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IPSASB Update

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 2 nd 2018. IPSASB update: Session overview. Current work programme overview

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IPSASB Update

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  1. IPSASB Update Karen Sanderson Executive Director, Industry and Government Services New South Wales Treasury and IPSASB Consultative Advisory Group ACCA Global Public Sector ConferenceSingaporeMarch 1st and 2nd 2018

  2. IPSASB update: Session overview • Current work programme overview • Draft 2019-23 Strategy and Work Plan • Social Benefits – ED 63 • Leases – ED 64 • Revenue – ED62 • Public Sector Measurement

  3. Current IPSASB work programme:

  4. 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

  5. Latest projected timelines for current projects

  6. 2019-2023 Strategy and Work Plan: Proposed Strategic Objective

  7. 38% of Governments currently on accrual

  8. Accrual implementation: Future plans Trend toward accrual accounting is clear……… Source: PWC Global Survey on Accounting and Reporting by Central Governments (2nd edition)

  9. 2019-23 Strategy and Work Plan: 5 Strategic Themes Strengthening PFM globally through increasing adoption of accrual-based IPSAS

  10. 2019-23 Strategy and Work Plan: Criteria for Assessing Projects

  11. Strategy and Work Plan: Proposed Projects Theme C: Broader Reporting Theme A: Public Sector Specific Theme B: IFRS Convergence 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 ofFinancial Statements Defining Public Sector Key Financial Performance Indicators Limited Review of theConceptual Framework IPSAS 20, Related Party Transactions Public Sector Guidance for Cost Accounting 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 theirImpact on Financial Reporting IFRS 17, Insurance Contracts IPSAS 22, Disclosure about theGeneral Government Sector IAS 34, Interim Financial Reporting Asset Retirement Obligations

  12. Current projects and proposed Work Plan additions: Themes A to C

  13. 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 • Active outreach programme – Chair, Members, TAs, CAG • Technical Guidance • ‘At a Glance’ summaries • Webinars • Q&A

  14. 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:

  15. 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)

  16. Delivering the Vision:New Strategy and Work Plan for 2019 onwards….

  17. Social Benefits: ED 63 definitions 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. Social risks are events or circumstances that: (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. 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. 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.

  18. Social Benefits: Revised coverage Non-Exchange Expenses Project ED63 Scope of Social Benefits in GFS Other IPSAS orIFRS

  19. Which Benefits are Social Benefits?

  20. Social Benefits CP:Recognition and measurement options (2) X

  21. Criteria for Using the Insurance Approach

  22. Earliest Recognition Point Latest Recognition Point Social Benefits ED: Obligating event approach Key Participatory Events Occur Some but not all eligibility criteria may be met Eligibility Criteria Initially Met Eligibility Criteria Met to Receive Next Benefit Eligibility Criteria Met to Receive Next Benefit Claim Approved Eligibility Criteria Met to Receive Next Benefit Claim Approved Payment Date Arrived Key Participatory Events Threshold Eligibility Criteria Eligibility Criteria Met to Receive Benefit Approved Claim Enforceable Claim Eligibility criteria met to receive next benefit Being alive as recognition criterion

  23. Obligating Event Approach: Alternative View Criteria met for first time Liability accrued over time as contributions made

  24. Obligating event approach: Liability measurement

  25. Obligating Event Approach: Disclosures

  26. Social benefits: Balance sheet as basis for financial sustainability projections Past cash flows Future cash flows Present economic benefits realized in the future (Assets) Assets obtained and realized to date Inflows Expected resources to be realized in the future Expected obligations to be settled in the future Liabilities incurred and settled to date Outflows Present economic sacrifices settled in future (Liabilities)

  27. ED 63: Next Steps

  28. ED 64: Influences on IPSASB Leases project Development of Exposure Draft 64 IPSASB Leases Project

  29. Lessee accounting under ED 64 Development of Exposure Draft 64 • 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

  30. Lessor accounting under ED 64 Development of Exposure Draft 64 • 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

  31. ED 64: Overview Lessor Accounting • 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

  32. ED 64: IPSASB right-of-use model in six steps Step 6 Step 1 Step 2 Step 3 Step 4 Step 5 Measurement The identified asset The lease contract Recognition Lease terms Type of lease Liability (unearned revenue) At market terms: Lease receivable Simultaneous creation and transfer of right-of-use asset to the lessee. Economic value Is the lease at market terms or at below market terms? Historical cost Right-of-use asset Lease liability Cash Lease receivable Liability (unearned revenue) Economic value Expense or contribution from owners At below market terms: Economic value Fair value Lease liability Cash Right-of-use asset Lessee transfers cash to the lessor. Revenue or liability

  33. ED 64: Next steps Next Steps

  34. 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)

  35. Categorization of Revenue Transactions Current classification Non-Exchange Exchange CP Revenue Category A Category B* Category C No performance obligations or stipulations Taxes, transfers 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 Funding to deliver a specified number of vaccinations to the public Enforceable agreements, with performance obligations to transfer goods or services to customers on commercial terms Sale of goods or services on commercial terms Characteristics Examples * Whether Category B transactions are considered to be exchange or non-exchange can differ depending on how the characteristics of the transaction are interpreted.

  36. 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

  37. Public Sector Measurement (1):CF measurement bases

  38. 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

  39. Good progress, but no shortage of challenges ahead…….

  40. Questions, discussion & further information • Visit our webpage http://www.ipsasb.org/ • Or contact us by e-mail :IPSASB Chair: iancarruthers@ipsasb.orgTechnical Director: johnstanford@ipsasb.org

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