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What to expect in new IPSAS proposals: updated concepts

In last month’s article, we provided an overview of the IPSASB’s proposals in ED 76 on Conceptual Framework Update: Chapter 7, Measurement of Assets and Liabilities in Financial Statements.

Chapter 7 of the IPSASB’s Conceptual Framework identifies eight measurement bases for assets and liabilities. As a result of the measurement project, the IPSASB decided that there should be alignment between Chapter 7 and its proposals in ED 77 on Measurement. This meant that some measurement bases should be removed while others were replaced with new measurement bases.

This article provides a closer look at the proposed changes to the measurement bases and the IPSASB’s reasons.

Measurement bases used for assets

Chapter 7 discusses five measurement bases to measure assets.

The IPSASB retained historical cost as the basis is still relevant and used throughout the IPSAS literature.

Market value and replacement cost have been removed and replaced with new measurement bases to address issues identified by stakeholders in the development of ED 77. The net selling price and value in use have also been removed as measurement bases for assets.

Fair value is introduced to replace market value. This is based on stakeholders’ feedback that there is a need for fair value in the public sector. The measurement basis is aligned with the IASB’s requirements in IFRS 13^® on Fair Value Measurement. This is so that assets that are held for the same primary objective as private sector assets (i.e. to generate cash flows) can be measured using the same principles. Currently, fair value is used in the IPSAS literature with a different meaning to that in IFRS 13. In ED 76, fair value is an exit value that is based on the market participants’ assumptions. As such, ED 77 proposes to update the definition of fair value and related guidance to align with IFRS in the individual IPSASs.

The replacement cost has been replaced with a new public sector specific measurement basis referred to as the current operational value. The new basis was added to measure assets when fair value is not be appropriate, because it is an exit value. Therefore, it is an entry entity-specific value that is concerned about assets used to deliver services and is intended to measure them based on their service potential – similar to the replacement cost. Currently, the replacement cost is used in IPSAS to measure specialised assets where there is no active market to determine fair value.

Net selling price is similar to the net realisable value however the IPSASB decided it should be removed as it is not currently used in IPSAS literature.

Value in use is applicable in asset impairments. As it is only used in specific circumstances, the IPSASB decided not to refer to it as a measurement basis in the Conceptual Framework but has retained its general description in the Conceptual Framework.

Measurement bases for liabilities

Similar to assets, the historical cost has been retained and fair value is introduced in place of market value for the measurement of liabilities. The cost of fulfillment has also been retained.

When the assumption price and cost of release were initially added to the Conceptual Framework, the IPSASB acknowledged that there may be limited circumstances when they could meet the measurement objective and be applied. The IPSASB believes these should be removed given their limited application.  

Have your say…

The Board will need to consider whether these changes are needed in its Conceptual Framework. As a result, stakeholder feedback is critical in (a) commenting to the IPSASB on local experiences, and (b) informing the Board’s future work in this area.

What are your views on these proposals?

Comment can be submitted to the Secretariat of the ASB at info@asb.co.za, by 1 October 2021.

ED 76 was issued as part of package of documents dealing with inter-related issues. This package includes:

• ED 77 on Measurement (published locally as ED 189);
• ED 78 on Revisions to IPSAS 17 on Property, Plant and Equipment (published locally as ED 190); and
• ED 79 on Non-current Assets Held for Sale and Discontinued Operations (published locally as ED 191).

ED 76 to ED 79 (locally published as ED 188 to ED 191) are available on the ASB’s website and can be accessed here: https://www.asb.co.za/comment-on-proposals/.

This content 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.