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IFAC IPSASB Meeting Approved Minutes March 2012 Düsseldorf, Germany of 38

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INTERNATIONAL FEDERATION OF ACCOUNTANTS INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS

BOARD

DRAFT MINUTES OF THE DECEMBER 2011 MEETING

Brasilia, Brazil Held on December 5–8, 2011

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

1.1 Attendance – Brasilia, Brazil ..................................................................................... 2 1.2 Opening Remarks ...................................................................................................... 4 1.3 Approval of Minutes of September 2011 Meeting – Toronto, Canada .................. 4 1.4 Communications and Liaison ................................................................................... 4 1.5 IASB Workplan Summary .......................................................................................... 4

2. ENTITY COMBINATIONS ............................................................................. 4

Discuss issues (Agenda Item 2) ......................................................................................... 4

3. CONCEPTUAL FRAMEWORK ................................................................... 10

3.1 Coordinator’s Report and Overarching Issues ..................................................... 10 3.2 Approve Phase 4 Consultation Paper (CF—CP4) – Presentation (Agenda Item

3A) ............................................................................................................................. 12 3.3 Discuss Responses to Phase 1 Exposoure Draft (CF—ED1) (Agenda Item 3B)

................................................................................................................................... 13 3.4 Review Responses and Discuss Issues – Phase 2 Consultation Paper (CF—

CP2) – Elements and Recognition (Agenda Item 3C).......................................... 16 3.5 Review Responses and and Discuss Issues – Phase 3 Consultation Paper

(CF—CP3) – Measurement (Agenda Item 3D) ....................................................... 22

4. WORK PLAN ............................................................................................... 27

Agree New Projects (Agenda Item 4) ............................................................................... 27

5. EUROSTAT UPDATE ................................................................................. 29

6. OVERSIGHT OF IPSASB AND IASB MEMORANDUM OF UNDERSTANDING .................................................................................... 29

Status Report (Agenda Item 6) ......................................................................................... 29

7. FINANCIAL STATEMENT DISCUSSION AND ANALYSIS........................ 31

Approve Exposure Draft (Agenda Item 5) ....................................................................... 31

8. ALIGNMENT OF IPSASS AND GFSS ........................................................ 32

Discuss Issues (Agenda Item 7) ....................................................................................... 32

9. CLOSING REMARKS ................................................................................. 34

10. APPENDIX 1 – DECEMBER 2011 IPSASB ACTION LIST ........................ 35

11. APPENDIX 2 – VOTING RECORD ............................................................. 37

11.1 Vote #1 – Approve Project – Government Business Enterprises ....................... 37 11.2 Vote #2 – Conceptual Framework Phase 4 – Presentation (Approve

Consultation Paper) ................................................................................................. 38


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1. OPENING REMARKS & MINUTES

1.1 Attendance – Brasilia, Brazil

PARTICIPANTS ATTENDEES APOLOGY/ NIA*

IPSASB Members

1 Andreas Bergmann (M), Chairman X

Stefan Berger (TA) X

2 David Bean (M), Vice-Chairman X

3 Ian Carruthers (M) X

Chris Wobschall (TA) X

4 Marie-Pierre Cordier (M) X

Baudouin Griton (TA) X

5 Mariano D’Amore (M) X

Fabrizio Mocavini (TA) X

6 Sheila Fraser (M – Public) X

Stuart Barr (TA) X

7 Yosef Izkovich (M) X

Michael Arad (TA) X

8 Hong Lou (M) X

Huang GuoHua (TA) X

9 Thomas Müller-Marqués Berger (M) X

Gillian Waldbauer (TA) X

10 Anne Owuor (M) X

11 Jeannine Poggiolini (M) X

Lindy Bodewig (TA) X

12 Bharti Prasad (M) X

Preeti Jha (TA) X

13 Ron Salole (M) X

Tim Beauchamp (TA) X

14 Tadashi Sekikawa (M) X

Kenji Izawa (TA) X

15 Isaac Umansky (M) X X

Marta Abilleira (TA) X

16 Frans van Schaik (M) X

Thomas van Tiel (TA) X

17 Ken Warren (M) X

Joanne Scott (TA) X

18 Tim Youngberry (M) X

Clark Anstis (TA) X

Observers

ADB Hong-Sang Jung (O) X

EC Martin Koehler (O) 1 X

EIB2 Henricus Seerden (O) X

1 Enrique Lobera Argüelles attended in place of Martin Koehler for this meeting.

2 EIB – European Investment Bank


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PARTICIPANTS ATTENDEES APOLOGY/ NIA*

Eurostat John Verrinder (O) X

Giovanna Dabbicco (O) X

IASB Ian Mackintosh (O) X

IMF Abdul Khan (O) X

Sagé de Clerck (O) X

INTOSAI Robert Dacey (O) X

OECD Jon Blondal (O) X

UN Chandramouli Ramanathan (O) X

UNDP Darshak Shah (O) X

Alieva Dinara (O) X

World Bank Brian Quinn (O) 3 X

IFAC Staff

IFAC Jim Sylph, Executive Director, Professional Standards (S)

X

IFAC – Stephenie Fox (S) X

IPSASB John Stanford (S) X

Annette Davis (S) X

Jens Heiling X

Gwenda Jensen (S) X

Joy Keenan (S) X

Yangchun Lu (S) X

Grant Macrae (S) X

Paul Sutcliffe (S) X

* NIA Not in Attendance (M) Member (TA) Technical Advisor (O) Observer (S) IFAC Staff

3 Ivonna Kratynski and Manuela Adl attended in place of Brian Quinn for this meeting.


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1.2 Opening Remarks

The Chairman expressed the IPSASB’s gratitude to the Conselho Federal de Contabilidade for hosting the meeting. The Chairman noted the Members who had sent apologies and provided their proxies for voting purposes. He noted the retiring Members (who would be formally acknowledged on the last day of the meeting – see item 9, Closing Remarks. The Chairman also noted the new Members joining the IPSASB effective January 1, 2012:

• Rachid El Bejjet (Morocco), who was in attendance at the meeting;

• Kenji Izawa (Japan), who was in attendance at the meeting;

• Masud Muzaffar (Pakistan); and

• Adriana Tiron-Tudor (Romania).

1.3 Approval of Minutes of September 2011 Meeting – Toronto, Canada

The minutes of the IPSASB meeting held on September 12–16, 2011 were approved with minor

amendments.

1.4 Communications and Liaison

The Chairman noted Members’ significant efforts around the world on behalf of the IPSASB to encourage IPSAS adoption, as shown in the communications activities report.

1.5 IASB Workplan Summary

A staff analysis of the potential impacts of the IASB’s workplan on IPSASs was tabled.

2. ENTITY COMBINATIONS

Discuss issues (Agenda Item 2)

Working definitions

The staff presented an issues paper which proposed revisions to the definitions related to entity

combinations.

A Member noted that, although the working definition of an entity combination refers to “entities

and/or operations” and the term “operation” is defined, “entity” has not been defined. This

Member considers that it is not necessary to distinguish between entities and operations because

an operation encompasses both “part of an entity” and an “entity”. The Member suggested that

the working definition of an entity combination include only the term “operation”. The IPSASB

agreed with this change.

This would then mean that the title of the project “entity combination” would not be appropriate

and a different title should be found. After Members found the title “operation combinations” to be

unsuitable, a Member suggested that the title could be “public sector combinations”. The IPSASB

agreed to consider the project title further.

Staff proposed that the working definition of an operation include circumstances where there are

(1) activities and assets, or (2) activities and assets and liabilities. This would mean that

“activities and liabilities” would not meet the definition of an operation and thus be outside the

scope of the project. A Member commented that public sector entities do acquire operations

comprising activities and liabilities and was concerned that these types of acquisitions would be

excluded from the scope of the project. Another Member commented that they should be


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addressed and that the definition of “operation” could be amended to “an integrated set of

activities together with assets and/or liabilities…” The IPSASB agreed that operations comprising

activities and liabilities should be included within the definition of an operation and thus within the

scope of the project.

At the September 2011 meeting, the IPSASB agreed to explore replacing the term “control” with

the more expansive phrase such as that used in the Conceptual Framework project Exposure

Draft 1 (CF—ED1)4, in the definitions of “acquisition” and “amalgamation”. Paragraphs 10–31 of

Agenda Paper 2.1 outline this proposal. A Member commented that the IPSASB made a

conscious decision in CF—ED1 to use a description of control rather than the term itself. The

Member is concerned that using the term “control” in this project would not be consistent with the

direction of the Conceptual Framework project. Another Member considers that consistency with

IPSAS 6, Consolidated and Separate Financial Statements is more important at this point in time

because of the close relationship between an entity combination and consolidation of a controlled

entity. It is IPSAS 6 that defines the term “control” so that an entity can determine which entities

are controlled and therefore this project should use the same term to determine whether an entity

has gained control of another entity or operation. The IPSASB agreed that the term “control”, as it

is defined in IPSAS 6, should be used in this project. Members also agreed that the Introduction

to the Consultation Paper should explain why the term “control” is used and that this does not

pre-empt decisions in the Conceptual Framework project relating to the reporting entity5. Once

the Conceptual Framework project is finished, the IPSASB will review its existing standards to

determine whether there are inconsistencies that need to be addressed.

Draft Consultation Paper

Section 2: Scope and definitions

A Member suggested that the scope and definitions section of the draft CP should explore issues

before going into the detail of the definitions because this gives context to the definitions. In

particular, issues relating to (1) the difference between acquisitions of assets and liabilities and

acquisitions of operations, (2) the difference between exchange and non-exchange entity

combinations, and (3) the difference between control and common control should be addressed

in the scope section.

Another Member suggested that the scope section should also explain what is not in the scope of

the draft CP.

The IPSASB discussed the inclusion of acquisitions of joint ventures in the scope of the draft CP.

They considered that this complicated the draft CP and agreed that the draft CP should exclude

from its scope acquisitions of joint ventures (as well as the formation of joint ventures). This has

the consequence of deleting paragraphs 4.58 and 4.59 relating to the accounting treatment for

the acquisition of a joint venture and paragraphs A5 and A6 in Appendix A.

Members made comments on specific paragraphs:

4 Paragraph 4.9 of CF–ED1 states:

“The disclosure of information about the resources, obligations and service delivery or other activities that a government as a whole (or other public sector entity) has the authority and capacity to direct, including those it can direct through other entities, will be necessary for accountability and decision-making purposes when the results of such direction can generate benefits for the government (or other public sector entity) or expose it to a financial burden or loss.”

5 Other aspects of the Conceptual Framework project (e.g., the definitions of elements) may also have

implications for any final standard arising from this project.


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• Paragraph 2.3: The explanation of why the IASB decided to require a single method of

accounting for business combinations is not detailed enough for a reader to understand why

the IASB reached this decision. Business combinations for profit-oriented entities are similar

in nature in that consideration is almost always transferred and so a single method of

accounting is appropriate.

• Paragraph 2.23: The definition of common control includes the phrase “combining entities”

and the word “combining” needs to be deleted, otherwise the definition does not include

acquisitions.

Section 3: Methods of Accounting for Entity Combinations and Measurement Bases

A Member suggested that the discussion relating to measurement bases in Section 4 is generic

and therefore would be better placed in Section 3 because the methods of accounting use either

carrying amount or fair value. The IPSASB agreed with this suggestion.

A Member considered that the sub-section relating to the cost measurement basis

(paragraphs 3.22–3.24) did not seem to be leading anywhere and so should be deleted. Another

Member considered that the Potential Preliminary View may not be correct in all situations and so

should be deleted. The IPSASB agreed that this sub-section should be removed in its entirety

(i.e., paragraphs 3.21–3.25).


• Paragraph 3.4: The explanation of the acquisition method in IFRS 3, Business Combinations

should be expanded to explain that it is identifiable assets and liabilities that the acquirer

recognizes and not just the assets and liabilities recognized by the newly controlled entity or

operation.

• Paragraph 3.6: This paragraph explains in detail a requirement of an IPSAS. Rather the

requirement should be explained at a high level. Other paragraphs that refer to requirements

in IPSASs in detail should also be amended.

• Paragraph 3.8: The first sentence is circular and should be amended or deleted.

• Paragraphs 3.11 and 3.12: These paragraphs need to be expanded to explain that a

resulting entity may need to restate amounts to align the accounting policies of the combining

entities with its accounting policies.

• Paragraph 3.17, Table 3: The measurement basis of the pooling method needs to be

amended to reflect the previous bullet point.

• Paragraph 3.17, Table 3: The “surplus or deficit in year of the entity combination” and

“accumulated surplus or deficit” of the purchase or acquisition method needs to be amended

as the “plus” is not correct.

Section 4: Entity combinations not under common control (ECNUCC): Acquisitions

A Member proposed that the section on entity combinations not under common control:

acquisitions should be further divided into two sub-sections, (1) acquisitions where consideration

is transferred (including bargain purchases) and (2) acquisitions where no consideration (or

nominal consideration) is transferred. This Member is concerned that the draft CP does not

sufficiently address the different nature of an acquisition where no consideration is transferred

and the current draft of the CP considers them as similar in nature to acquisitions where

consideration is transferred. Another Member expressed concern that acquisitions should not be

split into categories and considered there should be no difference in their treatment. This Member


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gave an example of a government bailing out a private sector entity in financial distress and

consideration of CU1 is transferred (in substance no consideration), and noted that transfers for

no consideration are not unique to the public sector. The IPSASB agreed that the suggestion to

split acquisitions into two sub-sections should be explored in the draft CP and that the different

views expressed should be addressed.

A Member considered that an explanation needs to be included in the introduction to this section

to explain why the IPSASB made the decision to split entity combinations between ECNUCC and

entity combinations under common control (ECUCC). The IPSASB agreed with this suggestion.

The IPSASB discussed how this section should be reordered. Members considered that the order

should be as follows:

(1) Which approach (method of accounting) responds to user needs and satisfies the objectives

of financial reporting for the transaction or other event that has happened;

(2) Which measurement basis is appropriate, i.e., is able to provide this information; and

(3) Does that measurement basis meet the qualitative characteristics?

Additionally, a Member suggested that the measurement bases need to be more clearly linked

with the methods of accounting. Another Member suggested the focus should be on reflecting

the substance of the transaction or other event rather than just being a debate about the use of

carrying amount or fair value.

A Member commented that the draft CP does not discuss issues relating to the acquisition of

entities that are not on an accrual basis of accounting. The Chairman commented that this issue

relates to an entity moving to an accrual basis rather than an entity combination issue. The

IPSASB agreed that this issue should be included in the draft CP by reference to the IPSASB’s

“First-Time Adoption of IPSASs” project and Study 14, Transition to the Accrual Basis of

Accounting: Guidance for Governments and Government Entities (Third Edition) issued in

January 2011.

Goodwill

The IPSASB discussed the sub-section relating to the accounting treatment of the difference

arising where the consideration transferred is in excess of the net assets acquired

(paragraphs 4.35–4.43). A Member asked whether the draft CP should use the term “goodwill”.

Other Members responded that it was useful to include this term, and the introductory

paragraph 4.35 should be amended to reflect wording along the lines of “an asset (sometimes

referred to as goodwill)”.

A Member commented that IFRS 3 determines that the residual is goodwill and then that goodwill

is assessed for impairment. This is in contrast to the draft CP which starts off with the residual

being a loss or goodwill. This Member considered that the reason for the difference in approach

should be explained. Another Member asked whether this difference in approach would result in

the same answer in all instances? If so, why is the draft CP taking a different approach? Another

Member considered that it is likely that an acquirer in the public sector would look first at whether

the difference arising was a loss and then look at whether it was goodwill. Another Member

considered that the different approach, where it leads to the same answer as that in IFRS 3,

might give a different impression. In other words, a “loss” might be considered to be different from

an “impairment loss on goodwill”.


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An Observer commented that the System of National Accounts (SNA) defines goodwill very

narrowly as being restricted to acquisitions of entities where there is an obvious market sale6.

Acquisitions of entities in financial distress

The IPSASB agreed that this sub-section (paragraphs 4.53–4.57) should be removed. A Member

considered that the issues relating to these entities relate to measurement on acquisition and

whether the acquired entity should be consolidated. A Member suggested that how these issues

should be addressed could be a part of the Work Plan discussion at the March 2012 meeting.

Issues relating to recognition

The IPSASB agreed that the draft CP should include a sub-section on recognition, including

issues relating to determining the acquisition date.

Other comments on Section 4


• Paragraph 4.4: The explanation of the approaches explored and discarded needs to be

expanded, acknowledging that changes will also occur because of the decision to explore

whether acquisitions can be divided into sub-sections as discussed in the previous

paragraph.

• Paragraph 4.5: An explanation needs to be included on why only three qualitative

characteristics and one constraint are used to assess the measurement bases.

• Paragraph 4.12: The assertion that fair value provides useful information about the service

capacity of non-cash-generating assets needs to be expanded to explain why this is the case.

There are also other paragraphs that include unsupported assertions and these paragraphs

need to be amended to include an explanation for the assertion.

• Paragraphs 4.15: This paragraph includes another unsupported assertion. Carrying amount

is not always easily verifiable (e.g., where an entity does not have records of its acquisitions

of assets). Further, the phrase “resources expended to obtain those assets…” needs to be

expanded to specify that it is the newly controlled entity that expended these resources

before it was acquired.

• Paragraph 4.27: This paragraph is an unsupported assertion and does not lead anywhere

and therefore needs to be amended or deleted.

• Paragraph 4.28, second sentence: The wording needs to be clarified relating to assets and

liabilities recognized before the newly controlled entity or operation is acquired.

• Paragraph 4.29, second sentence: This sentence is true only in instances where the

consideration is less than the net assets acquired and therefore the sentence needs to be

amended.

• Paragraph 4.30(a): The “plus” should be a “minus” in relation to the inclusion of the minority

interest in the calculation.

• Paragraph 4.38: This paragraph should be reordered so that it is explained that all

identifiable assets and liabilities are recognized and if there is a residual and the amount of

consideration is higher than the amount of the residual, then goodwill arises.

6 The definition in SNA (2008) is: “Goodwill and market assets” –The value of goodwill and marketing

assets is defined as the difference between the value paid for an enterprise as a going concern and the sum of its assets less the sum of its liabilities, each item of which has been separately identified and valued.”


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• Paragraph 4.39: This paragraph uses the term “overpayment”. A Member is concerned that

in his jurisdiction overpayments are illegal and would rather it was described as a deliberate

action on behalf of the acquirer to provide a subsidy to the previous owners. The Chairman

added that an overpayment could also be a genuine error. Another Member suggested from

the second sentence that the phrase “and would therefore simply be an overpayment” should

be omitted. Another Member noted that applying the distinction between cash-generating

assets and non-cash-generating assets in this context is not quite correct because assets

can generate cash, but not be held for a commercial return. The distinction should be

whether the asset is held with the primary objective of making a commercial return. The

IPSASB agreed that different terminology should be used and that this paragraph needs to

be amended so that its purpose is clear.

• Paragraphs 4.45 and 4.46: Another option should be added: the difference arising is a loss

unless an entity can demonstrate it can meet certain criteria. The option of a free choice

should be deleted.

• Paragraph 4.47, Table 4: The acronyms should be deleted and the full phrase inserted.

• Paragraph 4.67: The last sentence should be deleted.

Section 5: Entity combinations not under common control (ECNUCC): Amalgamations

The IPSASB discussed whether a sub-section on determining the boundary between acquisitions

and amalgamations is necessary. A Member suggested that the definitions are clear and so

additional criteria are not necessary. Another Member suggested that if the criteria noted in

paragraphs 5.4 are relevant, a link needs to be made between the definition and these criteria.

Another Member suggested that rather than focusing on whether control exists, this section

should focus on whether an acquirer can be identified. The IPSASB agreed that these points

should be incorporated into this sub-section.

The IPSASB noted that this section would be reordered in the same way as agreed for Section 4.

Other comments on Section 5


• Paragraph 5.3: This paragraph should be amended to include an explanation of why a higher

level of government may be able to impose an amalgamation on a lower level of government

where it does not control the lower level of government(i.e., because of the higher level’s

regulatory role). The explanation of the approaches explored and discarded needs to be

expanded, acknowledging that changes will also occur because of the decision to explore

whether acquisitions can be divided into sub-sections as discussed in the previous

paragraph.

• Paragraph 5.4: This paragraph should be amended to explain the private sector differences

in more detail. In addition, it should explain that the IASB decided that an acquirer could

always be identified.

• Paragraphs 5.5 and 5.6: The references to ownership “interests” should be amended to

“instruments”.

• Paragraph 5.41, Potential Preliminary View: The wording of the potential preliminary view

needs to be improved.


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Appendix B: Entity Combinations Flow Chart

A Member commented that the text relating to the “difference arising” is incorrect and needs to be

fixed. Another Member commented that the lines linking the boxes in the flow chart are not

always intuitive and need to be improved.

Next steps

The staff noted a draft CP will be presented at the March 2012 IPSASB meeting amended for the

above comments and including the sections on entity combinations under common control.

3. CONCEPTUAL FRAMEWORK

3.1 Coordinator’s Report and Overarching Issues

The IPSASB considered a report from the Project Coordinator dealing with:

• Project Plan;

• Preliminary points relating to the Exposure Draft (ED), Key Characteristics of the Public

Sector with Potential Implications for the Public Sector;

• The implications of International Integrated Reporting Committee’s (IIIR) Discussion Paper,

Towards Integrated Reporting: Communicating Value in the 21st Century, for the Conceptual

Framework project and other IPSASB standard-setting activities; and

• The composition of the Standard Setters Advisory Panel on the Conceptual Framework.

Project Plan and Integrated (Umbrella) ED

The project plan and the pressure points identified by the Coordinator were noted, in particular

the very tight timelines for development of a Phase 4 Exposure Draft (CF—ED4) and completion

of the final Chapter on Phase 4. Even with a projected four month exposure period (see

subsequent minute on Agenda Item 3A) it was indicated that a first review of responses for the

Phase 4 Consultation Paper (CF—CP4) would not be feasible until September 2012 and prior to

December 2013 for CF—ED4. The project plan only includes one meeting for review of

responses to CF—ED4 and a further meeting for approval of a final chapter.

The Coordinator noted that the current plan does not include provision for re-exposure of the

whole integrated Framework (what has been termed an “umbrella ED”) prior to finalization. Some

respondents to CF—ED1, the Phase 2 Consultation Paper (CF—CP2) and the Phase 3

Consultation Paper (CF—CP3) indicated that they favour the exposure of an integrated ED prior

to finalization of the Framework. Staff acknowledged the rationale for an integrated ED; in

particular that it might enable constituents (a) to consider the consistency of linkages between the

four phases and (b) to form a view as to whether overall coverage is complete. On balance, Staff

indicated reservations about issuance of an integrated ED, because, based on the experience of

CF—ED1, it may largely elicit a repetition of views made at CP and ED stages.

Staff was asked to indicate the impact on the timetable of publication of an integrated ED. Staff

said that publication of an integrated ED would have significant implications for the timetable.

Based on the current timetable an integrated ED would be issued in April or May 2014 and, with a

6-month consultation, finalization of the Framework would be pushed out until mid-2015.

The Chairman considered that it would be premature to make a decision on exposure of an

integrated ED until the Framework was further developed, but that there is no current

presumption that there will be an integrated ED. Staff was directed to consider how this could be


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communicated to constituents and to explore the opportunities for ‘real-time’ communication with

constituents during the later stages of the project.

It was agreed that the plan would be updated and recirculated after the meeting.

Preliminary points relating to the Exposure Draft, Key Characteristics of the Public Sector

with Potential Implications for the Public Sector

Staff reported that, as at November 28 2011, 38 responses had been received to the ED, Key

Characteristics of the Public Sector with a Potential Impact on Financial Reporting (the Key

Characteristics ED) and that the responses had been made available on the IFAC website. The

Coordinator and Technical Director acknowledged that many Members had wanted the review of

responses to begin at this meeting, but said that staffing resources has not been sufficient to

permit this and that a full analysis of responses will be brought to the March 2012 meeting. The

Coordinator indicated that some preliminary observations on the linkages with the Phase 1:

Scope component would be made towards the end of Agenda Item 3B at this meeting.

International Integrated Reporting Committee’s Discussion Paper, Towards Integrated

Reporting: Communicating Value in the 21st

Century

The Coordinator gave some preliminary views on the implications of the International Integrated

Reporting Committee (IIRC)’s Discussion Paper (DP), Towards Integrated Reporting:

Communicating Value in the 21st Century. The DP is written from a private sector perspective and

proposes explicitly that the initial emphasis of integrated reporting should be on the major

corporate area. The Coordinator noted that the South African Accounting Standards Board

(SAASB) had responded to the DP and, while broadly supportive, had highlighted the possible

implications for the public sector, in particular the IPSASB’s Conceptual Framework and its

project on long-term fiscal sustainability.

The Coordinator noted that the IIRC project is at a fairly early stage. In his view the longer-term

implications of integrated reporting could be highly significant for both the IPSASB and the

Conceptual Framework. The IIRC sees the integrated report as becoming an organization’s

primary report, replacing rather than adding to existing requirements, and incorporating all

reporting that is relevant to an organization’s activities, thereby providing users with a more

succinct, holistic understanding of the various activities of an organization. Therefore potentially

the IIRC proposals blur the distinction between the financial statements and the “more

comprehensive aspects of financial reporting” that has been a feature of the IPSASB’s recent

approach to financial reporting. However, the Coordinator considered that the approach in the

Conceptual Framework and particularly the IPSASB’s acknowledgement of the importance of a

prospective perspective to financial reporting position the IPSASB quite well to respond to the

challenges of the IIRC.

Members had varying views of the significance of the IIRC project. Some felt that the DP has

significant impending implications. One Member linked it to the issue of what constitutes a

general purpose financial report that the IPSASB has struggled to answer. The Member from

South Africa noted that the SAASB response, while broadly supportive of the views in the DP,

had expressed reservations over the interpretation of materiality and concern about the focus of

the integrated report becoming the primary report, questioning whether such a report would

satisfy the needs of users. Other Members considered that the IIRC proposals are aspirational at


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this stage and cautioned against exaggerating their influence on the Conceptual Framework

project.

Staff was directed to incorporate a consideration of the IIRC DP into the Think Piece, What are

the boundaries? Determining the Boundary of General Purpose Financial Reports and the

Interface between Financial Statements and General Purpose Financial Reports on General

Purpose Financial Reporting and to bring the Think Piece back to the March 2012 meeting. Staff

will also contact the IIRC Secretariat following the Brasilia meeting to update them on IPSASB

developments, further to the informal discussions that have already taken place between the lead

author of Phase 1 of the Conceptual Framework and IIRC staff on secondment from the IFAC’s

International Auditing and Assurance Standards Board (IAASB) (see Agenda Item 3B).

Standard Setters Advisory Panel on Conceptual Framework

Staff noted that there had been no recent changes to the composition of the Standard Setters

Advisory Panel on Conceptual Framework. A change to membership was likely early in 2012 and

this would be notified to Members in due course.

3.2 Approve Phase 4 Consultation Paper (CF—CP4) – Presentation (Agenda Item 3A)

Members did a page-by-page review of a draft Consultation Paper (CP) on Presentation (CF—

CP4). The main changes to the draft that Members identified were:

• Revised wording for Presentation Concept 1 to include the ideas of user needs, cost-benefit

test, and timely information;

• Inclusion of an alternative view with respect to core and supporting information; and,

• Changes to the Specific Matters for Comment included in the CP, including changes to their

location.

The alternative view emphasized that “core information” should be identified as essential

information. Core information would include the notes to the financial statements, which are

essential. “Supporting information” would provide context for core information. Both types of

information, core and supporting, could be shown in similar ways, for example both could be

displayed in statement form.

The revisions were made and the revised paper brought back for a second page-by-page review.

The revisions were accepted, and some further editorial changes identified. It was noted that one

Member, Mr. David Bean, disagreed with the CP’s coverage of core and supporting information in

the Consultation Paper, but he agreed that the Consultation Paper should be issued to elicit

comments.

Approval

The IPSASB approved the CP for publication.

The results of the vote were: In Favor 17; Against 1; Abstain 0; Absent 0. The voting details of

the approval are at Appendix 2, item 11.2.

The CP’s approval was conditional on the Chairman’s approval of some further editorial changes

identified by Members during the second review.


MJK February 2012

Next steps

Next steps for the paper were then discussed. The paper will be issued in January 2012. Staff

proposed a four month exposure period. This period is shorter than the six month exposure

period for the other Conceptual Framework CPs, but was viewed as appropriate given that this

CP is considerably shorter than the previous three CPs. The IPSASB approved an exposure

period of four months for the CP. Staff will draft an “At a Glance” document for the CP, which will

be reviewed by the Task Based Group, then circulated to the Board for information.

3.3 Discuss Responses to Phase 1 Exposoure Draft (CF—ED1) (Agenda Item 3B)

At this meeting the IPSASB completed its review of the 55 responses to the Exposure Draft of

Phase 1 of the Conceptual Framework (CF—ED1). Staff also provided Members with a verbal

report that included an update on staff’s ongoing discussions with:

• Staff of the International Integrated Reporting Committee (IIRC) regarding the work of the

IPSASB on its Conceptual Framework and other projects, and potential implications of that

work for integrated reporting (see also Agenda Item 3.1); and

• Some respondents to CF—ED1, to clarify certain aspects of their response.

The IPSASB confirmed that the Conceptual Framework was not an IFRS convergence project

and that the mechanisms in place for monitoring developments in the IASB Conceptual

Framework were appropriate. The IPSASB also agreed that the role, nature and placement of the

appendices which outline how similar matters are dealt with in the IASB Conceptual Framework

and in the statistical bases of reporting be classified as an “overarching issue” and be revisited

and dealt with on a consistent basis as all Phases of the Conceptual Framework are brought

together and finalized. Some Members noted that:

• On completion of the Conceptual Framework, it would be useful to prepare a separate

document outlining, in some detail, differences between the IPSASB Conceptual Framework

and the IASB Conceptual Framework across all phases of the Conceptual Framework, and

particularly in respect of phases 2 and 3 of the IPSASB’s Conceptual Framework which deal

with the elements and measurement; and

• Input should continue to be provided to the IASB on progress being made on all phases of

the IPSASB’s Conceptual Framework, since this may be useful to, and influence the thinking

of, the IASB when it reactivated its Conceptual Framework project.

The IPSASB identified certain text in the CF—ED1 that was to be further clarified and refined and

agreed that a first draft of these sections of the Conceptual Framework reflecting the matters

identified below be prepared for consideration at its next meeting in March 2012:

Section 1 dealing with the role and authority of the Conceptual Framework

• The Conceptual Framework will establish the concepts that underpin financial reporting and

will be applied by the IPSASB in developing IPSASs. Members confirmed that the

Conceptual Framework will not establish authoritative requirements or override the

requirements of IPSASs and agreed the text in the Basis for Conclusions (BC) that notes that

the Conceptual Framework has lesser authority than IPSASs could be included in the draft

Conceptual Framework itself and:

IPSAS 3 “Accounting Policies, Changes in Accounting Estimates and Errors” which deals

with the “hierarchy” of guidance for selection of accounting policies in the absence of an


MJK February 2012

IPSAS should be updated and issued contemporaneously with the issue of the

Conceptual Framework; and

If possible, a single improvements Exposure Draft to reflect editorial, terminology and

similar immediate consequential changes to existing IPSASs proposed by the IPSASB as

a consequence of issue of the Conceptual Framework should be prepared following

completion of the Conceptual Framework; and

• GPFRs prepared at the whole-of-government level may include information about

government business enterprises (GBEs). In addition, the Conceptual Framework should

acknowledge that, in some jurisdictions, GBE’s may apply IPSASs and, consequently, would

be encompassed by the Conceptual Framework. Members also noted that the explanation of

the relationship of GBEs to the Conceptual Framework may need to be further developed if

the proposal to action a project on GBE’s was agreed. (See Agenda Item 4 below);

Section 2 dealing with users, objectives and information provided by GPFRs

• The primary users of general purpose financial reports (GPFRs) are service recipients (and

their representatives) and resource providers (and their representatives) and the objectives of

financial reporting are the provision of information useful for accountability and decision-

making purposes by these users. The IPSASB also directed that explanation of the following

matters could usefully be further developed, and incorporate matters discussed in the Key

Characteristics ED where appropriate:

The relationship between users, objectives and information that may be provided by

GPFRs and by the budget;

Accountability for public sector entities and decisions making by users of GPFRs of public

sector entities; and

That identification of the primary users of GPFRs was intended to enable the IPSASB to

more sharply focus on the information needs of those users that IPSAS would be

developed to respond to. However, many others, whether organizations or individuals

may use GPFRs, with Parliaments or similar representative body amongst the most

engaged of users;

• The principles underlying the specific information categories identified in CF—ED1 should be

explored and developed. In particular, that an additional step or link should precede the

information categories currently identified in CF—ED1. The draft Conceptual Framework

would then identify that for accountability and decision making purposes users need

information useful as input to assessments of such matters as the solvency, financial and

operational capacity and flexibility of public sector entities and the sustainability of the

services they provided. Information about financial position, performance and cash flows;

service achievements; compliance with budget; prospective information; and additional

explanation to put the financial and other information in context would then be included in

GPFRs to respond to these needs. Members also reflected on the working decisions of the

IPSASB’s September 2011 meeting relating to the scope of financial reporting and agreed

that the draft Conceptual Framework:

Is to explain that scope of financial reporting should be broad enough to encompass

financial statements, including notes thereto, and the presentation of information that

enhances, complements and supplements the financial statements; and


MJK February 2012

Is to include in this section the explanation of the scope of general purpose financial

reporting, rather than in section 1 as in the CF—ED1; and

• Members also noted a staff overview of its initial high level review of responses to the Key

Characteristics exposure draft and agreed the explanation of the scope of general purpose

financial reporting would be considered and further developed as appropriate in light of the

detailed analysis of responses to the Key Characteristics exposure draft, which will also be

considered at the next meeting.

Section 3 dealing with the qualitative characteristics and constraints

• The qualitative characteristics (QCs) of information included in GPFRs are relevance, faithful

representation, understandability, timeliness, comparability and verifiability. The IPSASB

confirmed that the term “faithful representation” rather than “reliability” is to be adopted and

that the QCs are not to be classified as either fundamental or enhancing – rather, the draft is

to reflect that the QCs work together to contribute to the usefulness of information;

• The constraints on information included in GPFRs are materiality, cost-benefit, and achieving

an appropriate balance between the qualitative characteristics. Members also agreed the

draft Conceptual Framework is to explain that materiality can relate to a number of the QCs

and can operate at the standards setting and individual entity level – that is, it will be

considered by the IPSASB in developing IPSASs and by individual entities in preparing

GPFRs; and

• The BC should acknowledge that comparability should not be read as limiting the ability of

accounting policies to change to better represent particular transactions and events that are

not dealt with by IPSASs.

Section 4 dealing with the reporting entity

The IPSASB considered a first draft of a revised reporting entity section of the Conceptual

Framework which:

• Outlined the concept of the reporting entity in the public sector and factors that are likely to

give rise to the need for public sector entities to prepare GPFRs; and

• Included a more expansive description of a public sector reporting entity.

The IPSASB agreed with the broad approach adopted in the draft and provided directions for its

further development, including that the next draft should reflect that a public sector reporting

entity would encompass economic resources and activities (rather than focusing the explanation

on the provision of goods or services). The IPSASB also identified drafting and editorial

refinements and improvements and agreed that:

• The reference to “users” in the last sentence of paragraph 4.6 should be further developed to

refer to the existence of service recipients or resource providers that are dependent on

GPFRs for information for accountability and decision-making purposes in respect of these

other public sector organizations;

• Staff are to consider whether paragraphs 4.5 and 4.7 cover the same or similar ground and

should be consolidated in some way;

• Paragraph 4.9 which deals with jurisdictional differences is to be deleted; and

• The Appendix referring to the statistical bases of reporting should be updated to reflect that in

some circumstances consolidation within a sector may be allowed or required.


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Other matters

Members also agreed a range of editorial and other proposals for clarifying the text as highlighted

by the staff in the covering memorandum should be developed and considered at the IPSASB’s

March 2012 meeting.

3.4 Review Responses and Discuss Issues – Phase 2 Consultation Paper (CF—CP2)

– Elements and Recognition (Agenda Item 3C)

Introduction

The Coordinator introduced the session and explained the background and approach. He stated

that the objectives were to:

• Carry out a further review of responses to CF―CP2 using a themes based approach; and

• Obtain directions on the approach for developing an Exposure Draft (CF―ED2).

The Coordinator noted that CF―CP2 included 19 Specific Matters for Comment (SMCs) and that

a number of these SMCs contained two or more questions. Altogether there were 38 questions.

At the September meeting an initial review of responses had reached a tentative agreement on

15 questions. The Coordinator also noted that the lead author of Phase 3 wanted to reopen the

issue of how service potential and economic benefits are bracketed in the definition of an asset

(see below).

In accordance with directions at the Brasilia meeting Staff and Conceptual Framework Task

Based Group 2 (TBG) had organized the 38 questions into 6 themes:

• Theme 1: Determining applicability to the period.

• Theme 2: Duties, responsibilities, powers and rights.

• Theme 3: Asset and liability definitions – past events and other attributes.

• Theme 4: Concepts of capital and capital maintenance.

• Theme 5: Recognition and derecognition.

• Theme 6: Residual/equity interests and ownership interests

An appendix to Agenda Item 3.1 showed the questions grouped in each theme and indicated

whether: (i) tentative agreement had been reached on the approach to be adopted; (ii) they were

to be considered at this meeting; or (iii) they were to be deferred to the March 2012 meeting. The

Coordinator said that the themes reflected the TBG’s view of how the SMCs could be organized

in a manageable way. At this meeting questions from Themes 1 4 were to be addressed.

Tentative agreement had been reached on all the questions in Theme 5 and the questions in

Theme 6 were to be addressed at the March 2012 meeting.

Each of the themes was to be introduced by a member of the TBG (with the Coordinator’s

involvement in Theme 2):

• Theme 1: Ron Salole;

• Theme 2: Ian Carruthers (with John Stanford);

• Theme 3: David Bean; and

• Theme 4: Ken Warren.


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The Coordinator noted that the fact that a particular TBG Member was introducing a particular

theme did not indicate that he agreed with the staff analysis or staff views Furthermore there was

no unanimity of views within the TBG on some questions.

Service potential and economic benefits

At the September 2011 meeting it had been tentatively agreed that the definition of an asset

should refer to “service potential and economic benefits”. Andrew Lennard, lead author of Phase

3, put forward the view that service potential is an aspect of economic benefits and therefore

proposed that the terminology used in the definition of an asset might be “economic benefits,

including service potential’.

The Chairman and some Members saw the issue as a philosophical one. It was suggested that

political decisions on taxation levels are economic decisions and that ultimately all decisions

involving the use of scarce resources could be seen as “economic”. Views were put forward that

the identification of service potential in the asset definition recognized the main purpose of

governments and public sector entities as providing services, rather than generating cash, and

that subsuming service potential within economic benefits would neglect this characteristic. A

Member suggested that the term “social benefits and other economic benefits” might be used.

However, it was concluded that there was little support for modifying the view taken at the

September 2011 meeting and it was directed that the phrase ‘service potential and economic

benefits” be retained.

Theme 1: Determining Applicability to the Period

Ron Salole introduced the theme by stating his view that accounting and financial reporting

should be practical rather than highly theoretical. He urged Members to keep an open mind and

be ready to challenge the status quo.

Ron noted that while a small majority of respondents supported the assets and liabilities led

(A&L led) approach rather than the Revenue and Expenses–led (R&L led) approach there had

been no consensus and he noted that respondents had mixed views on the impact of the two

approaches; some respondents thought that two approaches would produce the same result. The

TBG had formed a view that setting up the A&L led approach and the R&L led approach in

opposition to each other is counter-productive.

Ron supported the development of approaches to deferred expenses and deferred revenue,

including the formulation of draft definitions, in order to inform subsequent decisions, whether or

not such approaches would ultimately be adopted. He also acknowledged the view that the issue

should be conceived of in terms of “stocks” arising at different stages of the development of

commitments and obligations and access to resources. Some considered that element definitions

need to be broadened to include such stocks, although he personally was against this; others

considered that information on the attribution of flows to reporting periods could be provided in

note disclosures.

Ron highlighted two theoretical issues. Firstly, the economic substance of transactions and

events needs to be considered and secondly how to identify flows that do not relate to the current

reporting period and to find a method of measuring and recording such flows. He cautioned

against the creation of secret reserves. Ron noted the difficulties that had arisen in the private

sector with other comprehensive income (OCI) and in distinguishing OCI from profit and loss. The

distinction between OCI and earnings appeared to have no clear basis. He suggested that the


MJK February 2012

IPSASB should develop materials on deferrals. He argued that it is better to have this material

available for consideration, whether or not it is ultimately used.

The staff view was that the attribution of flows to reporting periods had information value and

therefore is important in satisfying user needs. For example, it would be a serious omission not to

inform readers that an unconditional grant is intended to finance a program for a multi-year

period. However, staff had some reservations whether, when it comes to the standards level,

flows can be attributed to reporting periods in an objective manner. For example staff had

encountered views that redundancy costs incurred as part of a reconfiguration of service delivery

should be deferred over the period for which the reconfiguration is intended to provide

efficiencies. Staff therefore considered that information on attribution of flows to reporting periods

should be provided through note disclosure.

Members thanked Ron for a thought provoking introduction, which led to a discussion at which a

range of views were expressed. These included principally:

• That the Basis for Conclusions will be important in explaining the view that IPSASB ultimately

adopts;

• The way in which governments raise and spend money differs from the private sector and the

interpretation of financial performance in the public sector differs from the private sector, so

the approach to be adopted needs to reflect this fact;

• General reservations about an OCI-style approach and recycling;

• That many of those who favor the R& E-led approach may link it to legal requirements or

commitments to achieve a balanced budget. There were doubts about the extent to which

such a link should be emphasized and about elevating balanced budget requirements as a

principle on which accounting requirements should be based;

• Timing differences are more significant in the public sector than in the private sector.

Disclosure should not be regarded as a substitute for recognition and this had been an

imperative of the approach to elements. Financial statements should be based on meeting

user needs and dealing with the effects of timing differences in ways that users understand.

Deferrals should be defined as elements, but a hierarchy of elements needs to be

established, so that such an approach is used appropriately;

• In some jurisdictions the notion of deferrals is not well understood. However, in the same

jurisdictions there are also difficulties with OCI. The A& L led approach is not compatible with

fund accounting developed to deal with special circumstances such as natural disasters;

• A number of Members supported the further exploration of deferrals, but acknowledged the

staff point on objectivity. There was a view that the use of deferrals opens the door to

manipulation by politicians and the dangers of a widespread and inappropriate use of

deferrals was acknowledged. The term “Pandora’s box” was used to highlight such a risk.

Further work is needed to eliminate or minimize this risk;

• A minority of Members was adamantly opposed to the development of deferral elements.

One Member considered that the writing down of assets over a period of time represented a

form of deferral, but opposed the development of further elements beyond asset, liabilities,

revenues and expenses;

• That financial statements need to report the economic substance of transactions. If a

transaction (the economic flow) has impacted the financial position (the economic stocks) of


MJK February 2012

the entity by making that entity better or worse off, then the statement of financial position

should be able to report the increase or decrease in net assets or net liabilities. When it

comes to considering deferrals, if the economic substance is that the entity is better or worse

off, because it has control of more economic stocks, but is restricted from using those stocks

in the current period, then the balance sheet should reflect the change in financial position,

and the restriction is properly an issue for presentation, or possibly a sub-categorisation of

net assets/net liabilities. If however the view is taken that a transaction that has increased or

reduced the net assets (or economic stocks) of the entity, but has not in fact made the entity

better or worse off, then new elements need to be created to reflect the substance of an

unchanged financial position, or unchanged equity. Under this approach a deferral is needed

to reverse the impact of the economic stocks that would otherwise occur from reporting the

economic flow. The key question therefore is what is the view of the economic substance of

the transaction.; and

• The Eurostat Observer outlined the statistical accounting approach and noted that regulations

for government statistics define what is revenue and expenditure from an

economic perspective. The "other accounts" category is used to deal with timing differences

including deferrals.

It was agreed that:

• The rationale for additional elements in the form of deferred inflows and deferred outflows

should be further explored together with a consideration of how the risks identified with such

elements could be mitigated;

• The principle that disclosure is not a substitute for recognition should be emphasized;

• There is no support for adopting an approach based on a public sector equivalent of OCI; and

• The implications for alignment with statistical accounting should be considered.

Theme 2: Duties, responsibilities, power and rights

Ian Caruthers introduced this Theme and was supported by the Coordinator. The theme

addressed:

• Governmental power, rights and responsibilities;

• Meaning of “enforceability” and “a realistic alternative to avoiding an obligation” in the context

of exchange and non-exchange transactions; and

• Sovereign power to avoid obligations

Governmental powers, rights and responsibilities

Ian noted that there are various views on when governmental rights and powers give rise to

assets and, obversely, when governmental responsibilities give rise to liabilities CF—CP2

highlighted a spectrum of different points at which assets and liabilities might arise. CF—CP2 had

provided a number of examples of such rights and powers including taxation, the issuing of

licenses’ and the granting of access to intangible items such as the electromagnetic spectrum. He

noted that these examples might differ in certain respects, but that the same conceptual

principles can probably be applied to them.

A government’s potential right to tax is a key difference from the private sector and means that

net liabilities in the statement of financial position in the public sector should be seen in a different

light to that of an insolvent private company. Using taxation as an example, the agenda paper


MJK February 2012

distinguished three stages in the process: (i) the general right to tax; (ii) the conversion of that

right onto a power through the enactment of legislation; and (iii) an exercise of that power through

the levying of the tax. The majority of respondents had supported the view that an asset only

arises when the power is exercised. Staff had acknowledged the view that exercise of a power is

a recognition criterion rather than an aspect of the asset definition, but supported the view of the

majority of respondents. Obversely, governmental responsibilities do not give rise to liabilities

until legally enforceable claims arise.

Members generally supported the staff view. It was suggested that a government might have

something marketable when it has a power prior to the exercising of that power (e.g., when

selling or securitizing the proceeds of a lottery over a future period it was suggested that the sale

or securitization involves the exercising of the power). However, reservations were expressed

about some of the terminology, which was considered confusing. In drafting CF—ED2, Staff was

directed to develop a four stage approach that distinguishes: (i) a general ability; (ii) a power; (iii)

a right; and (iv) the exercise of the right.

It was also directed that the Basis for Conclusions should highlight the need for the provision of

prospective information providing information on flows relating to commitments, obligations,

powers, and rights that do not meet the definition of a liability or an asset at the reporting date.

Meaning of “enforceability” and “a realistic alternative to avoiding an obligation” in the context of

exchange and non-exchange transactions

The Coordinator noted that the issues of the enforceability of obligations and the interpretation of

what “a realistic alternative to avoiding an obligation” entails are interconnected and need to be

considered together. CF—CP2 had outlined three approaches to enforceability. Some

respondents had found the wording in these approaches to be opaque, in particular the

discussion of constructive obligations; the distinction between enforceable and non-enforceable

constructive obligations had, in staff’s view, been confusing. He therefore provided a simplified

version of the options|:

• Approach 1: All obligations (both exchange and non-exchange) must be enforceable in order

to meet the definition of a liability;

• Approach 2: Obligations arising from non-exchange transactions must be enforceable in

order to meet the definition of a liability. Non-legally enforceable constructive obligations

arising from exchange transactions can give rise to liabilities; or

• Approach 3: No distinction between exchange and non-exchange transactions: non-legally

enforceable constructive obligations can give rise to liabilities.

The Coordinator noted that Approach 3 had received most support, but not a majority of

respondents, and that a similar number of respondents had supported Approaches 1 and 2

combined.

Members expressed general reservations about Approach 3, in particular what a constructive

obligation entails and the vagueness of the phrase a “realistic alternative to avoiding an

obligation”, which gives little direction to the standard-setting process.

Some Members supported the staff view that a distinction should be drawn between non-

exchange and exchange transactions. They agreed that entities have significant discretion in

administering non-exchange transactions that are not legally enforceable and therefore endorsed

Approach 2. Other Members had reservations whether a distinction can be drawn


MJK February 2012

straightforwardly between exchange and non-exchange transactions. Some Members also

considered that there is uncertainty about what enforceability actually entails and whether there

might be relevant differences between jurisdictions. These Members were tentatively supportive

of Approach 1, but felt that some consequences of this approach need to be explored. These

include a consideration of some of the obligations that would not meet the definition of a liability

under this approach, and, in particular, where an obligation would meet the definition of a liability

other than for the elapse of time. In this respect staff was directed to consider certain employee

benefits, including medical benefits.

Sovereign powers to avoid obligations

The Coordinator stated that the issue is whether the sovereign power to avoid obligations should

be reflected in the definition of a liability. Some have suggested that sovereign power provides

national governments with an ability to “walk away” from many obligations. An alternative view

reflected in CF—CP2 is that such powers are heavily constrained and should not be used as a

rationale for not recognizing obligations that otherwise meet the characteristics of a liability. At

consultation over half the respondents had expressed a view that the definition should include an

assumption about sovereign power. While some might point to instances of governments

repudiating obligations in their jurisdictions, such events were unlikely to be the norm.

Members took the view that sovereign powers should not be used as a rationale for not

recognizing obligations that otherwise meet the characteristics of a liability and that this position

should be assessed on the basis of the legal position at the reporting date. It was noted that

some agreements on restructuring of sovereign debt were of a voluntary nature and this might

create issues as to how the consequences of such agreements should be reported.

Theme 3: Asset and Liability Definitions: Past Events

David Bean noted that the Staff view had changed since the September 2011 meeting. At that

meeting staff had adopted the view that a past event was not a necessary characteristic of an

asset or a liability. Staff had subsequently reconsidered this view in light of the views developed

on sovereign rights, powers, and obligations in Theme 2 and concluded that the definition of an

asset and a liability did need to include a past event as an essential characteristic. Members

agreed with this position.

Theme 4: Concepts of Capital and Capital Maintenance

The theme addressed whether: (i) net asset/liabilities are residual amounts, residual interests or

ownership interests; (ii) transactions with residual/equity interests should be defined; and (iii) the

definitions of revenues and expenses should be limited to ordinary activities.

Ken Warren introduced this theme from the perspective of concepts of capital and capital

maintenance. This was in accordance with the directions at the September 2011 meeting. A

number of members of the TBG had reservations whether this approach was particularly helpful.

Ken alluded first to the private sector where the concept of wealth is the residual after claims

attributable to the owners had been met, and the ownership interest can often be attributable to

different parties. In the public sector the concept of wealth is different. A key consideration is the

capacity to meet financial and service commitments and the attribution of residual

amounts/residual interest/equity to service providers and service recipients is likely to depend on

future political decisions. In considering the concept of ownership interests in taxpayer funds in

the public sector there is no question of funds being returned to service providers

individually either on an ongoing basis or if a government is wound up. Use of the terms


MJK February 2012

“ownership interest” or “residual interest” would be as analogies to private sector practice and

would therefore need to be explained. Ken noted that some respondents saw the benefit of

distinguishing "capital" from “revenue” and that this should be explored. Staff considered that net

assets /net liabilities is a residual amount rather than a residual interest or ownership interest.

There was general support for the staff view, but Members noted that certain entities need to be

considered further, particularly entities set up with a view to sale to the private sector. The

Chairman mentioned the recent sale of a hospital to a private sector provider in Switzerland and

questioned whether this would have been feasible had the government not had an ownership

interest in the hospital. Members highlighted that equity may be found in Government Business

Enterprises (GBEs), but also in local authority companies that are not GBEs in some jurisdictions.

The example was provided of the creation of “foundation hospitals” in the UK as separate

entities with arbitrary amounts known as public dividend capital recognized in the statement of

financial position in order to provide a basis for computing a “dividend”. Such arrangements

would need to be considered.

Ken then raised the issue of whether the definitions of revenue and expenses should be restricted

to ordinary activities. The majority of respondents had not favored such a restriction of the

definitions. Staff agreed with the majority and considered any information on the classification of

activities could be provided through presentation rather than by the exclusion of peripheral or

incidental activities from definitions. Members supported the staff view.

Next steps

It was agreed that at the March meeting there would be:

• Further consideration of issues arising from the session on determining applicability to the

reporting period, in particular focusing on how to determine which flows would be attributed to

a particular reporting period, and how to avoid the “Pandora’s box” scenario in which a

number of flows would be attributed to reporting periods in ways which are, arguably,

insufficiently restrictive;

• Further consideration of aspects of enforceability including: (i) exploration of what ‘legally

enforceable” means; and (ii) further analysis of obligations which would be enforceable

subject to the elapse of time;

• Discussion of the five questions which are still outstanding;

• Further consideration of whether an ownership interest might exist for certain types of entity,

in particular entities that have been specially created with a view to possible disposal to the

private sector in the future; and

• Consideration of a preliminary outline draft of CF—ED2.

3.5 Review Responses and and Discuss Issues – Phase 3 Consultation Paper (CF—

CP3) – Measurement (Agenda Item 3D)

Introduction

The Chairman welcomed Andrew Lennard, Director of Research at the United Kingdom

Accounting Standards Board, to present the session and thanked Andrew for the work

undertaken on the analysis of issues arising from comments on CF―CP3. Andrew presented an

Issues Paper that considered a Measurement Objective and provided a potential outline of

CF―ED3.

Andrew noted that he did not intend to address liabilities or concepts of capital and capital

maintenance at this meeting. He noted that Agenda Item 3C had included some discussion of


MJK February 2012

concepts of capital and capital maintenance from the perspective of elements.

Andrew also indicated that he would not deal with the issues of:

(i) reflecting an entity’s own credit risk in liabilities; and

(ii) the disposal of assets for an alternative use.

He noted that the view of staff is that these issues are probably best addressed at a standards

level. However, if necessary or desirable, proposals would be brought to a future meeting.

A measurement objective

Andrew noted that his initial view had been that the Conceptual Framework should seek to

identify factors relevant to the selection of a measurement basis, rather than establish a

measurement objective. He had revised that view as a result of considering the submissions of

certain respondents to CF―CP3 who considered that selection of a measurement basis should

be guided by a measurement objective. At the September 2011 meeting the IPSASB had directed

that development of a measurement objective should be further explored.

The issues were:

(i) Whether such a measurement objective should be developed, and, if such an objective is to be

developed; and

(ii) What such an objective should be.

Discussion of how the objective should be formulated was split into three areas covering whether

a measurement objective should reflect:

(1) Current or historical values;

(2) Market or entity-specific values; and

(3) Entry or exit values.

The Issues Paper also considered whether there should be a secondary measurement objective.

Members commented that the Issues Paper provided a very useful analysis of the issues.

Issue 1: Current or historical values

Members considered whether the measurement objective should refer to current value (CV) or

historical value (HV). A number of diverse views were put forward. These included:

• That a measurement objective is a good idea, but that the use of CV should be suggested

rather than mandated;

• That CV provides relevant information and is faithfully representative. However, it is

questionable whether CV can be applied in all circumstances and therefore it is important to

relate a measurement objective to the QCs. In this respect examples were given of the use of

current values recognized in the financial statements to set tariffs in a way that seemed

inappropriate and opaque, so that users did not understand the basis of computing fees and

charges;

• Clarification was sought of the relationship of the measurement objective to heritage assets.

Andrew responded that there is a discussion of how to choose a specific measurement basis

elsewhere in the Issues Paper. This is relevant to choosing a measurement basis for heritage

assets, but a specific decision on heritage assets is a standards-level issue. The Chairman


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noted that both the discussion relating to the use of proxies and a secondary measurement

objective might help on the issue of heritage assets;

• Whether it would be feasible to have a measurement objective that could refer to CV or HV

dependent upon the type of assets being discussed (e.g., distinguishing property, plant, and

equipment and financial assets and liabilities). Andrew responded that financial statements

going forward will still use mixed measurement bases. He explained that the value of having

a measurement objective is that there is some degree of coherence in the way that a

measurement basis is selected for specific items;

• Whether it is necessary to refer to CV in the measurement objective at all: rather that current

value is a timing issue ( i.e., how often an item is revalued and the frequency of revaluation is

a standards-level issue);

• The complexity inherent in trying to establish globally operable concepts when there is such a

diversity of practice across jurisdictions in this area;

• That the issue could be reframed in terms of initial values and subsequent values;

• That the QC of relevance is crucial and is “in the eye of the beholder,” and therefore

dependent on jurisdiction. Without detailed user needs information an assertion that CV is

more relevant to users is contestable; it was suggested, that based on surveys of user needs

in the USA, users are interested in what a service costs and not what it will cost in the future.

It was therefore questioned whether establishment of a measurement objective is necessary;

• A view that the use of current values is appropriate where management is accountable for the

actual decision taken. The Chairman added that this consideration bridges the “jurisdiction

gap” in that in some jurisdictions management has the power to take decisions on assets,

whereas in other jurisdictions management does not have such power;

• A view that the IPSASB should take a pragmatic approach to the choice of measurement

bases. An example was given of an entity moving from the cash basis of accounting to the

accrual basis of accounting. In this situation, the entity may not have comprehensive HC

data so an estimate will need to be made: either notional HV or CV. The use of CV would be

advantageous for compatibility with the approach in Government Financial Statistics (GFS)

as GFS uses CV to measure assets. The Chairman noted that GFS uses proxies for CV in a

similar way to the method suggested in the Issues Paper. The Eurostat Observer confirmed

that the System of National Accounts (SNA) measure of impairment (“consumption of fixed

capital”) is based on the current value of assets. In practice statisticians do not usually

calculate consumption of fixed capital for an individual entity, but use a model for aggregates;

• It was questioned whether it is worth coming up with an ideal, as set out in a measurement

objective, if there are always reasons to override it. Instead the focus could be on when

specific measurement bases should be used―by way of referring back to the objectives of

financial reporting and user needs;

• Whether the term “CV” meant a specific measurement basis. Andrew responded that the

distinction between a CV and a HV is the first decision to be made and then to determine the

specific measurement basis using current value;

• That the amounts obtained using a measurement basis, either using CV or HV are not exact

and that user needs therefore should drive the choice of a measurement basis. Users are

interested in the resources an entity has on hand and in this situation the most relevant


MJK February 2012

measurement basis is one that is up-to-date; in other words a CV. The use of CV in the

statement of financial position then flows through to the statement of financial performance

reflects the current cost of services. If HV is used, then the capacity of an entity runs down

and this can be a significant problem. It was acknowledged that the converse position could

also be a problem (i.e., a build-up of reserves through the use of CV); and

• That different bases might be used for the general purpose financial statements (GPFS) and

for reporting for other purposes, such as regulatory reporting and management accounting

purposes.

Staff noted that views were diverse and there was no consensus on whether a measurement

objective, based on CV or HV, was to be adopted. The Chairman proposed that a measurement

objective based on the QCs and user needs should be developed rather than a measurement

objective that specifies a measurement basis. This proposal was supported by Members.

Staff commented that a measurement objective referring only to user needs and the QCs could

end up with either CV or HV as a measurement basis depending on how user needs are

assessed. Staff also noted that consideration of previous agenda papers relating the QCs to

specific measurement bases had not resulted in unanimity on the weightings to be used for each

measurement basis. The IPSASB might effectively be maintaining the status quo and this phase

of the Framework project might not provide direction when the IPSASB faces a measurement

issue at the standards level.

It was suggested that the development of guidance would be useful in providing approaches to be

adopted at standards level (e.g., for an asset used for its service potential, exit values are not

likely to be appropriate unless that asset is going to be sold). Examples in the Basis for

Conclusions could help the IPSASB apply user needs and the QCs to make future decisions

about the appropriate measurement basis for specific items.

In concluding consideration of Issue 1 it was also suggested that:

• Adoption of a concept of capital might be helpful and that the purpose of the statements of

financial position and financial performance should be further considered;

• Future standards will probably need to cater for different situations better. For example, the

impairment standards currently do not work well for assets held at CV.

Issue 2: Market or entity-specific values

This issue relates to whether the measurement objective should refer to market or entity-specific

values. Andrew added that entity-specific values are more important generally and that, in certain

circumstances, the entity-specific value will be market value. The Chairman noted that guidance

on the selection of market or entity-specific values will be useful. It was suggested that the text

needs to be clarified that the Framework is not advocating a broad application of entity-specific

values.

Issue 3: Entry or exit values

Andrew noted that no general position will be taken as to whether the value should be an entry or

exit amount. The Chairman considered that guidance will be useful. Members made the following

comments:

• In discussion of whether entry or exit values are to be preferred it was proposed that this

would depend on the type of assets; exit value might be appropriate for most financial


MJK February 2012

instruments; and that

• CF–ED3 should explore whether the selection of entry and exit values may depend on which

value is higher.

Other issues

Andrew asked Members whether any of the four distinctions highlighted in the section on a

Secondary Objective are useful. The distinctions considered were:

(1) Service delivery assets vs. cash-generating assets;

(2) Market vs. non-market;

(3) Financial vs. non-financial; and

(4) Operating vs. investing activities.

Generally, and with some reservations, Members supported further developing these distinctions.

The following points were made:

• The financial vs. non-financial distinction is useful because it is close to how GFS categorizes

assets;

• The rationale for the operating versus investing distinction was challenged. Staff provided an

example of a change in the use of an asset for a property initially held for its service potential

and subsequently held as an investment property. Such a change would be relevant for

measurement purposes;

• Consideration needs to be given to assets that are given away;

• The distinction between service delivery assets and cash-generating assets is most useful for

users, but is also the hardest distinction to make and links service delivery to a concept of

capital. The Chairman commented that the previous accounting model in Switzerland (before

it adopted IPSASs) distinguished service delivery assets and cash-generating assets but was

hard to implement in certain areas (e.g., social housing and service concession assets).

• The Chairman suggested that further explanation is needed on the inter-relationship between

the distinctions (e.g., an investment property is a cash-generating asset but it is not a

financial asset).

• Given that financial reporting has an objective of holding management accountable for

decisions they have taken, distinctions (2), (3) and (4) might achieve this.

Outline of CF—ED3

Andrew asked for comments on the proposed outline of CF―ED3 set out in Agenda Paper 3D.2,

noting that the direction on the measurement objective would have an impact on Section 2: The

Measurement Objective. There was strong support for the outline and a view that it provided a

viable framework for development of a first draft of CF―ED3.

In the context of the outline on fair value it was questioned whether it would be appropriate for

CF―ED3 to include a statement that “fair value … might be used where necessary for

convergence with IFRS”. It was agreed that CF―ED3 should include a discussion relating to fair

value generally.

The Chairman asked Members for views on the list of measurement bases (i.e., historical cost,

market values, fair value, replacement cost, value in use and net selling price) highlighted for


MJK February 2012

analysis in CF―ED3.

A Member questioned whether market value and net selling price are sufficiently different to be

included as separate measurement bases. Andrew responded that CF―CP3 used market value

to mean where there is a deep and liquid market and so net selling price might apply in different

circumstances (e.g., a second-hand car crusher will not have a deep and liquid market to

determine a value and so net selling price would be used as a measurement basis). He added

that the CF―ED3 will clearly set out what it means for each term by use of a definition or

description.

The IPSASB agreed that the proposed structure (i.e., definition/description, relationship to

objective and QCs, and when appropriate) for the discussion of each measurement basis is

appropriate.

Andrew asked the IPSASB whether the outline of the discussion relating to value in use (in the

context of impaired assets) is appropriate. In particular that the appropriate measurement basis

for an impaired non-cash-generating asset will be replacement cost. Members made the

following comments:

• That Phase 1 of the CF project has put forward a view that the Framework needs to take

account of the evolutionary nature of financial reporting and that measures of value in use for

non-cash-generating assets will evolve over time. Consequently CF―ED3 should not

specifically rule out the development of other measures in this area. The Chairman

supported this view;

• That the valuation of non-cash-generating assets using replacement cost is a difficult area

and may not be understandable for users. For example, a 50-year old defense asset will be

replaced with a quite different item of military equipment. A valuation of the existing defense

asset that is based on what it will be replaced by is not necessarily understandable to users.

A similar problem arises where the replacement cost of an existing school with a capacity of

500 pupils would be based on a capacity of 150 pupils because of demographic changes in

the area; and

• Staff should compile a list of IPSASs that may be affected by the finalized Framework (e.g.,

outcomes from Phase 3 may affect the impairment standards, IPSAS 21, Impairment of Non-

Cash-Generating Assets and IPSAS 26, Impairment of Cash-Generating Assets) (see also

Agenda Item 3B).

4. WORK PLAN

Agree New Projects (Agenda Item 4)

The Chairman invited the two incoming Members of the IPSASB to join the discussions related to

the IPSASB’s future work plan. Given the number of Members missing and turnover of Members

the Chairman indicated that decisions about future projects might be deferred until the March

2012 meeting. It was noted that additional staff resources being provided by the New Zealand

Standards Setter (External Reporting Board) to do the project updating IPSASs 6 8 mean that

there will now be capacity to initiate two new projects at this time to commence early in 2012.

The Technical Director noted that this session was intended to address the outcome of remaining

projects the IPSASB directed staff to consider at the March 2011 meeting that had not yet been

decided upon. The intention is to have a fulsome work planning session in March 2012 that would

include discussions of additional possible projects.


MJK February 2012

The Technical Director noted that of the six projects the IPSASB considered in June 2011, three

were deferred for future decisions:

• Emissions Trading Schemes (ETSs);

• Government Business Enterprises (GBEs); and

• Social Benefits.

The ETS project was considered important, but deferred to 2012 given the IASB’s consultation on

its agenda. However given the late timing in 2011 staff proposed that ETS be discussed again

since any project commencement would be in 2012.

Decisions on the projects on GBEs and Social Benefits were deferred pending an education

session at the September 2011 IPSASB meeting on the history and background of the Social

Benefits projects in order to assist Members in understanding previous activities and events.

Members discussed the three projects noting the challenges of some decisions pending the

IASB’s timetable for considering the consultation responses on its agenda. Members also

highlighted other IASB projects of potential importance to the IPSASB including leases and

revenue recognition.

With respect to the ETS project many Members agreed with its significance to the public sector.

The IASB has done significant work in this area and it would take some time for the IPSASB to

catch up. Therefore this could be the opportune time to commence such a project and allow the

IPSASB time to catch up while the IASB’s agenda decisions are being made. Members noted the

value of having an education session at the March 2012 IPSASB meeting by IASB staff that

would provide background on the IASB’s work to date. This could be helpful in evaluating future

actions on the project for the public sector.

The project on GBEs was discussed widely and had a lot of support by IPSASB Members. Most

Members agreed that it is an important project and also has some links with other projects on the

current agenda (e.g. Alignment with GFS and the update of IPSASs 6-8). Many Members

indicated that they would consider this the priority at this time.

Views on the social benefits project varied widely. Some Members thought it should be initiated

given its significance to the public sector. The relationship with the elements phase of the

Conceptual Framework project was acknowledged and some Members saw this as the reason to

undertake this now. Other Members thought that an exposure draft of the elements phase

needed to be completed before additional work on social benefits could be undertaken. All

Members generally agree as to the importance of this project but they did not agree on the timing

of initiation of the project. It was agreed that practices with respect to social benefits in other

jurisdictions, notably France, would be brought to the IPSASB in March 2012 to further inform

discussions of the project.

After significant discussion the IPSASB agreed to initiate the GBEs project. Staff will post the

project brief on the website. With respect to ETS, it was decided to approach the IASB and

investigate the possibility of an education session at the March 2012 meeting to get further

information and assess work done by the IASB to date. Staff will follow up with the IASB staff to

determine the feasibility of this. At this stage an IPSASB project is not approved. For social

benefits the Chairman determined that no decision should be made either way until March. At that

time an education session on the practices in France will be received.

As far as the future work planning session in March 2012, some Members raised the question of

public consultation on the IPSASB’s work plan to ensure that the projects important to


MJK February 2012

constituents are being undertaken. It was pointed out that the need to consult should be balanced

with timing so that this does not result in delays. Other projects will be further discussed in March

2012 (e.g., leases and revenue recognition) as well as those projects currently committed but not

yet started (e.g., financial instruments public sector).

The results of the vote on commencing a project on GBEs were: In Favor 17; Against 1;

Abstain 0; Absent 0. The voting details of the approvals are at Appendix 2, item 11.1.

5. EUROSTAT UPDATE

John Verrinder provided a report on developments in the European Union (EU). He reiterated his

comments made in Naples in June 2011 that the EU was developing a new “economic

governance” arrangement to strengthen fiscal discipline. He noted that one proposal being made

was a study of the suitability of IPSASs for EU member states and that this proposal has now

been included in the published legislation. The European Commission has to report on the study

by the end of 2012. Eurorstat is taking the lead on this study, coordinating with other Commission

departments.

One element of the study, as was previously mentioned by a Member, is an in depth examination

of the existing and planned public accounting and auditing arrangements at all levels of

government in EU member states. This will take place until May 2012, and will included questions

on existing proximity to IPSASs and plans or obstacles encountered.

John also noted that there are clearly other issues which are under development which will be

highly relevant (e.g., Conceptual Framework, roadmap for revised IPSASs, governance of

IPSASB, and projects on GFS and first-time adoption of IPSASs). In addition, there is an interest

in country experiences and costs/benefits.

John indicated he would provide an update on the study at the March 2012 IPSASB meeting,

when the project is fully under way.

6. OVERSIGHT OF IPSASB AND IASB MEMORANDUM OF UNDERSTANDING

Status Report (Agenda Item 6)

The Technical Director provided an overview of activities since the September 2011 meeting

related to oversight. It was noted that the Monitoring Group (MG) review report will include an

item regarding oversight of the IPSASB. The report was due to be issued in November 2011 but

has now been delayed. The current timetable indicates a draft will be provided to IFAC by

December 21, 2011 and that a final version will be issued February 15, 2012. Staff provided

feedback on the initial wording in the report and all indications are that amendments staff

proposed have been included to date.

In addition the Technical Director highlighted the change in position of the Public Interest

Oversight Board (PIOB) with respect to oversight of the IPSASB. While previously the PIOB has

been somewhat split on its ability to undertake this responsibility, at a recent meeting the PIOB

indicated that it stands ready to provide oversight of the IPSASB if the MG supports this.

One of the technical advisors commented on behalf of an absent Member that the presentation

made to the IFAC Board in September 2011 summarizing oversight should be fully discussed by

the IPSASB and the IPSASB position on the responses subsequently communicated to the IFAC

Board.


MJK February 2012

One Member questioned the cost of oversight noting how substantial it is and asked whether

resourcing would be an impediment to oversight or whether IFAC is prepared to fund this. The

Chairman noted that IFAC does not want to fund the cost of oversight. It has also been discussed

that the initial estimated costs may be high and that oversight may be able to be provide by the

PIOB at a cost that is significantly less than original estimates. In addition it seems possible that

an incremental approach to oversight may be taken.

Another Member questioned the set up of the Consultative Advisory Group noting the potentially

high cost of that. Concerns about the existing processes in other standards-setting committees

were briefly discussed and it was noted that the PIOB is open to other options and is

reconsidering some of these structures.

The IPSASB will be kept informed as further activities develop. The timeline for oversight is likely

to be no earlier than 2014, which is later than original plans.

The IPSASB then discussed the recently signed Memorandum of Understanding (MOU) between

IFAC and the IASB. The Chairman provided some background on the development of the MOU

and noted that this seems to have had the desired impact on the support of the PIOB to

undertake oversight of the IPSASB.

The MOU developed from a meeting in July 2011 between the IFAC CEO and President with the

Chairman of the IASB. In addition to the IPSASB, the MOU also addresses the IAASB. The

Chairman noted that the IPSASB had not been closely involved in the development of the MOU

other than on a staff basis and the Chairman provided input on a late draft.

Members generally expressed disappointment and confusion over the process for developing the

MOU and the lack of involvement of the IPSASB, including the Chairman, in the MOU. There

were concerns expressed over the process and confusion about what collaboration on technical

projects between the boards would mean. One Member also questioned the meaning of the term

“independent” when IFAC could sign an MOU that involves the IPSASB.

One Member asked about the meaning of paragraph 17 of the MOU specifically related to

discussions of future institutional and governance arrangements related to standards setting. The

Chairman noted that there is no urgency to this and that one of the reasons for including this

paragraph was because of the reference in the IFRS Trustees report in April 2011 to considering

public sector standard setting. The MOU clearly means that any discussions of that matter must

be done in concert with IFAC and cannot be done unilaterally.

The Chairman noted his understanding of the frustration with the process but highlighted also a

positive element of the situation was that the MOU achieved the support of the PIOB for

oversight. Members highlighted that external perceptions of the MOU may not be positive and

that it might generally be misunderstood (e.g. paragraph 17 could be interpreted to imply that

discussions are already in place).

Members generally acknowledged the need to make the most of the situation despite being

deeply frustrated with the process. The need to clarify external perceptions of the MOU was

raised. Future changes in leadership of IFAC were raised, although the strong support at the

recent IFAC Council meeting and of the Deputy President were noted as positive elements. The

Chairman agreed to share the concerns of the IPSASB regarding the process with IFAC

leadership.


MJK February 2012

Staff noted that there are no changes to staff’s activities as a result of the MOU. The MOU

reflects the current activities of IPSASB staff. However there would need to be changes at the

IASB to meet the commitments of the MOU and it remains to be seen how these will play out.

7. FINANCIAL STATEMENT DISCUSSION AND ANALYSIS

Approve Exposure Draft (Agenda Item 5)

Staff provided a brief overview of the project to date, and indicated that the proposed ED reflected

the IPSASB’s previous decisions.

The IPSASB undertook a page-by-page review of the draft ED.

The IPSASB tentatively agreed that the ED should propose an IPSAS, rather than another form

of authoritative pronouncement. Accordingly, it was noted that a consequential amendment is

required to IPSAS 1, Presentation of Financial Statements, to highlight that financial statement

discussion and analysis is issued with the general purpose financial statements referred to in

IPSAS 1.

The IPSASB directed staff to make the following significant changes to the draft ED presented in

Agenda Paper 5.1:

• Specific Matters for Comment (SMC): Develop additional SMCs to solicit comments on

whether the IPSAS should contain mandatory guidance requiring financial statement

discussion and analysis, and on the appropriateness of the Implementation Guidance and

Illustrative Example;

• Paragraph 1: Delete last sentence;

• Paragraph 8: Delete first sentence;

• Paragraph 9: Remove reference to “audited” in conjunction with “financial statements”;

• Paragraph10: Replace reference to CF—ED1 with a reference to IPSAS 1, and replace all

references to the QCs in CF—ED1 with those in IPSAS 1. It was noted that this would have

pervasive effects throughout the draft ED;

• Paragraph 14: Delete second sentence in lead-in to numbered list and delete item (d) as it is

included in item (a);

• Paragraph 16: Change wording to be consistent with that in IPSAS 1.28;

• Paragraph 18: Change heading preceding the paragraph to “Minimum Required Content of

Financial Statement Discussion and Analysis”;

• Paragraph 22: Combine with paragraph 26;

• Paragraph 23: Change reference from “organization chart” which is very specific, to “a

description of the entity’s governance and management structure”;

• Paragraph 24: Delete the example in the second sentence;

• Paragraph 37: Change heading preceding the paragraph to “Analysis of Variances and

Trends”;

• Paragraph 43: Delete as it applies to financial statements not financial statement discussion

and analysis;

• Appendix A – Amendments to IPSASs: Add Amendments required to IPSAS 1 as noted

above;

• Basis for Conclusions: Highlight that the reason the IPSASB considers mandatory

guidance to be appropriate is because current practice in preparing financial statement

discussion and analysis is sufficiently developed;


MJK February 2012

• BC18 19: Delete as basis for including implementation guidance and illustrative examples is

not required (an SMC on these matters is to be developed); and

• Illustrative Example: Clarify that the Illustrative Example is for a national government and

change use of actual country names to “Country B”, “Country C”, etc. in Exhibit 5.

The audit/assurance implications of the proposal to require financial statement discussion and

analysis to be prepared with all IPSAS-based financial statements is to be explored with the

IFAC-IAASB staff and this issue is to be analyzed further for the March 2012 IPSASB meeting.

Staff will identify any changes required to the proposed approach and the draft ED as a result of

the IAASB’s input.

A number of editorial changes were also tentatively agreed to, including:

• Changing references in the draft ED from “bias” to “neutral”;

• Remove references to “management” given that the party that prepares the financial

statements also is responsible for financial statement discussion and analysis;

• Removing any duplicated text;

• Broadening consideration of risk by changing references to “financial” risks” to “risks”; and

• Clarifying use of the term “variance” throughout the draft ED (e.g., variance from budget,

variance from prior year).

There was general support for the draft ED overall. In light of the changes made, and the fact that

there were several Members not in attendance no vote was taken for approval of an ED.

8. ALIGNMENT OF IPSASs AND GFSs

Discuss Issues (Agenda Item 7)

Ian Carruthers, Chairman of the Alignment Task Force, introduced this item with a brief

description of the project and its progress to date. The project was approved in June 2011. Task

Force Members are: Ian Carruthers, Marta Abilleira, Thomas Müller-Marqués Berger, Lindy

Bodewig, Sagé de Clerck (IMF), Andre Schwaller (Swiss Federal Government), John Verrinder

(Eurostat), and Tim Youngberry.

Since June, the Task Force has had two teleconferences and one face-to-face meeting. The

priority has been drafting an Appendix for inclusion in the IMF’s Government Finance Statistics

Manual (GFSM). The Appendix provides a high level description of linkages between IPSASs and

statistical accounting guidance. Significant progress has been made on up-dating the detailed

matrix of differences between IPSASs and statistical accounting, which underpins the draft

Appendix. The amount of progress already made was thanks to support from all Task Force

Members, and particularly from the IMF, Eurostat, Swiss Federal Government and the Australian

Department of Finance (Tim Youngberry and Brett Kaufmann).

The IPSASB reviewed and approved a draft structure for an Alignment Consultation Paper (CP).

The draft CP is expected to be discussed by the IPSASB at its March 2012 meeting.

The IPSASB then carried out a page-by-page review of the draft GFSM Appendix. Members’

changes included:

• Revisions to ensure that the Appendix would remain relevant over time;

• Further clarification of areas where there is overlap and/or consistency between statistical

accounting and IPSAS;

• Greater precision with respect to some of the identified differences; and


MJK February 2012

• Revised wording with respect to the description of depreciation.

Members also favored deletion of (i) the example in Section E, and (ii) the list of IPSASs in the

Annex because the example was viewed as too detailed for the Appendix and the list of IPSASs

will become out-of-date when more IPSASs are issued. The IPSASB noted that, given the IMF’s

greater familiarity with GFSM users, the IMF view with respect to whether to delete or retain these

two items should prevail. If the list of IPSASs is retained, then it should be linked to the IFAC

website list of IPSASs.

Members approved provisional sign-off for the Appendix, and expressed strong support for this

IMF initiative. It was noted that the draft Appendix will be revised, then submitted to for IMF

review.

Staff introduced the summary table showing progress on alignment issues and their resolution

status, emphasizing that it was still a “work-in-progress.” It was noted that “borrowing costs” and

“defense weapons” were currently classified in the table as “resolved,” but that comments

received recently had indicated that there was still scope to make further progress in those two

areas. In the case of borrowing costs, statistical accounting requires that all such costs be

expensed. IPSAS 5 allows some costs to be capitalized. One Member noted that, although there

is scope to align through option selection, removal of the capitalization option in IPSAS 5 would

be better support for the statistical treatment of such costs.

Members noted the amount of alignment progress that has already been made since 2005. The

table was viewed as useful. A general comment was that the table should be clear about how

issues can be resolved. In particular, scope to resolve through changes to IPSASs should be

highlighted. Such changes would then be incorporated into the CP. Some specific amendments in

terms of issue descriptions were identified.

It was agreed that the heading for the second section entitled ‘cannot be resolved’ should be

replaced with a section on “managing differences” between IPSAS and statistical accounting. The

idea of “managing differences” was prompted by the coverage of prior period adjustments in the

summary table, where the narrative includes a description of the Australian Government’s

experience in managing the IPSAS-statistical accounting differences in that area.

The summary table was then used to identify alignment items for possible inclusion in the

IPSASB’s work plan. Items identified were as follows:

(a) Input on reporting entity alignment issues into the Revisions of IPSAS 6 – 8 project (focused

on the resolvable issues, for example alignment of terminology related to control, rather than

the fundamental issue of reporting entity definition);

(b) Work on seignorage and subscriptions to international organizations as part of a Public

Sector Specific Financial Instruments project; and

(c) Development of an AASB 1049 equivalent to address differences between financial

statements in IPSAS and in statistical accounting.

The possibility of an amendment to IPSAS 12 Inventories to allow valuation of inventory at current

market value was raised, but rejected for the time being on the basis that there are no plans

presently to amend IPSAS 12. Members were asked to provide Staff with any information they

have on experiences with adoption of IPSAS 22.

Next steps will be to scope these IPSAS revision possibilities so that there are clear proposals

ready for input into the IPSASB’s work plan discussion in March 2012, and to firm up the


MJK February 2012

summary table. The revised version of the table will be an input into the IPSASB’s March 2012

work plan discussion.

9. CLOSING REMARKS

Retiring Members and TAs

On behalf of the IPSASB, the Chairman thanked retiring Members for their dedicated service. He

noted Tadashi’s analytical skill in precisely summarizing important points during deliberations

which facilitated the IPSASB’s ability to reach consensus and for his contributions in helping to

implement IPSASs throughout Asia.

He also thanked, in absentia, Frans van Schaik who completed two terms of service and the two

retiring Members with one term of service—Yossi Izkovich and Bharti Prasad. The Chairman

noted Frans’ significant efforts in implementation of IPSASs, particularly in the Pacific islands,

Yossi’s important contribution to the dissemination of IPSASs, and Bharti’s assistance in

providing a developing country perspective and for consensus building.

The Chairman also extended the IPSASB’s appreciation to the TAs of the retiring

Members―Thomas van Tiel, Michael Arad, and Preeti Jha. He also thanked Kenji Izawa, who

served as Tadashi Sekikawa’s TA, and who is joining the IPSASB as a Member effective

January 1, 2012.

Other remarks

The Chairman expressed appreciation to all Members, TBGs, TAs and Observers for their

support during 2011. He noted that the IPSASB is perceived as a productive standard-setting

Board and commented on the large number of documents it issued during the year. He thanked

the respondents to comment drafts issued for their support for the IPSASB’s work, as well as

those jurisdictions and entities that have, adopted or are in the process of adopting, IPSASs.

Conclusion

The meeting concluded at 2:30 p.m.


MJK February 2012

10. APPENDIX 1 – DECEMBER 2011 IPSASB ACTION LIST

INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS BOARD ACTION LIST – DECEMBER 2011 MEETING

Action Required Person(s) Responsible

Date to be Completed

1. Entity Combinations Annette Davis

Revise draft Consultation Paper in conjunction with the EC TBG

February 21, 2012

2. Conceptual Framework – General John Stanford

Update and re-circulate CF project plan December 22, 2011

3. Conceptual Framework – Presentation Gwenda Jensen / John Stanford

Revise draft Consultation Paper and finalize January 2012

Consultation Paper to be published (with a 4 month consultation period)

January 2012

Develop At a Glance document in conjunction with the Presentation TBG and post on Intranet for IPSASB Members’ comments, then finalize

January 2012

4. Conceptual Framework – Phase 1

Develop first draft of Conceptual Framework paragraphs in conjunction with the Phase 1 TBG

Paul Sutcliffe / John Stanford

February 14, 2012

5. Conceptual Framework – Elements

Develop Agenda Paper addressing remaining SMCs from CF–CP2 in conjunction with the Phase 2 TBG

Develop Issues Paper exploring key issues relating to models of financial performance and enforceability of obligations

Develop preliminary draft CF–ED2 in conjunction with the Phase 2 TBG

Grant Macrae / John Stanford

February 27, 2012

6. Conceptual Framework – Measurement

Develop first draft CF–ED3 in conjunction with the Phase 3 TBG

Andrew Lennard / John Stanford

February 27, 2012

7. Work Plan and Agenda Staff

Include a further education session on the meeting agenda for social benefit obligations in 2012

Stephenie Fox February 1, 2012

Develop paper on work plan with: o Overall picture of possible projects

(including a description); and o What projects may need to be

considered over a 3–5 year time horizon


Arrange an education session on Emissions Trading Schemes in 2012


Publish approved Project Brief for Government Business Enterprises (GBEs)

Stephenie Fox December 31, 2011

Update IPSASB Summary of IASB Work Plan

Annette Davis February 27, 2012


MJK February 2012

Action Required Person(s) Responsible

Date to be Completed

8. Financial Statement Discussion and Analysis

Joy Keenan

Revise draft Exposure Draft in conjunction with FSD&A TBG

February 22, 2012

9. IPSASB Governance and Oversight Stephenie Fox

Monitor activities of MG and their governance review and determine actions as appropriate

TBD

10. Alignment of IPSASs and GFS Gwenda Jensen

Revise draft GFSM Appendix, and submit to IMF in conjunction with Alignment Task Force

TBD

Develop draft Consultation Paper and scope proposals for inclusion of alignment issues in IPSASB’s Work Plan in conjunction with Alignment Task Force

TBD

11. Communications Staff

Update list of countries adopting IPSASs and post to Internet

Annette Davis TBD

Action List posted to Intranet Annette Davis December 15, 2011

Power Point presentations posted to Intranet Leah Weselowski December 15, 2011

Draft minutes posted to Intranet Joy Keenan December 29, 2011

Meeting Highlights posted to Internet Annette Davis December 15, 2011


MJK February 2012

11. APPENDIX 2 – VOTING RECORD

11.1 Vote #1 – Approve Project – Government Business Enterprises

MEMBER VOTING RECORD

Agenda Item #4 Minutes Item 4 Date Vote Taken December 6, 2011 Description Project Brief -

GBEs

Approved at meeting

Final Standard □ ED □ CP □ Other

BOARD MEMBER IN FAVOUR AGAINST ABSTAIN ABSENT NOTES

Andreas Bergmann,

Chairman √

David Bean, Vice-Chairman √

Ian Carruthers √

Marie-Pierre Cordier √7

Mariano D’Amore √

Sheila Fraser √8

Yossi Izkovich √9

Hong Lou10

√

Thomas Müller-Marqués

Berger √

Anne Owuor √

Jeannine Poggiolini √

Bharti Prasad √11

Ron Salole √

Tadashi Sekikawa √

Isaac Umansky √12

Franz Van Schaik √13

Ken Warren √

Tim Youngberry √

TOTAL 17 1 0 0 18

7 Mariano D’Amore held proxy for voting.

8 Chair held proxy for voting.




12 Mariano D’Amore held proxy for voting.



MJK February 2012

11.2 Vote #2 – Conceptual Framework Phase 4 – Presentation (Approve Consultation

Paper)

MEMBER VOTING RECORD

Agenda Item #3A Minutes Item 3.2 Date Vote Taken December 8, 2011 Description Conceptual

Framework – Presentation

Approved at meeting

Final Standard □ ED □ CP Other □

BOARD MEMBER IN FAVOUR AGAINST ABSTAIN ABSENT NOTES

Andreas Bergmann,

Chairman √

David Bean, Vice-Chairman √

Ian Carruthers √

Marie-Pierre Cordier √14

Mariano D’Amore √

Sheila Fraser √15

Yossi Izkovich √16

Hong Lou17

√

Thomas Müller-Marqués

Berger √

Anne Owuor √

Jeannine Poggiolini √

Bharti Prasad √18

Ron Salole √

Tadashi Sekikawa √

Isaac Umansky √19

Franz Van Schaik √20

Ken Warren √

Tim Youngberry √

TOTAL 17 1 0 0 18

14

Mariano D’Amore held proxy for voting. 15

Chair held proxy for voting. 16




Mariano D’Amore held proxy for voting. 20

Chair held proxy for voting.

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