IPSASB Exposure Drafts 48-52 on Accounting for Interests in Other Entities

The International Public Sector Accounting Standards Board (IPSASB) has published the following five exposure drafts (EDs):

  • ED 48, Separate Financial Statements
  • ED 49, Consolidated Financial Statements
  • ED 50, Investments in Associates and Joint Ventures
  • ED 51, Joint Arrangements
  • ED 52, Disclosure of Interests in Other Entities.

These five EDs will replace current requirements in three International Public Sector Accounting Standards (IPSASs):

  • IPSAS 6, Consolidated and Separate Financial Statements
  • IPSAS 7, Investments in Associates
  • IPSAS 8, Interests in Joint Ventures

A key part of the IPSASB’s strategy is to converge the IPSASs, to the extent appropriate, with the IFRSs issued by the International Accounting Standards Board (IASB).  The IPSASB developed these EDs having regard to relevant IFRSs while also considering public sector-specific differences and, as a result, these five EDs propose some important changes to make the standards appropriate for application in the public sector.

“These five EDs present proposals on how public sector entities, including governments, should account for their interests in other entities,” said IPSASB Chair Andreas Bergmann. “Comprehensive and transparent reporting of interests in other entities is essential given the wide range of government interventions in the economy and the scale of those interventions.”

New Zealand Context

In May 2013, the New Zealand Accounting Standards Board (NZASB) issued the PBE Standards – a new suite of standards for Tier 1 and Tier 2 public benefit entities. That initial set of standards is primarily based on International Public Sector Accounting Standards. The XRB’s policy for the ongoing maintenance and enhancement of that suite of standards is set out in a policy paper entitled Policy Approach to Developing PBE Standards which establishes a rebuttable presumption that the NZASB will adopt a new or amended IPSAS.

New Zealand constituents should therefore evaluate the proposals in these EDs as proposals for new PBE Standards. Proposals for Reduced Disclosure concessions under Tier 2 will be considered at a later date.

The following highlights particular aspects of each ED:

ED 48, Separate Financial Statements

The requirements for separate financial statements in ED 48 are very similar to the current requirements for separate financial statements in IPSAS 6.

ED 49, Consolidated Financial Statements

ED 49 will supersede the requirements in IPSAS 6 regarding consolidated financial statements. ED 49 still requires that control be assessed having regard to benefits and power, but it proposes a new definition of control and considerably more guidance on assessing control. The definition of control focuses on an entity’s ability to influence the nature and amount of benefits through its power over another entity. This new definition of control may introduce additional requirements that could impact previous assessments of control.

ED 49 introduces the concept of investment entities. Generally an investment entity measures its investments in controlled entities at fair value through surplus or deficit. An entity that controls an investment entity retains this method of accounting for an investment entity’s investments in its consolidated financial statements.

In contrast with IPSAS 6, ED 49 no longer permits an exemption from consolidation for temporarily controlled entities. Consistent with its goal of minimising differences between IPSASs and statistical reporting guidance, the IPSASB has aligned the principles in ED 49 with the Government Finance Statistics Manual 2013 (GFSM 2013) where feasible.

ED 50, Investments in Associates and Joint Ventures

ED 50 explains the application of the equity method of accounting, which is to be used in accounting for investments in associates and joint ventures. The proposals are very similar to the current guidance in IPSAS 7; the key difference is that the ED encompasses joint ventures. ED 50 and ED 51 propose that investments in joint ventures be accounted for using the equity method of accounting.

In contrast with IPSAS 7, ED 50 does not permit a different accounting treatment for temporary investments.

ED 51, Joint Arrangements

ED 51 contains proposals for classifying and accounting for different types of joint arrangements. It proposes that joint arrangements be classified as either joint operations or joint ventures. In a joint operation, the parties to the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. In a joint venture, the parties to the arrangement have rights to the net assets of the arrangement. This proposed classification differs from IPSAS 8, which referred to three types of arrangements (jointly controlled entities, jointly controlled operations, and jointly controlled assets).

ED 51 proposes that an entity account for its interest in a joint operation by recognising its share of the assets, liabilities, revenue, and expenses of the joint arrangement and that joint ventures be accounted for in consolidated financial statements using the equity method. Previously, IPSAS 8 permitted jointly controlled entities to be accounted for using either the equity method or proportionate consolidation.

ED 52, Disclosure of Interests in Other Entities

ED 52 brings together the disclosures that were previously included in IPSASs 6–8 and introduces certain new disclosure requirements, including those related to structured entities that are not consolidated.

How to Comment

Comments, both formal and informal, can be made to the New Zealand Accounting Standards Board (NZASB) addressed to the Chief Executive, External Reporting Board, PO Box 11250, Manners Street Central, Wellington 6142, or by email to submissions@xrb.govt.nz.

Respondents are also encouraged to send comments directly to the IPSASB, with a copy to the NZASB. Comments can be made electronically to the IPSASB website (www.ifac.org) using the “Submit a Comment” link in the ED.

It would be appreciated if respondents send their comments in electronic form (PDF and Microsoft Word formats) as it allows for efficient collation and analysis of comments. All comments will ultimately be posted on the XRB website unless respondents indicate that they wish their comments to remain confidential.

Comments are due to the NZASB by 17 January 2014 and to the IPSASB by 28 February 2014.

Read IPSASB At a Glance: Interests in Other Entities—Summary of Five Exposure Drafts (October 2013)

Read IPSASB ED 48, Separate Financial Statements (October 2013)

Read IPSASB ED 49, Consolidated Financial Statements (October 2013)

Read IPSASB ED 50, Investments in Associates and Joint Ventures (October 2013)

Read IPSASB ED 51, Joint Arrangements (October 2013)

Read IPSASB ED 52, Disclosure of Interests in Other Entities (October 2013)

 

 

 

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