ipsas - the international financial reporting standards...

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IPSAS - The international

financial reporting standards for

the public sector

Andreas Bergmann, Chair IPSASB

30 May 2013

European Commission

“Towards implementing European

Public Sector Accounting Standards"

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Overview

• IPSASs are the international financial reporting

standards for public sector

• IPSASB

• Why accrual accounting and reporting matters

• Challenges, cost and return of implementation

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IPSASB has created a full suite of standards

• 32 Standards approved (accrual basis) covering all main

areas of government activity, 1 cash basis standard

• The standards are designed for Public Sector entities other

than Government Business Enterprises (which should use

IFRS), i.e. IPSASs are for non-commercial organizations

– International governmental organizations

– National governments, including controlled entities such as

ministries or agencies

– Subnational governments, including controlled entities

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IPSASB has created a full suite of standards

• Direct vs. indirect adoption – Same can be observed

for IFRS

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IPSAS

Legislation refers

to IPSAS

Jurisdictional Standards

based on IPSAS

Legislation refers

to Jurisdictional

Standards

Accounting

Manual

Implementation

Source:

Bergmann, A: Public Sector Financial Management.

FT Prentice Hall, 2009.

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IPSASB has created a full suite of standards

• «Transaction Neutral Approach»: If transaction is the same in private and public sector, the accounting should be the same

– Substantial convergence of all relevant IFRS at December 31, 2009 with IFRSs at December 31, 2008

• Standards include sector specific standards where transactions are specific to the public sector

– Disclosure of Information about the GGS (Financial Statistics)

– Revenues from Non-Exchange Transactions (Transfers and Taxes)

– Presentation of Budget Information

– Service Concession Arrangements: Grantor

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IPSASB has created a full suite of standards

IPSAS

(Public

Sector)

IFRS

(Private Sector)

• Terminology

• Guidance for Public S.

• Issues of the Public S.

• Examples from the PS

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• Volume and Significance of Non-Exchange transactions such as Taxes and Transfers, or the provision of goods and services in a non-market environment

• Importance of Budget

• Nature of PPE: To provide goods/services – not cash generation, often very specific nature

• Responsibility for Heritage

• Longevity of public sector entities

• Regulatory role of government

• Ownership or control of rights to natural resources

• Statistical reporting

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Public sector is different: Key characteristics

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• Public sector assets, liabilities, revenues and expenses need to be accounted for – completely!

• Contingent liabilities need to be disclosed

• Economic value comes through service potential, not cash generation – but there are no «easy and quick» solutions such as bankruptcy, they still need to finance their activities

• GFS Analytic Framework is on accrual basis

• Citizens and other resource providers want accountability

• Decision makers need a reliable basis for their decisions

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Key characteristics require accrual accounting

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And who is IPSAS Board?

• Independent Accounting Standards Setter under IFAC

• Governance is the same as for other independent

standard setters (e.g. IAASB), except for the lack of a

public interest oversight board

• 18 members, thereof 6 from Europe, 14 from Public

Sector, 2 from NPO, 2 from firms

• 10 international organizations with observers status,

including IMF, World Bank, EC DG BUDG, Eurostat

• 8 staff, mainly based in Toronto/Canada

• Diverse funding by IFAC (approx 50 percent) and various

Voluntary Contributions from Governments and Observers

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IPSASB Strategic Themes

• Development of Public Sector Conceptual Framework

• Public Sector Critical Projects (public sector specific, maintenance of alignment with IFRS, alignment with GFS/statistical accounting)

• Communications and promotion including adoption and implementation

Governance not a strategic theme, but an area for discussion, consultation and change

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IPSASB Workplan Consultation

• Result

– Complete current projects, including Conceptual Framework, as quickly as possible

– As for new projects:

• Project on Social Benefits achieves clearly the highest and most global score

• Others with strongly positive feedback include Emissions Trading Schemes – possibly as a joint project with IASB

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Government Financial Reporting is relevant

• IMF-FAD addressing issue of transparency in a

comprehensive paper – Fiscal transparency does matter

– Harmonization of Accounting and Statistics needed

– ROSC initiative should be followed up

• Eurostat Report – IPSASs as undisputable reference for EPSASs

– Alignment with GFS is an emphasis

– Risk of “IPSAS light” and of a backward step for those on IFRS/IPSAS

(e.g. UK, Spain, Czech Rep., Slovakia, Austria, Baltic countries, Malta)

• G20 Finance Ministers press release February 2013 – Strengthening government balance sheet looking at financial

reporting to improve debt management

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Government Financial Reporting is relevant

• Less debt and lower interest rates

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• Significant correlation between PEFA indicator

(PI25) and overall PEFA performance (Vany,

2010)

• Main advantages:

– Financial planning

– Financial control, debt, investment and

liquidity management

– Reliable base for audit

Government Financial Reporting is relevant

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• Implementation of IPSASs require

– Normative change: Legislative basis, endorsement of

standards, development of operational guidance

(«manual»)

– Configuration of IT/ERP-Systems

– Collection and verification of data, especially in areas

not accounted for previously (e.g. asset register)

– Verification/audit

But implementation cost is substantial

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Urgent need for an integrated system

Budgeting Accounting Audit Governmental

Financial Statistics

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• Project cost depends largely on package (i.e.

with/without IT, coming from pure cash, modified …)

• Projects unavoidably takes several years

• Project cost is several million EUR

• Example: Federal government of Switzerland

– coming from modified cash and replacing entire IT

– ~40m EUR over 7 years in total (~0.01% of annual budget

spread over 7 years)

Urgent need for an integrated system

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• Direct returns to projects: Assets «found», risks identified

– easily add up to about half of the project cost

• Returns from accrual reporting:

– Debt management policy can identify non-bond types of debt

more easily and limit/reduce that; debt «shifting» is effectively

prevented

– Assets are more actively managed, leading to disinvestment or

better usage

– Lower interest rates (e.g. State of Geneva -0.5%/Hiler 2012)

– Accrual accounting (A) assists debt breaks/fiscal rules (F) as it

keeps track and helps to prevent «workarounds», especially

Financial Instruments

But return is easily higher than cost

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But return is easily higher than cost

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Confederation Cantons Cummunes Social security funds Debt ratio

Switzerland: Gross dept of general government (“Maastricht”), 1990-2012, 2016E

in CHF bn in % of GDP

F A

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• IPSASs are a full suite of standards, designed for the

public sector

• They are set by an independent, international standard

setter with substantial European membership

• They can implemented directly or – more likely –

indirectly through standards set at jurisdictional level,

e.g. EPSAS

• Time and cost required for implementation are

substantial – but returns are higher

Conclusion

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Questions Discussion & Further Information

• Visit our webpage http://www.ipsasb.org/

• Or contact us by e-mail : Chair IPSASB: andreasbergmann@ifac.org Technical Director: stepheniefox@ifac.org