IPSASB issues exposure drafts in two phases of its conceptual framework project

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09 Nov 2012

The International Public Sector Accounting Standards Board (IPSASB) has published two exposure drafts as part of its project to develop a Conceptual Framework for the general purpose financial reporting of public sector entities. The exposure drafts cover the elements and recognition in financial statements, and the measurement of assets and liabilities in financial statements. In contrast to the IASB's Conceptual Framework, the IPSASB's framework proposes additional elements of financial statements including 'deferred inflows', 'deferred outflows', 'ownership contributions', and 'ownership distributions', but does not include a definition of 'ownership interests'.

The exposure drafts follow on from earlier consultation papers issued in December 2010, and have the following titles:

  • Conceptual Framework Exposure Draft (ED) 2, Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities: Elements and Recognition in Financial Statements (ED 2)
  • Conceptual Framework Exposure Draft (ED) 3, Measurement of Assets and Liabilities in Financial Statements (ED 3).

'Deferred' inflows and outflows

ED 2 proposes to define 'deferred inflows' and 'deferred outflows' as follows:

"A deferred inflow is an inflow of service potential or economic benefits provided to the entity for use in a specified future reporting period that results from a non-exchange transaction and increases net assets."

"A deferred outflow is an outflow of service potential or economic benefits provided to another entity or party for use in a specified future reporting period that results from a non-exchange transaction and decreases net assets"

Examples of deferred inflows may include items such as specific multi-year grants that do not meet the definition of a liability.   Examples of deferred outflows may include multi-year grants that stipulate they must be used over future reporting periods.  These items would be recognised as revenues or expenses as the future time periods expire.

The Basis of Conclusions accompanying ED 2 notes the prevalence of non-exchange transactions of public sector entities, particularly taxation and grants.  The IPSASB argues that it is "important to be able to show separately flows that relate to specified future reporting periods" and considered a number of different approaches in meeting this objective, including changing the definitions of 'assets' and 'liabilities', introducing an 'other comprehensive income' notion, and requiring disclosure in the notes.

The Basis of Conclusions documents the IPSASB's decision to introduce new elements of financial statements as follows:

The IPSASB... concluded that the most transparent approach is to define deferred inflows and deferred outflows as separate elements. In coming to this view the IPSASB considered it likely that, if separate elements are not defined, the treatment of flows that are considered applicable to future reporting periods is likely to be addressed on an issue-by-issue basis at the standards level, using ambiguous and potentially conflicting principles.

The practical effect of the definition of these elements may in some cases result in outcomes similar to the requirements for government grant received under IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.  However, the IPSASB notes the deferred inflow and outflow approach is "not the same as the matching concept  used in earlier private sector frameworks".

Comparison of element definitions with the IASB

Because of the introduction of the additional elements, the definitions of other elements are different in some cases from those used under IFRS.  The table below compares the definitions between the IPSASB proposals and the IASB Conceptual Framework:

IPSASB proposalIASB Framework
An asset is a resource, with the ability to provide an inflow of service potential or economic benefits that an entity presently controls, and which arises from a past event. An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Revenue is:
  1. Inflows during the current reporting period, which increase the net assets of an entity, other than:
    1. Ownership contributions; and
    2. Increases in deferred inflows; and
  2. Inflows during the current reporting period that result from decreases in deferred inflows.
 Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants*
Expenses are:
  1. Outflows during the current reporting period which decrease the net assets of an entity, other than:
    1. Ownership distributions; and
    2. Increases in deferred outflows; and
  2. Outflows during the current reporting period that result from decreases in deferred outflows.
 Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants
Ownership contributions are inflows of resources to an entity, contributed by external parties that establish or increase an interest in the net assets of the entity.
Ownership distributions are outflows of resources from the entity, distributed to external parties that return or reduce an interest in the net assets of the entity
Ownership interests are not defined		 Equity is the residual interest in the assets of the entity after deducting all its liabilities

* Under the IASB's Framework, income encompasses both 'revenue' and 'gains'.  The Framework notes that gains "represent increases in economic benefits and as such are no different in nature from revenue" and so are not considered a separate element.

Measurement

ED 3 identifies the measurement concepts intended to guide the IPSASB in the selection of measurement bases for International Public Sector Accounting Standards (IPSAS). The ED focuses on selecting measurement bases that meet the objectives of financial reporting-decision making and accountability. As many assets in the public sector are held for their operational capacity, the ED argues the cost basis is will often be appropriate.

Comments on the exposure drafts close on 30 April 2013.  Click for IPSASB press release (link to IFAC website).

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