IPSASB releases draft standard for the first-time adoption of IPSAS

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25 Oct 2013

The International Public Sector Accounting Standards Board (IPSASB) has released an exposure draft outlining the first-time adoption process for accrual basis International Public Sector Accounting Standards (IPSASs). Among other proposals, the exposure draft would provide public sector entities with exemptions from full compliance with IPSASs during a transition period, including allowing entities three years to recognise certain assets and liabilities, permitting the use of a deemed cost for historical costs in some cases, and an optional exemption from comparative information. The latest proposals follow the recent release of IPSASB proposals on accounting for interests in other entities by public sector entities.

The proposals in ED 53 First-Time Adoption of Accrual Basis International Public Sector Accounting Standards address the transition from either a cash basis of accounting, or an accrual basis under another reporting framework, or a modified version of either the cash or accrual basis of accounting, and would apply when an entity first adopts accrual basis IPSASs and during the period that it transitions to accrual basis IPSASs. The proposed IPSAS would provide relief to a first-time adopter in presenting its opening statement of financial position, and allow a first-time adopter to choose to apply certain voluntary exemptions during the period of transition.

The proposals in the exposure draft include:

  • Voluntary exemptions impacting fair presentation and compliance. A three year transitional relief period would be available in relation to the recognition and/or measurement of various items, including investment property, property, plant and equipment, defined benefit plans, biological assets, intangible assets, service concession arrangements, financial instruments and non-exchange revenue. Further exemptions related to these items (where applicable) would also be available in relation the capitalisation of borrowing costs, finance lease accounting, and recognition of provisions. The non-elimination of inter-entity balances when preparing consolidated financial statements or accounting for joint ventures or associates, and relief from certain related party disclosures, would also be available during the transitional period.  At the end of the transitional period, and entity would be required to comply with all relevant requirements
  • Use of deemed cost. Fair value could be used as a deemed cost of the following assets when reliable cost information is unavailable: inventory, investment property (in some cases), property, plant and equipment, intangibles assets (in some cases), financial instruments, service concession arrangements and assets acquired through non-exchange transactions. This deemed cost would be able to be determined at any point during the three year transitional period for eligible assets. A deemed cost election would also be available in separate financial statements for investments in controlled entities, joint ventures and associates
  • Comparative information. Comparative information would not be required (but is encouraged) in transitional financial statements and the first IPSAS compliant financial statements
  • Other voluntary exemptions. Entities would have additional relief available in relation to cumulative exchange differences on transition, borrowing costs, segment information during a three year transitional period
  • Other mandatory modifications. Additional requirements are proposed in relation to situations where an entity and its subsidiary become first-time adopters at different times, the entity is subject to hyperinflation, leases are in existence at the time of transition, various aspects of impairment, recognition of defined benefit plan liabilities, the classification, designation, derecognition and uncollectability of certain financial instruments, and internally generated intangible assets.
  • Asserting compliance with IPSASs. Where a first-time adopter takes advantage of the exemptions that affect fair presentation and its ability to assert compliance with accrual basis IPSASs (the first point above), during the transition period the entity will not be able to make an explicit and unreserved statement of compliance with IPSASs in accordance with IPSAS 1 Presentation of Financial Statements
  • Presentation and disclosure. Additional disclosures and reconciliations would be required (with some exceptions), during the transitional period and in an entity's first IPSAS compliant financial statements. Specific disclosures related to deemed costs and other available exemptions and modifications.

Although the IPSASB considered the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards in developing the exposure draft, it is not part of the IPSASB's ongoing IFRS convergence efforts (unlike the consolidation, joint arrangement and disclosure proposals released earlier this week, which were a convergence project). However, some of the modifications and exemptions proposed in the exposure draft are consistent with those in IFRS 1, although IFRS does not permit a transitional period. The three year transitional period proposed for certain exemptions in ED 53 responds to the complexity of issues related to the first-time adoption of IPSASB, which might be more acute particularly for public sector entities previously preparing financial statements using a cash basis of accounting.

An IPSAS resulting from ED 53 would replace the existing transitional guidance in various IPSASs, and the exposure draft contains numerous consequential amendments to this effect. The IPSASB has indicated that transitional provisions will only be included in individual IPSASs in the future where they deal with changes in a standard after it has already been applied. Equally, the development of new IPSAS may give rise to amendments to the proposed first-time adoption IPSAS.

The exposure draft is open for comment until 15 February 2014. Click for access to the following documents on the IFAC website:

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