The International Public Sector Accounting Standards Board (IPSASB) is progressing its project to develop an IPSAS for revenue transactions. The IPSASB continued to consider feedback on its Exposure Drafts and proposed ways forward at its March 2022 meeting. The key deliberations are discussed below.
What is an obligation in a revenue transaction?
The IPSASB confirmed that accounting guidance for revenue transactions be distinguished based on whether a transaction arises from a binding arrangement. Only revenue transactions from binding arrangements give rise to obligations. Although there may be economic differences in the types of transactions that arise from binding arrangements ,ranging from present obligations described in ED 71 Revenue without Performance Obligations to performance obligations described in ED 70 Revenue with Performance Obligations, the accounting for these transactions will follow the same model. Transactions that do not arise from binding arrangements will follow a separate simplified model. The current thinking is that one IPSAS will be developed for all revenue transactions.
The discussion focussed on describing a single accounting concept ,“the obligation arising from revenue transactions with binding arrangements”. The IPSASB decided not to use “performance obligation” since it is used in IFRS 15 on Revenue from Contracts with Customers with a slightly different meaning. Instead, the IPSASB agreed to use the term “compliance obligation” to describe an entity’s legally binding obligation arising from revenue transactions with a binding arrangement. The definition of “compliance obligation” will be considered at a future meeting.
How to measure binding arrangement assets?
The IPSASB discussed the implications of internal and external factors on the subsequent measurement of assets arising from binding arrangements. Internal factors include management’s decisions about enforcing a transaction, while external factors refer to circumstances that may not allow an entity to enforce a transaction.
An entity only considers whether it is able to enforce an arrangement in determining whether a binding arrangement exists. This assessment may focus more on external factors. Subsequently, the entity’s intention to enforce a transaction impacts the measurement of assets arising from binding arrangements and may be an indicator of impairment. Whether the entity intends to enforce a transaction focuses on internal factors.
Other considerations?
In the related “transfer expense” project, the IPSASB considered the timing of recognition of a transfer expense; and the related monitoring arrangements. For transfer expenses from a binding arrangement recognised over time, it was considered whether monitoring arrangements are a prerequisite for the transfer provider to reliably measure the performance by the transfer recipient at the reporting date. If progress cannot be measured through monitoring arrangements, the IPSASB considered whether the expense is recognised immediately. This will be considered at a future meeting.
Local implications of the IPSASB disscussions…
The IPSASB discussions have no local implications at this stage. Should the IPSASB re-expose the IPSASs on revenue and transfer expenses, local stakeholders will be consulted. The IPSASB indicated that re-exposure of these IPSASs is likely.
Follow the IPSASB’s progress on their website: https://www.ipsasb.org/consultations-projects/revenue and https://www.ipsasb.org/consultations-projects/transfer-expenses.