International Public Sector Fiscal
and Financial Reporting Standards
Ian Carruthers,
IPSASB Member
CIPFA Policy & Technical Director
Astana Economic Forum
May 21 2014
Session overview
• Need for increased transparency and comparability
• IPSASB
– Background
– Current work
– Future plans
• IPSAS and Government Finance Statistics
• Strengthening PFM and fiscal policy in practice
– UK transition
– Embedding accrual
– Changing the culture
Importance of accrual to strong PFM:
Recognition from G20 Leaders
‘In pursuit of our goal of strengthening the
public sector balance sheet, work is needed to
better assess risks to public debt sustainability.
This includes, inter alia, taking into account
country-specific circumstances, looking at
transparency and comparability of public
sector reporting, and monitoring the impact of
financial sector vulnerability on public debt.’
IMF Report on Fiscal Transparency,
Accountability and Risk (1)
• Analysis of the nature and scale of fiscal shocks
during the crisis
• Emergence of the components of a business case for
PFM improvement
• BUT substantial shortcomings in fiscal transparency:
– Gaps and inconsistencies in fiscal transparency
standards
– Lags in governments’ implementation of
international accounting and statistical reporting
standards
IMF Report on Fiscal Transparency,
Accountability and Risk (2)
IMF Report on Fiscal Transparency,
Accountability and Risk (3)
Strengthening fiscal transparency standards and
practices through:
• Reporting of assets and liabilities – impact of
governments’ crisis-related interventions
• Coverage – focus on General Government but
Public Corporations important
• Aligning budgets, accounts and statistics
The IPSAS Board
• IFAC Standard Setting Board
• 18 volunteer board members from around world
• Sets standards for Public Sector Entities except
Government Business Enterprises (GBE)
• Funding by IFAC (approx 50%) and voluntary
contributions from Governments and observer
organizations
• 32 IPSAS (accrual basis) covering main areas of
government activity, 1 cash basis standard
• 2 Recommended Practice Guidelines (RPGs)
7
Overview of IPSASs
“IPSASs are high quality global financial reporting standards for
application by public sector entities other than Government
Business Enterprises (GBEs)”
• IPSASs set out
– recognition,
– measurement,
– presentation and disclosure requirements
dealing with transactions and events in general purpose financial
statements
• IPSASs on the accrual basis are mainly based on IFRSs but adapted
to the public sector context where appropriate
IPSASs: Convergance with IFRSs
IFRS
(Private Sector)
•
Terminology
•
Public sector examples
•
Public sector issues
•
Public sector guidance
IPSASs
(Public
Sector)
Page 9 | Confidential and Proprietary Information
IPSASB: Developing high quality outputs
Stakeholder Input
Due Process
Overview of the development of
IPSASB‘s work program
• Through financial support of international institutions
Phase 1
development of first set of accounting standards
(“Core Set”: IPSAS 1 – IPSAS 20)
(1997-2002)
Phase 2
• Issuance of first standards on public sector specific issues
(IPSAS 21 – IPSAS 24)
• Where relevant for the public sector, convergence
(2003-2010)
with IAS/IFRS as of 31.12.2008 achieved
• Development of Conceptual Framework for the public sector
• Focus on public sector specific issues as well as further
(since 2010) development of existing standards (IFRSs convergence)
Phase 3
Current work program of the IPSASB
Public sector key characteristics / IPSASB
work plan strategic themes
Public Sector Conceptual Framework
Phase 1: Role, Authority and Scope; Objectives and Users; Qualitative
Characteristics; Reporting Entity
Consultation
Paper
Exposure
Draft
Final CF
Dec 2013
Phase 2: Elements and Recognition in Financial Statements
Consultation
Paper
Exposure
Draft
Final CF
Sep 2014
Phase 3: Measurement
Consultation
Paper
Exposure
Draft
Final CF
Sep 2014
Phase 4: Presentation
Consultation
Paper
Exposure
Draft
Final CF
Sep 2014
Public sector critical projects – progress
•
•
•
•
•
•
•
•
•
•
Long-term Sustainability of Public Finances – Recommended Practice Guideline
(RPG)1 issued 2013
Financial Statement Discussion and Analysis – RPG2 issued 2013
IPSAS and GFS ‘Rules of the Road’
First Time Adoption – ED 2013
Update of IPSASs 6-8 – includes Consolidated Financial Statements and Joint
Arrangements, ED 2013
Reporting Service Performance – RPG ED 2013
Public Sector Specific Financial Instruments (active), update IPSAS 28-30 (on
hold until completion of IFRS 9)
Public Sector Combinations
Emission Trading Schemes (joint with IASB)
Social Benefits
First-time adoption of accrual IPSASs
• Principles to provide relief for first-time adopters
previously on either cash or national standards
• Brings together all exemptions for transitional period
• Exemption groups:
– Asset and liability recognition
– Fair presentation
– Others (e.g. deemed cost)
• Comparative information optional during transitional
period
• Disclose date of adoption of accrual IPSAS and
reconcile to accounts on previous basis
• ED issued October 2013
• IPSAS by end 2014?
IPSASB Social benefits project – story so far
• Original CP 2004; EDs 2005 and 2007
• Further work on social benefits progressed indirectly in two areas:
― Phase 2 of the conceptual framework deals with elements,
including the definition of a liability
― Reporting on the Long-term Sustainability of an Entity’s
Finances (RPG1) guidance for reporting on long-term fiscal
sustainability of governmental programs including social
benefits
• Social benefits most frequently rated as high priority project in
IPSASB’s consultation on its 2013/2014 work program
– Social benefits added to the IPSASB active work program at
June 2013 meeting.
Global adoption and implementation of IPSASs
Completion of projects:
• A number of implementation projects reached milestones or
were fully completed in 2013 (e.g. Austria, Spain, Kazakhstan)
• UN system has now completed all but two entities
Good progress in others - aiming for completion within the
next 2 to 3 years:
• Strong development in Latin America (e.g. Chile, Colombia,
Brazil, Panama, Costa Rica…)
• …and South-East Asia (e.g. Indonesia, Malaysia, PR of China –
rollout beyond pilot entities…)
EPSAS development in the EU…….
IPSASB consultation on Strategy from 2015
and Work Program 2015-2019
• First full consultation on strategy and work plan
– Limited consultation on 2013-14 work plan
– Further enhancement of IPSASB accountability following
broadening of member base
• Consultation period runs until July 31st 2014
Proposed Strategic Objective
Strengthening public financial management (PFM) and
knowledge globally through increasing adoption of accrual-based
IPSASs by:
a) developing high-quality financial reporting
standards;
b) developing other publications for the public
sector; and
c) raising awareness of the IPSASs and the benefits
of their adoption.
IPSASB Strategy: Inputs, Outputs and Outcomes
Inputs
Funding
Staff
IPSASB members
IPSASB technical advisors
Stakeholder input
Operational procedures
Outputs
High-quality public sector
financial reporting
standards and other
publications- IPSASs &
RPGs
Outcomes
Improved ability of public
sector entities to reflect the
full economic reality of their
finances as well as of
stakeholders to understand
Presentations, speeches
and other outreach
activities in order to
engage with stakeholders
Increased awareness of
IPSASs and their public
finance management
benefits in order to
influence their adoption
IPSASB Work Program 2015-2019
•
•
•
•
Direction after completion of Conceptual Framework?
Existing commitments identified
Cash-Basis-IPSAS: quo vadis?
Potential projects:
– Address Public Sector specific issues
– Maintain existing IPSASs
– Converge with IFRSs
– Other (differential reporting, <IR> etc)
IPSASs – GFS project background
• Objective: Enhance and promote the reconciliation and
harmonization of IPSASs with GFS Reporting Guidelines.
– Review progress since 2005 research report
– Update for 2008 System of National Accounts (SNA) and
development of new GFS Manual
– Consider revisions to IPSAS 22
• Task Force, IPSASB and statistical community
• Consultation paper October 2012
Benefits from using same data
• Reductions in GFS report preparation time, costs, and
effort
• Improvements to:
– Source data
– Report quality, including timeliness
– Report understandability and credibility
Comparison of IPSAS and GFS (1)
IPSAS and Government Finance Statistics both show:
• Financial, accrual based information
• Assets, liabilities, revenue and expenses
• Comprehensive information on cash flows
BUT:
• Some fundamental differences
• Some differences that can be addressed
Comparison of IPSAS and GFS (2)
Differences:
• Objectives
• Reporting entity
• Recognition criteria - liabilities
• Revaluations and other value changes:
– Value vs volume
– Realised/unrealised gains/losses
UK Whole of Government Accounts:
Reconciliation of public sector net debt
2011-12
2010-11
2009-10
£bn
£bn
£bn
1,347
1,186
1,228
(1008)
(961)
(1,135)
(113)
(108)
(102)
PFI contracts
(30)
(27)
(25)
Unamortised premium or discount on gilts
(23)
(15)
(13)
Tangible and intangible fixed assets
793
757
769
UK Asset Resolution (UKAR) net impact on net debt
83
94
59
Payables and receivables
40
46
9
Investments
17
17
11
-
16
27
1,106
1005
828
Net liabilities
Net public service pensions liability
Provisions
Other
Public sector net debt (National Accounts)
UK Whole of Government Accounts:
Reconciliation of current deficit
2011-12
2010-11
2009-10
£bn
£bn
£bn
Net expenditure (WGA)
185
94
163
Public service pensions
(52)
79
(51)
Depreciation and Impairment of Assets
(46)
(60)
(30)
Capital grants
(13)
(18)
(16)
Provisions
(5)
(6)
27
Net gains/losses on sale of assets
(1)
(4)
-
6
5
5
UK Asset Resolution (UKAR) net impact on net debt
(1)
(1)
(1)
Other
17
12
12
Current deficit (National Accounts)
90
101
109
Military equipment not capitalised
Management of accrual / GFS differences
• Choose accrual accounting policies in light of GFS needs
– same treatment if consistent with requirements of both
frameworks
• Additional data - reduce to a minimum but some still
needed
• Chart of Accounts designed to allow dual classification
• Allows single information system to be used
Overview of CP issues
1. Extent of resolution of specific issues, and the basis for this
assessment
2. Other areas where the IPSASB and/or the statistical
community could address differences
3. Guidance on integrated Chart of Accounts
4. IPSASB’s future role with respect to reduction of differences
5. Options for IPSAS 22, Disclosure of Financial Information
about the General Government Sector; and
6. Guidance in Study 14, Transition to the Accrual Basis of
Accounting: Guidance for Governments and Government
Entities (PV 1)
Opportunities to reduce differencies: IPSASs
1. Reporting entity definition (IPSASs 6-8 revision)
2. Currency on issue / seigniorage (PS Financial Instruments
project)
3. Subscriptions to international organizations (PS FI project)
4. Inventory measurement
5. Defense weapons – capitalization and classification
6. Measurement of assets, liabilities and net assets/equity
7. Transaction costs – costs of discposing of nonfinancial and
financial assets
8. Financial statements – presentation, including classification and
aggregates
9. Investments in unquoted shares (remeasurement gains/losses)
Opportunities to reduce differences: GFS
1. Measurement of assets, liabilities and net assets/equity
2. Extractive industries – exploration and evaluation, development
and production
3. Decommissioning / restoration costs
4. Public-private partnerships
5. Subscriptions to international organisations
6. Costs associated with R&D and intangible assets
7. Low-interest and interest-free loans
IPSAS / GFS current state of play
• Policy Paper: Process for Considering GFS Reporting Guidelines during
Development of IPSASs (February 2014)
• Work in progress:
– Update of IPSASs 6-8
–
Public sector financial instruments
• Proposals for 2014 work plan consultation:
– Measurement – public sector specific
–
Military equipment
–
Future of IPSAS 22 (Disclosure of General Government Sector information)
• Web publication of table of differences – Autumn 2014
• Guidance on integrated Chart of Accounts - not for IPSASB to lead
cipfa.org
Strengthening PFM and fiscal policy
in practice: The UK experience
Ian Carruthers
Policy and Technical Director, CIPFA
cipfa.org
Background: CIPFA
● Only professional accountancy body to
specialise in public services
● Influences and shapes public finance
landscape, promoting strong Public Financial
Management (PFM) globally
● Supporting improved PFM
● The professional body for people in public
finance
cipfa.org
CIPFA support for public sector
Practical
support for
professionals
and their
organisations
Educating
and training
professionals
PFM & Governance
- Advocacy & advice
- Standards & guidance
cipfa.org
UK accrual journey (1):
Gradual adoption across public sector
● Public corporations – commercial accounts
● Local government – partial then full accrual
● NHS providers – accrual from creation
● Central government – departments last to
implement accrual
cipfa.org
UK accrual journey (2):
Central Government (CG)
● Accrual accounts (1996-2001)
● Accrual budgets (2001-2004)
● Whole of Government Accounts (1999-
2011)
● Move to IFRS (2006-2011)
● Alignment project (2008-2012)
cipfa.org
UK accrual journey (3):
WGA programme timetable
Central Government
Departments;
NDPBs; and
Devolved
Administrations
01-02
02-03
04-05
07-08
03-04
05-06
Local Authorities;
NHS Trusts;
Public corporations
09-10
08-09
06-07
cipfa.org
UK accrual journey (4):
WGA data problems
● Development of 1500 body consolidation from
scratch
● Data submission rates built gradually
● Poor timeliness
● Poor data quality
● Identification and agreement of intra-
government balances and transactions – large
discrepancies
● Integration with other Treasury systems –
COINS
cipfa.org
UK accrual journey (5):
Accrual accounting - lessons learned
●
Clear mandate, political backing and statutory mandate
●
Clear timetable and project plan with buy in
●
Phased approach – demonstrates achievement and builds
confidence
●
Use of ‘dry runs’ to resolve issues
●
Clear accountabilities and responsibilities between the
centre, reporting entities with reviews by National Audit
Office
●
Sufficient capability and capacity to implement change
●
Need to change culture as well as systems
●
Starting with integrated programme would have saved
time and money
cipfa.org
Embedding accrual (1):
Accrual budgeting
● Scores economic impact of transactions against
budget when they occur
● Recognises economic events regardless of when
cash flow occurs
● Combines current cash inflows/outflows with
future expected cash inflows/outflows
● More accurate picture of an entity's current
financial position and future commitments
cipfa.org
Embedding accrual (2):
Accrual budgeting – advantages
● Alignment of performance and accountability
frameworks – what gets measured gets
managed!
•
Transparent system with a single set of rules
and numbers
•
Better decision-making – use of cost information
•
Improved risk management and stronger value
for money incentives
•
Focus on asset management
•
Management of working capital
cipfa.org
Embedding accrual (3):
Accrual budgeting - constraints
• Data quality – needs to be sufficient for
expenditure control
• UK Phased implementation – address accounts
problems, build confidence in data
• Limited, though growing international experience
• Need to align budget and accounting policies
• Alignment with legislature approval process to
avoid complexity………..
cipfa.org
Embedding accrual (4):
PFM framework alignment
Then …
Budgets
Estimates
0
0
58
357
86
71
-3.8
Accruals Accounts
Amounts included under each framework (£bn) for departments’ 2008-09 resource plans. Excludes
devolved administrations.
cipfa.org
Embedding accrual (5): PFM framework alignment
… and Now
Budgets
Estimates
0
0
0
470
0
0
22
Accruals Accounts
Amounts included under each framework (£bn) for departments’ 2008-09 resource plans. Excludes
devolved administrations.
cipfa.org
Embedding accrual (6):
IPSAS vs GFS balance sheets
cipfa.org
Embedding accrual (7):
Fiscal sustainability reports
• Produced annually by independent Office for Budget
Responsibility (OBR)
• Based on WGA balance sheet
• Potential fiscal impact of future government activity
• 50-year projections of all public spending, revenues and
significant financial transactions
• Assumption of ‘unchanged policy’
• Apply demographic and economic assumptions to produce
projections of the public finances over the next 50 years
• Public finances likely to come under pressure over the
longer term, primarily as a result of ageing population
cipfa.org
Embedding accrual (8):
Long-term financial sustainability projections
cipfa.org
PFM – Changing the culture (1):
The CIPFA FM Model
● Strong FM as corporate responsibility
● Is financial management where we want it to
be?
● Identifies priority areas for improvement
● Allows tracking over time
● Can be used to benchmark between
organisations
● Can test organisational leaders skills in
financial management
http://www.cipfa.org/services/advisory-and-transformation/financialmanagement-model
cipfa.org
PFM – Changing the culture (2):
FM Model good practice statements
Securing
Stewardship
Supporting
Performance
Enabling
Transformation
Leadership
L1, L2
L3 - L5
L6, L7
People
P1, P2
P3, P4
P5, P6
Processes
PR 1 - PR10
PR11 - PR14
PR15, PR16
Stakeholders
S1 – S3
S4 - S6
S7, S8
cipfa.org
PFM – Changing the culture (3):
CIPFA Role of CFO Statement
www.cipfa.org/policy-and-guidance/reports/the-role-of-the-chief-financial-officer-in-publicservice-organisations
cipfa.org
PFM – Changing the culture (4):
CIPFA Role of CFO Statement
The CFO in a public service organisations:
1. is a key member of the Leadership Team, helping it to develop and implement
strategy and to resource and deliver the organisation’s strategic objectives
sustainably and in the public interest;
2. must be actively involved in, and able to bring influence to bear on, all material
business decisions to ensure immediate and longer term implications, opportunities
and risks are fully considered, and alignment with the organisation’s overall
financial strategy; and
3. must lead the promotion and delivery by the whole organisation of good financial
management so that public money is safeguarded at all times and used
appropriately, economically, efficiently and effectively.
To deliver these responsibilities the Chief Financial Officer:
4. must lead and direct a finance function that is resourced to be fit for purpose; and
5. must be professionally qualified and suitably experienced.
cipfa.org
Strengthening PFM and fiscal policy:
Conclusions from UK experience
• Better fiscal management information using
‘bottom-up’ audited accrual data
• Accrual budgeting and accounting strengthens
transparency and Public Financial Management
• Need coordinated programme with linked changes in
legislature approval and accountability processes
• Longer term projections to highlight future fiscal
challenges
• PFM needs to be owned by whole entity, lead by
Board-level qualified CFOs
cipfa.org
Questions / Discussion
Ian Carruthers
Director, Policy and Technical
CIPFA
E: ian.carruthers@cipfa.org
www.cipfa.org