INTERNATIONAL FEDERATION OF ACCOUNTANTS · 2011-06-27 · David Tweedie, Warren McGregor and Tom...

INTERNATIONAL FEDERATION OF ACCOUNTANTS INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS BOARD

MINUTES OF THE MARCH MEETING – Toronto Canada Held on March 10 – 13, 2008

1. OPENING REMARKS & MINUTES .......................................................................2

1.1 Attendance Toronto Canada..............................................................................2

1.2 Approval of Minutes of Previous November 2007 IPSASB Meeting .................4

2. STRATEGY/WORKPLAN ........................................................................................5

3. CONCEPTUAL FRAMEWORK...............................................................................9

4. FINANCIAL INSTRUMENTS.................................................................................16

5. UPDATING IPSAS 4, “THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES” ..............................................................................................17

6. BORROWING COSTS .............................................................................................18

7. NARRATIVE REPORTING ....................................................................................19

8. APPENDIX A – BOARD VOTING RECORD.......................................................21

Vote #1 – updating IPSAS 4.........................................................................................21

Vote #2 – CP Social Benefits (via email between meetings) .......................................22

Vote #3 – Service Concessions (via email between meetings).....................................23

9. APPENDIX B - ACTION LIST – MARCH 2008 MEETING...............................24

Minutes from the IPSASB Meeting in March 2008 in Toronto, Canada

1. OPENING REMARKS & MINUTES

1.1 Attendance Toronto Canada

PARTICIPANTS ATTENDEES APOLOGY/NIA*

Mike Hathorn (M) X 1 Ian Carruthers (TA) X Peter Batten (M) X 2 Jim Paul (TA) X David Bean (M) X 3 Andreas Bergmann (M, public) X 4 Reto Fausch (TA) X Marie-Pierre Cordier (M) X 5 Jean-Luc Dumont (TA) X Omer Duman (M) X 6 Sheila Fraser (M, public) X 7 Stuart Barr (TA) X Yossi Izkovich (M) X 8 Hong Lou (M) X X(3/10) 9 Hongxia Li (TA) X(3/11) X(3/10,12,13) Rick Neville (M) X 10 Ron Salole (TA) X Tom Olsen (M) X 11 Harald Brandsås (TA) X Anne Owuor (M) X 12 Stefano Pozzoli (M, public) X 13 Marcello Bessone (TA) X Greg Schollum (M) X 14 Annette Davis (TA) X Tadashi Sekikawa (M) X 15 Kenji Izawa (TA) X Erna Swart (M) X 16 Lindy Bodewig (TA) X Frans Van Schaik (M) X 17 Thomas Van Tiel (TA) X Larry White (M) X 18 Relmond Van Daniker (TA) X


PARTICIPANTS ATTENDEES APOLOGY/NIA*

ADB EU Eurostat IASB INTOSAI IMF OECD UN UNDP World Bank IFAC

Hong-Sang Jung (O) Rosa Aldea Busquets (O) John Verrinder (O) Warren McGregor (O) Robert Dacey (O) Lucie Laliberte (O) Jon Blondal (O) Valencia Williams-Baker (O) Gwenda Jensen (O) Simon Bradbury (O) Stephenie Fox (S) Paul Sutcliffe (S) John Stanford (S) Matthew Bohun (S) Don Geiger (S) Barry Naik (S) Tracey Stark (S)

X X X X X X X X X X X X X

X X X X

* NIA- Not in Attendance (M) Member (TA) Technical Advisor (O) Observer (S) IFAC Staff The Chair welcomed members, technical advisors, observers and staff, including the following to their first IPSASB meeting: • Sheila Fraser, Member (Public); • Anne Owuor, Member; • Larry White, Member; • Stuart Barr, Technical Advisor; and • Relmond Van Daniker, Technical Advisor

The Chair noted apologies from: • Tom Olsen, Member; • Omer Duman, Member; • Hong-Sang Jung, Observer; • Rosa Aldea Busquets, Observer; • Warren McGregor, Observer; and • Jon Blondal, Observer

The Chair welcomed all to the first meeting held in Toronto since IPSASB’s relocation.

The Chair extended appreciation for the accommodations, support and facilities to the Canadian Institute of Chartered Accountants (CICA).


The Chair highlighted the new seating arrangements, having only the Board members around the immediate table followed by the TA’s, observers and the public gallery. Whilst these arrangements had been necessary for this meeting due to the particular shape of the CICA room, the Chair explained that the Moscow meeting was expected to be similarly affected. The Chair reflected upon the large number of participants now attending Board meetings and he would take soundings from Members over the Toronto and Moscow meetings to assess whether the new setup will better utilize facilities and better accommodate deliberations.

The chair noted apologies from the Chinese member and TA who were delayed in Vancouver for a day due to inclement weather.

The chair noted apologies from new member Omer Duman, who will not be able to attend this meeting and gave a warm welcome to new members Sheila Fraser, Anne Owuor and Larry White.

The Chair congratulated Yosef Izkovich on his election to replace Roy Alroy from Israel for one year - 2008.

The Chair recognized Kenneth Dye (Past IPSASB Chairman) and Robert Attmore (Chairman, Governmental Accounting Standards Board), noting particularly the GASB support on the service concessions project.

The Chair gave an update on the member and chair appraisal process which has been implemented by IFAC since the last meeting. The Chair apologized for not having been able to introduce this matter himself in advance of the process and for not being able to meet with each member individually as part of the process. The Chair hoped that by circulating his draft appraisal to each Member for comment on this occasion before forwarding to the IFAC Nominating Committee he had given each Member an opportunity to engage in the process and hopefully a way would be found to make the process more personable in the future.

An update on the IFAC Nominating Committee process for the recruitment of 2009 IPSASB members was given by the Chair and the importance of a high quality International Board and the need for outstanding members to facilitate the creditability and adoption of IPSASs in governments around the world had been highlighted in a submission from the Chair.

1.2 Approval of Minutes of Previous November 2007 IPSASB Meeting

The Minutes of the Beijing Meeting held on November 27-30, 2007 were approved without amendment.

Two votes were conducted between meetings and the results were reported as follows:

The approval of a Proposed IPSAS and Consultation Paper “Social Benefits: Disclosure of Cash Transfers to individuals and Households.” The results of the vote were In Favor 15, Against 0, Abstain 2, Absent 1.

The approval of a Consultation Paper “Accounting and Financial Reporting for Service Concession Arrangements.” The results of the vote were In Favor 14, Against 0, Abstain 4, Absent 0.


The Chair reported on the progress achieved on the Action List from the previous Board meeting as follows:

• A copy of the draft Rules of the Road had been sent to Sir David Tweedie, (IASB) who had commented favorably on its simplicity and clarity. As a consequence, Sir David had agreed to an IASB/IPSASB Liaison Committee and the first meeting would be held on 21 July 2008. The Committee will include three members from each of the IASB and IPSASB. IASB members will be Sir David Tweedie, Warren McGregor and Tom Jones. IPSASB members will include the Chair and two others to be determined.

• The Chair and a number of others, including members, observers and staff attended the recent OECD Accrual Symposium where there were a number of IPSASB related presentations as follows:

o The Chair provided an update on IPSASB activities o Richard Neville conducted a presentation on service concession arrangements; o David Loweth provided a presentation on the conceptual framework project;

and o Ian Carruthers, supported by John Stanford provided a presentation on Long-

Term Fiscal Sustainability.

• The Service Concessions Consultation Paper had been issued shortly before the meeting and had already garnered considerable interest, particularly in the UK. The Exposure Draft and Consultation Paper on Social Benefits was also recently issued together with the project brief on long-term fiscal sustainability. It was noted that IPSASs on Employee Benefits and Impairment of Cash-Generating Assets were finalized in February.

• Ian Carruthers had been asked to chair the Long-Term Fiscal Sustainability Task Force.

• Deputy Chair Erna Swartz had been asked to chair the Cash Basis IPSAS Task Force.

• A meeting would be held during the week in Toronto with all Observers present to discuss ways in which working arrangements could be improved.

• A meeting would be held during the week in Toronto with Rick Neville, Andreas Bergmann, Erna Swartz and Greg Schollum who had all agreed, together with the chair, to develop a pro-active promotional strategy for a region of the world.

2. STRATEGY AND WORKPLAN

The Technical Director introduced the draft 2008-2010 workplan and in doing so, acknowledged it was ambitious. Members recognised the tension of resource allocation between public sector specific projects and those related to IFRS convergence within the plan, but given that resources are finite, the IPSASB must find an acceptable balance between IFRS convergence projects and public sector specific projects for constituents.

The IPSASB discussed a wide range of matters arising from the staff’s proposals:


• The meaning of the terminology “full suite of standards” was questioned and how this should be defined. The Technical Director noted that the term was not perhaps the most appropriate given that it implies that there is a specific static point where standards are complete. In reality the standard setting process is evolutionary and as such is never truly complete.

• The need to target December 31, 2009 as a convergence date in order to gain credibility with many of the NSSs and the IASB was highlighted;

• There was general agreement that IFRICs need to be considered. Work has been done in some jurisdictions and IPSASB should be able to leverage off this work in order to move forward quickly. Staff was directed to bring a list of IFRICs in June with proposals for addressing them;

• Members questioned whether the IPSASB should revisit all existing IPSASs and apply the Guidelines for Modifying IASB Documents (Rules of the Road.) Members were divided on this point and discussed a variety of approaches including revisiting all existing IPSASs or at least those being updated as a result of IASB changes. The IPSASB agreed that, given time and resource constraints, Rules of the Road would not be applied to existing IPSASs at this time unless there is something explicitly wrong - which is expected to be on an exception basis;

• The current extensive lag time between IPSASs and current IASB standards and the need for IPSASB to reduce this was noted. The IPSASB noted staff’s proposal in the workplan to reduce the current lag time to 1 year.

• Members questioned whether a stable platform should be established i.e. no new standards for a period of time.

• In noting that the proposed workplan is ambitious, Members raised the concern that in seeking to converge with IASB standards and carry out a full programme of sector specific projects, the IASB is a full time paid Board whereas the IPSASB is a part-time volunteer board.

• The plan will need revision along the way;

• There was some discussion of translation issues, particularly with respect to the annual improvements project and Members suggested that doing this biennially instead of annually might be a better solution; and

• Members supported the need to track IASB projects continuously now in order to assess, monitor and engage with them early in the process. Staff were directed to provide an analysis of this “parallel run” programme of work at the June meeting as well as to add it to the workplan as a continuous project.

• Members supported IFRS convergence and acknowledged the need to eliminate unnecessary differences with IFRSs. They also expressed a strong view that the IPSASB should continue to work on public sector specific projects that constituents would find most relevant.


• There was significant discussion about the prioritization staff had given to various projects within the proposed workplan. Members discussed whether criteria could be set and used as a basis to prioritize projects. For example, the relevance to the public sector, timing of the related IASB project, topic coverage (need for standards) and achievability. Members considered such criteria could make the decision-making process more transparent. Members directed staff to develop the idea of a set of criteria further for discussion at the June meeting.

• Members considered leveraging off the support of national standards setters to assist with IFRS convergence where appropriate.

• Members expressed concern that heritage assets and performance reporting were not scheduled for any activity.

Members were then taken through the draft workplan on a line by line basis and provided detailed feedback to staff on timing, priority, omissions and other matters.

• IPSASB directed staff to include activity on Performance Reporting and Heritage Assets.

• In support of Performance Reporting, one member indicated that he may be able to provide resources and agreed to follow this up with staff subsequent to the meeting. A project brief will be developed for the October meeting. Initiation of the project will depend on the analysis of views received on the Group 1 Consultation Paper for Conceptual Framework.

• For heritage assets, Members expressed interest in collaborative working with National Standard Setters, noting however, that there are a range of approaches around the world which makes partnership working in this area very challenging. Members also expressed an interest in working with the valuation profession and possibly in leveraging off the research community eg CIGAR with whom we have strong ties. Members directed staff to undertake some initial analysis of current arrangements around the world to enable the board to make a decision on how to proceed.

• Agriculture was added as a required new standard that should be added to the workplan.

• Other projects discussed included SMEs and emission trading schemes. These topics will be monitored as part of the ongoing IASB tracking work by staff.

• Members broke down Updating IPSASs into 3 categories –

1. those that require a revision because of a change in the related IFRS

2. those that require regular improvements as a result of implementation issues, and

3. those that require re-justification in light of subsequent developments.

Members considered the need for the re-justification of existing IPSASs to be by exception only.


• Members considered the need for a “laundry list” or running list of potential projects which would include existing IPSASs that need to be considered for revisions based on feedback. This would include those IPSASs where Members considered the basis for conclusion is not adequate. Members directed staff to bring this list to the June board meeting

The IPSASB reviewed a revised version of the workplan on the final day of the meeting. Members directed the Technical Director to make revisions as deemed necessary by her to balance resources and achieve the desired outcomes by December 31, 2009. The IPSASB noted once again, the ambitious nature of the workplan.

Rules of the Road The IPSASB received an update from the Technical Director regarding feedback to date on the Guidelines for Modifying IASB Documents (Rules of the Road) and the plan for field testing these guidelines over the next year. Staff have been applying the version resulting from the November 2007 meeting and have been documenting comments and experience in the application exercise. As agreed at the November 2007 meeting, the guidelines had been provided to the IASB who had favorably noted their simplicity and clarity.

At the October 2008 meeting, staff will provide an analysis of the experiences in applying the Rules of the Road at which time the Members will agree a final form to be published on the IPSASB website.

Structure of Documents During this session the IPSASB discussed a number of other items. With respect to the structure of certain documents, members discussed the existing document types, for example, consultation papers, and were provided a brief history of how these have evolved. Generally members thought that striving for some consistency in structure where possible would be preferable and they noted the importance of using style guides. It was agreed that a draft outline for a common structure would be brought to the June meeting. The need to reflect the challenge of users and to deal with accountability and understandability was highlighted. The structure of documents of other standard setters would be considered in this context. Members saw the need for the IPSASB to evolve to a standard format of its own rather than reliance on the IFRS format since this has contributed to some inconsistencies in the past.

Members directed staff to provide a paper for the June meeting with a more detailed template for consideration with the goal of being implemented by January 1, 2009

Voting Procedures and Dissenting Views In November 2007, the IPSASB directed staff to provide a summary of voting procedures of other standard setters including other IFAC boards and various National Standard Setters. The IPSASB’s process and procedures were noted to be consistent with IFAC policies and the majority of other standard setters . It was also noted that a change in IPSASB’s processes would have to be agreed by the IFAC Board and would need to be applied to all IFAC standard setting boards. The meeting agreed that the current process of documenting dissenting views where desired by the Member in the minutes will


continue and staff will monitor this situation and report any matters that occur in the future.

3. CONCEPTUAL FRAMEWORK

Members noted the fourth report of the Conceptual Framework Subcommittee (November 2007).

Group 2 – Framework Issues (CP-2): elements of general purpose financial reports.

A presentation on the development of the Consultation Paper dealing with the second group of Framework issues (CP-2): elements of general purpose financial reports (GPFRs) was given by Tim Beauchamp of the Public Sector Accounting Board (PSAB) of the CICA who is leading the project. It was agreed that:

• The focus of the project should initially be on the elements of financial statements, pending feedback on the proposed scope of financial reporting. It was also recognized that this component of the Framework needs to have a linkage to the long-term fiscal sustainability project;

• Definitions of the "elements", including "equity/net asset" as a separate element, should be developed;

• Each of “revenue/gains” and “expenses/losses” should be defined as a single element, subject to consideration of the potential impact the elements of statistical reporting models (GFS), and the measurement requirements of those models, may have on these elements. Some members also expressed the view that other elements of financial statements such as contributions to and from owners may need to be defined; and

• The revised work plan for Group 2 papers was appropriate.

Group 1 – First draft of CP dealing with scope and objectives of financial reporting, the qualitative characteristics of financial information and the definition of the reporting entity.

Staff spoke to the first draft of the CP dealing with scope and objectives of financial reporting, the qualitative characteristics of financial information and the definition of the reporting entity (CP-1), noting that the individual papers considered at the November 2007 IPSASB meeting had been revised and restructured as directed. Staff also noted that some re-sequencing of certain chapters and any IPSASB preliminary view on the objectives of financial reporting would strengthen and add clarity to the paper. Members initially discussed the draft CP-1 in broad terms and noted that it was drafted in the style of a discussion paper which explored potentially different views on key conceptual issues and the developments thereon in a number of jurisdictions.

In summary, Members felt that the CP was too long and sometimes contradictory; the CP should be soundly reasoned but crisp and shorter. Members also provided the following directions -

• Members agreed that the CP should include IPSASB preliminary views where it was clear the IPSASB had reached a consensus on key matters.


• Staff should focus the paper more authoritatively on those preliminary views and the rationale underpinning them, focus the paper more closely on public sector issues and restructure the paper to consider the objectives of general purpose financial reporting prior to consideration of “scope” issues.

• Member also noted comments received from Mr. Ian Hague (IASB Framework staff) and Mr. Kevin Simpkins (NSS-4 consultant), reflecting their personal views on the draft CP, which had been tabled. Members agreed that staff should consider these comments as they redraft the CP for the next meeting.

• Issues relating to de-recognition of the elements of financial statements and the “unit of account” should be dealt with in CP-2.

Members then discussed each chapter of CP-1 in detail and provided directions to staff for development of a revised draft for consideration at the next IPSASB meeting in June 2008. Members agreed that:

• The term ”general purpose financial reporting” should be retained for the next draft, but noted that other terms such as general purpose “financial and accountability reporting” or “financial and performance reporting” may be a better reflection of the potential reporting spectrum encompassed by the Framework. Members also agreed that the terminology to be used should be raised as a specific matter for comment (SMC) in the scope chapter;

• Each chapter should identify whether or not the IASB had issued a Discussion Paper (DP) or Exposure Draft (ED) on the issue addressed therein as part of its joint Conceptual Framework project with the FASB and, if it had, draw the distinction between the IPSASB and IASB preliminary views; and

• Introductory material to the CP should include an executive summary and identification of the preliminary views and SMCs included in each chapter.

In respect of Chapter 1 - “The Public Sector Conceptual Framework Project”, Members agreed that the:

• Section dealing with general purpose financial reports (GPFRs), should explain that GPFRs would comprise conventional financial statements and, potentially, additional disclosures, including non-financial information, about the performance of the entity and consequences of current and likely future transactions and events.

• Members felt that the role of the IPSASB as an independent standard-setter for public sector entities should be acknowledged in this section;

• Section dealing with the role and proposed authority of the Framework in providing guidance when an IPSAS does not deal with a financial reporting issue should be strengthened.

• Members also felt that Chapter 1 should explain that while the Framework may identify concepts useful in resolving an issue or may note that the scope of financial reporting may encompass certain types of disclosures (such as non-


• It was agreed that in articulating the status of the Framework, the objectives of converging with IFRS and the statistical frameworks need to be referenced.

• Section dealing with applicability of the Framework should clarify that the Framework would apply to public sector entities other than GBEs (paragraphs 1.13/1.14)

• Members also agreed that the section should acknowledge that the Framework would apply to social security schemes, government departments and other public sector entities, and international organizations that adopt IPSASs; and

• Meaning and potential implications of differential reporting should be explained in the chapter and the introductory material to the CP should note that the IPSASB may include on its work program a separate project on differential reporting at some time in the future;

• The SMCs should be deleted; and

• The following matters should not be dealt with in Chapter 1, but should be established as introductory material to the CP:

o the due process being adopted in the development of the Framework; o the outline of the CPs (currently in paragraphs 1.3 and 1.4); and o the relationship of the IPSASB Framework to the IASB Framework and the

Frameworks of the national standards setters and similar authoritative bodies (NSS).

o Members also directed that the statistical bases of financial reporting should be acknowledged in this introductory material; and

o factors that might be considered in determining whether or not an IPSAS should be developed.

In respect of Chapter 3 - “Objectives of General Purpose Financial Reporting”, members agreed that it should be re-positioned as Chapter 2 ahead of the chapter on scope and that it needs to be considerably tightened and focused. The following amendments were proposed:

• It should include the IPSASB preliminary view that the objective of financial reporting in the public sector is to provide information for accountability and economic, political or social decision making purposes;

• The first paragraph should be deleted;

• Table 3.1 should be deleted and replaced with an explanation of the three broad groups of users (being service recipients, resource providers and those representing other user groups). It should be noted that these broad groups encompass the users currently identified in paragraph 3.7. In that context, “the legislature” should be identified more prominently as an user, national accountants should be included within the user group and employees should be removed from the list;


• There should be no attempt to directly “map” the users identified in the IASB Discussion Paper (or subsequent Exposure Draft (ED)) with the users of public sector GPFRs – rather, if considered useful, a table may be established to note the classes of users identified by the IPSASB and by the IASB;

• While the section dealing with identification of a primary group of users should be retained, the chapter should focus on the common information needs of the three broad categories of users, which are citizens, recipients of goods and services and other parties performing a review service on behalf of the community;

• The discussion of the purposes for which users require information was appropriate except that it should be condensed where possible and references to “inter-period equity”, “financial condition” and “fiscal sustainability” (in paragraph 3.43) should be deleted because these have different meaning in different jurisdictions – however the underlying information needs identified in paragraph 3.43 should be retained;

• The chapter should explain that:

o a GPFR may include conventional financial statements and additional financial and non-financial information, and that mechanisms for display of such additional information would be considered in other components of the Framework and at the standards level; and

o while many of the user needs identified in the chapter will be satisfied by the GPFR, others may not;

• The sections dealing with responses to the IASB Discussion Paper on the objectives of financial reporting (issued in July 2006), and the potential differences in the meaning of accountability and stewardship should be reduced and the major points captured in one or two paragraphs;

• All SMCs, except for SMC 3.5, dealing with the information to be disclosed in GPFRs, and the appendices to the chapter should be deleted;

In respect of Chapter 2 - “The Scope of General Purpose Financial Reporting”, members agreed that the chapter be repositioned as Chapter 3 and should:

• Be restructured to clarify in the early sections of the chapter that:

o GPFRs report on the consequences of transactions, events and activities undertaken by the reporting entity;

o financial reporting does not encompass policy formulation matters;

• Include the IPSASB’s preliminary view that the scope of general purpose financial reporting:

o should evolve in response to user information needs as reflected in the objectives of financial reporting; and

o will encompass the disclosure of non-financial information about the performance of the entity and future oriented information as appropriate for accountability and decision making purposes;


• Avoid any indication of an intention to set standards on budget development or public policy. It will include preliminary views, with questions on certain more specific areas around potential products within “performance” and “prospective” information;

• Include the substance of current paragraphs 2.23-2.24, 2.25-2.27 and 2.31-2.33 earlier in the chapter to explain the preliminary view, delete the section dealing with matters of principle and simplify the section dealing with limiting factors;

• Explain that whether or not an IPSAS would be developed on any reporting matter encompassed within the scope of financial reporting would be determined at the standards level;

• Make clear that the scope of financial reporting would not differ dependant on the frequency of financial reporting;

• Explain that information would need to satisfy the QCs to qualify for inclusion in a GPFR;

• Explain that the GPFR may include financial statements and other statements or disclosures, and whether or not an item was “auditable” was not a criteria for determining what may be encompassed within the scope of financial reporting;

• Consolidate the discussion of specific reporting issues under the headings of:

o performance reporting, which may encompass disclosure of financial and non-financial information about the entity’s achievement of service delivery objectives, sustainability reporting and management commentary on financial and non-financial characteristics of performance; and

o prospective financial information which would acknowledge the IPSASB’s current project on disclosure of information about long term fiscal sustainability and the existing IPSAS on budget reporting. Members also agreed that the role of management commentary in placing prospective financial information in context should be recognized and that discussion of the potential for the scope of GPFR to encompass the development of an IPSAS on presentation of ex-ante budgets should be deleted.

o include SMC’s requesting constituents’ views on whether disclosure of non-financial performance information, prospective financial information and management commentary should be included within the scope of GPFR.

In respect of Chapter 4 - “The Qualitative Characteristics of Information Included in General Purpose Financial Reports”, members agreed that there was merit in the qualitative characteristics (QCs) and the guidance in order of their application currently being developed by the IASB, and that the chapter should be structured to focus on consideration of the appropriateness of the IASB QCs for the public sector. However, members also noted that:

• The adoption of a structure which identified some QCs as “fundamental” and other as “enhancing” may result in some QCs being perceived as being less important than others, and this was not desirable. Some members noted this was of particularly concern for the public sector in those jurisdictions with limited


experience in the application and interaction of the current QCs in IPSAS 1 “Presentation of Financial Statements”;

• The order of consideration being developed by the IASB may not be fully responsive to public sector circumstances. Some members were of the view that for application to public sector entities, timeliness and understandability should be positioned as “fundamental” rather than “enhancing” QCs. They noted that to be relevant information needed to be both understandable and timely, and:

o given the significant delays in presentation of the financial reports of public sector entities in many jurisdictions, there was a need to signal to public sector entities that providing information in a timely manner is a fundamental QC;

o while QCs included the assumption that readers of financial statements have a reasonable knowledge of the reporting entity’s activities and environment and were willing to study the information, the financial sophistication of many potential public sector users of those statements was less that than their private sector counterparts. As a consequence, identifying understandability as a fundamental characteristic was justified. However, other members expressed the view that the perceived ability of public sector users to understand a GPFR was not a justification for placing understandability higher in any order of application – rather the relative importance of understandability was the same for both sectors; and

• It was not clear that users of public sector GPFRs were more risk averse than users of the GPFRs of private sector entities. Some members noted that it was likely that the same individuals or organizations would be users of GPFRS of public and private sector entities in any jurisdiction – albeit that the purposes for which they used the information provided in the GPFR may be different.

Members agreed that at the next meeting they would consider whether a Preliminary View on the QCs could be agreed, and directed that Chapter 4 be revised to:

• Reflect the IPSASB’s preliminary views on the objectives and scope of financial reporting;

• Include in the text a brief description of each QC proposed by the IASB;

• Explain that there was merit in the QCs being developed by the IASB and that guidance on their order of application had the potential to assist in resolving conflict between individual QCs;

• Raise as an issue whether classifying the QCs as either fundamental or enhancing was appropriate;

• Include an explanation of the case for identifying timeliness and understandability as “fundamental” QCs, if the “fundamental” and “enhancing” classification was adopted;

• Revise the diagram included in paragraph 4.9 to identify the IPSASB QCs in the first column;


• Consider whether difficulties may arise in applying the QCs as identified by the IASB to non-financial performance indicators and prospective financial information that may be included within GPFRs consistent with the IPSASB’s preliminary views on the scope of financial reporting;

• Clarify that even if users of GPFRs of public sector entities were perceived to be more risk averse than users of GPFRs of private sector entities, this should not be used to justify the introduction of bias into the GPFR;

• Not over-emphasize the difficulty of applying verifiability to non-financial and prospective financial information in para 4.67, but explain more fully its role as an enhancing QC;

• Delete paragraphs 4.83- 4.84 and explore whether the application of materiality gives rise to any public sector specific issues; and

• Consider whether the application of the cost-benefit constraint gives rise to public sector specific issues. Some members noted that whether the cost-benefit constraint encompassed notions of “undue cost and effort” as well as whether the costs justified the benefits should be raised as an issue.

In respect of Chapter 5 - “The Reporting Entity”, members again discussed the merit of a section on the nature of an entity. After the discussion, members confirmed their previous decision to exclude such a section. Members also agreed that the chapter should:

• Acknowledge that international organizations may prepare general purpose financial reports in accordance with IPSASs and therefore would be reporting entities as described in the Framework;

• “Soften” the proposition in the first paragraph that “if the objectives of financial reporting were to be achieved it was necessary that entities that should prepare GPFRs did so”;

• Explain that public sector reporting entities would be identified by relevant authoritative bodies in each jurisdiction after consideration of such factors as whether there were users dependant on GPFRs for information to satisfy the objectives of GPFRs, and the benefits of preparing the GPFRs were greater than the costs;

• Not deal with differential reporting issues. Consequentially paragraphs 5.11 – 5.15 should be deleted because they explained that the economic, social and political influence of a public sector entity, and its size and financial characteristics should be considered in determining whether the entity was a reporting entity. Rather, there should be an explanation that the composition of a GPFR, including GPFRs that responded to differential reporting issues if appropriate, would be dealt with at the standards level;

• Not use the term “legal entity”. Members noted that while the explanation and discussion of an entity with a separate legal identity and status as a potential


reporting entity was appropriate, use of the term “legal entity” presented difficulties in certain jurisdictions;

• Include a preliminary view that a public sector reporting entity was an entity that was required to, or elected to, prepare a general purpose financial report in accordance with IPSASs; and

• Deal only with whether the boundary of the reporting entity in the public sector should be determined on a control or an accountability basis, and issues that might arise in the application of those bases, particularly in respect of emerging market economies. The other bases currently identified in the chapter should be encompassed within accountability or control if appropriate, or deleted. Members also agreed that the appendices identifying definitions of control and accountability in different jurisdictions should be deleted.

Some members expressed the view that the discussion of the control basis for determining the boundary of a reporting entity was already too detailed and should be revised to avoid dealing with matters appropriately addressed at the standards setting level. Other members were of the view that it was appropriate to identify application issues that may arise in respect of the control basis and that some detail should be retained. Members agreed that the level of detail in the current text should be reduced but that sufficient of the discussion should be retained to enable the difference between control and accountability to be clearly identifiable. Members also agreed that commentary on application of the control basis currently included in the chapter and in appendix should be retained as an appendix in the draft for consideration at the next meeting, at which time a final decision on its retention or deletion would be made.

4. FINANCIAL INSTRUMENTS

In light of the discussion of the IPSASB’s strategy and work plan at item 3, the IPSASB decided not to review the draft EDs prepared by staff but to discuss a revised strategy in relation to financial instruments. The IPSASB noted that in the absence of an IPSAS on the recognition and measurement of financial instruments, IPSAS 1 drives preparers to IAS 39, which then becomes the de facto IPSAS. Further, IPSAS 15 is currently not converged with IAS 32 and IFRS 7, which may present difficulties for preparers.

Several IPSASB members and observers reported that in various jurisdictions around the world, national, state/provincial and local governments are applying IAS 32, IAS 39 and IFRS 7. It was acknowledged however that implementation of the IFRSs, especially IAS 39, is controversial in some countries. Members and observers advised that while implementation of this complex group of standards is difficult it is not impossible and that there are benefits to be gained by the public sector from being converged with the IFRSs. One member thought that before any decision on convergence was made an in-depth debate of the issues should be undertaken. However, on balance the IPSASB was in favour of reviewing and adapting the IAS/IFRS standards.

Some concern was expressed that the IASB intends to accelerate its work plans to fundamentally revise IAS 39 and that the IPSASB would therefore be using resources inefficiently to develop an IPSAS based on IAS 39 which would be changing


imminently. It was agreed that contact with the IASB would be made to determine their plan on revisions to IAS 39.

After some discussion of the public sector benefits the IPSASB decided that:

• Staff will prepare an analysis of IAS 32, IAS 39 and IFRS 7 in the context of the “Guidelines for Modifying IASB Documents” for consideration at the June meeting of the IPSASB;

• Staff will prepare draft Exposure Drafts proposing three IPSASs based on IAS 32, 39 and IFRS 7. These EDs will not address public sector specific financial instruments and will propose a high degree of convergence with the IFRSs.

• Staff will prepare a Rules of the Road analysis of the public sector specific financial instruments and other issues facing the public sector for discussion at the October meeting of the IPSASB. The analysis address the question as to whether an IPSAS should be issued to address public sector specific financial instruments and financial instrument issues; and

The IPSASB stressed that its discussion at the meeting in June would determine the future way forward.

5. UPDATING IPSAS 4, “THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES”

The IPSASB reviewed the responses to ED 33, “Proposed Amendments to IPSAS 4, ‘The Effects of Changes in Foreign Exchange Rates”. The IPSASB noted the low number of responses to the ED. Staff advised that they had followed up with regular respondents and had received additional responses from the few that were originally received. Staff also expressed concern that some technical difficulty may exist with the e-mail system used to submit responses and reported that they had taken steps to resolve those issues. Staff also noted that a number of regular respondents stated that the amendments proposed were relatively minor and uncontroversial and they did not, consequently, consider that a response was necessary.

In reviewing the responses, the IPSASB noted that several respondents proposed changes that, while having merit, were beyond the scope of this convergence project and were best addressed by the conceptual framework project as they affected all IPSASs, not just this one. The IPSASB reviewed the responses in detail and agreed to make the following changes:

• The objective in paragraph 1 is to be amended to note that providers of external assistance may require financial statements to be prepared in the providers currency rather than the functional currency of the entity, and that international organizations may prepare financial statements in an agreed international currency rather than the functional currency of the entity;

• The definitions of economic entity and fair value are to be deleted as these have been defined in IPSAS 1, “Presentation of Financial Statements”;


• Paragraph 43 is to be amended to note that in the public sector the presentation currency is normally determined by the Ministry of Finance or similar body, or established in legislation;

• In paragraph 45, the reference to functional currency is to be amended to refer to presentation currency;

• The effective date is to be January 1, 2010; and

• The Comparison with IAS 21 is to be amended to reflect the changes to paragraphs 1 and 43.

The IPSASB voted on the approval of revised IPSAS 4, “The Effects of Changes in Foreign Exchange Rates”. The results of the vote were In Favor 16, Against 0, Abstain 1, Absent 1. See Appendix A – Vote #01 – IPSAS 4 – for complete details.

6. BORROWING COSTS

The IPSASB reviewed the agenda material prepared by staff, the submissions made by members after the November 2007 meeting and the staff responses to those submissions. The IPSASB then discussed the public sector specific matters regarding borrowing costs. Members were not persuaded by the staff view as set out in the materials distributed for the meeting but noted that staff were now proposing a different approach to the issues for debate at this meeting. The IPSASB noted that there were significant differences between the nature of borrowings in the public sector and the private sector. In particular the IPSASB noted:

• In the public sector borrowing is often for strategic, macroeconomic policy purposes;

• Project financing is less prevalent at the national government level, although it exists at lower levels of government;

• In amending IAS 23, “Borrowing Costs” the IASB was converging with the US Financial Accounting Standards Board’s Statement 34, “Capitalization of Interest Cost”, which does not apply to not-for-profit entities; and

• The costs of allocating generic borrowings to capital acquisitions would likely outweigh the benefits for many public sector entities.

The IPSASB, whilst agreeing that in general, convergence with the IASB’s standards remains a strategic objective, in this particular instance, the majority of members were of the view that there were sound public sector reasons to depart from the provisions. Many members favoured the expensing of borrowing costs, while some favoured a more liberal approach that would allow entities that consolidate GBEs to retain the capitalization recognized by GBEs in the consolidated financial statements. Members concluded that capitalization should be allowed in respect of all cash generating assets, but that expensing of borrowing costs should be required in all other cases. A minority of members favored converging with IAS 23.

The IPSASB decided that it would review a draft exposure draft for the next meeting that:


• Proposes that public sector entities may either expense or capitalize borrowing costs that are specifically incurred for the acquisition, construction or production of a qualifying asset;

• Proposes that public sector entities expense all other borrowing costs in the period in which they are incurred; and

• Includes a Basis for Conclusions that clearly articulates the reasons for the public sector departure from IAS 23.

Staff were directed to draft the Basis for Conclusions for distribution to members for comment between meetings in order to facilitate the discussion in June.

7. NARRATIVE REPORTING

A draft project brief was presented in preparation for the initiation of a project on Narrative Reporting in 2009. Staff had undertaken an initial analysis of issues to be considered, including considering the project in the context of “Rules of the Road”.

Members expressed initial agreement with the scope of the coverage proposed by Staff. They agreed that the project should be initiated only once responses to the Consultation Paper on Conceptual Framework (CF) have been considered. In addition they discussed using an incremental approach towards the evolution of this project with the initial step being focused on financial statement discussion and analysis and further steps going beyond to other aspects of performance reporting.

Staff was also directed to update the Project Brief and draft Issues Paper as follows:

• Emphasis that this will not necessarily be an IPSAS but may be in the form of guidance;

• Revise the project scope to start to draw a boundary/distinction between performance reporting, budgetary reporting and narrative reporting, recognizing that there will be overlap and crossover issues that will need to be dealt with;

• Revise the brief to indicate a step-by-step approach to implementation, starting with NR on financial statements but leading to other steps that will correlate with the CF and more public sector specific focus (actual performance against budget, accountability in government, budget modifications, etc);

• Review and revise the public sector justification by further strengthening the accountability to stakeholders;

• Revise language such as “likelihood,” and consider more appropriate terms such as “risk.”

• Recognize the need to explore forward looking information, in a fact based way;

• Review and enhance the discussion of the whole-of-government versus entity level-of-government, as well as consideration of a wide variety of other public sector entities, such as the United Nations;


• Explain the need to define “management” in a public sector context, including avoiding political connotations;

• Highlight a number of factors such as the relevance of qualitative characteristics, the need to avoid “boiler plating,” and concerns over the length of NR.

• Recognize that this project will consider the IASB Management Commentary project. However, the IASB project is not the driving force behind IPSASB’s NR project. NR should not be viewed as a convergence project because the different user base in the public sector makes the public sector specific needs quite clear. It is anticipated that there will be fewer correlations to private sector standards as the project moves beyond the financial statement phase; and

• Various editorial suggestions to improve the general readability.

A further version of the project brief will be distributed to Members for comment out of session.


8. APPENDIX A – BOARD VOTING RECORD

Vote #1 – updating IPSAS 4 Member Voting Record

Agenda Item # 4 Date Vote Taken: Wednesday March 12, 2008 Description of Voting Topic:

IPSAS 4 “The effect of Changes in Foreign Exchange Rates” IPSAS_X_ ED____

Board member

In

Favo r

Against

Abstain Absent

Notes Mike Hathorn 1 And nn reas Bergma 2 A nne Owuor 3 David Bean 4 Erna Swart 5 Fra ik ns D.J. van Scha 6 Greg Schollum 7 Hong Lou 8 Larry White 9 Marie-Pierr ier e Cord 10 O mer Duman 11 Peter Batten 12 R ichard Neville 13 Sheila Fraser 14 Stefano Pozzoli 15 Tadashi Sekikawa 16 T om Henry Olsen 17 Yosef Izkovich 18

TOTALS 16 0 1 1 Minutes from the IPSASB Meeting in March 2008 in Toronto, Canada

Vote #2 – CP Social Benefits (via email between meetings) Member Voting Record

Agenda Item # electronic vote Date Vote Taken: between meetings Description of Voting Topic:

Social Benefits: disclosure of Cash Transfers to Individuals and Households

IPSAS__ ED__XX__

Board member

In

Favo r

Against

Abstain Absent


TOTALS 15 0 2 1


Vote #3 – Service Concessions (via email between meetings) Member Voting Record

Agenda Item # electronic vote Date Vote Taken: between meetings Description of Voting Topic:

CP Accounting and Financial Reporting of Service Concession Arrangements

IPSAS__ ED_XX__

Board member

In

Favo r

Against

Abstain Absent


TOTALS 14 0 4 0


9. APPENDIX B - ACTION LIST – MARCH 2008 MEETING

ACTION LIST – MARCH 2008 MEETING

Action Required Person(s) Responsible

Date to be Completed

1. Strategy/Workplan • Prepare “laundry list” of all projects

for ongoing updating and monitoring; list to be reconsidered and revised for action as considered appropriate

• Develop plan for addressing existing IFRICs

• Outline approach to track IASB initiatives and plan for achieving

• Establish criteria for prioritizing potential projects

• Consider annual improvements project and specific plan to address

• Finalize workplan with new projects as agreed by IPSASB including reflecting IFRS convergence at 31 December 2009 for IASB standards approved at 31 December 2008

• Provide draft structure for IPSASs and consultation papers

Fox

Fox/Stanford

Fox/Stanford

Fox

Fox/Stanford

Fox

Fox

May 15, 2008

May 15, 2008

May 15, 2008

May 15, 2008

May 15, 2008

March 31, 2008

May 15, 2008

2. Conceptual Framework • Attend NSS-4 group meeting and

report on IPSASB progress • Prepare minutes Group 1 projects • Prepare minutes Group 2 projects • Arrange meeting of subcommittee to

review Group 2 materials • Monitor developments in IASB-FASB

joint project • Monitor NSS-4 Reports • Follow up with:

K Simpkins re input to next draft Consultation Paper (CP)

I. Carruthers re reference to statistical bases of fin. reporting

D. Bean re inter-period equity and accountability basis for rep. entity

• Prepare revised CP to reflect decisions at IPSASB meeting.

Sutcliffe

Sutcliffe, Naik

Fox/Beauchamp Fox/Beauchamp

Fox/Beauchamp/

Sutcliffe Fox /Sutcliffe

Sutcliffe

Sutcliffe

Sutcliffe

Sutcliffe

March 26, 2008

April 1, 2008 April 1,2008

TBD

April 2008

March/April/May 2008

March/April/May 2008

March 2008

April, 2008

April, 2007


Action Required Person(s) Date to be CompletedResponsible

• Consider timing required for July meeting

• Staff to liaise with Chair, TD and others re draft Paper

Fox/Sutcliffe

Sutcliffe

May 19, 2008

April 30, 2008

3. Updating IPSAS 4, “The Effect of Changes in Foreign Exchange Rates” • Finalize IPSAS 4 for publication in

the 2008 Handbook • Draft press release • Provide final copy of IPSAS to Chair

for review of editorial and other changes

• Provide draft press release to chair for approval

• Approve final copy of IPSAS and press release for publication

• Publish final IPSAS on Web and in Handbook

Bohun-Aponte

Bohun-Aponte Communications Bohun-Aponte

Bohun-Aponte Communications

Hathorn

IFAC

March 31, 2008

March 31, 2008

March 31, 2008

April 4, 2008

April 11, 2008

April 15, 2008 and following

4. Financial Instruments • Prepare list of public sector issues

concerning financial instruments and provide to members for feedback.

• Ascertain likely timetable for fundamental revisions to IFRSs dealing with financial instruments

• Prepare an analysis of IAS 32, IAS 39 and IFRS 7 in the context of the “Guidelines for Modifying IASB Documents”

• Consider implications of IASB Discussion Paper, “Reducing Complexity in Reporting Financial Instruments” and report to IPSASB

• Prepare draft EDs proposing IPSASs based on IAS 32, IAS 39 and IFRS 7.

• Prepare Discussion of Issues or Information Paper on public sector financial instruments and other public sector issues.

Bohun-Aponte

Hathorn/Stanford

Bohun-Aponte Stanford

Bohun-Aponte Stanford

Bohun-Aponte

Bohun-Aponte

March 31, 2008

March 31, 2008

April 30, 2008

May 15, 2008

August 31, 2008

August 31, 2008



Action Required Person(s) Responsible

Date to be Completed

5. Narrative Reporting • Update project brief & draft issues

paper, with comments from meeting & step-by-step approach & provide to IPSASB members and TAs

• Consider CF responses when received and assess any need to revise project brief/timetable

Geiger

Geiger

April 30, 2008

2009

6. Borrowing Costs • Prepare draft ED proposing mandatory

expensing of borrowing costs other than borrowing costs directly attributable to the acquisition of a cash generating asset, which may be capitalized.

• Review draft ED • Process review issues, circulate to

IPSASB staff for team review • Review draft ED • Process review issues, circulate to

IPSAB members and TAs for review • Process review issues, prepare final

draft ED for review at June meeting.

Bohun-Aponte

Stanford Bohun-Aponte

Bohun-Aponte Bohun-Aponte

Bohun-Aponte

March 28, 2008

April 10, 2008 April 14, 2008

April 22, 2008 April 30, 2008

May 26, 2008

7. Communications/Other • Action List posted to intranet • All powerpoints to be posted on

website • Follow up with regional

communications leaders to develop communications strategy by region

Fox

Stark

Fox

March 20, 2008 March 20, 2008

May 15, 2008

____________________________________________________________ Chair – Mike Hathorn Date

INTERNATIONAL FEDERATION OF ACCOUNTANTS · 2011-06-27 · David Tweedie, Warren McGregor and Tom...

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