IPSAS reforms proposed for state-owned firms

2 Sep 14

The International Public Sector Accounting Standards Board has set out plans to reform the classification of government-owned companies after concerns were raised that some firms did not meet definitions in the standard.

By Richard Johnstone | 2 September 2014

The IPSASB announced on August 28 that it would consult over changes to the definition of Government Business Enterprises (GBEs) due to what it said were different interpretations of the existing rules.

Currently, these companies are excluded from IPSAS on the basis that they are commercially oriented entities that have been assigned the financial and operational authority to sell goods and services at a profit. Instead, the standard states that each organisation should apply International Financial Reporting Standards.

However, the board stated GBEs can have a significant impact on a government’s financial performance and financial position as they vary both in size and their financial objectives and governance arrangements.
As a result of feedback that a wide range of entities being described as GBEs, including some that do not meet the board’s definition, the board announced two possible changes to clarify the bodies IPSAS should apply to.

The preferred method, set out in a consultation open until December 31, is for the board to set out clearer characteristics of public sector entities for IPSAS. Under this proposal, the definition of a GBE would be removed from the standard.

Under a second option, the definition would be retained but the board would clarify its scope, which would likely decrease the range of state-owned enterprises that it can be applied to.

IPSASB chair Andreas Bergmann said the board had a role in determining the accounting standards to be applied by different entities in their jurisdictions.

‘The IPSASB considers that it has a responsibility to be transparent about the types of public sector entities for which it is developing IPSASs,’ he said.

‘We look forward to hearing whether constituents support the approach of providing a high-level description of the characteristics of public sector entities for which IPSASs are intended or, instead, retention and improvement of the definition of a GBE.’