Publication by the International Public Sector Accounting Standards Board of a new conceptual framework for financial reporting is a milestone in its development as a mature standard setter
When things go wrong, it’s natural to ask what could be done better and whether similar problems could be prevented in future. The sovereign debt crisis highlighted key gaps in the information provided by some countries on the soundness and stability of public sector finances. So it was natural to question whether improved accounting for government debt by Greece and other countries in a similar position might have better highlighted the impending crisis.
It may be surprising to people in countries that have systems based on international standards that a majority of governments worldwide still prepare financial statements using frameworks based upon cash accounting or a non-standard hybrid of cash and accruals. Such frameworks by their very nature give a more limited perspective on a country’s overall financial position and more particularly the liabilities they are building up. It does, however, look as if the tide may be turning with an increasing number of governments implementing or actively considering adopting accruals accounting and looking to International Public Sector Accounting Standards.
CIPFA has supported the concept and development of IPSAS from their inception and welcomes this increased interest. CIPFA’s technical director is an IPSAS Board member, and CIPFA and other UK commentators have provided input to IPSAS consultations for more than a decade.
Against a background of renewed interest in public sector accounting, it is timely that the board has just completed a new conceptual framework to inform its development of standards and other best practice. For the first time, public sector entities will have their own conceptual framework for accounting purposes, rather than relying on adapting a framework that has been designed with the private sector in mind.
There has been a conceptual framework for IAS/IFRS since 1989, providing a clear statement of what those standards should seek to achieve. The IASB has been updating this over the last decade to reflect modern thinking and expects to issue a fully revised framework in 2015.
In contrast, for most of the IPSASB’s existence it has been using this IASB framework. This has not caused too many problems where public sector and private sector reporting needs are similar, but the lack of a clear framework setting out the unique and distinctive features of public sector reporting has at times proved a drawback. This gap has now been filled, and the IPSASB has an extra tool to help its development of new standards on subjects specific to the public sector, such as how to account for social benefits. The new conceptual framework is a landmark document that firmly places IPSASB alongside its private sector counterpart, the IASB, as an international standard setter.
There is still much to be done, however, in the world of public sector accounting standards. Some countries have adopted IPSAS directly while others, such as the UK, have implemented modified IFRS, adapting international private sector standards for the public sector to give an outcome that closely aligns with IPSAS. The EU has recently consulted on introducing EPSAS, which are likely to use IPSAS as a starting point but may recognise the different starting points of the individual European nations.
CIPFA has provided considerable input to these consultations, promoting the relevance of IPSAS and urging recognition for those countries that have already moved to international standards. This is a debate that is likely to continue for some time, particularly in the light of the potential practical implications of such a widespread change. The position of IPSAS in any future development can only be strengthened by the publication of a conceptual framework focused purely on public sector reporting.
Steven Cain is technical manager, financial reporting and auditing standards, at CIPFA
This opinion piece was first published in the November issue of Public Finance magazine
