The International Public Sector Accounting Standards (IPSAS) comprise a single set of accrual based standards for public sector entities. As public sector entities differ in size, complexity, capacity and other variables, the International Public Sector Accounting Standards Board (IPSASB) often receives comment that a “one size fits all” set of standards has various application challenges for certain public sector entities. This is particularly the case for those entities who see themselves as “small” or “less complex”.
Following its mid-period work program consultation, the IPSASB commenced a project to explore the characteristics of “less complex” public sector entities. The project explores whether a different financial reporting approach would be appropriate for such entities to apply, referred to as a differential reporting model. Differential reporting is the idea that different accounting standards, or simplified accounting principles, apply for different categories of entities.
At its June 2023 meeting, the IPSASB considered the results of initial research to develop the project brief. This research considered scoping activities and how to address the needs that gave rise to a call for an international public sector differential reporting model.
The IPSASB agreed that the development of other forms of guidance, rather than a standard-setting solution, may be more feasible. This is because users need similar information to hold entities accountable and for decision-making. Furthermore, the information presented in financial statements should meet the qualitative characteristics in the IPSASB’s Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities.
The nature of the guidance to be developed and the future approach for this project will be considered by the IPSASB at its September 2023 meeting.
The South African view to differential reporting in the public sector
In August 2011, the Accounting Standard’s Board (the Board) issued a Position Paper that outlines its position on differential reporting for the South African public sector. The Board concluded that it would be inappropriate to develop a differential reporting model for the local public sector. This view was based on the Board’s conclusion that inherently all public sector entities are publicly accountability to a wide range of stakeholders and uniform accounting policies are needed to prepare whole-of-government consolidated financial statements.
The Board undertook a further research project in 2019 to assess how the financial reporting environment of small entities may have evolved since 2011. The results of the research is published in a Research Paper. The research concluded that the Board will not introduce different reporting requirements or guidance for small entities for similar reasons than 2011. Furthermore, the research noted that the issues experienced by small entities could not be resolved by introducing differential reporting requirements in the environment.
The Board will continue to monitor the IPSASB’s project on differential reporting.
Disclaimer
The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.