6.1 m-standards program update · 2011. 6. 24. · item 6.1 memo on standards program update ipsasb...

ITEM 6.1 page 6.1

Item 6.1 Memo on Standards Program Update IPSASB New York July 2005

INTERNATIONAL FEDERATION

OF ACCOUNTANTS

545 Fifth Avenue, 14th Floor Tel: (212) 286-9344

New York, New York 10017 Fax: (212) 286-9570

Internet: http://www.ifac.org

DATE: 10 JUNE 2005 MEMO TO: MEMBERS OF THE IPSASB FROM: PAUL SUTCLIFFE AND MATTHEW BOHUN SUBJECT: INTERNATIONAL PUBLIC SECTOR ACCOUNTING

STANDARDS ACTION REQUIRED The Board is asked to: • note developments in the areas outlined below; and • provide input on any further developments BACKGROUND The purpose of this paper is to provide an overview and update on funding, promotion and translation activities during 2005. This is a standing item on the IPSASB Agenda. The Work Plan for 2005 and beyond is considered in detail at Agenda items 6.2, 6.3 and 6.4. Staff maintain a register of organizations who have been approached for funding support for the IPSASB in previous years. Staff also maintain a list of presentations in support of the IPSASB and IPSASs made by members, technical advisors, observers and staff in previous years. These are available on request. (i) Standards Program Funding Financial information regarding operations of IPSASB’s standards program during the first half of 2005 will be provided to members at the meeting. As noted in the Chairman’s report at item 4 of this Agenda, the Chair has been involved in discussions with Rene Ricol (the immediate past IFAC President), key IFAC office bearers and staff, and the World Bank Observer on the IPSASB regarding fund raising activities in 2005. The current status of funding for 2005 is outlined below.

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Current Funding Profile - 2005 Organization Status Public Expenditure and Financial Accountability (PEFA) Program

Funds provided by PEFA in 2004 ($50,000US) to support the Budget Reporting Project have been used. Additional support is being pursued. PEFA is financed jointly by the World Bank, European Commission, and UK DFID.

Multi Lateral Development Banks (MDB) and World Bank

In 2004, $75,000US was provided to support the Development Assistance Project through a fund administered by the World Bank. That funding continues to support the project.

World Bank The World Bank has approved funding of $250,000US per annum for 2005 and beyond.

Asian Development Bank

The ADB has provided $245,000US over a three year period to end of 2004/early 2005. The final tranche of that funding has now been received.

(ii) Standards Project Promotion and Key Relationship Management Background A list of invitations and presentations made/scheduled in 2005 is set out below. If you have agreed to present during 2005, or have already presented at any seminars or meetings that should be included in this list, please inform Matthew Bohun. (Additions since the March meeting are identified in mark-up). In addition to matters identified in this list, IPSASB members and their technical support and observers also report on a regular basis to their national Boards and/or other relevant bodies on IPSASB activities. The IPSASB Chair and staff also report to the IFAC Board and relevant IFAC Committees on a regular basis. 2005 Invitations and Activities

Date Location/Activity Host/Participants/Journal IPSASB Member, TA, Observer, Staff

January 2005

Paris UNESCO – Technical Group. Panel of External Auditors, Chief Accountants and Finance Directors. Presentation on IPSASs and IPSASB work plan.

Philippe Adhémar

January Luxembourg European Court of Auditors. Presentation on IPSASs and their adoption by EU entities.

Jean-Luc Dumont

January Washington World Bank. Presentation on Cash and Accrual IPSASs

Matthew Bohun

February Tel Aviv, Israel Israel Institute of CPAs. Presentation on Social Policies of Government.

Roni Alroy

February Paris OECD Senior Budget Officers’ Forum. Presentations on IPSASB projects.

Philippe Adhémar Paul Sutcliffe

February New York Interview with Glenn Cheney, “Accounting Today” of WebCPA

Matthew Bohun

February Paris TFHPSA. Presentation on IPSASB projects and ED on General Government Sector (GGS) Disclosures

Philippe Adhémar and Paul Sutcliffe

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Date Location/Activity Host/Participants/Journal IPSASB Member, TA, Observer, Staff

March London, UK European Group of UK qualified accountants. Presentation on IPSASs and IPSASB work plan

John Stanford

May Poitiers, France CIGAR - Update on IPSASB developments, current work program and future developments

Philippe Adhémar

May Poitiers, France CIGAR – Update on heritage assets project and issues to be considered

John Stanford

May Dublin, Ireland Irish Institute of Public Administration. Update on IPSASB developments, current work program and future developments

Mike Hathorn

May Melbourne, Australia

Contemporary Accounting Problem- Discussion Group. Presentation on IPSASB emerging issues.

Paul Sutcliffe

May Kuwait Assembly of the National Budgetary, Financial and Economic Committees in the GCC. Update on IPSASB including budget project.

May Sarawak, Malaysia Fourth Workshop on the Financial Management of Statutory Bodies. Update on IPSASB current work program and future developments

July Orlando, FL, USA Association of Government Accountants. Annual Conference: “Public Sector Financial Reporting and the Public Interest”.

Ian Ball (IFAC Chief Executive).

August Jakarta International Accounting Standards. Seminar - Update on IPSASB and workshop cash and accrual IPSASs.

Paul Sutcliffe

(iii) Translations The translation into Spanish of accrual IPSASs 1 to 20, the comprehensive Cash Basis IPSAS, the Glossary of Defined Terms and the updated Preface to IPSASs have been completed under the agreement with the IASCF. The Spanish translation of these IPSASs was uploaded on the IFAC web in 2004, and can be downloaded free of charge. The translation of IPSAS 21 into Spanish is currently in progress. The publications team in New York is currently preparing a Spanish edition of the “IFAC Handbook of Public Sector Pronouncements”. In addition to the translated IPSASs, Cash Basis IPSAS and Glossary, the handbook will include Spanish translations of the “About IFAC” section and the “Code of Ethics”. IPSASs 21 will be included if the translation is completed in time. Completion of the French translation of these documents (including IPSAS 21) is anticipated by the end of June 2005 – translation of IPSAS 21 is the only outstanding item. A hard copy edition of the Handbook in French will then also be prepared.

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In addition, translations of IPSASB documents into other languages are in progress, or have been completed, by member bodies and other interested organizations. The table below summarizes progress on translation activities to date. (Amendments since the March 2005 meeting are identified in mark-up.) Please advise Matthew Bohun of any further amendments to this listing.

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Language Organization Status French French

IASC-IPSASB Arrangement NATO

Anticipate translation of IPSASs 1 – 2021, Cash Basis IPSAS and Preface by end April 2005. NATO has translated the black letter paragraphs of IPSASs 1-8 into French.

Spanish IASC – IPSASB Arrangement IPSASs 1 – 20, the Glossary of Defined Terms and the Cash Basis IPSAS have been completed. IPSAS 21 in process.

Czech Chamber of Auditors of the Czech Republic.

IPSASB Handbook is being translated.

Bosnia and Macedonia

Ministry of Finance The accrual and cash basis IPSASs have been translated into the Macedonia language but not yet copied into the government “register”. No progress on translation in Bosnia.

Russian International Center for Accounting Reform (ICAR) Chamber of Auditors of the Republic of Kazakhstan (IFAC Member Body) Samara Region Institute

Translation of following completed: IPSASs 1-12, the Glossary of Defined Terms, IPSASB Studies and Guideline 1 on GBE’s. The Kazakhstan member body is translating the IPSASB Handbook into Russian. Enquiry re authority to translate received. (Staff have advised of other Russian translation activity.)

Chinese

PRC Ministry of Finance in conjunction with World Bank Federation of CPA Associations of Chinese Taiwan (IFAC Member Body)

IPSASs 1 – 20 and Glossary of Defined Terms completed. Study 11 has been translated into Chinese.

Arabic The Palestinian Association of Accountants and Auditors Arab Society of Certified Accountants, Amman, Jordan (IFAC Member Body)

Translated IPSASs 1 – 12. Translation of IPSASs 13 – 20 in progress. ASCA has prepared a translation of the IASs into Arabic and translated IPSASs 1-13, Studies 3-12, Guidelines 1and 2, and is currently translating Studies 13 and 14 and Occasional papers 4 and 5.

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Language Organization Status Italian Consiglio Nazionale dei Dottori

Commercialisti (IFAC Member Body)

IPSASs 1-17 completed. IPSASs 18-20 under way.

Bahasa Indonesia

Professor Indra Bastian IPSASs 1-15 have been translated.

Maltese Grant Thornton – Malta Office, on behalf of the Government of Malta

English versions used. No translations occurring.

Japanese Japanese Institute of Certified Public Accountants (IFAC Member Body)

Translation of IPSASs 1- 20, Cash Basis, Study 11 and Study 14 completed.

Mongolian Mongolian Institute of Certified Public Accountants (IFAC Associate Member Body) with World Bank support

Translation of IPSAS 1-20 completed.

German Swiss and German Institutes and Swiss Government

Considering translation – no action as yet. English version used for reform process in Switzerland. No urgency for translation.

Bulgarian Institute of Certified Public Accountants of Bulgaria (IFAC Member Body)

The Bulgarian member body is translating the IPSASB Handbook.

Lithuanian Lithuanian Institute of AccountingAccounting Methodology Department, Lithuanian Ministry of Finance

Permission sought to translate. Application supported and approval in progress.

Hebrew Ministry of Finance, State of Israel Memorandum of Understanding to translate IPSASB Handbook signed in February 2005.

ITEM 6.2 page 6.7

Item 6.2 Memorandum from Paul Sutcliffe IPSASB New York July 2005


OF ACCOUNTANTS




DATE: 10 JUNE 2005 MEMO TO: MEMBERS OF THE IPSASB FROM: PAUL SUTCLIFFE SUBJECT: IPSASB STANDARDS PROGRAM WORK PLAN ACTION REQUIRED The Board is asked to:

• review and confirm the draft work plan; and • provide directions regarding any amendments.

AGENDA MATERIAL: Pages

6.3 IPSASB Work Plan for 2005+ 6.12 6.4 IPSASB Work Plan for 2005 – 2007 6.13 6.5 Memorandum from Li Li Lian and Paul Sutcliffe on IFRIC

– Service Concessions 6.14 – 6.15

6.6 Submission to the IASB-IFRIC on draft Interpretations dealing with Service Concessions

6.16 – 6.23

6.7 Correspondence re New Zealand FRSB project proposal 6.24 – 6.25 6.8 Projects of National Standards Setters 2nd distribution

Status June 2005 The 2005 and 2005-2007 work plans have been updated to reflect decisions made at the March 2005 meeting. Clean copies of the work plans are attached as items 6.3 and 6.4. Major activities/outputs since that meeting and an update on major projects are outlined below. The work plans are subject to change dependent on decisions made at this meeting. Documents issued since the last meeting The following documents have been finalized and issued since the March 2005 meeting of the IPSASB: • IPSASB Update 1, which summarizes the IPSASB March 2005 meeting, was issued in

English, French and Spanish in April 2005. • A submission was made to the IASB IFRIC in May 2005 IFRIC Draft Interpretations

D12 “Service Concessions Arrangements – Determining the Accounting Model”; D13 “Service Concessions Arrangements – The Financial Asset Model”; and D14 “Service Concessions Arrangements – The Intangible Asset Model”.

Structure of Work Plan The Structure of the work plans reflect that agreed at the March 2005 meeting: • Part 1 indicates the current 2005 program (active, completed or proposed active

projects). Projects in Part 1 are grouped to reflect the IPSASB’s project priorities (first priority being public sector specific issues, second priority being the IASB convergence project and third priority being the IPSAS statistical base convergence project). Part 1

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Item 6.2 Memo from P Sutcliffe on Work Plan IPSASB New York July 2005

also identifies the projects that are being or have been developed “out-of-session” by members and sub groups as agreed at previous meetings.

• Part 2 identifies those projects that will become active in the future when additional staff resources become available.

Consequences of IPSASB Review – IFAC Board decisions on recommendations of the Review Panel A report on progress on implementing the recommendations of the Review Panel supported by the IPSASB and agreed by the IFAC Board, and a draft policy on Observers was included in Agenda materials for the last IPSASB meeting (March 2005). The Chair has written to Observer organizations as agreed at the last meeting. A verbal report on further progress on implementation of the recommendations will be provided at the meeting. Project Updates – major items for discussion at this meeting Non-Exchange Revenue - Agenda item 8 An updated Exposure Draft on Non-Exchange Revenue is included at Agenda item 8. Accounting for Social Policies of Government - Agenda item 9 A first draft Exposure Draft on Accounting for Social Policies of Government is included at Agenda item 9. Item 9 also includes an extract of an ED that deals with basic/distress pensions and the results of input on global pensions. Budget Reporting - Agenda item 10 An updated draft ED on reporting compliance with budgets is included at Agenda item 10. The updated ED was redrafted by staff and Dr Hughes based on decisions of the IPSASB at the March 2005 meeting. The draft ED was circulated to the Project Advisory Panel (PAP) for comment by Dr Hughes. Dr Hughes will provide an update on PAP comments at the IPSASB meeting. The funding arrangement with PEFA to support the development of this project is now complete. Staff have taken over drafting responsibilities. However, Dr Hughes has agreed to provide input on matters of principle and practice as needed. IASB Convergence – IPSAS Improvements Project - Agenda item 11 The IPSASB is updating eleven IPSASs for changes emanating from the IASB Improvements Project. The objective is to converge as far as is appropriate with the improved IASs/IFRSs ISSUED as at December 2003, the date when the IASB completed its IAS/IFRS improvements project. The IPSASB has previously reviewed and agreed amendments to all proposed IPSASs included in the improvements project. The amendments agreed by the IPSASB have been processed and the proposed revised IPSASs have been reviewed for consistency of application. The full draft exposure draft, papers dealing with outstanding issues, the IFRS convergence policy, equal authority and a draft media releases are included at Agenda item 11. IPSAS Statistical Bases of Reporting – Convergence Projects - Agenda item 12 The updated draft ED on the disclosure of information about the general government sector (GGS) is included at Agenda item 12. Working Group 1 (WG1) of the Task Force on Harmonization of Public Sector Accounting (TFHPSA) forms the PAP for this project. The draft has been circulated to PAP members for comment. A report on PAP comments will be provided at the IPSASB meeting.

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Heritage Assets - Agenda item 13 The first draft of the UK-ASB and IPSASB joint paper is included at Agenda item 13. The IPSASB project brief is also included at that item for your information. External Assistance - Agenda item 14 Exposure Draft ED24 “Financial Reporting Under the Cash Basis of Accounting – Disclosure Requirements for Recipients of External Assistance” was issued in January 2005 with comments requested by June 15. Submissions received to date are included at Agenda item 14. Charles Coe, the consultant on this project will be in attendance to provide a summary of responses received and discuss the way forward with members. Additional responses will be forwarded to members as received. Public Private Sector Arrangements The IPSASB submission on IFRICs draft Interpretations D12, D13, D14, is attached to this work program at item 6.7. The IPSASB Chair has previously written to the IASB Chair proposing that the IPSASB and IASB action a joint project to deal with accounting for service concessions (public private sector arrangements) by both the grantor and operator. The initiation of an IPSASB project (or a joint project with the IASB) on this topic is dependent on how the IASB-IFRIC responds to submissions made on its draft Interpretations and the result of discussion between the IPSASB Chair and the IASB Chair on the potential for a joint project. The Chair will provide a verbal update on this at the forthcoming meeting. Staff are monitoring IFRIC developments and will provide a verbal update at the forthcoming meeting. Other Matters Conceptual Framework National standards setters are considering the formation of a small group to track the IASB-FASB conceptual framework project with a view to identifying implications of particular significance to the public sector. National standards setters who have expressed an interest in participating are Australia, NZ, Canada and UK. These standards setters agreed that the IPSASB should also be invited to be involved in any ongoing activity of the group. The group would initially keep in touch electronically and decide later whether it would need to meet. Resourcing of the group has yet to be determined. The IPSASB chair has responded positively, noting that: • he would bring this matter to the attention of IPSASB members at this meeting, with a

proposal that a subcommittee of interested members be formed to participate in the monitoring group;

• the IPSASB will initiate its own project on a public sector conceptual framework as resources become available (hopefully in 2006), and input from the monitoring group will provide valuable input to the IPSASB project;

• as the IPSASB resource position becomes clearer (in late 2005 or earlier 2006), it would be useful to discuss with interested national standards setters, the potential for their involvement and co-operation in the development of the IPSASB's conceptual framework project.

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Projects of Other Standard-Setters Agenda item 6.6 provides a high level summary/overview of the broad types of projects that are being considered by standards setters and authoritative bodies in IPSASB member countries. These encompass short, medium and long term projects. This summary/overview is provided for members to consider as they review the draft work plan. The summary/overview was prepared from input provided by members in response to a request from staff (June 2005). It will be updated as additional input is received. Please advise Li Li Lian of any revisions, additions, etc and we will update for tabling. Consultative Group - Agenda item 17 The updated Consultative Group membership list is included at Agenda item 17. A meeting with members of the Consultative Group and other key constituents from North America will take place in conjunction with the forthcoming meeting (on July 25). An Agenda for that meeting is included at Agenda item 1.5. Non-Technical – Promotion and Translation Translation and promotion activities are identified in detail in Agenda item 6.1.

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2005 Work Plan - Summary Projects proposed for IPSASB consideration during the remainder of 2005, and anticipated outcomes, are outlined below.

Projects Currently in Process/Agreed/Proposed for 2005 • Non-Exchange Revenue (including taxes) – Consider updated draft of ED (July

2005 for approval to issue, subject to updating for additional amendments). • Social Policies of Government – Consider ED on social benefits other than

pensions and a paper on the characteristics of “global” pension arrangements (July 2005 and ongoing)

• Reporting Compliance with Budgets – Consider draft ED (July 2005 for approval to issue, subject to updating for additional amendments)

• IPSAS-IFRS Convergence – IPSAS Improvements Project. Consider draft ED (July 2005 for approval to issue, subject to updating for additional amendments)

• IPSAS and Statistical bases of financial reporting Convergence activities -Draft ED on General Government Sector (July 2005 for approval to issue,

subject to updating for additional amendments) • Heritage Assets – Consider draft Research Report/Discussion Paper (July 2005

and ongoing) • Cash Basis - External Assistance – Consider responses to ED (July 2005 and

ongoing) • Consider strategy on public-private sector arrangements (July 2005 and ongoing) • IAS 19 “Employee Benefits” – Consider applicability to public sector (November

2005 and ongoing) Projects being progressed by members sub committees as previously agreed • Occasional Paper on the USA experience – Consider Paper being developed by

USA delegation. IPSASB consider first draft July 2005. (July 2005 and ongoing) • Impairment – Cash Generating Assets – Consider draft ED being developed by

IPSASB subcommittee out of session. IPSASB consider first draft November 2005 (November 2005 and ongoing).

Additional Projects in 2006 and beyond when resources will allow • Conceptual framework (monitor IASB with national standards setters 2005.

Consider IPSASB project 2006) • Review implementation issues re Cash Basis IPSAS (2006) • IPSAS Convergence with other IFRSs (2006) • IPSAS and Statistical bases of financial reporting – ongoing liaison with

statistical community, performance reporting including IASB reporting comprehensive income project (2006)

• Study on use of IPSASs – consider project proposal (2006) • Budget – prospective budgets (2006) • Study 14 – Update (2006)

Staffing 2005 An update on staffing arrangements will be provided at the meeting.

ITEM 6.3page 6.12

(Prepared for July 2005)

Work Plan Jan 05 - Dec 05 Quarter 1 Quarter 2 Quarter 3 Quarter 4 2006 (2007, 2007+)

Project: Active/Complete Meeting March No meeting Meeting July Meeting November/December

1.Public Sector Specific

1 Revenue - Non-Exchange Consider first Draft of ED Consider/approve updated draft ED (?) Finalize/Issue ED Develop IPSAS

2 Social Policy Obligations -pensions Scope, strategy, R'ship to IAS 19 Agree key issues pensions Consider first draft ED (pensions) Issue ED/Develop IPSAS

Social Policy Obligations - not pensions Consider first draft ED (not pensions)? Consider/approve revised ED Issue ED/Develop IPSAS

3 Cash Basis-External Assistance Issue ED Consider responses to ED First draft IPSAS Issue IPSAS/Update cash basis

4 Budget/actual Comparison Consider draft ED Consider/approve updated draft ED (?) Finalize/Issue ED Responses/Develop/Issue IPSAS

5 Heritage Assets-Recog/Msmnt. Consider Strategy Consider prelim.draft Research Report Consider draft Research Report Finalize/Issue Research Report

6 Public/Private S. Arrangements Strategy/IFRIC ED Submission to IFRIC Consider strategy/Follow-up activity Follow-up activity Develop/Issue ED

7 Impairmnt of Assets - non cash Issue IPSAS

8 2.IASs/IFRSs Convergence Projects Staff Rep-IASB Update Staff Rep-IASB Update Staff Rep-IASB Update Staff Rep-IASB Update

9 -IPSAS Improvements Project Consider marked-up IPSASs Consider/approve/Issue omnibus ED Develop/Issue IPSASs

-IAS 19 Employee Benefits Consider startegy Consider issues paper Develop/Issue ED

10 3.GFS/ ESA/SNA Convergence Issue Research Report Follow up activity as necessary

11 Gen. Government Sector (GGS) First draft ED on GGS Consider/approve updated draft ED (?) Finalize/Issue ED Develop/Issue IPSAS

12 Glossary Issue Glossary IPSAS 1-21 Update Glossary as necessary

In progress by subcom members

13 Impairmnt - cash generating Subcom develop ED Review first draft ED Issue ED/Develop IPSAS

14 USA Occasional Paper Consider contents of paper Consider first draft paper Approve USA Paper Issue USA paper

Projects: Not Active (by priority group)

15 1.Cash Basis IPSAS review No action 2005 Review Implmntat'n Expr'nce

16 1.Conceptual Framework No action 2005 Consider strategy

17 1.Budget - Prospective budgets No action 2005 Consider strategy

18 1.Study 14 - Update 3 No action 2005 Consider if update is necessary

19 1.Survey on adoption of IPSASs No action 2005 Consider project brief

20 2.IFRSs Convergence - other IFRSs No action 2005 Consider strategy

21 2.+3.Performance Reporting No action/monitor IASB 2005 Consider strategy

Other Matters:Active

22 PSC Review Follow-up Observers, Issue Preface Review composition observer group Update Preface-equal authority

24 Consultative Group Local area members meeting Local area members meeting Local area members meeting

25 Translation - Key Languages: Issue French + Spanish handbooks Consider other languages

26 Promotion/Communication Seminars/Presentations Presentations IPSASB Seminars/Presentations IPSASB Seminars/Presentations IPSASB Seminars/Presentations

IFAC - INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS BOARD (IPSASB) DRAFT WORK PLAN 2005

Item 6.3 Work Plan for 2005+ (Update July 2005)IPSASB New York July 2005

ITEM 6.4page 6.13

Technical Projects 2005 2006 2007Active/Complete 2005

1.Public Sector Specific1 Revenue - Non-Exchange Finalize/approve/Issue ED Develop/Issue IPSAS Promote IPSAS/Follow up activity2 Social Policy Obligations Consider Scope/Develop EDs Issue EDs/Approve IPSAS 1 (non-pension) Develop/Issue IPSAS 2 (non pensions)

3 Cash Basis- External Assistance Issue ED for Cash Basis Develop/Issue Cash Basis IPSAS- consider accrual Follow up for accrual IPSASs if necessary4 Budget Actual Comparison (cash+accrual) Issue ED Develop/Issue IPSAS/update IPSASs

5 Heritage Assets-Recog Measurement Develop Research Report Issue Research Report/develop ED Issue ED and IPSAS (update IPSAS 17)6 Public/Private S. Arrangements Consider Startegy/follow up action Develop/Issue ED (with IASB?) Develop/Issue IPSAS

7 Impairment of Assets - non-cash Issue IPSAS8 2.IAS/IFRS Convergence Program9 - IPSAS Improvements Project Issue ED Develop/approve revised IPSASs Issue improved IPSASs in handbook

2 - IAS 19 Employee Benefits Consider scope/ re Social Policies Develop/Issue ED Develop/issue IPSAS10 3.GFS, ESA and SNA Harmonization Issue Res'rch Rep-TFHPSA meetngs Monitor developments Follow up activity as necessary11 -Gen Gov. Sector(GGS) Issue ED (GGS) Issue IPSAS12 Glossary Issue Glossary IPSAS 1 -21 Update if necessary Update if necessary

In progress by subcom members13 Impairment of Assets - cash- generating Consider first draft ED by subcom Issue ED/Develop IPSAS Issue IPSAS (Update IPSAS 21)14 Occasional Papers Develop/approve USA paper Issue USA Paper/Develop new country paper Issue Paper on other country

No Action 20051.Public Sector Specific

15 1. Cash Basis IPSAS review No IPSASB action. Monitor any input Review Implement'n. Develop implement'n report Update as necessary16 1. Conceptual Framework No Action - monitor IASB-FASB project Consider Strategy/Monitor developments Develop ED17 1. Budget GPFS -Prospective Budget No action Consider status/follow-up activity Follow-up activity18 1. Transitional Guidance - Study 14 No action No action anticipated Update for third edition 19 1. Survey on adoption of IPSASs No action Consider Strategy/project brief Develop/Issue paper

20 1. Non-financial Performance Reporting No action Consider Strategy Follow-up activity21 2. IAS/IFRS Convergence Program Staff monitor/report IASB work program Staff monitor/report on IASB work program Staff monitor/report on IASB work program23 2- Business Combinations No action Review/confirm Status/action if resources Follow -up activity24 2- Fin. Inst: Recog & Measure. No action Review/confirm Status/action if resources Follow-up activity25 2- Other IFRSs No action Review/confirm Status/action if resources Follow-up activity26 2+3.Stat Convrgnce-Performnce Reportng No action/monitor IASB Consider strategy/follow up activity Follow-up activity

27 Other Matters:Active Funding,communicat'n,translat'n,administrat'n Funding,communicat'n,translat'n,administrat'n Funding,communicat'n,translat'n,administrat'n28 PSC Review follow up Issue Updated Preface in handbook Issue Updated Preface in handbook

29 Liaison IFAC+ Committees and Task Forces Educat'n, Dev.Nations, others + PIOB Educat'n, Dev.Nations, others + PIOB Educat'n, Dev.Nations, others + PIOB

IFAC- INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS BOARD (IPSASB) WORK PLAN 2005- 2007

Item 6.4 IPSASB Work Plan for 2005-2007IPSASB New York July 2005

ITEM 6.5 page 6.14

Item 6.5 Memo from Paul Sutcliffe and Li Li Lian on submission to IFRIC re: Service Concessions IPSASB New York 2005


OF ACCOUNTANTS




DATE: 10 JUNE 2005 MEMO TO: MEMBERS OF THE IPSASB FROM: LI LI LIAN AND PAUL SUTCLIFFE SUBJECT: SUBMISSION TO IFRIC ON DRAFT INTERPRETATIONS

RE: SERVICE CONCESSIONS ACTION REQUIRED The Board is asked to: • note the submission forwarded to the IASB – IFRIC regarding IFRIC Draft

Interpretations: D12, “Service Concession Arrangements – Determining the Accounting Model”, D13, “Service Concession Arrangements – The Financial Asset Model”; and D14, “Service Concession Arrangements – The Intangible Asset Model”. AGENDA MATERIAL: Pages 6.6 Submission to IASB – IFRIC 6.16 – 6.23

BACKGROUND The IASB – IFRIC issued Draft Interpretations dealing with service concessions in March 2005 for comment by 31 May. At the IPSASB meeting in March 2005, members noted some concerns with the Interpretations and agreed that the IPSASB would make a submission to the IFRIC. Members provided input to staff during April and May and the attached submission was agreed out of session and submitted to the IASB – IFRIC on June 1, 2005. ISSUES

Accounting by the Grantor While the IASB mandate (including the IASB – IFRIC) is to develop Standards and Interpretations applicable to profit seeking entities, service concession arrangements (public private sector arrangements) often involve public sector non-profit entities. The Basis for Conclusion (BC) in Draft Interpretation D12 (paragraph BC16) explains that “the grantor of a service concession controls the use of the infrastructure items that are the subject of the concession, even if they are owned by the operator” in the (albeit limited) circumstances within the scope of the Draft Interpretations. Paragraph BC12 of Draft Interpretation D12 also explains that “the draft Interpretation is based on the conclusion that service concession infrastructure should be recognised as property, plant and equipment of the party that controls its use”.

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Item 6.5 Memo from Paul Sutcliffe and Li Li Lian on submission to IFRIC re: Service Concessions IPSASB New York 2005

The consensus in Draft Interpretation 12 (paragraph 9) explains “To the extent that service concession infrastructure is within the scope of this [draft] Interpretation, it shall not be recognised as property, plant and equipment of the grantor”. If the view of the IFRIC as reflected in the basis for conclusion to Draft Interpretation D12 was applied by public sector entities which are grantors, these public sector entities would recognise as property, plant and equipment the infrastructure subject to the service concessions. In accordance with the proposed Draft Interpretations, private sector for profit operators will recognise a financial asset or intangible asset in respect of their “right of access” to the infrastructure. Apart from the BC observation that the grantor should account for the infrastructure as property, plant and equipment, there is no guidance on how the grantor should deal with any obligations arising in respect of the financial asset or intangible asset recognized by the operator. Of course, the Draft Interpretations are not authoritative for public sector (or private sector) non-profit entities and deal with only a limited subset of potential public private sector arrangements. Consequently, it is not clear that there will be symmetrical accounting for such arrangements. Anecdotally, it appears that current practice for public sector grantors is not necessarily what the IFRIC implies is the correct accounting. Future Actions The IPSASB Chair has previously written to the Chair of the IASB proposing that the IPSASB and IASB work together to develop appropriate standards/guidance that will deal with both the grantor and operator, and will be applicable for both the private and public sectors. Staff are of the view that a joint/co-operative approach should be pursued further. It is not in the interests of the financial reporting community that there be asymmetrical accounting for service concessions by the grantor and the operator. This is particularly so: • Given the IPSASB’s policy of converging with IFRSs unless there is a public sector

reason to depart; and • Since service concession arrangements can encompass private to private, public to

private, and non-profit operator arrangements. Staff are also of the view that the IPSASB should: • Monitor closely IFRIC deliberations as it reviews the submissions on the Interpretations;

and • Defer any decision regarding the actioning of an IPSASB project until the IFRIC and

IASB positions are clear and the possibility for joint action have been fully explored. Li Li Lian, TECHNICAL MANAGER Paul Sutcliffe, TECHNICAL DIRECTOR

ITEM 6.6 page 6.16

6.6 Submission to IFRIC on service concessions IPSASB New York July 2005

Gilbert Gélard Acting Chairman IFRIC 30 Cannon Street London EC4M 6XH United Kingdom

Dear Sir,

Re: IFRIC Draft interpretations on Service Concessions Arrangements The International Public Sector Accounting Standards Board (IPSASB) is pleased to submit its comments on IFRIC Draft Interpretations D12, “Service Concessions Arrangements – Determining the Accounting Model”, D13, “Service Concessions Arrangements – The Financial Asset Model” and D14, “Service Concessions Arrangements – The Intangible Asset Model” (collectively known as the Draft Interpretations). The IPSASB is of the view that there is a need to provide constituents with guidance on service concession arrangements. The IPSASB supports the IASB’s initiative in dealing with this topic, but questions whether an IFRIC is the appropriate vehicle to do so. The IPSASB is concerned with a number of aspects of IFRIC’s proposals. These concerns are set out in this letter. The IPSASB’s responses to the specific questions raised by the IFRIC are set out in the detailed analysis section to the letter. Unless otherwise stated, responses reflect the unanimous view of the IPSASB.

Scope of Draft Interpretations Draft Interpretation D12 (D12) paragraph 7 specifies that the Draft Interpretations do not apply to grantors. On 7 December 2004, I sent a letter to Sir David Tweedie expressing the IPSASB’s concern that it appeared that IFRIC had excluded accounting by grantors in service concession arrangements from the scope of its Draft Interpretations. Acknowledging that IFRIC develops guidance only for profit-oriented/private sector entities, the IPSASB remains concerned that accounting by grantors in service concession arrangements has not comprehensively been dealt with by the Draft Interpretations except in the basis for conclusions. In this context, the IPSASB notes that the scope exclusion seems at odds with paragraph BC6 of the Basis for Conclusions (BC6) of D12 which defines the scope “in terms of the arrangements themselves rather than the status of the parties to the arrangements”.

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The IPSASB is also concerned that a number of service concession arrangements will fall outside the scope of the Draft Interpretations. These include arrangements in which the residual interest is insignificant and arrangements where the operator held and recognized assets prior to entering the service concession arrangement (paragraph 6 in D12).

The Control Approach The IPSASB is not convinced with the conclusions reached by IFRIC (BC13 – BC16), whereby the grantor controls the infrastructure that is dealt with by the Draft Interpretations during the concession period. This conclusion implies that the grantor will have to recognize the infrastructure in its financial statements during the concession period. The Notion of ‘Control’ IAS 27, “Consolidated and Separate Financial Statements” paragraph 4 defines control as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IAS 38, “Intangible Assets” paragraph 13 provides that “An entity controls an asset if the entity has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits.” The IPSASB agrees that the future economic benefits represented by assets subject to service concession agreements should be recognized by the entity that controls those economic benefits, but is concerned that the notion of ‘control’ reflected in paragraph 5 of D12 and the supporting basis for conclusions (in paragraph BC13) establishes new/additional characteristics of control that are not contemplated or intended by the existing literature. This is particularly so since: • D12 paragraph 5(a) establishes that control over the future economic benefits that are

subject to the period of the service concession agreement arises when the grantor regulates (and does not otherwise control) what services the operator must provide with the infrastructure, to whom it must provide them, and at what price. D12 paragraph C4 in Appendix C (C4) explains that the effect of paragraph 5(a) and (b) together is to identify when the infrastructure is controlled by the grantor for the whole of its economic life; and

• Paragraph C2 in D12 makes it clear that the grantor as a public sector entity controls the infrastructure notwithstanding that the entity that regulates the services to be provided is a separate reporting entity to the grantor, including when it is an independent regulator operating in the public interest.

In addition, as noted in the response to Question 1 D12, the majority of the IPSASB members are of the view that the risks and rewards associated with any items should not be precluded in the process of determining which party controls and recognizes an asset in its financial statements. The interpretation of the definition of control in D12 has potentially significant (and arguably inappropriate) implications for financial reporting by public sector entities. IPSAS 6, “Consolidated Financial Statements and Accounting for Controlled Entities” explains that regulatory power alone does not constitute control for financial reporting purposes. Without any further elaboration, the Draft Interpretations and IPSAS 6 reflect different views about the relationship between regulatory power and control. Arguably, adoption of the IFRIC for reporting by private sector entities will not provide the result for public sector entities anticipated by the IFRIC. Consequently, the assets subject to the service concession arrangements may be recognized by neither the private nor public sector party to the arrangement.

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The Application of the Notion of Control The IPSASB is not convinced that operators do not control the service concession infrastructure, as proposed in paragraph 9 of D12. The IPSASB is of the view that in many circumstances, operators control, and should, recognize service concession infrastructures as property, plant and equipment. The IPSASB notes that, as acknowledged by BC12 in D12, rights to the future economic benefits represented by property, plant and equipment and other assets may be unbundled. Rights and obligations arising under service concession arrangements can vary widely. Subject to the terms and conditions of any particular arrangement: • It is possible to come to different conclusions on whether (consistent with the current

definition and explanation of control in the IFRSs) the future economic benefits of the assets which are subject to the concession period are controlled by the operator during the concession period; and

• During the period of the concession, in many cases, it is the operator that obtains the future economic benefits (service potential) flowing from the asset (during the concession period) and it is the operator that has the capacity to restrict the access of others to certain of those benefits within the broad parameters of the concession agreement. This is particularly so where the user pays the operator for use of the infrastructure and the role of the grantor is no more than to regulate the provision and availability of services and the price the user pays for the service provided by the operator.

The IPSASB is of the view that it is not appropriate that an IFRIC mandates that all service concession arrangements which possess only the broad minimal characteristics of paragraph 5 in D12 satisfy the definition of control in the IFRS. While an IFRS may mandate such, an IFRIC should not.

Different Accounting Models IFRIC specifies that an operator accounts for its assets either as a financial asset or as an intangible asset depending on whether the grantor or the user bears the primary responsibility to pay the operator. The illustrative examples in Draft Interpretation D13 (D13) and Draft Interpretation D14 (D14) indicate that an operator can have different results in its financial statements dependent only on whether the grantor or the user pays the operator for services, all the other aspects of the agreement being the same. The IPSASB is not convinced that arrangements which are substantially the same with the exception of the identity of the payer should lead to different accounting models.

Standards vs. Series of Interpretations The IPSASB is of the view that the Draft Interpretations as currently exposed does not present acceptable solutions. The IASB should develop a comprehensive standard on accounting for service concession arrangements which provides guidance for both the private sector grantor and operator. This Standard should also deal with the conflict noted in paragraph BC21 in D12 where an operator has to continue to recognize its own asset (even though it is used exclusively in the concession), notwithstanding that the grantor also controls the asset. The IPSASB encourages the IASB to add this project to its work program as soon as possible. As you are aware, accrual basis International Public Sector Accounting Standards are converged with International Financial Reporting Standards, unless there is a public sector specific reason for a departure. Accounting by grantors in service concession arrangements is considered an important issue in the public sector. The IPSASB repeats the offer in my letter to Sir David on 7 December 2004 to consult and work jointly with the IASB on projects to

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develop comprehensive Standards on this issue that deal with both the operator and grantor in both the public and private sector.

Other Comments: Paragraph BC13 of D12 distinguishes a right of use from a right of access. The IPSASB does not think the explanation of the distinction is particularly robust. The IPSASB is of the view that more guidance or explanation will be useful as it will clarify whether an entity has either a right to use an asset (ie a lease, where the entity will apply IAS 17) or a right to access (where the proposed Draft Interpretations will apply). Paragraph C8 in D12 notes that a guarantee from the grantor may constitute a financial asset in its own right and that the treatment of such an asset is discussed in D14. However, the IPSASB is not sure where guidance on the recognition of such assets is found in D14. If you would like further clarification of the points raised in this letter, please do not hesitate to contact me or the IPSASB Technical Director, Paul Sutcliffe, to discuss these further with you. Yours sincerely

Philippe Adhémar Chair, International Public Sector Accounting Standards Board International Federation of Accountants

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Detailed Analysis

Draft Interpretation D12: Determining the Accounting Model Question 1: The proposal in paragraph 5 of the draft Interpretation reflects the IFRIC’s decision that whether an operator recognises service concession infrastructure as its property, plant and equipment should depend on whether it controls the use of that infrastructure. The IFRIC selected this approach instead of one based on the extent to which the risks and rewards of ownership lie with the operator. The rationale for selecting this approach is explained in paragraphs BC9-BC11 of the Basis for Conclusions. Do you support the approach selected? The IPSASB agrees that an entity should recognize property, plant and equipment when it controls the asset. However, the majority of the members do not consider that the “control approach” and the “risk and rewards approach” are necessarily mutually exclusive. Rather, the risks and rewards associated with any items should not be precluded in the process of determining which party controls an asset. They were not convinced with the rationale given in paragraph BC11 that application of IAS 17 leads to “complexities and inconsistencies and will be difficult to apply to service concession arrangements”. Paragraph BC12 notes that D12 is based on a conclusion that service concession infrastructure should be recognized as property, plant and equipment of the party that controls its use. Paragraph BC13 explains that for arrangements within the scope of the Draft Interpretations, the grantor retains control over the use to which the infrastructure is put. Paragraph C2 requires entities, when determining control or regulation in paragraph 5(a), to consider the grantor together with any independent regulator acting in the public interest. It would be useful if the Basis for Conclusions explained why in determining whether a public sector entity grantor controls the assets, that grantor shall be considered together with any independent regulator acting in the public interest – even if the independent regulator is not a related party to the grantor. Question 2: Paragraph 11 of the draft Interpretation proposes that the operator should apply the financial asset model only if the grantor has primary responsibility to pay for the concession services. The rationale is explained in paragraphs BC24-BC43 of the Basis for Conclusions. Do you agree with this proposal? If not, what criteria would you use to determine whether the financial asset model should apply? How would you reconcile those criteria to the definition of a financial asset set out in IAS 32 Financial Instruments: Disclosure and Presentation? The IPSASB disagrees with the proposal. As expressed in the introductory comments, the IPSASB does not agree that an operator should apply different accounting models depending only on the identity of the party primarily responsible to pay for the concession services. Question 3: As explained in paragraph BC44 of the Basis for Conclusions, paragraph 13 of the draft Interpretation proposes that the identity of the party or parties with primary responsibility to pay for the concession services should be determined by reference to the substance of the

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contractual arrangements (which would not be affected by, for example, changing the parties through whom payment is routed). Do you agree with this proposal? The IPSASB agrees. However, as noted in the response to Question 2 and in the introductory comments, the IPSASB does not agree that the identity of the party with the primary responsibility to pay should be the only determinant in how an operator should account for its service concession arrangements. Some members have also noted that determining the accounting model on this basis can lead to a focus on the form of the arrangement, rather than the substance of the arrangement. Question 4: The IFRIC aims to issue this and the two other proposed Interpretations on service concessions (D13 and D14) in final form before the end of 2005. It proposes that, subject to it achieving this aim, the three Interpretations should be applied for annual periods beginning on or after 1 January 2006. Do you agree with this proposal? Majority of IPSASB members disagree with the proposed effective date and believe that a longer period is necessary to allow constituents to apply the final Interpretations. For example, preparers will have to identify any changes in their financial records and may need to renegotiate loan covenants with banks or financial institutions. The IPSASB supports full retrospective application unless impracticable based on the terms outlined in paragraph 19 in D13 and paragraph 21 in D14.

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Draft Interpretation D13 – The Financial Asset Model Responses to issues raised in D13 are made in the context that the IPSASB’s views identified in the introductory comments and in response to questions raised in D12 are rejected. Question 1: As discussed in paragraphs BC3-BC5, the proposals in the draft Interpretation are based on a conclusion by the IFRIC that the discharge of each contractual obligation (including obligations to repair and maintain the infrastructure) gives rise to revenue for the operator. Do you agree with this conclusion? (Question 3 in the Invitation to Comment on draft Interpretation D14 Service Concession Arrangements—the Intangible Asset Model poses a similar question in relation to the intangible asset model.) The IPSASB agrees with the conclusion. Question 2: As explained in paragraphs BC6 and BC7, the IFRIC has concluded that, applying IAS 11 Construction Contracts, operators might recognise different profit margins on different activities undertaken within a single service concession contract. Do you agree with this conclusion? Majority of the IPSASB agrees with the conclusions.

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Draft Interpretation D14 – Intangible Asset Model Responses to issues raised in D14 are made in the context that the IPSASB’s views identified in the introductory comments and in response to questions raised in D12 are rejected. Question 1: In the intangible asset model on which this draft Interpretation is based, the service concession operator is regarded as receiving an intangible asset from the grantor in exchange for the construction or other services it provides to the grantor. Paragraph 7 of the draft Interpretation proposes that the operator should recognise revenue and profit or loss on that exchange. The rationale for this proposal and for an alternative view—ie that no revenue or profit should be recognised on the exchange—is set out in paragraphs BC7-BC14 of the Basis for Conclusions. Do you agree with the proposal? If not, how would you reconcile non-recognition of revenue and profit to the requirements of existing IFRSs? The majority of IPSASB members agree with the proposal. Question 2: As explained in paragraph BC6 of the Basis for Conclusions, the draft Interpretation does not specify the timing of recognition of the intangible asset. The IFRIC identified three possible approaches. Do you agree that the proposed Interpretation should remain silent on this matter? If not, which of the three approaches do you think should be specified and in what circumstances? The IPSASB does not agree that the proposed Interpretation should remain silent on this matter. The majority of the IPSASB members support option (b) which recognizes an intangible asset by reference to the stage of completion of construction services because the operator is ‘purchasing’ a right to charge for the concession services as the asset is constructed. If IFRIC is silent on the timing of recognition of the intangible asset, the IPSASB also believes that it will be helpful if examples of the 3 different recognition options highlighted in paragraph IE5 in the Illustrative Examples could be given. Question 3: As explained in paragraph BC16 of the Basis for Conclusions, the proposed requirements for maintenance and repair obligations in this draft Interpretation are different from those in D13 Service Concession Arrangements—The Financial Asset Model. Do you agree that the IFRIC has interpreted existing IFRSs correctly in respect of these proposals? The majority of the IPSASB agrees that IFRIC has interpreted existing IFRSs correctly.

ITEM 6.7 page 6.24

6.7 Correspondence from NZ – FRSB re project proposal IPSASB New York July 2005

ITEM 6.7 page 6.25

6.7 Correspondence from NZ – FRSB re project proposal IPSASB New York July 2005

27 May 2005 27th May 2005 Ms Joanna Perry Chair – Financial Reporting Standards Board Institute of Chartered Accountants of New Zealand Level 2, Cigna House 40 Mercer Street PO Box 11 342 WELLINGTON 6034 NEW ZEALAND Dear Ms Perry Re: Guidance for signatories of the Kyoto Protocol on the treatment of rights and obligations under the Kyoto Protocol Thank you for drawing this matter to my attention. I agree it is an important issue, and one for which international accounting standards or guidelines do not yet exist. I will take your letter to my Board at its next meeting in July and will report back to you on the deliberations of the Board. As you are no doubt aware, the IPSASB has limited resources and is already committed to a heavy work program. In that context, I should note that the IPSASB’s ability to add additional projects is limited by its current resource constraints. Best regards Philippe Adhémar Chair International Public Sector Accounting Standards Board