Developing the Public Sector Conceptual Framework

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Dec 13, 2013 (4 years and 4 months ago)


Developing the Public Sector
Conceptual Framework

David Loweth

UK Accounting Standards Board

OECD Public Sector Accruals Symposium

4 March 2008

Introduction: about the ASB

ASB is an operating body of the Financial Reporting Council
(FRC), the UK’s independent regulator for corporate reporting
and governance.

The ASB is the body recognised under the companies legislation
to issue accounting standards.

Accounting standards responsibilities impacted by move to
International Financial Reporting Standards (IFRS).

Focus moved to influencing the development of IFRS and their
adoption in the EU, as well as developing strategy for
convergence of UK standards with IFRS.

Views expressed in this presentation are my own and do not
represent positions of the ASB or any of the other bodies
referred to.


The joint conceptual framework project of the
International Accounting Standards Board (IASB) and
US Financial Accounting Standards Board (FASB).

The work of the National Standard Setters (NSS)
Group of 4.

The International Public Sector Accounting Standards
Board (IPSASB) conceptual framework project.

Progress to date on the above and issues arising.

Where to from now.

IASB/FASB Joint Project

Objective: “To develop an improved and
common conceptual framework that will
provide a sound foundation for the
development of accounting standards”.

IASB current framework dates from 1989,
FASB first concepts statement 1978.

Important to IPSASB: many International
Public Sector Accounting Standards (IPSAS)
are based on IFRS and so, with public sector
modifications, draw on concepts and
definitions in the IASB framework.

IASB/FASB: Project Plan

The project is being conducted in eight phases:


Objectives of financial reporting and qualitative

characteristics (QCs) of financial reporting information


Elements of financial statements and recognition




Reporting entity


Presentation and disclosure, including reporting



Purpose and status in GAAP hierarchy


Applicability to the not
profit sector


Entire framework, remaining issues

Currently, the first four phases are active.

IASB/FASB: Project Plan and Status

The project is:

Focusing on changes in the environment since the
original frameworks were issued and omissions in
the original frameworks.

Giving priority to conceptual issues that cross
with standard
setting projects and are likely to yield
benefits in the short

Initially considering concepts applicable to
business entities in the private sector.


Discussion Paper issued July 2006.

Led to significant comment.

Major concerns over proposed objective of financial
reporting: resource allocation decision
What about stewardship?

Users and user needs.

Lack of definition of what the Boards mean by
financial reporting.

QCs: why replace ‘reliability’ with ‘faithful
representation’? Reliance on ‘verifiability’.

IASB/FASB: Phase A update


Redeliberations by Boards. Exposure Draft (ED) almost ready for

On objectives, financial reporting should:

Focus on general purpose reporting to present and potential
equity investors, lenders, and other creditors (capital

Provide information:

Useful in making the decisions equity investors, lenders,
and other creditors make in their capacity as capital
providers (to meet stewardship concerns);

About an entity’s economic resources, claims to those
resources, and effects of events that change those
resources and claims.

Information useful to those making decisions in their capacity as
capital providers is also useful to other stakeholders.

IASB/FASB: Phase A update


Fundamental QCs:


Faithful representation.

Enhancing QCs:





Pervasive constraints:



IASB/FASB: Phase B progress (1)

Focus to date on elements. Current working


of an entity is a present economic resource
to which the entity, through an enforceable right or
other means, has access or

can limit the access of


of an entity is a present economic obligation
that is enforceable against the entity.

IASB/FASB: Phase B progress (2)

Testing current working definitions of asset and liability.

Defining other elements.

Unit of account issues.


Boards' current frameworks contain recognition criteria, some
of which are similar and others that are different.

Boards plan to revise the concepts for recognition to
eliminate differences and provide a framework for resolving
derecognition issues.

Boards plan to begin analyzing these issues during 2008.

DP scheduled 2009.

IASB/FASB: Phase C progress (1)

The measurement phase is being conducted in three

Milestone 1:

Inventory and define properties of

potential measurement bases.

Milestone 2:

Evaluate measurement basis


Milestone 3:

Draw conceptual conclusions

and address practical issues.

IASB/FASB: Phase C progress (2)

Potential measurement bases from Milestone 1:

Past entry price

Current Equilibrium Price

Past exit price

Value in Use

Modified past amount
Future Entry Price

Current entry price

Future Exit Price

Current exit price

IASB/FASB: Phase C progress (3)

Milestone 2 topics:

Measurement concepts, principles, and terms

Evaluating an ranking the measurement basis
candidates using the QCs and a decision tool.

The Boards will discuss initial evaluation of the
measurement basis candidates in March 2008.

The Boards plan to issue a DP by the end of 2008.

IASB/FASB: Phase D progress (1)

The Boards have decided that:

The reporting entity concept should focus on
determining the boundaries of the reporting entity
for both an individual entity and a group of entities.

A reporting entity is a circumscribed area of
business activity of interest to present and potential
equity investors, lenders and other capital

Legal existence can help establish the boundaries
of the reporting entity, but legal existence is not a
necessary condition.

IASB/FASB: Phase D progress (2)

Boards have decided that the composition of a group
entity should be based on control.

Views differ on whether parent
only financials should
be a required part of general purpose financial

DP just about ready for issue.

But implications for DP and Phase A ED of whether
Boards should first consult on adopting the entity
perspective for the framework as a whole.

NSS Group of 4: introduction

IASB/FASB project focused on business entities in the
private sector.

Implications for private sector not
profit entities
only scheduled for Phase G; public sector (other than
Government Business Entities) not at all.

Concern at this led the standard
setting bodies of
Australia, Canada, New Zealand and the UK to
monitor the IASB/FASB project from the perspective
of public benefit entities (PBES).

IPSASB an observer of the monitoring group.

NSS Group of 4: what it does

The purpose of the group is to:

monitor all IASB/FASB discussions on the project and any
consultation documents published;

identify any ramifications/issues for public benefit entities;

consider and, where appropriate, suggest amendments to
address those issues and put them to the IASB/FASB; and

enable each body with responsibilities for standard
setting for
public sector and other non
profit entities to proactively
consider the implications of the emerging revised framework
for its own standard
setting activity.

Work led by consultant (Kevin Simpkins).

Positive and constructive relationship with IASB/FASB project

NSS Group of 4: output to date

Many ‘internal’ reports, but only one public report, as
a comment on the IASB/FASB Phase A DP.

Report highlights three main issues relating to the
proposed objective in the DP:

an insufficient emphasis on stewardship

a need to broaden the identified users and
establish an alternative primary user group;

the inappropriateness of the pervasive cash flow

Some of these issues are also pertinent to the
proposed QCs.

IPSASB Project: introduction

Initial focus of IPSASB (and before it the PSC) has been to
develop a credible core set of IPSAS, and build in its knowledge
of concepts in conjunction with development of specific

July 2006 agreement made that IPSASB would lead a project to
develop a public sector conceptual framework in collaboration
with a number of NSS and other bodies.

November 2006 IPSASB agreed to a project brief, subject to final
review and comment by the NSS participants. Updated version
issued on website December 2006.

IPSASB also agreed on proposals for the membership of a
subcommittee to coordinate and contribute to the development of
consultative papers for review by the IPSASB.

IPSASB project: objective

Project brief states that:

The objective of this project is to develop a Public
Sector Conceptual Framework which is applicable to
the preparation and presentation of general purpose
financial reports of public sector entities, including but
not necessarily limited to financial statements and
notes thereto.”

IPSASB Project: Framework

Chaired by IPSASB Chairman.

Five other IPSASB members (Argentina, Japan, New
Zealand, Norway, USA).

Three representatives from Ministries of Finance
(China, France and Italy).

Three NSS representatives (Australia, South Africa
and UK).

IMF representative.

IPSASB Project: scope and focus

Conceptual framework for:

General purpose financial reporting (GPFR)

current IPSAS relate to general purpose financial

By public sector entities

not GBEs

nor not
profit entities in the private sector.

IPSASB Project: relationship to IASB/FASB

Most, if not all, components of IASB framework likely to be
relevant for IPSASB framework, but…

Project brief makes clear that objective is not simply to interpret
IASB framework, but to develop IPSASB’s own framework using
the work of IASB and others as appropriate.

May result in divergence from IASB framework to reflect
necessary public sector differences.

May result in different timings of issues for consideration eg
considering scope of financial reporting sooner.

Also need to consider relationship to concepts in System of
National Accounts (SNA).

IPSASB: project components

Group 1 (Consultation Paper, CP, 2008)

Scope of financial reporting

Objectives of financial reporting

Qualitative characteristics

Reporting entity

Group 2 (CP 2008/2009)

Definition and recognition of elements

Implications of scope for elements

Group 3 (CP 2009/2010)


Presentation and disclosure

Group 4 (CP 2010)

Implications for cash basis framework.

IPSASB project: timing

After CPs, timing could be:


ED of full accrual framework


ED of cash framework


Accrual framework

Question marks over timings

2012 sounds a long way off, but timing ambitious.

IPSASB Group 1 CP: scope of financial

Key issues:

Relationship to Objective

Budget presentation


compliance reporting (IPSAS 24)

prospective financial information.

Performance reporting (service achievements)

Financial characteristics only or non

Narrative reporting/management commentary.

term fiscal sustainability.

Sustainability/Environmental reporting.

How to establish GPFR boundary? Is it necessary to do so?

IPSASB Group 1 CP: objectives of financial

Key issues:

Who are the users of public sector GPFRs?

Should a primary user group be identified?

What are the information needs of users?

reporting on financial performance, position, condition

compliance with budgets

performance reporting

period equity.




Meaning of accountability.

IPSASB Group 1 CP: QCs

Key Issues:

are the QCs proposed by IASB/FASB relevant for
public sector GPFRs, or should the public sector have
different QCs?

are there other QCs not in current IPSAS 1 or
IASB/FASB DP/ED that should be reflected?

are QCs the same for financial statements as for
wider financial reporting, eg

performance reporting, MC, etc


IPSASB Group 1 CP: reporting entity (1)

Key Issues:

constitutes an entity?

legal identity.

other administrative or fiduciary arrangements able to
deploy resources.

what is a reporting entity?

any entity that chooses to prepare a GPFR

as specified by legislative framework in each jurisdiction

where users dependent on GPFRs for information , and

entity has political /economic importance;

financial characteristics;

other characteristics.

IPSASB Group 1 CP: reporting entity (2)

what is presented in the GPFR of a reporting entity?









financial resources controlled by the entity

how define control

financial resources the entity is accountable for

how establish what accountable for

those financial resources subject to a public budget

other eg risks and rewards, similar functions

consider if any implications for:

determining boundary of a group reporting entity

definition of assets, liabilities, revenues, expenses

differential reporting.

Next steps

IASB/FASB project:

Phase A ED expected issue Q2 2008

Phase D DP expected issue Q2 2008

Comment periods for both 120 days.

NSS Group of 4:

continue monitoring IASB/FASB project

probable public reports commenting on above

IPSASB March 2008 meeting

approve Group 1 CP.

Where to find out more

On the IASB/FASB project:

On the NSS Group of 4:


On the IPSASB project: