments are also welcome.

Many thanks.

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