IPSASB CF Seminar Feb15_180193

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IPSASB Conceptual Framework

Andreas Bergmann, Chair

XRB Public Seminar

Auckland/Wellington

2/3 February 2015


Absence of Framework a significant gap in literature

Initiated late 2006

Originally collaborative with national standard setters and finance ministries

Accelerated late 2009

First four chapters issued: January 2013

Final approval: September 2014

Brief background on IPSASB project


Establishes concepts that underpin general purpose financial reporting by public sector entities on accrual basis

Just financial statements (GPFS) or broader financial reporting (GPFR)?

IPSASB: Broad GPFR scope but elements, recognition and measurement limited to GPFS

For both standard setters and preparers?

Guidance for preparers where no standard

Reserve some parts for standard setter? Yes, e.g. Other Economic Phenomena (5.4)

Purpose, scope and status (1)


Authoritative or Non-Authoritative?

IPSASB: Non-authoritative and does not override requirements of Standards (IPSASs) or Guidance (RPGs)

IPSASs not automatically updated by Framework

Program of updating likely in future

Overriding the Framework in standard setting

Accountability of standard setter

Explain departures

Applicability: Governments and its entities, International Organizations

Purpose, scope and status (2)


Primary service delivery objective

Volume and significance of non-exchange transactions

Importance of approved budget

Nature of Public Sector Programs and Longevity of public sector

Nature and purpose of assets and liabilities

Regulatory role

Relationship to Statistical Reporting

Identifying key public sector characteristics with

impact on concepts


Primary Users

Service recipients and resource providers and their representatives

Parliamentarians/Legislators?

Qualitative Characteristics

relevance, faithful representation, understandability, timeliness, comparability, and verifiability; constraints: materiality, cost-benefit,

balance

Faithful representation: replacing of reliability; Prudence? Embedded in faithful representation; Fundamental v Enhancing: Not taken up

Users and Qualitative characteristics


Characteristics

An entity that raises resources to undertake activities

There are service recipients or resource providers dependent on GPFRs of the entity for information for accountability or decision-making purposes

Reporting Entity


Elements in Financial Statements

Broad classes of economic phenomena recognized in GPFS

Assets; Liabilities; Revenue; Expense; Ownership contributions; and Ownership distributions

Deferred flows: Other resources and other obligations

Not defined as element, but may be required by IPSASs

Elements


Definitions

Asset: A resource presently controlled by the entity as a result of a past event

Liability: A present obligation of the entity for an outflow of resources that results from a past event

Net financial position: Net financial position is the difference between assets and liabilities after adding other resources and deducting other

obligations recognized in the statement of financial position.

Elements (2)


Definitions

Revenue: Increases in the net financial position of the entity, other than increases arising from ownership contributions.

Expense: Decreases in the net financial position of the entity, other than decreases arising from ownership distributions.

Surplus and Deficit: Difference between revenue and expense reported in the GPFS

Elements (3)


Recognition of an element in the GPFS

An item satisfies the definition of an element; and

Can be measured in a way that achieves the qualitative characteristics and takes account of constraints on information in GPFRs.

Recognition


Objective

To select those measurement bases that most fairly reflect the cost of services, operational capacity and financial capacity of the entity in a

manner that is useful in holding the entity to account, and for decision-

making purposes.

Measurement bases

Entry or exit values?

Observable or unobservable?

Entity specific or not?

Measurement


Measurement bases

For assets: Historical cost; Market value; Replacement cost; Net selling price; and Value in use.

For liabilities: Historical cost; Cost of fulfillment; Market value; Cost of release; and Assumption price.

Fair value?

Similar to market value, but IFRS definition is an exit value limited to financial capacity

A model to represent a specific measurement outcome standards level

Measurement (2)


Presentation

Selection (What?)

Location (Where?)

Organization (How?)

of information reported in GPFR

Issues:

Display or disclose? Language?

Presentation


An imperative for a mature standard setter

Not just an academic exercise, influence on standard setting imminent a powerful tool

Developed in thorough due process, in close collaboration with national standard setters

Final words

www.ipsasb.org

The Treasury

Reflections on developing the

IPSASB Conceptual

FrameworkKen Warren IPSASB Alumni

The Treasury

Commitment to Red Zone

owners

The Treasury

Commitment to repair structurally deficient

bridges

The Treasury

The value of the Conceptual

Framework

A personal endorsement

The Treasury

The Ambition . . .

A common frame of reference

A degree of discipline

More consistent decision making

Accountable standard setters

A better educated technocracy,

A basis for determining accounting policies for matters not addressed in standards

The Treasury

The reality . . .

From:

a clear objective, providing a secure foundation on which

to build a consistent, self-supporting framework.

To:

recognising overlapping and conflicting objectives,

requiring judgement and balance

The Treasury

Concepts:

Overlaps and Trade-offs

Accountability and Decision-making

Position and Performance

The Treasury

ACCOUNTABILITY AND DECISION-

MAKING

Balancing Concepts I

The Treasury

Accountability and Decision-making

Accountability:

Democratic?

Constitutional?

Managerial?

Accountability Philosophies:

Doing Good?

Being Good?

Doing the Right thing?

The Treasury

Minister

Chief Executive

Performance

Service/Output

delivery

Policy Outcomes

Change Innovation

Financial under

budget

Compliance Process

Probity Ethics

Investment allocationsCapital

Improvement PIF Score

Select Committees -

MPs

Complaint

bodies

Interest groups

The public

International

Regulators

Central

Agencies

Cabinet

BASS

Benchmarks

Policy advisors

Regulatory

Expectations

Stewardship

Corporate

Centre

Individual officials

Finance staff

Sectors

Other Corporate

Staff

Reputation

Interplay with

command

structure

Interplay with

professional

responsibilitie

s

Legal

Structures

Government

(BPS) Goals

Collaboratio

n

Leadershi

p

Private

Sector

Partners

NGO Partners

Parliamentary

Scrutiny

Head of

State Services

OAG

Report and

ResponseMedia Scrutiny

Resource

Reallocation

s

The Treasury

Accountability - Accounting

Stewardship

Principal

(Owner)

Agent

(Manager)

Decision-making

Investors

(Decision-makers)

Reporting entities

(providing future cash flows)

The Treasury

What does it mean?

Perhaps:

A balance between reliability and relevance

Greater emphasis on comparisons to budget

(expectations)

Operating and financial capacity

Different agenda priorities to IASB

Perhaps not:

Historical Cost

The Treasury

POSITION AND PERFORMANCE

Balancing Concepts II

The Treasury

Performance and Position

Position: A - L = E

Performance: E (CO CD)

Income: the maximum amount which can be spent during [a

period] if there is to be an

expectation of maintaining intact

the capital value of prospective

receipts (in money terms)

The Treasury

Conceptual Challenges to the Framework

The base is insecure

The present is not the future

Accounting does not equal analysis

Other performance measures are better

Income the amount that an entity can consume in a period and still expect to

be able to consume the same amount

in each ensuing period.

The Treasury

What to do ... ?

The Treasury

An Aussie idea ...

From: To:

The Treasury

For accountability and decision-making purposes, service recipients and resource providers will need information that

supports the assessments of such matters as:

The performance of the entity during the reporting period in, for example:

Meeting its service delivery and other operating and financial objectives;

Managing the resources it is responsible for; and

Complying with relevant budgetary, legislative, and other authority regulating the raising and use of public monies;

The liquidity and solvency of the entity;

The sustainability of the entitys service delivery and other operations over the long term, and changes therein as a result of the activities of the entity during the reporting period including, for example:

The capacity of the entity to continue to fund its activities and to meet its operational objectives in the future (its financial capacity), including the likely sources of funding and the extent to which the entity is dependent on, and therefore vulnerable to, funding or demand pressures outside its control; and

The physical and other resources currently available to support the provision of services in future periods (its operational capacity); and

The capacity of the entity to adapt to changing circumstances, whether changes in demographics or changes in domestic or global economic conditions which are likely to impact the nature or compositions of the activities it undertakes and the services it provides.

The Treasury

The meaning of surplus/deficit?

Why are comprehensive income measures criticised?

Because they dont recognise some or all of the other attributes users need.

And so we develop other underlying measures

So should we conceptualise other comprehensive income?

Or should we give ourselves permission to recognise the other attributes users need

The Treasury

IPSASB Conceptual Framework:

Permission to succeed

In some circumstances, to ensure that the financial statements provide information that is useful for a meaningful assessment of the financial performance and financial position of an entity, recognition of economic phenomena that are not captured by the elements as defined in this Chapter may be necessary. Consequently, the identification of the elements in this Chapter does not preclude IPSASs from requiring or allowing the recognition of resources or obligations that do not satisfy the definition of an element identified in this Chapter (hereafter referred to as other resources or other obligations) when necessary to better achieve the objectives of financial reporting.

The Treasury

Emissions Trading Schemes

The Treasury

Conclusion

Appropriately humble?

Recognises trade-offs and judgements

If not the right answers, hopefully the right questions

Documents

IPSASB CF Seminar Feb15_180193