Posted by Guohua Huang
Government Business Enterprises (GBEs) used to be an important concept in International Public Sector Accounting Standards. Previously, these standards applied to all public sector entities other than GBEs. The IPSAS Board (IPSASB) stated that GBEs applied International Financial Reporting Standards (IFRSs), which apply to profit-oriented entities, and are issued by the International Accounting Standards Board (IASB).
However, IPSASB found that its definition of GBEs proved to be ambiguous and had been interpreted inconsistently. In a recent publication, The Applicability of IPSASs, the Board announced that it has replaced the term “GBEs” with the concept of “commercial public sector entities”, and removed statements that IPSASs do not apply to GBEs. The simultaneously revised Preface to International Public Sector Accounting Standards lays out the characteristics of public sector entities for which IPSASs are designed. In brief, such entities should be responsible for the delivery of public services and/or the redistribution of income and wealth; should finance activities mainly through taxes and/or transfers from other levels of government, social contributions, debt or fees; and should not have a primary objective to make profits.
By adopting this change, IPSASB better acknowledges the role of national authorities in determining the accounting standards to be applied by different entities in their jurisdictions. Since there is no definition or description of “commercial public sector entities” in IPSASs, authorities will need to develop their own criteria to classify public sector entities, that is, to determine which entities shall apply IPSASs and which shall apply IFRSs or national accounting standards. This could be a challenging task for less developed countries with limited resources and capacities. Concerns of decreasing consistency among jurisdictions may arise, because different countries can use different criteria. Coordination among jurisdictions on this issue might prove necessary in the future.
Nevertheless, the comparability of public sector consolidated financial statements between different jurisdictions will not be influenced by this change, as long as they all apply IPSASs. According to the standards, when producing consolidated financial statements, controlled public sector entities ̶ whether they be commercial entities or non-commercial entities ̶ shall apply the same accounting policies and be consolidated.
 Technical Assistance Advisor, PFM2 Division, Fiscal Affairs Department, IMF.
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