Latest IPSASB developments
The International Public Sector Accounting Standards Board (IPSASB) held their first virtual board meeting in June, due to the restrictions imposed by COVID-19. Henning Diederichs FCA is the technical manager to the UK board member, Lynn Pamment, and provides a brief update on the latest developments.
Having observed four days of meetings I can report that the virtual meetings worked better than anticipated with more focused debates, but with slightly less interaction overall I would say. The daily meetings were restricted to three hours which meant that the agenda was reduced accordingly. The main focus of the Board was on the following topics:
- Updates on the Conceptual Framework and measurement standard projects and the linkages between them;
- The additional guidance needed for the Property, Plant and Equipment (PPE) accounting standard on infrastructure and heritage assets ; how this guidance might link to the measurement project;
- Leases; and
- Non-current assets held-for-sale alignment project with IFRS 5.
1. Conceptual framework and measurement standard updates
The IPSASB had previously agreed to a limited scope update of the Conceptual Framework, in part to reflect the IASB’s revision to its Conceptual Framework, but to also update it for experiences in using it to develop new pronouncements.
The measurement project’s objective is to ensure alignment with IFRS 13 as well as to provide additional guidance on other measurement bases. It was previously agreed that the measurement standard would provide overarching generic guidance on a stand-alone basis and that specific guidance would continue to be provided in the relevant standards – such as PPE and impairment.
It was agree to adopt IASB’s measurement hierarchy but to change some of the terminology to provide additional clarity. The updated Conceptual Framework will distinguish three different measurement levels:
a) Measurement Models (level 1)
b) Measurement Bases (level 2)
c) Measurement Techniques (level 3)
Measurement models are the approaches to the presentation of assets and liabilities - historic cost or current value .
Measurement bases provide the most relevant and faithfully representative information under the model selected. The proposed measurement bases are historical cost, fair value, fulfilment value and current cost.
And finally, measurement techniques are methods to estimate the amount at which an asset or liability is presented under the selected measurement basis. Examples include present value techniques and exit values. It was also agreed that market value and replacement cost be classified as measurement techniques.
Further discussions are required to determine what the appropriate measurement techniques are for any given measurement base, as it was acknowledged that one technique, such as market value, could be appropriate for more than one measurement basis.
The Board agreed that the Conceptual Framework should focus on measurement models and bases and that the measurement standard would contain guidance on measurement techniques.
2. Infrastructure, heritage and measurement project updates and linkages
The characteristics of infrastructure and heritage assets were discussed and agreed. These were identified to help distinguish these assets from general PPE and to highlight complexities in the application and implementation of existing principles in IPSAS 17 Property, Plant and Equipment.
Regarding infrastructure assets, the two core characteristics were determined as ‘networks or systems’ and ‘having long useful lives’. The characteristic of immovability was not deemed to be specific to infrastructure and does not appear to present challenges. Key characteristics for heritage assets include ‘restrictions’ (in context of control) and ‘irreplaceable’.
There was some debate about what measurement guidance should be included in IPSAS 17 PPE and what should be included in the measurement standard itself. Depreciation, for example, sits on the borderline between being specific enough to be included within the standard itself or being generic for inclusion in the measurement standard. This proposal will be considered in more detail at the next meeting.
It was also agreed to find alternative means to provide support for some issues that stakeholders identified as being problematic. One such issue is the threshold at which to capitalise or expense costs; the Board concluded that setting a threshold is a matter for management judgement and not a matter of principle and would be better addressed in a staff Q&A.
3. Leases
This project has been ongoing for some time as IPSASB sought to find a symmetric solution to both lessor and lessee accounting. A few years ago, IPSASB proposed to deviate from IASB’s lessor accounting model and to adopt a model that would mirror the lessee side of the transaction. These proposals did not receive universal backing and no common ground was found to take this project forward.
After further reflection, IPSASB voted to adopt IFRS 16 on practicality grounds.
The project will be in two phases. The first is the alignment phase to create an exposure draft (ED) covering the core standard, based on IFRS 16. The second phase is to consider public sector specific issues, principally concessionary leases and access rights. In order to inform IPSASB on the public sector specific issues, it was agreed to issue a ‘Request for Information’ alongside the ED. The aim of the Request for Information is to obtain practical examples of different types of lease-like arrangements, the problems that arise and the solutions put in place.
4. Non-current assets held for sale
The Board approved the project brief for non-current assets held-for-sale as a minor alignment project with IFRS 5.
It was agreed to retain the scope and measurement requirements of IFRS 5. The strict criteria of IASB’s standard implies that transactions are likely to be of a commercial nature so as to be in scope. Some Board members indicated that it will be unlikely that many public sector transactions will be in scope. However, there is a gap in IPSASB’s literature and this alignment project aims to fill that gap.
One Board member was not in favour of valuing non-current assets held-for-sale at the lower of cost and fair value less costs to sell on accountability grounds. It was argued that in the public sector it is common not to achieve a good sales price (sometimes deliberately) and that valuing the asset at cost would not make it transparent that the asset was sold too cheaply. Whilst there was no desire to deviate from the measurement requirements of IFRS, it was acknowledged that this could be a problem and it was agreed to add disclosures, which still need to be worked through, regarding fair value.
The next Board meeting is in September and would have been held in Paris but this meeting will also be held remotely.