IPSASB seeks to clarify which entities should apply IPSASs

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28 Aug 2014

The International Public Sector Accounting Standards Board (IPSASB) has released a consultation paper that seeks comments on the applicability of International Public Sector Accounting Standards (IPSASs) to government business enterprises (GBEs) and other public sector entities. The consultation paper is part of an IPSASB project to consider the types of entities for which IPSASs should be developed.

Currently, the scope of each IPSAS specifically excludes GBEs and references the Preface to International Public Sector Accounting Standards, which states that GBEs apply International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB).

IPSAS 1, Presentation of Financial Statements, defines a government business enterprise as an entity with all the following characteristics:

  • Is an entity with the power to contract in its own name
  • Has been assigned the financial and operational authority to carry on a business
  • Sells goods and services, in the normal course of its business, to other entities at a profit or full cost recovery
  • Is not reliant on continuing government funding to be a going concern (other than purchases of outputs at arm’s length), and
  • Is controlled by a public sector entity.

The consultation paper, The Applicability of IPSASs to Government Business Enterprises and Other Public Sector Entities, seeks to address concerns that a wide range of entities are being identified as GBEs, through diversity of practice in the application of the definition, and some entities being described as GBEs even though they may not meet all the requirements of the definition.

The paper identifies two possible approaches as to defining the IPSAS reporting mandate:

  1. Describe the characteristics of public sector entities for which IPSASs are intended, without defining GBEs. The high-level characteristics would be based on either:
    1. current and developing IPSASB literature (including the Conceptual Framework), or
    2. terms and explanations from the Government Finance Statistics (GFS)
  2. Modifying the current definition of a GBE in IPSAS 1 to either:
    1. clarify the current GBE definition to make it easier to be consistently applied, without modifying the definition significantly, or
    2. narrowing the definition of a GBE to profit-oriented entities, so excluding entities that have a financial objective of full cost recovery.

The IPSASB has expressed a unanimous preliminary view that the first approach is the best way forward, with the majority of board members supporting the development of high-level characteristics of a public sector entity based on existing IPSASB materials. This view is supported on the basis it is high-level and principles based, and acknowledges the role of regulators and other relevant authorities in determining which entities should apply IPSASs. The consultation paper also notes that this approach is consistent with the approach the IASB takes in respect of profit-oriented entities in the Preface to International Financial Reporting Standards and individual IFRSs.

The consultation paper is open for comment until 31 December 2014. Click for IPSASB press release (link to IFAC website).

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