IPSASB consults on public sector combinations

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26 Jun 2012

The International Public Sector Accounting Standards Board (IPSASB) has released a Consultation Paper 'Public Sector Combinations'. The Consultation Paper is the result of the IPSASB's project on on accounting for public sector combinations and aims to present a principles-based approach to developing guidance for public sector entities accounting for such combinations. Some of the possible accounting approaches outlined in the paper are significantly different to those prescribed under IFRSs.

The Consultation Paper describes different types of public sector combinations, proposes a distinction between acquisitions and amalgamations and considers combinations of entities and operations that both are, and are not, under common control.  The paper makes it clear that it "considers the wide range of combinations that may occur in the public sector, and, consequently, this project is not an IFRS convergence project".

The Consultation Paper uses the term “public sector combinations” rather than “business combinations” (as used in IFRS 3 Business Combinations) on the basis of key differences between for-profit and public sector combinations identified.  These differences include public sector combinations lacking a profit motive, often being conducted by non-exchange transactions, and the frequent involuntary imposition of such combinations by law or other authority.

These differences also lead to some possible accounting approaches that are fundamentally different to the 'acquisition method' contained in IFRS 3 for for-profit entities.  In particular, the paper explores a possible approach for acquisitions where no or nominal consideration is transferred that would result in the recipient recognising acquired assets and liabilities at their carrying amounts in the acquired operation’s financial statements (after adjustment for any different accounting policies).  Similar approaches are also proposed for combinations under common control and amalgamations.

The paper also explores whether the amount of any consideration transferred in excess of net assets acquired should be recognised as goodwill, expensed, or for combinations under common control, as a distribution to or contribution by owners.

The Consultation Paper is open for comment until 31 October 2012.  Click for IPSASB press release (link to IFAC website).

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