The IPSASB is exploring differential reporting

Differential reporting allows entities to apply different financial reporting requirements in different circumstances. For example, smaller less complex entities apply simplified reporting requirements compared to larger more complex entities.

In the private sector, IFRS for SMEs is an established reporting framework applied by entities that do not have public accountability. In the public sector internationally and locally, differential reporting has been a recurring theme in work programme consultations. Stakeholders continue to raise concerns with the ability of smaller less complex entities to prepare financial statements in accordance with the full reporting framework. The reasons are often linked to resource constraints at these entities, such as skill-, system- and budget constraints.

What is the IPSASB considering?

The IPSASB agreed to add a project to its work programme to research the possibility of differential reporting in IPSAS. At the September 2022 IPSASB meeting, high level discussions focussed on initial research that considered several differential reporting models. The different approaches adopted by jurisdictions allowed the IPSASB to gain a better understanding of the various practices worldwide. The IPSASB will continue its research and follow developments to determine whether a differential reporting model can be developed for the global public sector.

The ASB research and current position

The Accounting Standards Board (the Board) researched differential reporting and how the Standards of GRAP can be applied by smaller entities twice in the past. The research resulted in the following papers published on the ASB website:

• 2011: Position Paper on Differential Reporting in the South African Public Sector https://www.asb.co.za/wp-content/uploads/2019/04/Differential-Reporting-29082011.pdf
• 2020: Research Paper on Application of Standards of GRAP by Small Entities https://www.asb.co.za/wp-content/uploads/2020/10/Research-Paper-on-Application-of-GRAP-by-Small-Entities.pdf

The Board concluded in both instances that introducing differential reporting in the South African public sector would not meet users’ information needs and would not resolve the issues that these entities experience.

What can smaller, less complex entities consider when preparing financial statements in accordance with Standards of GRAP?

The 2020 Research Paper includes details on the Board’s considerations and conclusions, as well as the resources that are available to assist entities in the public sector with preparing financial statements in accordance with the Standards of GRAP (see Appendix C Table 1). Most notably, the Guideline on The Application of Materiality to Financial Statements provides guidance that would be useful to address some of the challenges.

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.