IPSASB Update INTOSAI PSC Steering Committee, Brasilia, Brazil Presented by: Stuart Barr June 9, 2017

IPSASB Recent Progress Final pronouncements approved: Applicability of IPSASs Minor Improvements Impairment of Revalued Assets IPSAS 39, Employee Benefits IPSAS 40, Public Sector Combinations Consultation paper issued for comment: Financial Reporting for Heritage in the Public Sector Staff Paper issued: Emissions Trading Schemes Consultations closed - responses being analyzed: Update of Cash Basis IPSAS ED 61 Social Benefits Consultation Paper Public Sector Financial Instruments – monetary authority issues – Consultation Paper Establishment of the Consultative Advisory Group Objective of CAG: Advice on Strategy, Work Plan, Technical Issues or Matters Impeding the Adoption and Implementation of IPSASs Meetings held - June and December 2016 Meetings planned – June and December 2017

IPSAS 40 Public Sector Combinations: Classification Amalgamation or Acquisition Control essential for acquisition, but not conclusive Economic substance Consideration Decision Making Carrying amounts for amalgamations vs fair value for acquisitions Does one party to the public sector combination gain control of operations? No Yes Is the economic substance of the public sector combination that of an amalgamation? Yes No Amalgamation Acquisition

Current IPSASB work programme: Key projects 2016 - 2018 Public sector specific IFRS convergence Social Benefits Revenue & Non-Exchange Expenditure Heritage Leases Financial Instruments Public Sector Measurement Infrastructure Assets (starting September 2017) Cash Basis IPSAS (limited-scope update)

Social Benefits Social Benefits are “benefits payable to individuals and households, in cash or in kind, to mitigate the effect of social risks.” Social risks are “events or circumstances that may adversely affect the welfare of individuals and households either by imposing additional demands on their resources or by reducing their income.”

Revenue and Non-Exchange Expenditure Current global literature on Revenue IPSAS 23 (Non-Exchange Revenue: Taxes and Transfers) IPSAS 9 (Revenue from Exchange Transactions) IPSAS 11 (Construction Contracts) IFRS 15 (Revenue from Contracts with Customers) Single CP – consider the need for common approach between Non-Exchange Revenue and Expenditure (e.g. grants) Replace IPSASs 9 & 11 with IFRS 15 - based standard Retain IPSAS 23 - based standard - address application issues Assess extent to which public sector version of IFRS 15 performance obligation approach may be apprpriate

Non-Exchange Expenses e.g. Defense, Education and Health expenses, transfers / grants Non-exchange expenses outside Social Benefits project No current IPSAS Consistency / links with Social Benefits and existing IPSASs Obligating event approach (IPSAS 19 - based) IFRS15 – performance obligation approach (reverse of revenue) IPSAS 23 reverse Three potential approaches: No obligating event for Collective Goods and Services, or Other Transfers in Kind? Obligating event limited to transfers /grants to other entities?

Description of Heritage Items Items that are intended to be held indefinitely and preserved for the benefit of present and future generations because of their rarity and/or significance in relation, but not limited, to their archeological, architectural, agricultural, artistic, cultural, environmental, historical, natural, scientific or technological features.

Heritage Assets—Consultation Paper proposes: Heritage items can be assets Recognize heritage items if they meet recognition criteria: Asset definition Able to be measured Measurement bases: Historical cost Replacement cost Market value Acknowledge non-recognition and recognition at symbolic/nominal value but question conceptual validity

Heritage Liabilities—Consultation Paper Do heritage preservation intentions give rise to present obligations and liabilities? Special characteristics of heritage items do not, of themselves, result in a present obligation Entity is able to avoid an outflow of resources Do not recognize a liability based only on intentions

Leases Existing IPSAS 13 based on IAS 17 IFRS convergence project – responding to new IFRS 16 Introduction of “right-of-use model” for lessee accounting More on balance sheet – fiscal impact? IPSAS 13 retention - not an option because of mixed groups Public sector needs symmetry between lessee and lessor accounting – lease arrangements common between public sector entities IPSASB agreed to include the “right–of-use model” for lessor accounting IPSASB view that IFRS 16 lessor accounting inappropriate for public sector

Financial Instruments Update IPSASB agreed principles consistent with IFRS 9 for: Definitions Classification Measurement Expected credit loss impairment model Hedging Transitional Provisions Public sector specific guidance included: Concessionary loans Financial guarantees issued through a non-exchange transaction Additional public sector examples Audit Challenges – Expected Credit Loss Model IFRS 9 – ECL model a trigger for the IAASB to consider revisions to ISA 540, Auditing Accounting Estimates and Related Disclosures - April 2017 ED published – comment period until August 1, 2017 Need for public sector auditors to also consider ECL challenges

Public Sector Specific Financial Instruments The IPSASB Conceptual Framework IPSASB policy paper for considering statistical reporting guidelines IPSASB CP decisions influenced by: Currency in Circulation Monetary Gold IMF quota subscription & Special Drawing Rights CP Topics IPSASB initial consideration of responses at June 2017 meeting Project output not yet determined by IPSASB Project – Next Steps

Public Sector Measurement: Conceptual Framework Measurement Bases Assets Liabilities Historical Cost Current Value measures Market Value Replacement Cost Net Selling Price Value in Use Cost of Fulfilment Cost of Release Assumption Price

Public Sector Measurement Project Combined impact on IPSASs of CF and IFRS 13: Service potential - need for entry-based values Existing measurement requirements not consistent with CF Fair value references inconsistent with IFRS 13 (exit-based) Other key issues: Transaction costs treatment (including borrowing costs) Consistency with GFS and IVSC guidance Further Implementation Guidance needed? Task Force to include GFS and IVSC representatives Preliminary analysis stage before deciding next steps

2019-2023 Strategy / Work Plan challenges Complexity of PFM landscape Coordination with other stakeholders? Relative balance between: Addressing public sector-specific issues? Maintaining (increasing?) IFRS convergence? Relationship with Government Finance Statistics? Improving communication of financial information? IPSASB’s role in relation to adoption and implementation? How do these demands fit with available resources? Development work during 2017 Public consultation H1 2018 – Finalise H2 2018.

Developing the next IPSASB Strategy and Work Plan IAASB Agenda Item 6 March 2014 Developing the next IPSASB Strategy and Work Plan Stakeholder outreach 2017 Public consultation 2018 CAG input PIC advice PIC and CAG will be consulted and included in entire process, however, most significantly in final advice and ‘approval’ Multi-year Strategy (2019-2023), Work Plan to implement/operationalize Strategy

Questions, discussion & further information Visit our webpage http://www.ipsasb.org/ Or contact us by e-mail : IPSASB Member: Stuart.Barr@oag-bvg.gc.ca Deputy Technical Director: RossSmith@ipsasb.org