Public and private sector accounting standard differences highlighted
The New Zealand Accounting Standard Board (NZASB) has recently released an exposure draft which explores the practical difficulties in dealing with differences between public sector and private sector accounting standards being set by the IASB and IPSASB. The NZASB acknowledges "there is a risk that the two Boards will develop separate standards that treat like transactions in similar circumstances in quite different ways", which is a significant challenge in maintaining a credible differential reporting framework for various entities.
New Zealand's proposed revised differential reporting regime is being progressively exposed for comment and proposes a 'multi-GAAP' approach. This includes standards based on IFRS for the for-profit sector (permitting a statement of compliance with IFRS), and standards International Public Sector Accounting Standards (IPSAS) for the public benefit entities (PBEs) in the public sector.
The commentary provided in the exposure draft explores why differences might arise between IFRS and IPSAS, including:
- Likely differences in the conceptual frameworks used by the IASB and IPSASB reflecting different user needs (see also our earlier article on this topic)
- Transaction classes which are more prevalent in one sector or the other
- Lack of clarity about the IPSASB future intentions on convergence with IFRS, particularly in light of significant projects being undertaken by the IASB in areas such as financial instruments and leases
- The possibility that the IPSASB may prioritise more urgent public sector projects ahead of considering new standards and amendments issued by the IASB.
The New Zealand situation offers an interesting insight into the practical issues arising due to differences between IFRS and IPSAS, particularly as divergence potentially arises over time.
Because of the likely existence of so-called 'mixed groups' containing both for-profit and PBEs, the NZASB exposure draft seeks to address this issue in the New Zealand context. Ultimately, the exposure draft proposes that the NZASB may depart from IPSAS requirements where necessary to eliminate any "significant unnecessary differences" with IFRS and retain similar requirements across sectors.
With many countries considering the adoption of IPSAS standards, the NZ approach reveals the tensions that can arise. It provides a strong incentive for the IASB and IPSASB to continue to work towards convergence, with the IPSASB not unnecessarily departing from IFRS - a sentiment echoed by IPSASB board member Ken Warren. In the longer term, these tensions may potentially raise the question of the most appropriate standard-setting structure for all sectors.
Click for access to the exposure draft (link to New Zealand External Reporting Board website).