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IFRS vs IPSAS: an overview of measurement

Author: ICAEW Insights

Published: 25 May 2021

ICAEW’s public sector team examines some key differences between International Financial Reporting Standards and International Public Sector Accounting Standards, and the suitability of each in public sector financial reporting.

Financial reporting is the process of recognising, measuring and disclosing information that enable users to get an informed view of the financial position and performance of an entity that should allow them to make useful decisions and hold the entity to account. Measurement goes right to the heart of financial reporting and can involve complex models and judgement and can therefore be quite subjective.

In April 2021, the International Public Sector Accounting Standards Board (IPSASB) issued an exposure draft on a new measurement standard covering all major measurement bases and techniques. There is an International Financial Reporting Standard (IFRS) on fair value (IFRS 13) but fair value is just one of many measurement bases available. The IPSASB standard appears to be broader in scope. 

There is no one single measurement basis that is superior to another. Users of financial statements would probably like to have multiple bases applied to provide more depth of data, for example the historic cost of a building and its current fair value. This full article examines some of the considerations when deciding which measurement base is most appropriate to apply.

We also examine fair value. What is it about fair value that makes it so unpopular in the public sector to many stakeholders? In non-technical terms, fair value provides you with an amount for which you could sell an asset. This appears to be a reasonable valuation basis but there must be a principal market and it is assumed that market participants use the asset for its highest and best use. IFRS 13 says that an entity shall measure the fair value of an asset using the assumptions that market participants would use when pricing the asset, assuming that the market participants act in their economic best interest. 

Many assets in the public sector are operational assets used to deliver front line services or back office functions. Assets held for their operating capacity generally do not lend themselves to fair value measurement, often because of their specialised nature and hence lack of an orderly market but also because they may not be deployed at their highest and best use. Nevertheless, applying the fair value measurement basis, regardless of how an asset is being used, entities should measure the fair value assuming its highest and best use by market participants. This may lead to a valuation that users may not find useful or easy to understand.

The IPSASB has therefore developed a new measurement basis, called current operational value, which is an entity specific current value measurement. Highest and best use and market participant data is not applicable, so it is hoped this will be a good alternative to fair value in a public sector context. This is explored in more detail in the full article, see link below. 

Further reading

Read the full know-how article: IFRS vs. IPSAS part II: measurement