The International Public Sector Accounting Standards Board (IPSASB) today released for comment an exposure draft (ED), Key Characteristics of the Public Sector with Potential Implications for Financial Reporting. The paper provides background on issues affecting the development of a conceptual framework for public sector entities and standard setting. In particular, it highlights that public sector entities are likely to depend upon taxation rather than commercially generated profits for their continued existence—and have governance arrangements that generally involve a legislative body holding an executive to account.
The paper is geared toward those who may have limited familiarity with the public sector, particularly those with more experience of financial reporting in the private sector—both for- profit and not-for-profit entities.
One of the main objectives of governments and other public sector entities is to deliver goods and services—not to produce profits, as in the private sector. As a result, there are a large number of financially significant non-exchange transactions in the public sector. These include outflows, such as state pension and social security payments, and inflows from taxation and transfers from other levels of government. However, the paper notes that there are a large number of transactions in the public sector that mirror those in the private sector, and that in such cases, there is no reason why accounting treatments should differ between the two sectors.
The paper also considers the importance of the budget in many jurisdictions. It is often the primary mechanism for communicating with citizens and demonstrating compliance with legal requirements.
Other areas explored include the specialized nature of much of the property, plant, and equipment deployed in the public sector, the regulatory role of government, the responsibilities for a nation’s or area’s heritage, the longevity of most governments and many public sector entities, and the ownership or control of rights to natural resources. The paper also notes that for governments, reporting under statistical bases of accounting is highly important for decision-making purposes and economic analysis.
“When government and public sector financial reporting is mentioned, you often hear a view that the public sector is different; sometimes differences can be exaggerated or underestimated. This exposure draft tries to identify areas that really do need to be considered by standard setters when developing the concepts for public sector financial reporting. We are interested to hear stakeholder views on whether we have identified the right areas,” said IPSASB Chair Andreas Bergmann.
How to Comment
To access the exposure draft or to submit a comment, visit the IFAC website at www.ifac.org/Guidance/EXD-Outstanding.php. Comments on the exposure draft are requested by August 31, 2011. The IPSASB invites all stakeholders to comment on the exposure draft.
About the IPSASB
The IPSASB develops accounting standards and guidance for use by public sector entities. The structures and processes that support the operations of the IPSASB are facilitated by IFAC.
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 164 members and associates in 125 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.