Posted by Ian Lienert.
The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board within the International Federation of Accountants (IFAC), sets international public sector accounting standards (IPSASs) and encourages implementation of them in all countries. Given the evolving worldwide financial crisis and its impact on public sector balance sheets, it is important to know whether government accounting standards are adequate and if so, whether they are being applied. This was one question asked at a World Bank seminar, held on May 15, 2009.
The speakers, Professor Andreas Bergmann (member, IPSASB) and Mr. John Stanford (Deputy Director, IPSASB) addressed four evolving issues: (1) the conceptual framework for general purpose financial reporting by the public sector; (2) specific public sector projects; (3) convergence of public sector and private sector accounting standards; and (4) promotion and communication activities of IPSASB.
Concerning the conceptual framework for general purpose financial reporting by public sector entities, Professor Bergmann said that observers are correct in pointing out that, ideally, the conceptual framework should have been established before the standards were developed. To address this issue, IPSASB prepared and disseminated to the public a consultation paper (CP) in September 2008 (available on http://www.ifac.org/Guidance/EXD-Details.php?EDID=0119) covering the objectives of financial reporting, the scope of financial reporting, qualitative characteristics and the reporting entity. The next step for IPSASB is a review of the 55 responses at its May 2009 meeting, with a view to synthesizing comments and issuing an Exposure Draft. As with other CPs, there is a divergence of views: in this case, European countries are arguing that the CP is too close to norms of the private sector, whereas Australia and New Zealand (which are amongst the “cutting-edge” countries for public sector accounting) take the view that the CP is departing too readily from the private sector model.
Specific public sector projects of IPSASB relate to developing standards, or debating whether or not standards should be developed, for the following: social benefits, long-term fiscal sustainability, narrative reporting (a useful analytical tool, which is now well embedded in the private sector, for managers’ uses), and performance reporting. Concerning the proposal to develop standards for reporting long-term fiscal sustainability, the debate is still open as to whether standards should be developed – since the area is complex and it will lead to voluminous information. At the seminar, it was mentioned that the United States is already requiring federal government financial statements to include 75 year projections of its major entitlement programs: Medicare and Social Security. Moreover, the U.S. Federal Accounting Standards Advisory Board (FASAB) is proposing to extend this requirement to cover all material programs of the federal government.
Whereas IPSASB draws up accounting and financial reporting standards for public sector entities, the International Accounting Standards Board (IASB – an independent accounting body based in London) has developed International Financial Reporting Standards (IFRS) for private sector companies. IFRS are becoming the global standard for the preparation of company financial statements. IPSASB has a project underway to develop public sector standards primarily drawn from IFRS, with departures from IFRS made only when there is a public sector specific issue, using guidelines that are to be made publicly available.
IPSASB is aware of its need to enhance its promotion and communication activities. Resources for this activity are limited. The seminar itself was video-conferenced with Latin American countries (with simultaneous interpretation into Spanish) as part of the World Bank’s contribution to IPSASB outreach to Latin American countries, where there is a need for wider dissemination of IPSASB’s work. Elsewhere, especially in non-English speaking countries, IPSASB’s communication needs are great, as evidenced by questions at the seminar concerning: (1) francophone countries, especially in Africa, where there is a large need to raise awareness of IPSASB activities; and (2) Russian-speaking countries, where there are no official translations into Russian, although unofficial translations may be available.
Concerning a question at the seminar regarding the adequacy of public sector accounting standards in the face of today’s financial crisis, the speakers pointed out that, in most areas, the accrual-based IPSASs are generally quite adequate. The problem is more on whether or not member countries respect the IPSASs. For example, in Germany, at federal level, there is opposition to the adoption of accrual-based government accounting standards.
When pressed on specific issues – those related to intervention measures taken by some countries’ governments and central banks to address the financial crisis – the speakers acknowledged that, although for many issues (e.g., government guarantees, the issuing of government bonds when exchanging debt), the standards are adequate. For others (e.g., public-private partnerships (PPP) arrangements for handling toxic assets of financial institutions), present standards may be inadequate. For PPPs, the IPSAS for “service concessions” is still being developed; moreover, they were prepared with PPPs in infrastructure in mind, not PPPs for toxic asset management.
Finally, the IPSASB takes a wide view of the “public sector”. For example, it advocates, where appropriate, the consolidation of central bank balance sheets into “public sector” balance sheets, a practice only followed by an extremely limited number of countries. Again, problems here relate not so much to the standards themselves, but to differing accounting methods used by (central) governments and central banks (one could add deposit insurance agencies and sovereign wealth funds as well). To obtain a whole-of-public-sector balance sheet by consolidating separate financial statements, adjustments would need to be made to account for differing the accounting policies used by various State sector reporting entities. Many central banks, for example, subscribe to IFRS. However, country practice is quite variable. For example, the Swiss National Bank uses “small enterprise” accounting standards, even though it is a large financial institution.
This seminar allowed participants to be exposed to the useful ongoing work of IPSASB. The presentations are attached.
