The IASB/FASB Conceptual Framework Project A Public Sector Perspective Kevin Simpkins

Outline Concepts – Why they matter Overview of the Project Progress to Date Some Public Sector Issues Concluding Thoughts

Concepts – Why they Matter (generally) The Basis for Accounting Standards Development A Key Element in Principles-based Standard setting An antidote to vested interests (or just preconceived conclusions!) To enhance efficiency in standard-setting

Concepts – Why this project matters Key to IASB/FASB Convergence New concepts will have significant influence internationally IPSASBs implicit framework is that of the IASB IASB/FASB work will be a key reference source for the IPSASB (Note that IPSASB is considering its strategy for a Conceptual Framework at its meeting this month)

Overview of the IASB/FASB Project - Objective …to develop a common conceptual framework that is both complete and internally consistent… …a sound foundation for developing future accounting standards…

Overview of the IASB/FASB Project - Process Building on the Existing Frameworks Concentrating on environmental changes and omissions from existing frameworks Prioritising cross-cutting issues that affect a number of projects Initially considering private sector business entities only

Overview of the IASB/FASB Project – The Phases Phase ATopic AObjectives and qualitative characteristics BElements, recognition and measurement attributes CInitial and subsequent measurement DReporting entity EPresentation and disclosure, including financial reporting boundaries FFramework purpose and status in GAAP hierarchy GApplicability to the not-for-profit sector HEntire framework

The IASB/FASB Project – Progress to Date Phase A – Objectives and Qualitative Characteristics –Exposure draft due in near future Phase B – Elements, recognition etc. –Early work done on asset and liability definitions Phase D – Reporting Entity –Planning and Preliminary Analysis done

The IASB/FASB Project – Some Public Sector Issues Timing of Consideration of Not-for-Profits –Creates risk NFP context will not be well considered –Is delivering some concepts that are not broadly applicable –Inefficient as a standard-setting approach –A challenge for neutrality – both transactions and sectors

The IASB/FASB Project – Some Public Sector Issues (cont) Stewardship/Accountability is not a Separate Objective of Financial Reporting –The objective is to assist investors and others in making investment, credit and similar decisions –Too narrow for the public sector – accountability is at least a separate objective –A risk – the pervasive impact of an incomplete objective because all things are related An aside: Whither prospective information?

The IASB/FASB Project – Some Public Sector Issues (cont) Too narrow a Primary User Group –Primary User Group is present and potential investors and creditors –In the public sector legislation and funders are key users who cannot be excluded No recognition of Compliance

The IASB/FASB Project – Some Public Sector Issues (cont) Pervasive Focus is on Assessing Cash Flow Prospects –Cash Flows are relevant to the public sector but not always –Service performance is a more important focus for the public sector environment –The focus extends deeply such as into the asset definition area

The IASB/FASB Project – Some Public Sector Issues (cont) Changes to the Qualitative Characteristics –A process approach – new for all –But does not encourage consideration of differences between entities –Relevance relates to economic decisions of users –Materiality is also related to economic decisions of users

The IASB/FASB Project – Some Public Sector Issues (cont) Asset Definition too Narrow –Economic Benefits again! –Benefits to the entity –The notion of stand ready assets (and liabilities) is new and needs careful consideration –No help with the tough issues – social policy obligations especially

Concluding Thoughts This project is important as are the others being worked on internationally The potential impacts are significant and likely to be enduring The public sector needs to monitor the work of both IASB and IPSASB and your own national bodies and comment