IPSASB publishes guidance on public sector financial statement discussion and analysis

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29 Jul 2013

The International Public Sector Accounting Standards Board (IPSASB) has published a new 'Recommended Practice Guideline' (RPG) providing guidance on preparing and presenting financial statement discussion and analysis of the financial statements of public sector entities.

The release of the Recommended Practice Guideline 2 Financial Statement Discussion and Analysis (RPG 2) represents the second RPG issued by the IPSASB, and follows the recent earlier release of RPG 1 on long-term fiscal sustainability. Both RPGs are considered 'good practice', are not mandatory, and do not need to be applied in order for a public sector entity to comply with International Public Sector Accounting Standards (IPSAS).

RPG 2 is designed to encourage more public sector entities to provide financial discussion and analysis. It requires the reporting boundary and reporting period for the discussion and analysis to be the same as the financial statements themselves, be presented at least annually, and issued with the financial statements. The discussion and analysis should reflect the nature of the entity and the regulatory environment in which it operates, and be clearly identified and distinguished from the financial statements (prepared and presented in accordance with IPSAS) and other information presented in a public sector entity's annual report.

The RPG outlines that a financial discussion and analysis should include:

  • An overview of the entity’s operations and the environment in which it operates
  • Information about the entity’s objectives and strategies
  • An analysis of the entity’s financial statements including significant changes and trends in an entity’s financial position, financial performance and cash flows
  • A description of the entity’s principal risks and uncertainties that affect its financial position, financial performance and cash flows, an explanation of changes in those risks and uncertainties since the last reporting date and its strategies for bearing or mitigating those risks and uncertainties.

In some respects, RPG 2 is similar to the IASB's IFRS Practice Statement Management Commentary, but is not based upon it. The Basis for Conclusions on the RPG explains the reasons for this as follows:

In undertaking this project, the IPSASB considered, under its Process for Reviewing and Modifying IASB Documents, whether to develop guidance that was converged with Management Commentary, an IFRS Practice Statement. The IPSASB did not consider this approach to be appropriate because the users identified in the Practice Statement are investors whereas Chapter 2 of the [IPSASB] Conceptual Framework identifies different users, which results in different information needs related to the financial statements. On this basis the IPSASB decided it was important to develop guidance on financial statement discussion and analysis specific to the public sector. Financial statement discussion and analysis assists users of public sector entities’ financial statements by complementing and supplementing the financial statement explanations with insights and perspectives.

In addition, the original IPSASB proposals in ED 47 Financial Statement Discussion and Analysis, which was issued in April 2012, would have seen the issue of an IPSAS rather than an RPG.   However, in considering constituent feedback on ED 47, the IPSASB decided that on balance the ED should be developed into an RPG, and that it would consider the authority of RPG 2 in the future.

As a non-mandatory guide, RPG 2 does not have a stated effective date, but financial statement discussion and analysis should not be described as complying with the RPG unless it complies with all of its requirements. Click for IPSASB press release (link to IFAC website).

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