The IPSASB approves updates to its Conceptual Framework

At its June 2023 meeting, the International Public Sector Accounting Standards Board (IPSASB) approved amendments to its Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities (Conceptual Framework), Chapter 3, Qualitative Characteristics.

The amendments clarify the role of prudence in public sector financial reporting and update the guidance on materiality.

Prudence in the public sector

The IPSASB’s Conceptual Framework explains that, to be useful in financial reporting, information must be a faithful representation of the economic and other phenomena that it purports to represent. Information will be a faithful representation when it is complete, neutral, and free from material error.

The amendments include prudence in the explanation of neutrality, as a component of faithful representation. Prudence is not identified as a separate qualitative characteristic in the IPSASB’s Conceptual Framework.

The amendments to Chapter 3 explain that prudence involves exercising caution when judgements are made under conditions of uncertainty. When prudence is exercised, assets and revenue are not overstated, and liabilities and expense are not understated. Equally, the exercise of prudence does not allow for the understatement of assets or revenue or the overstatement of liabilities or expense.

Materiality guidance

Amendments to the materiality guidance include:

• adding “obscuring information” to the definition of materiality. This suggests that, among others, the inclusion of immaterial disclosures can have a negative impact on users rather than just being unnecessary; and
• softening the threshold for determining that information is material by including “reasonably expected to influence”. This allows for a more realistic expectation on preparers when they assess materiality.

Next steps

The updated chapter is expected to be published in July 2023. This completes the IPSASB’s revisions to its Conceptual Framework.

What is the impact locally?

There are no changes to the Accounting Standards Board’s (the Board) Conceptual Framework for General Purpose Financial Reporting following the IPSASB’s amendments to its Conceptual Framework.

The Board will commence a local project to update its Conceptual Framework in future.

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.