The publication of a Conceptual Framework from the International Public Sector Accounting Standards Board marks the start of a new year. Like the best resolutions, it’s all about self-improvement.
Many of us use the start of a new year to reflect on the future. Some of us make resolutions (and a few even keep them). For the International Public Sector Accounting Standards Board (IPSASB), the recent publication of its Conceptual Framework is like a new year, issuing in a new era. We can even see parallels between three of the most common resolutions, and the impact of the Framework!
Resolution: Help others
The main purpose of the Framework is to guide the IPSASB in developing new standards. The advantages will be seen in the coming years, as the Board uses the Framework to develop new standards on a consistent basis. Yet some of the most immediate impacts may be felt by others.
In 2012, Eurostat undertook a study on the suitability of International Public Sector Accounting Standards (IPSASs) for EU member states. This concluded that IPSASs were an indisputable reference for harmonising public sector accounting in Europe. However, the study also suggested that IPSASs could not be easily implemented in their current form and proposed that EU members develop European Public Sector Accounting Standards – EPSASs. If approved, EPSASs could eventually form the basis of UK public sector accounting.
One of the reasons given for this recommendation to develop EPSASs was that IPSASs lacked a conceptual basis. The publication of the IPSASB’s Conceptual Framework deals with this concern. Other reasons given included gaps in the suite of IPSASs, for example on social benefits. The publication of the Framework also places the IPSASB in a better position to address this concern. A consultation paper on social benefits, the first step in the process of issuing a standard, is expected to be issued in April 2015.
Discussions about the future of EPSASs are ongoing. However, the publication of the IPSASB’s Framework increases the likelihood of EPSASs being based on IPSASs. For supporters of international standards – including the majority of UK commentators such as CIPFA – the help given by the publication of the Framework is very welcome.
Resolution: Lose Weight
With the publication of the Framework and six new standards, the IPSASB’s handbook certainly isn’t slimming down. It may, however, assist preparers to slim down their financial statements.
There has been much talk over the last few years about disclosure overload, ‘cutting clutter’ and the need to simplify the accounts. In 2014, both CIPFA and the Treasury launched consultations on ‘simplifying and streamlining the accounts’.
How can the Framework help with this? If you are looking for a panacea that resolves all the difficulties with disclosure requirements, then you will be disappointed. However, the Framework can assist preparers. It may not have all the answers – does anyone? – but it does set out important principles that will guide the IPSASB when it looks at disclosure requirements. The Framework describes the users of public sector financial statements. It describes their reporting needs. It describes how decisions about presentation requirements should be addressed.
All of this provides a solid conceptual basis, centred on users’ reporting needs, for determining disclosure requirements. As the IPSASB follows the Framework, the end result is likely to be standards that promote transparency and clarity.
Resolution: Keep in Touch
For the Framework to help public sector accounting in the UK, it is important it keeps in touch with developments in IFRSs. Currently, both the Treasury’s Financial Reporting Manual (FReM) and CIPFA/LASAAC’s Code of Practice for Local Authority Accounting are based on IFRS. Despite this, IPSASs are still influential, and may be drawn on to fill gaps where no IFRS addresses a specific topic. This process is obviously easier where both suites of standards have a similar conceptual basis.
Work on the IFRS conceptual framework is ongoing, but at this stage it seems likely that key elements of the frameworks – such as the definitions of an asset and a liability – will be very similar. Inevitability, there will be differences, as the frameworks reflect different user needs. But the similarities will allow the Treasury and CIPFA/LASAAC to continue to use IPSASs to supplement IFRSs, at least until we see where the EPSAS project is going.
2015 will be another challenging year for those in public finance in the UK – let’s hope the Framework contributes to it being a successful one.
Paul Mason is a technical manager at the International Public Sector Accounting Standards Board
