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Accounting Seminar
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Page 1 | Proprietary Information
IPSASB Conceptual Framework
Andreas Bergmann, Chair
XRB Public Seminar
Auckland/Wellington
2/3 February 2015
Page 2 | Proprietary Information
Absence of Framework a significant gap in literature
Initiated late 2006
Originally collaborative with national standard setters and finance ministries
Accelerated late 2009
First four chapters issued: January 2013
Final approval: September 2014
Brief background on IPSASB project
Page 3 | Proprietary Information
Establishes concepts that underpin general purpose financial reporting by public sector entities on accrual basis
Just financial statements (GPFS) or broader financial reporting (GPFR)?
IPSASB: Broad GPFR scope but elements, recognition and measurement limited to GPFS
For both standard setters and preparers?
Guidance for preparers where no standard
Reserve some parts for standard setter? Yes, e.g. Other Economic Phenomena (5.4)
Purpose, scope and status (1)
Page 4 | Proprietary Information
Authoritative or Non-Authoritative?
IPSASB: Non-authoritative and does not override requirements of Standards (IPSASs) or Guidance (RPGs)
IPSASs not automatically updated by Framework
Program of updating likely in future
Overriding the Framework in standard setting
Accountability of standard setter
Explain departures
Applicability: Governments and its entities, International Organizations
Purpose, scope and status (2)
Page 5 | Proprietary Information
Primary service delivery objective
Volume and significance of non-exchange transactions
Importance of approved budget
Nature of Public Sector Programs and Longevity of public sector
Nature and purpose of assets and liabilities
Regulatory role
Relationship to Statistical Reporting
Identifying key public sector characteristics with
impact on concepts
Page 6 | Proprietary Information
Primary Users
Service recipients and resource providers and their representatives
Parliamentarians/Legislators?
Qualitative Characteristics
relevance, faithful representation, understandability, timeliness, comparability, and verifiability; constraints: materiality, cost-benefit,
balance
Faithful representation: replacing of reliability; Prudence? Embedded in faithful representation; Fundamental v Enhancing: Not taken up
Users and Qualitative characteristics
Page 7 | Proprietary Information
Characteristics
An entity that raises resources to undertake activities
There are service recipients or resource providers dependent on GPFRs of the entity for information for accountability or decision-making purposes
Reporting Entity
Page 8 | Proprietary Information
Elements in Financial Statements
Broad classes of economic phenomena recognized in GPFS
Assets; Liabilities; Revenue; Expense; Ownership contributions; and Ownership distributions
Deferred flows: Other resources and other obligations
Not defined as element, but may be required by IPSASs
Elements
Page 9 | Proprietary Information
Definitions
Asset: A resource presently controlled by the entity as a result of a past event
Liability: A present obligation of the entity for an outflow of resources that results from a past event
Net financial position: Net financial position is the difference between assets and liabilities after adding other resources and deducting other
obligations recognized in the statement of financial position.
Elements (2)
Page 10 | Proprietary Information
Definitions
Revenue: Increases in the net financial position of the entity, other than increases arising from ownership contributions.
Expense: Decreases in the net financial position of the entity, other than decreases arising from ownership distributions.
Surplus and Deficit: Difference between revenue and expense reported in the GPFS
Elements (3)
Page 11 | Proprietary Information
Recognition of an element in the GPFS
An item satisfies the definition of an element; and
Can be measured in a way that achieves the qualitative characteristics and takes account of constraints on information in GPFRs.
Recognition
Page 12 | Proprietary Information
Objective
To select those measurement bases that most fairly reflect the cost of services, operational capacity and financial capacity of the entity in a
manner that is useful in holding the entity to account, and for decision-
making purposes.
Measurement bases
Entry or exit values?
Observable or unobservable?
Entity specific or not?
Measurement
Page 13 | Proprietary Information
Measurement bases
For assets: Historical cost; Market value; Replacement cost; Net selling price; and Value in use.
For liabilities: Historical cost; Cost of fulfillment; Market value; Cost of release; and Assumption price.
Fair value?
Similar to market value, but IFRS definition is an exit value limited to financial capacity
A model to represent a specific measurement outcome standards level
Measurement (2)
Page 14 | Proprietary Information
Presentation
Selection (What?)
Location (Where?)
Organization (How?)
of information reported in GPFR
Issues:
Display or disclose? Language?
Presentation
Page 15 | Proprietary Information
An imperative for a mature standard setter
Not just an academic exercise, influence on standard setting imminent a powerful tool
Developed in thorough due process, in close collaboration with national standard setters
Final words
www.ipsasb.org
The Treasury
Reflections on developing the
IPSASB Conceptual
FrameworkKen Warren IPSASB Alumni
The Treasury
Commitment to Red Zone
owners
The Treasury
Commitment to repair structurally deficient
bridges
The Treasury
The value of the Conceptual
Framework
A personal endorsement
The Treasury
The Ambition . . .
A common frame of reference
A degree of discipline
More consistent decision making
Accountable standard setters
A better educated technocracy,
A basis for determining accounting policies for matters not addressed in standards
The Treasury
The reality . . .
From:
a clear objective, providing a secure foundation on which
to build a consistent, self-supporting framework.
To:
recognising overlapping and conflicting objectives,
requiring judgement and balance
The Treasury
Concepts:
Overlaps and Trade-offs
Accountability and Decision-making
Position and Performance
The Treasury
ACCOUNTABILITY AND DECISION-
MAKING
Balancing Concepts I
The Treasury
Accountability and Decision-making
Accountability:
Democratic?
Constitutional?
Managerial?
Accountability Philosophies:
Doing Good?
Being Good?
Doing the Right thing?
The Treasury
Minister
Chief Executive
Performance
Service/Output
delivery
Policy Outcomes
Change Innovation
Financial under
budget
Compliance Process
Probity Ethics
Investment allocationsCapital
Improvement PIF Score
Select Committees -
MPs
Complaint
bodies
Interest groups
The public
International
Regulators
Central
Agencies
Cabinet
BASS
Benchmarks
Policy advisors
Regulatory
Expectations
Stewardship
Corporate
Centre
Individual officials
Finance staff
Sectors
Other Corporate
Staff
Reputation
Interplay with
command
structure
Interplay with
professional
responsibilitie
s
Legal
Structures
Government
(BPS) Goals
Collaboratio
n
Leadershi
p
Private
Sector
Partners
NGO Partners
Parliamentary
Scrutiny
Head of
State Services
OAG
Report and
ResponseMedia Scrutiny
Resource
Reallocation
s
The Treasury
Accountability - Accounting
Stewardship
Principal
(Owner)
Agent
(Manager)
Decision-making
Investors
(Decision-makers)
Reporting entities
(providing future cash flows)
The Treasury
What does it mean?
Perhaps:
A balance between reliability and relevance
Greater emphasis on comparisons to budget
(expectations)
Operating and financial capacity
Different agenda priorities to IASB
Perhaps not:
Historical Cost
The Treasury
POSITION AND PERFORMANCE
Balancing Concepts II
The Treasury
Performance and Position
Position: A - L = E
Performance: E (CO CD)
Income: the maximum amount which can be spent during [a
period] if there is to be an
expectation of maintaining intact
the capital value of prospective
receipts (in money terms)
The Treasury
Conceptual Challenges to the Framework
The base is insecure
The present is not the future
Accounting does not equal analysis
Other performance measures are better
Income the amount that an entity can consume in a period and still expect to
be able to consume the same amount
in each ensuing period.
The Treasury
What to do ... ?
The Treasury
An Aussie idea ...
From: To:
The Treasury
For accountability and decision-making purposes, service recipients and resource providers will need information that
supports the assessments of such matters as:
The performance of the entity during the reporting period in, for example:
Meeting its service delivery and other operating and financial objectives;
Managing the resources it is responsible for; and
Complying with relevant budgetary, legislative, and other authority regulating the raising and use of public monies;
The liquidity and solvency of the entity;
The sustainability of the entitys service delivery and other operations over the long term, and changes therein as a result of the activities of the entity during the reporting period including, for example:
The capacity of the entity to continue to fund its activities and to meet its operational objectives in the future (its financial capacity), including the likely sources of funding and the extent to which the entity is dependent on, and therefore vulnerable to, funding or demand pressures outside its control; and
The physical and other resources currently available to support the provision of services in future periods (its operational capacity); and
The capacity of the entity to adapt to changing circumstances, whether changes in demographics or changes in domestic or global economic conditions which are likely to impact the nature or compositions of the activities it undertakes and the services it provides.
The Treasury
The meaning of surplus/deficit?
Why are comprehensive income measures criticised?
Because they dont recognise some or all of the other attributes users need.
And so we develop other underlying measures
So should we conceptualise other comprehensive income?
Or should we give ourselves permission to recognise the other attributes users need
The Treasury
IPSASB Conceptual Framework:
Permission to succeed
In some circumstances, to ensure that the financial statements provide information that is useful for a meaningful assessment of the financial performance and financial position of an entity, recognition of economic phenomena that are not captured by the elements as defined in this Chapter may be necessary. Consequently, the identification of the elements in this Chapter does not preclude IPSASs from requiring or allowing the recognition of resources or obligations that do not satisfy the definition of an element identified in this Chapter (hereafter referred to as other resources or other obligations) when necessary to better achieve the objectives of financial reporting.
The Treasury
Emissions Trading Schemes
The Treasury
Conclusion
Appropriately humble?
Recognises trade-offs and judgements
If not the right answers, hopefully the right questions