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IPSAS Outlook

A message from Thomas Müller-Marqués BergerWelcome to this month’s edition of IPSAS Outlook, which brings you insights into recent IPSAS developments and emerging issues. In this issue of IPSAS Outlook, the focus is on the state of IPSAS adoption and implementation in Africa. We are very privileged to have Mr Nongo, Ms Poggiolini and Mrs Peloetletse share their views and insights with our readers. I would like to thank them and our colleagues in Africa for their contribution to IPSAS Outlook, making this a truly global publication.We welcome your feedback on IPSAS Outlook. Please contact us at [email protected].

Thomas Müller-Marqués Berger, IPSAS Global Leader

In this issue ...Spotlight on Nigeria’s IPSAS implementationWe talk to James Nongo, deputy director of the Office of the Accountant General of the Federation of Nigeria (OAG) and secretary of the Federal Accounts Allocation Committee’s (FAAC) subcommittee on IPSAS, about the state of IPSAS implementation in Nigeria.

The South African experience and IPSASB’s ED on first-time adoption of IPSASIn this article, Jeanine Poggiolini, South African IPSASB member, shares her views on the proposed standard on first-time adoption of accrual basis IPSASs against the backdrop of the South African experience.

The role of ESAAG in promoting IPSAS adoption in east and southern Africa Emma Peloetletse, chairperson of the East and Southern African Association of Accountants General (ESAAG) Executive Committee, talks about ESAAG’s role in promoting IPSAS adoption and implementation in the region.

Consultation on the IPSASB’s governance and oversightThis article summarizes the latest developments regarding IPSASB’s governance and oversight.

IPSASB issues ED 54 and policy paperLook here for the summaries of ED 54 Reporting Service Performance Information and the IPSASB’s policy paper Process for Considering GFS Reporting Guidelines during Development of IPSASs.

IPSASB project updateSee a summary of the recent IPSASB’s discussions on key projects during its December 2013 meeting.

ResourcesLook here for a recent list of our publications.

Spotlight on Nigeria’s IPSAS implementation

2

The South African experience and IPSASB’s ED on first-time adoption of IPSAS

4

The role of ESAAG in promoting IPSAS adoption in east and southern Africa

6

Consultation on the IPSASB’s governance and oversight

8

IPSASB issues ED 54 and policy paper

10

IPSASB project update

12

Resources 15

IPSAS issues for public finance management executives

ey.com/IPSAS

February/March 2014

Spotlight on Nigeria’s IPSAS implementation

A major feature of the IPSAS implementation process in Nigeria is that it has been phased over two stages – implementation of Cash-basis IPSAS first, followed by accrual-based IPSASs. What were the reasons for this decision?

The decision for this phased approach was made after considering the current state of Nigeria’s financial management process. For the past 40 years, Nigeria has been using cash accounting in the public sector, albeit not IPSAS-compliant. In order for accrual-based IPSASs to be implemented, adequate processes and systems need to be in place. Implementing Cash-basis IPSASs first allowed the preparations for accrual-based IPSASs to be properly made.

The implementation of accrual-based IPSAS is a major undertaking and some countries in advanced economies have estimated that it would take them more than 10 years to implement.1 From the time of the announcement of the implementation roadmap2 to the implementation itself, the time frame allowed for Nigerian public sector entities to implement accrual-based IPSAS is less than five years, which sounds quite ambitious. What drove the government to make such a decision?

I believe that the decision stemmed from the benefits of implementing IPSAS, which are enormous for Nigeria. Accrual-based accounting would promote transparency and accountability in public financial management. There will also be opportunities for

1 See Public consultation - Assessment of the suitability of the International Public Sector Accounting Standards for the Member States – Summary of Responses which is accessible at http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/D4_2012/EN/D4_2012-EN.PDF.

2 See FG sets December Deadline for IPSAS Adoption which is accessible at www. thisdaylive.com/articles/fg-sets-december-deadline-for-ipsas-adoption/120421

a peer review mechanism among the different types of government bodies as well as those that are similar (state versus state) and the harmonization of the budget and accounting functions in the country.

The reforms are expected to increase the level of accountability in government, improve service delivery in the public sector, support efficient internal controls and bring into focus the performance of the agencies. They would enhance credibility of the government’s financial information and help to build the confidence of Nigeria’s development partners. They would also serve as a mechanism to promote the aims of the Freedom of Information Act 20113 by ensuring access to government information, and facilitating the preparation of a fiscal operation report for the entire Federal Republic of Nigeria.

From your perspective as secretary, what is the subcommittee’s role in the reform process, and what strategy has the FAAC adopted regarding the nationwide implementation of IPSAS, given the wide scope of the reforms?

The subcommittee’s role is to provide the roadmap for the adoption of IPSAS across the three tiers of government in Nigeria, and to ensure its implementation. On the strategy for the implementation process, the subcommittee has taken an inclusive approach whereby all the officers engaged in public financial management across the three tiers of government are involved, including budget, revenue and planning officers, accountants, and auditors.

Steps taken in the implementation process included reviews of the current bookkeeping, accounting and reporting systems, and the formats of the annual budgets and financial statements prepared by the three tiers of government.

The subcommittee ensured that a gap analysis was conducted to compare the existing financial reporting systems within the three tiers of government. We also examined information on the chart of accounts currently used by all three tiers of government. In addition, we established various capacity-building initiatives in budgeting, accounting, reporting and auditing.

Interactive sessions were held with officers from selected ministries, departments and agencies throughout the government to gather information on all aspects of their budgeting, bookkeeping management, accounting and reporting in addition to workshops, seminars and field trips.

External finance and legal consultants assisted the subcommittee in providing training, analysis and interpretation of the applicable laws.

3 Nigeria’s Freedom of Information Act 2011 was passed into law May 2011 and aims to enable citizens to hold the government accountable in the event of misappropriation of public funds or failure to deliver public services.

James Y. Nongo FCA (fellow of the Institute of Chartered Accountants of Nigeria) is currently deputy director of the Office of the Accountant General (OAG) for the Federation of Nigeria and secretary of the Federal Accounts Allocation Committee’s (FAAC) subcommittee on the Roadmap for the Adoption of IPSAS.

He is involved in the preparation of the Nigerian Federal Government’s annual financial statements and is also involved in the design of the federal government’s financial management system.

He was also a member of the committee for the re-organization of the federal capital territory administration treasury.

Nigeria is currently in the process of adopting the Cash-basis IPSAS and has plans to implement accrual-based IPSASs across its three tiers of government (federal, state and local) by January 2016. Mr James Nongo, deputy director of the OAG and secretary of the FAAC’s subcommittee on IPSAS, is leading this major undertaking on behalf of all tiers of the government. In this interview, he talks about the milestones achieved in this journey and the challenges that lie ahead.

2 | IPSAS Outlook February - March 2014

James, could you describe some of the major steps taken for the implementation so far?

First, I would like to emphasize that the FAAC sub-committee views the implementation of IPSAS as a public financial management reform exercise, rather than just an accounting reform exercise. For this reason, the subcommittee had to seek the buy-in of all public officers involved in public finance in all three tiers of government in Nigeria. The subcommittee started with political leaders, including federal ministers and permanent secretaries, all of the state governors in the federation, relevant commissioners in the 36 states as well as local government chairmen.

Second, process owners were fully trained to ensure seamless implementation. Various steps were taken, such as: (a) ensuring stakeholder awareness of the IPSAS implementation process; and (b) specialized training for operators in the three tiers of government. Efforts were made to create awareness of the IPSAS implementation agenda among the general public.

We developed and deployed uniform national charts of accounts, accounting policies, and uniform budget templates. Furthermore, we issued National Treasury Circulars on the adoption, application and implementation of IPSAS, the use of the national charts of accounts and the format of general purpose financial statements (GPFS).

The accounting year-ends for publicly funded entities of all three tiers of government have also been aligned as part of the implementation process. In order to meet the timeline for the adoption of the Cash-basis IPSAS by 2014 and the accrual-based IPSASs by 2016, various IPSAS implementation committees were established at the federal, state and local government levels.

In addition, the subcommittee has also published a range of resources and guidance:

(a) The National Chart of Accounts (NCOA)

(b) The Users’ Manual of the NCOA

(c) The format of general purpose financial statements (for both IPSAS cash and accrual bases) including statutory reports, statistical reports, performance reports and accounting policies

(d) New budget templates that are aligned with Cash-basis IPSAS

(e) The Adoption of IPSAS in Nigeria: What You Need to Know.

Given that the budgetary process does not necessarily need to be affected by the implementation of IPSAS, is the budgetary process in Nigeria expected to be affected by the implementation of IPSAS?

In order to ensure that there is correlation between the budgetary process and the requirements for the implementation of IPSAS, the sub-committee has made reforms within the budgetary process. To this end, officers involved in budget preparation throughout government have been trained to implement the changes. In addition, new budget templates that are aligned with IPSAS

requirements have been developed using the National Chart of Accounts which will facilitate the implementation of IPSAS. Specialist software for these templates would be required across the tiers of government. To date, the federal government has acquired the Government Integrated Financial Management Information System (GIFMIS). Furthermore, an appropriate mechanism has been put in place to ensure the early submission of the Appropriation Bill to the Parliament, for its subsequent approval and assent.4

What are some of the challenges that you have encountered and expect to encounter with the implementation of IPSAS across the tiers of government?

One of the toughest challenges is inadequate information and communication technology (ICT) to drive the program. At the federal level, the introduction of GIFMIS would resolve this issue. However, some states still need to put the systems and software technology in place to drive IPSAS adoption. The greatest ICT challenges are being faced by local government councils, where IT penetration is still low. However, the subcommittee is taking necessary steps to bridge the gaps in ICT.

Change management and the resistance to change is also a major challenge. Other challenges we have identified so far include: (a) achieving a strong combination of staffing and skills throughout the government; (b) bringing the relevant enabling legislation at the state level in line with the requirements of IPSAS; (c) reviewing and updating the relevant accounting and procedure manuals; (d) the training and retraining of accounting personnel; and (e) sustaining the pace of the program to achieve full implementation.

How has the overall experience of of IPSAS implementation in Nigeria been so far?

The experience has been positive and the response from stakeholders to our approach has been encouraging. IPSAS implementation has been widely accepted across Nigeria. However, the impact of infrastructural deficiencies on the success of the implementation program cannot be underestimated. That said, we have yet to experience any major delays. To date, officers in public financial management in Nigeria are united in working towards the full implementation of IPSAS. I have the confidence that, in due course, we will be able to share our experience for the benefit of other countries.

4 The Appropriation Bill is a draft legislative act proposing to authorize the expenditure of public funds for specified purposes and is prepared by the Budget Office of the Federal Republic of Nigeria.

Country: Nigeria Government: Federal, 36 states, 1 capital territory, 774 local government areasGDP: USD 478.5 billion (2013 estimate)Population: 174.5 million (2013 estimate) Source: The World Factbook


www.cia.gov/library/publications/the-world-factbook/

November 2012, the

Entities in the South African public sector1 have recently completed their transition to accrual accounting, by applying accounting standards which are based on IPSAS2, and using the transitional arrangements prescribed by the national standard setter. A number of valuable lessons have been learned from this process, and they are worth considering in light of the proposals in the Exposure Draft The First-Time Adoption of Accrual Basis IPSASs (the ED) that was recently issued by the IPSASB. The proposed standard outlines the accounting treatment of, and relief provided for, the requirements in the IPSASs when they are applied for the first time.

The successful adoption of an accounting framework relies on the development of guidance by the standard setter to help preparers with the initial preparation of the financial statements using the new standards. As the first-time adoption of IPSAS has not been consistent across jurisdictions historically, the development of comprehensive guidance should not only ensure that jurisdictions adopt IPSAS in a consistent and comparable way, but it will enhance the credibility of the resulting IPSAS financial statements.

1 All entities apply accrual accounting in the public sector, with the exception of national and provincial government departments, which apply a modified cash basis of accounting.

2 The Accounting Standards Board issues accounting standards for the South African public sector, called Standards of Generally Recognised Accounting Practice (GRAP). These standards are based on IPSASs, but have been modified to take into account the relevant local legislative frameworks and eliminate accounting options where possible.

A number of key concerns that arose during the initial adoption of standards based on IPSAS in South Africa, were:

• The identification of assets (in particular, identifying which property was owned by whom)

• The classification of assets based on their nature and use such (as property, plant and equipment, investment property, inventories, agriculture or intangible assets)

• The initial measurement of these assets for purposes of developing an opening statement of financial position (historical cost records were not available)

Locally, entities that were transitioning from a basis of accounting other than the full accrual basis, were given three years to comply with the measurement requirements of the asset recognition standards. Many preparers complained that the three-year period was insufficient. On further investigation, it emerged that many preparers only started developing the necessary asset registers and obtaining valuations after the expiration of the three-year period. The three-year period is sufficient if entities: (a) have plans for collating the information necessary for the opening statement of financial position; and (b) have implemented processes and policies to deal with transactions undertaken after the initial adoption of the standards. Entities that fail to properly plan and establish processes for the adoption of accrual-based standards are likely to fail to comply with asset recognition and measurement requirements.

The ED allows entities a period of three years within which to recognise and measure assets, with the exception of inventories. Given the local experience, a three-year relief period is also needed for inventories, as many parcels of land may be held by entities that transfer them to local communities for housing, or sell them in the ordinary course of operations. When an entity is considering which assets it owns and how they are, or will be used, it is important that all of the asset-related standards are considered together. This may lead the IPSASB to consider extending the three-year relief period to inventories.

The ED also permits entities to determine a deemed cost for an asset at the date of adopting IPSAS, if historical cost information is not available. As the availability of cost records was a significant issue in South Africa, this guidance is expected to go a long way to providing jurisdictions with the necessary relief.

The South African experience and IPSASB’s ED on first-time adoption of IPSAS

Jeanine Poggiolini is project manager at the Accounting Standards Board (ASB) in South Africa, the body responsible for developing standards for the public sector and board member of the IPSASB. Prior to joining the ASB, she was the technical director at the Institute for Public

Finance and Auditing, Pretoria. She is also a member of several committees that enhance financial reporting and governance in the public sector.

The views expressed here are the personal views of Jeanine Poggiolini and do not represent official views of either the ASB or IPSASB.


While the IPSASB has proposed a three-year relief from the recognition and measurement of assets, it has provided similar relief for liabilities and other items in the financial statements. This means that, during the three-year period, there may be a number of significant items that are not reflected on the financial statements. As a result, the IPSASB has proposed that when an entity applies certain exemptions, it would not be able to claim compliance with IPSASs or state that its financial statements are a fair presentation of its financial position and financial performance. It is particularly important that the users of the financial statements are fully aware of this, as it reflects the transition process, and it is also important to ensure the credibility of financial statements prepared using IPSASs.

There is a potential risk that identifying the exemptions that affect fair presentation and compliance with IPSAS would impair the ongoing application of certain standards. For example, the IPSASB proposed an exemption from segment disclosures during the adoption of IPSAS, which is categorized as an exemption that “[does] not affect fair presentation and compliance with IPSASs.” Arguably, segment information is critical as it provides detailed information about an entity’s operations, and hence, provides valuable information for decision making. Therefore, the lack of segment information could be deemed to affect compliance and fair

presentation. Reconfiguring and/or renaming the different categories of exemptions using less neutral language, such as voluntary and mandatory exemptions could minimize the potential risk to fair presentation.

There will always be challenges in adopting a new reporting framework and they are likely to vary across jurisdictions. The South African experience has demonstrated that the ED addresses the key issues likely to be experienced by entities. The success to any change in the basis of accounting lies in the preparedness of entities to plan for the significant amount of work to be done prior to the actual adoption date.

Country: South AfricaGovernment: National, 9 provinces and 278 municipalities (8 metropolitan, 44 district and 226 local municipalities)GDP: USD 595.7 billion (2013 estimate)Population: 48.6 million (2013 estimate)Source: The World Factbook


www.cia.gov/library/publications/the-world-factbook/

Could you tell us about ESAAG as an organization – what are its main objectives, who does it represent, and who are its stakeholders?

ESAAG is a multi-national association of accountant-general (AGs) in the eastern and southern African region. It aspires to be the leading organization for the promotion of good governance through sound public financial management (PFM) in member countries.

ESAAG’s mission, as a not-for–profit association, is to support the AGs’ offices in the development of PFM practices by providing:

• ►A knowledge base

• Networking and information sharing opportunities

• Advice on PFM legislation framework

• Regional and international representation and promoting cooperation with strategic regional and international stakeholders

• Supporting capacity-building

How does ESAAG seek to influence and improve PFM in member countries?

ESAAG undertakes various initiatives, including:

• ►Facilitating capacity-building of member countries through the offices of the AGs

• ►Research, development, collation and dissemination of PFM best practices

• ►The promotion of communication, knowledge sharing and networking amongst member countries

• ►►Building strategic regional and international alliances to promote the aims of ESAAG

These activities are underpinned by an adequately resourced and sustainable office of the ESAAG secretariat.

ESAAG has come out strongly in support of IPSAS adoption in member countries. Why is ESAAG an advocate for IPSAS in general? What benefits will IPSAS adoption bring to the member countries and the region as a whole?

ESAAG has selected IPSAS as the benchmark for public sector accounting largely due to the fact that the standards are issued by the IPSASB, which is itself a standing committee of the International Federation of Accountants (IFAC), representing over 160 member bodies in 120 countries.

ESAAG views IPSAS as a set of credible, high quality, independently-produced accounting standards that are underpinned by due process and supported by governments, professional accounting bodies and international development organizations such as the World Bank, the Asian Development Bank (ADB), the Organization for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF), the International Accounting Standards Board (IASB), and the International Organization of Supreme Audit Institutions (INTOSAI). IPSAS represent best practice for governments and not-for-profit organizations. Moreover, the OECD, European Commission (EC) and North Atlantic Treaties Organization (NATO) have recently adopted IPSAS for their financial reporting.

The role of ESAAG in promoting IPSAS adoption in east and southern Africa

Emma Peloetletse is the accountant general of the Republic of Botswana, a position she was appointed to in 2009. In February 2013, she was appointed Chairperson of the East and Southern African Association of Accountants General (ESAAG) Executive

Committee. She is currently a member of the Botswana Public Officers Pension Fund (BPOF) Board, Botswana Accountancy College (BAC) Board and the Botswana Accountancy Oversight Authority Board.


Botswana Kenya Lesotho Malawi Mauritius Mozambique Namibia

Rwanda South Africa Swaziland Tanzania Uganda Zambia Zimbabwe

ESAAG believes that the adoption of IPSAS will bring certain key benefits to the countries in the region. Improved comparability, harmonization, transparency and accountability in financial reporting can be expected, because IPSAS requires more detailed information and disclosure to be provided in organizations’ financial statements. IPSAS also provides comprehensive reporting of assets and liabilities with a snapshot comparison between financial periods. Compliance with IPSAS necessitates an enhanced system of internal control to support the additional reporting needs. Countries will also benefit from the increased transparency provided by IPSAS, which provides a better understanding of government financial performance, greater accountability to make informed decisions, and therefore enhanced strategic planning. Enhanced financial and resources stewardship is a critical element of governance and sound management of public resources.

What challenges do you anticipate with the adoption of IPSAS and, in a broader sense, PFM reform in the region?

First, the cost of implementing IPSAS is a constraint. Accounting manuals need to be rewritten; new manuals must incorporate IPSAS terminology and conform to local member country regulatory requirements. Education and training will also constitute a substantial amount of government outlay as a country prepares to adopt IPSAS.

Second, there is a shortage of suitably qualified accountants in member countries. Most of the public sector and government agencies/entities lack the necessary resources in terms of staff and technical skills to adequately carry out the changes in IPSAS as opposed to the financial reporting framework currently existing in the public sector.

As the IPSAS framework is more demanding than the accounting frameworks currently used by some countries, it could be perceived as too complex. Furthermore, some jurisdictions may view IPSAS as an international set of standards, which are not tailored to individual countries as IPSAS does not take into consideration local legislation or regulatory requirements.

The level of preparedness of government departments and agencies and entities is a concern. Some organizations, including central/federal administration, regional/provincial and local government/municipalities, and a large number of other public sector bodies are still using the old cash-based or modified cash basis of accounting.

Finally, resistance to change may be encountered, since not all government systems and administrative processes are set up to support IPSAS.

What is the role of ESAAG in the PFM reforms of its member countries? In what areas does/can ESAAG support member countries?

ESAAG carries out various capacity building activities and initiatives, including:

• Facilitating contact with professional bodies and ensuring synergies

• ►►Updating existing training materials and identification of new relevant areas/topics

• ►Continuous professional development

• ►Improvement of collaboration with other stakeholders within member countries (such as parallel programs)

• ►►Establishment of a staff exchange program

Furthermore, we develop capacity-building programs by enhancing existing initiatives. We offer diversified capacity solutions that are customized to the needs in specific member countries.

ESAAG member countries


Background to the consultationIn February 2013, the Monitoring Group (MG) concluded that neither it nor the Public Interest Oversight Board (PIOB) is intended to provide effective governance and oversight of the IPSASB. Therefore, neither group intends to assume responsibility for the monitoring and oversight of the IPSASB. Also in February 2013, G20 Finance Ministers and central bank Governors tasked the IMF and the World Bank with reviewing the transparency and comparability of public-sector financial reporting. As a result, the IPSASB Governance Review Group, which is chaired by representatives from the World Bank, IMF, and the OECD, was established. The Review Group also includes representatives from the Financial Stability Board (FSB), the International Organization of Securities Commission (IOSCO) and the International Organization of Supreme Audit Institutions (INTOSAI). Eurostat and IFAC have observer roles in the Review Group.

Objectives of the Review GroupRecent consultations have raised concerns about the governance and oversight of the IPSASB. As a result, some national authorities have been reluctant to adopt IPSAS. The Review Group is tasked with resolving the issues related to the governance and oversight of the IPSASB. Having thoroughly examined the governance of the IPSASB and other standard setters, the Review Group has confirmed that both the governance and oversight of the IPSASB need to be strengthened.

The Review Group’s proposal The consultation paper proposes that the monitoring and oversight bodies should: (a) ensure that the public interest is served through the standard-setting activities (the monitoring function); (b) establish the standard-setting strategy and governance arrangements; and (c) oversee their implementation (the oversight function). The consultation paper also proposes that the monitoring and oversight bodies would be responsible for the implementation of a Consultative Advisory Group that would provide technical assistance to the IPSASB and solicit feedback from the users of the standards.

The Review Group believes that the monitoring and oversight bodies should be structured in a way that serves the public interest.

On the one hand, the Review Group is proposing that the various interests in accounting standard-setting should be represented by a monitoring body that includes representatives of:

1. Primary resource providers and users of the financial information, including organizations representing the interests of governments, supreme audit institutions and citizens

2. Secondary resource providers and users of the financial information, including organizations representing the interests of investors in sovereign assets (securities) and other financial regulators

3. National monitoring bodies responsible for overseeing standard-setting for their domestic public sector institutions

4. International institutions responsible for setting and promoting standards for government financial reporting, which can also be secondary resource providers in some cases

The Review Group proposes that these organizations and institutions could elect to be involved in the monitoring body as observers or by designating members acting ex officio.

On the other hand, the Review Group proposes that the oversight body should comprise individuals who have both the requisite technical skills in accounting and financial reporting, and the recognized experience in the public sector. In addition, the consultation paper recommends that accounting standard-setters, preparers of financial reports, public practice professionals and academics should be involved.

Consultation on IPSASB’s governance and oversightIn January 2014, the IPSASB Governance Review Group (the Review Group) issued its consultation paper The Future Governance of the International Public Sector Accounting Standards Board. Given the growing importance of comprehensive, reliable and timely financial reporting by governments to ensure global economic and financial stability, the consultation paper acknowledges the role that IPSAS has in improving fiscal transparency.


In establishing the IPSASB’s monitoring and oversight bodies, the consultation paper proposes three options:

1. Extending the scope of the IFRS Foundation’s Monitoring Board (MB) and Trustee activities: The aim here would be to invite the IFRS Foundation’s MB and Trustees to extend the scope of their activities to include the IPSASB’s activities.

2. Establishing separate monitoring and oversight bodies for the IPSASB while it remains under the auspices of the IFAC: Here, the intention is to create a public sector version of the PIOB. Such a body would likely have the same competence and governance structure as the IFRS Foundation’s MB and Trustees.

3. Re-establishing the IPSASB outside of IFAC with its own monitoring and oversight bodies: This option would be similar to option 2 above, except that IPSASB’s formal connection with IFAC would be broken.

Next stepsThe Review Group is now seeking feedback on the future direction of the governance and oversight of the IPSASB. All stakeholders, including ministries of finance, audit offices, parliaments, sub-national governments, national accounting standards boards, national accounting institutes, academia and others are invited to share their views with the Review Group.

Input to the public consultation is requested to be submitted by 30 April 2014 to [email protected].

The consultation document can be found under the following link: http://www.oecd.org/gov/budgeting/IPSASB-Governance-Review.htm


ED 54 Reporting Service Performance InformationBackground

Many governments around the world currently report information about the programs and services they provide. In some countries, governments are required by law to report this information annually, while in others, the reporting of service performance information is a voluntary undertaking. The starting point for the IPSASB’s project was its finding that, on the one hand, no two jurisdictions have identical service performance reporting frameworks, but on the other hand, there were many similarities in the actual service performance information reported.

The IPSASB’s Conceptual Framework states that a government’s primary function is to provide services to constituents (e.g. citizens, a jurisdiction’s economy, donor agencies). Based on this, the financial results of a government’s service performance need to be presented in relation to the achievement of service delivery objectives. Service performance information should assist users to assess service efficiency and effectiveness.

The IPSASB aims to develop guidance that would be useful for reporting service performance information that is independent from the specific types of services provided by an entity. The presentation of such information varies depending on the services an entity performs, the nature of an entity and the regulatory environment or other context within which the entity operates. Therefore, the ED does not identify specific performance indicators for the services an entity provides.

Status and scope of the recommended practice guidelines (RPG)

As the ED is intended to be issued as an RPG, entities are merely encouraged to follow the RPG. An entity does not need to comply with the RPG in order to be able to assert that its financial statements comply with IPSAS.

The RPG defines minimum information levels to be presented in service performance reporting. Nevertheless, the RPG does not preclude the presentation of additional information, if such information is useful in meeting the objectives of financial reporting and in meeting the qualitative characteristics (QCs) of financial reporting.

Definitions

The RPG defines standardized service performance terminology which is necessary to support the understandability and comparability of service performance information reported by entities in General Purpose Financial Reports (GPFRs). The ED, therefore, defines terms such as effectiveness, efficiency, inputs, outcomes, outputs, performance indicators or service performance objective.

The following figure outlines how the ED proposes to define efficiency and effectiveness:

IPSASB issues ED 54 and policy paper

Efficiency Inputs Inputs

Actual results of outputs or outcomes

Outputs Outcomes

Service performance objectives of outputs or outcomesEffectiveness

=or

=

Figure 1: Proposed definitions for efficiency and effectiveness


Reporting boundary

The ED states that the reporting boundary for service performance information should be the same as that for the financial statements. This approach would support holding the reporting entity accountable for the services it provides and the resources it uses for its service delivery. In addition, this would reinforce the aim of the decision making process.

Reporting cycle and reporting period

Service performance information should be presented annually in line with the reporting cycle. In addition, an entity should use the same reporting period as that for financial statements.

Principles for reporting service performance information

In accordance with IPSASB’s objectives in financial reporting, the ED states that “an entity should report service performance information that is useful for accountability and decision making”. By providing such information, users should be able to assess the entity’s service delivery activities and achievements during the reporting period, its financial results in the context of its achievement of service delivery objectives and the efficiency and effectiveness of its service delivery.

Presentation of service performance information

• ►The Board is of the view that service performance information needs to be presented in a way that allows users to assess an entity’s service performance, including the achievement of objectives and the extent to which an entity has used its resources efficiently and effectively to deliver outputs and achieve outcomes. The RPG defines principles that are applicable to information presentation, including the location and organization of information.

• ►With respect to the actual presentation of service performance information, an entity should identify its important services, relevant performance indicators and other information relevant to those services. According to ED 54, an entity should display for each relevant service reported:

• ►Service performance objectives

• ►Performance indicators that show the entity’s achievements with respect to its service performance objectives

• ►Information on the cost of services

As service performance indicators depend on different factors, the IPSASB decided that the RPG should not specify certain performance indicators that should be presented. For performance indicators and service costs, an entity should display planned and actual information for the reporting period and actual information for the previous reporting period. As outcome information is often very difficult to provide, entities are merely encouraged to present information on outcomes.

The ED suggests that service performance information should be displayed in a “statement of service performance information”, i.e., in either tabular or statement form. Nevertheless, service performance information may also be presented through narrative, case studies or a mixture of case studies and one or more statements.

An entity may present service performance information either as a part of a report that includes the financial statements or in a separately issued report.

IPSASB releases policy paper on dealing with GFS differences in standard settingIn February 2014, the IPSASB published a policy paper, Process for Considering Relevance of Government Finance Statistics (GFS) Reporting Guidelines During Development of IPSASs.

The paper describes how the IPSASB will consider scope to reduce differences between IPSASs and GFS reporting guidelines during:

1. Development of its work plan2. Development of new IPSASs3. Revisions to existing IPSASs

There is considerable overlap between IPSAS and GFS reporting guidelines, insofar as both reporting frameworks are concerned with financial, accrual-based information and both require comprehensive information on cash flows. Nevertheless, there are some fundamental differences on how, what and where information is reported.

The IPSASB aims is to reduce unnecessary differences between GFS reporting guidelines. The process outlined in the policy paper aims to address both existing differences and possible future differences, which could arise through the development of a new IPSAS to address a previously unaddressed financial reporting topic, or revisions to an existing IPSAS.

The policy paper describes the IPSASB work plan and reduction of differences as well as the factors to consider when deciding whether to remove a difference.

Next stepsEntities are encouraged to provide feedback on the proposal to the IPSASB by the end of the consultation period on 31 May 2014. The ED is accessible at www.ifac.org/sites/default/files/publications/files/ISPASB-ED-54-RPG-3-Reporting-Service-Performance-Information.pdf

The full policy paper is accessible at www.ifac.org/publications-resources/process-considering-gfs-reporting-guidelines-during-development-ipsass



What’s new?

The following table shows new publications issued by the IPSASB and public consultations published for comment:

Projects Publication

Reporting service perfomance information

At the December 2013 IPSASB meeting, the Board approved for issuance ED 54 Reporting Service Performance Information. This ED was issued on 20 December 2013 and is open for comment until 31 May 2014. See page 10 of Outlook for further details of the IPSASB’s project on this proposed Recommended Practice Guideline.

Policy paper on Process for Considering GFS Reporting Guidelines during Development of IPSASs

At the December 2013 meeting, the Board approved a policy paper, Process for Considering GFS Reporting Guidelines during Development of IPSASs. The aim of this document is to outline the IPSASB’s process for considering Government Finance Statistics (GFS) reporting guidelines during the development of IPSASs. The policy paper was published in February 2014. See page 11 of Outlook for further details.

IPSASB Meeting December 2013 – current discussions


Conceptual Framework During the December 2013 IPSASB meeting a presentation was given by Ian Mackintosh, Vice-chairman of the IASB, on the IASB’s Discussion Paper A Review of the Conceptual Framework for Financial Reporting. The presentation covered a range of issues such as the status of the conceptual framework, problems with existing definitions of elements and recognition criteria, possible revisions of the definitions of an asset and a liability. Mr Mackintosh also considered some similarities and differences between the IASB’s and IPSASB’s evolving Frameworks, such as:• ►The focus of both IASB’s and IPSASB’s work on elements is on the financial statements• ►Different elements have been identified and defined by the IASB and the IPSASB• ►In the IASB Framework, the selection of measurement bases is based on how the asset or liability contribute to the

entity’s future cash flows• ►In the IPSASB Framework the selection of measurement bases is based on which measurement basis provides users

of financial statements with the most useful information about financial capacity, operational capacity, and the cost of services.

Phase 2 – Elements and RecognitionThe IPSASB considered a proposal by the Phase 2 Task Based Group (TBG). Within the Board there were several discussions about different options on how to treat deferred inflows and deferred outflows. The IPSASB tentatively decided to accept that certain economic phenomena do not meet the definition of any element. Such economic phenomena may need to be recognized in financial statements in order to meet the objectives of financial reporting. In addition, there was an agreement to modify the definitions of an asset and a liability. However, the definitions have not been changed substantively, but the language clarified. The revised definitions are:• ►An asset is a resource that an entity presently controls as result of a past event; and• ►A liability is a present obligation of an entity for an outflow of resources that results from a past event.



The IPSASB also agreed that the phrase “in their capacity as owners” should be inserted into the definition of “ownership distributions” and also decided that it should be included in the definition of “ownership contributions”. The revised definitions of these two elements are: • ►Ownership distributions are outflows of resources from the entity, distributed to external parties in their capacity as

owners that return or reduce an interest in the net assets of the entity; and • ►Ownership contributions are inflows of resources to an entity, contributed by external parties in their capacity as

owners that establish or increase an interest in the net assets of the entity.

Phase 3 – Measurement• ►The IPSASB considered a number of issues, as follows:

• ►Definitions of historical cost: It was agreed that historical cost should be defined for both an asset and a liability. The tentative definition for an asset is as follows: “The consideration given to acquire an asset, which might be the cash or cash equivalents or the value of the other consideration given at the time of its acquisition or development.” Accordingly, the definition for a liability should mirror this.

• ►Symbolic values: The IPSASB reaffirmed the view that symbolic values do not constitute a measurement basis because they do not meet the measurement objective.

• ►Relocation of material from the section on the fair value model in CF-ED3: At the September2013 meeting the IPSASB decided that the section on the Fair Value and Deprival Value models should be deleted. It was agreed that some of the material from the section of CF-ED3 on the Fair Value model should be relocated to the sub-section on Market Value.

• ►Valuation of assets on a standalone basis or on the basis that they will be used in conjunction with other assets/liabilities (unit of account): There was an agreement that there should be a short paragraph on the unit of account, but that this should be termed the “Level of Aggregation and Disaggregation” and that there should be a linkage to recognition.

A new version of the draft final chapter will be considered at the March 2014 meeting. Phase 4 – Presentation in General Purpose Financial ReportsAn in-depth review of responses on the ED Presentation in General Purpose Financial Reports (CF-ED4) was carried out by the IPSASB. The majority of respondents support the concepts in CF-ED4. The IPSASB confirmed that presentation concepts should continue to:• ►Focus widely on both the financial statements and information additional to the financial statements• ►Remain at a high general level

• ►Be public sector-focused

Staff will analyze whether there is scope to be more closely aligned with the IASB’s terminology of “presentation and disclosure” in its DP.

Government business enterprises The IPSASB considered key issues identified by staff and reviewed a first draft of a Consultation Paper Government Business Enterprises (the draft CP). In each IPSAS it is stated that the respective standard applies to all public sector entities other than Government Business Enterprises (GBEs). However, the laws and regulations of each country determine which standards are applicable to GBEs. The Board also acknowledged that each country defines GBEs in a different way. Two main approaches for dealing with the issue of GBEs that are explored in the draft CP were discussed. Approach 1 proposes that there would be no formal definition of GBEs in IPSAS. Under approach 2, the IPSASB would continue to define GBEs, but with a modified definition. There was general support for a Preliminary View that the IPSASB favors approach 1. However, it was suggested that:

• ►The objective of the CP should be clearer and more strongly linked to the satisfaction of user needs• ►Approach 1 could be supplemented by providing indicators of entities that are expected to adopt accounting

standards for profit-seeking entities, rather than IPSASs.



Emissions Trading Schemes The IPSASB considered a project brief on Emissions Trading Schemes (ETS) with the aim of defining the accounting rules for ETS. The first phase will be a joint project between the IASB and the IPSASB. The project will include both grantors and participants in ETS. The IPSASB will be responsible for the public sector part as grantor, while the IASB will deal with the accounting for the private sector participants. The IPSASB tentatively decided that the project should be principles-based and should also include a discussion of the auctioning of allowances and permits to emit as well as allocation at no cost. Furthermore, a consideration of guidance on ETS in the Government Finance Statistics Manual should also be included.

Public sector-specific financial instruments

The IPSASB considered a project brief on accounting for public sector-specific financial instruments. The project is intended to address public sector-specific financial instruments issues. The issues identified do not meet the definitions of a financial instrument, financial asset and/or financial liability under IPSAS 28 Financial Instruments: Presentation. The Board considered the scope of this project. It agreed to address the following issues:• ►Monetary gold• ►Currency and coin circulation• ►IMF Special Drawing Rights (SDRs) and reserve position in the IMF• ►Statutory receivables• ►Statutory payables

In addition, the IPSASB decided that this project would remain separate from any work related to maintaining alignment with International Financial Reporting Standards in IPSAS 28, IPSAS 29 Financial Instruments: Recognition and Measurement and IPSAS 30 Financial Instruments: Disclosures. A consultation paper and a revised project brief are planned for the end of 2014.

Strategy The IPSASB plans to issue a strategy document in March 2014. The strategy document will outline the IPSASB’s preliminary views on its strategic objectives for 2015 and beyond. The IPSASB is seeking stakeholders’ views on the prioritization of its work program for the period 2015-2019. Therefore, the work program consultation will include a list of potential projects for which stakeholders are asked to provide feedback their prioritization preferences. The IPSASB aims to have the final strategy and work program ready for approval at the December 2014 meeting.



Resources

Model Public Sector GroupThe aim of this set of financial statements is to bridge the gap between the ’theory’, as outlined in the standards and the way such information needs to be presented in the financial statements.

This first edition of illustrative annual consolidated financial statements of Model Public Sector Group are prepared in accordance with International Public Sector Accounting Standards (IPSAS) in issue at 30 June 2013 and effective

for annual periods beginning on 1 January 2013.

IPSAS ExplainedWe have published an updated second edition of our practical guide to IPSAS, IPSAS Explained. This guide provides decision-makers in the public sector with an overview of IPSAS and the International Public Sector Accounting Standards Board. This book is available for purchase from Wiley, at www.ey.com/ipsas.

A snapshot of GAAP differences between IPSAS and IFRSThis publication summarizes the key differences between IPSAS and IFRS. It further explains the sources and reasons for differences between the two frameworks.

Toward transparencyEY has undertaken a study to assess the current state of public sector accounting from a global perspective. This new research provides a better understanding of what governments are doing well, and where there is scope for improvement.

www.publicfinanceinternational.orgPublic Finance International is a website supported by EY and developed in conjunction with the Chartered Institute of Public Finance and Accountancy to provide informed news and comment on developments in public financial management internationally, raise awareness of the need for good governance and connect a global community of like-minded public financial management professionals.

IPSAS Poster

Since 2010 EY has published a poster outlining key facts about IPSASs and ongoing IPSASB projects.


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About EY’s International Public Sector Accounting Standards GroupThe move to International Public Sector Accounting Standards (IPSAS) is an important initiative in public sector accounting, the impact of which stretches far beyond accounting to affect every key decision you make, not just how you report it. We have developed the global resources — people and knowledge — to support our client teams. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide. It’s how Ernst & Young makes a difference.

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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