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Boards Propose New Standards on Assurance Engagements and Public Sector Accounting

April 29, 2011

Two of the standards-setting boards that operate under the auspices of the International Federation of Accountants have issued proposed revisions in their standards for assurance engagements other than audits or reviews, and in the area of public sector accounting.

The International Auditing and Assurance Standards Board released for public comment on Friday a proposed revision of International Standard on Assurance Engagements 3000, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information.

The proposed ISAE 3000 is a principles-based standard that can be applied effectively to a broad range of assurance engagements, according to the IAASB. These engagements may range from assurance on statements about the effectiveness of internal control, for example, to direct engagements such as performance or “value for money” audits, to possible future engagements addressing integrated reporting or corporate social responsibility reporting. The only thing they’re not, apparently, is audits or reviews.

“Proposed ISAE 3000 includes requirements that enable consistent high-quality engagements, while being sufficiently flexible to apply to the broad range of relevant engagements,” said IAASB Chairman Arnold Schilder in a statement. “This is an important balance. ISAE 3000 is the overarching standard for current and future topic-specific ISAEs and assurance engagements where no separate ISAE exists. As a result, it needs to be sufficiently robust, yet not so unwieldy as to be impractical to apply. Equally, the ISAE should facilitate innovation in the evolving field of assurance, not act as an impediment.”

Proposed ISAE 3000 covers both reasonable and limited assurance engagements. Among other proposals, the ISAE introduces guidance designed to help readers better understand these two levels of assurance. It also includes guidance addressing direct engagements that have become common in the public sector and have been undertaken increasingly in the private sector.
“Since 2003, when the existing standard was approved, practitioners and national standard setters have gained considerable experience with ISAE 3000 that has helped identify a number of opportunities to clarify how some of the core underlying concepts should be applied in practice,” said IAASB technical director James Gunn.

Arnold Schilder

The proposed ISAE 3000 also includes material from the existing International Framework for Assurance Engagements that is necessary for the ISAE to be understood without reference to the framework. Accompanying the exposure draft of the proposed ISAE are some proposed amendments to the framework reflecting the impact of the proposals in ISAE 3000.

The IAASB is inviting comments on its proposals. To access the exposure draft or submit a comment, visit the IAASB’s Web site at Comments on the exposure draft are due Sept. 1, 2011.

Another board that operates under the IFAC’s auspices, the International Public Sector Accounting Standards Board, released for comment on Friday its own exposure draft, entitled, Key Characteristics of the Public Sector with Potential Implications for Financial Reporting. The paper provides background on issues affecting the development of a conceptual framework for public sector entities and standard setting.

“In particular, it highlights the notion that public sector entities are likely to depend upon taxation rather than commercially generated profits for their continued existence—and have governance arrangements that generally involve a legislative body holding an executive to account,” said the IPSASB. (Lots of executives should be held to account, I'd say.)

The paper is geared toward those who may have limited familiarity with the public sector, particularly those with more experience of financial reporting in the private sector—both for-profit and not-for-profit entities.

One of the main objectives of governments and other public sector entities is to deliver goods and services—not to produce profits, as in the private sector. As a result, there are a large number of financially significant non-exchange transactions in the public sector. These include outflows, such as state pension and social security payments, and inflows from taxation and transfers from other levels of government.

Andreas Bergmann

However, the paper notes that there are a large number of transactions in the public sector that mirror those in the private sector. In such cases, there is no reason why accounting treatments should differ between the two sectors. (Couldn’t agree more.)

The paper also considers the importance of the budget in many jurisdictions. The budget is often the primary mechanism for communicating with citizens and demonstrating compliance with legal requirements. Budgets can also be highly controversial, of course.

Other areas explored include the specialized nature of much of the property, plant and equipment deployed in the public sector, the regulatory role of government, the responsibilities for a nation’s or area’s heritage, the longevity of most governments and many public sector entities, and the ownership or control of rights to natural resources. The paper also notes that for governments, reporting under statistical bases of accounting is highly important for decision-making purposes and economic analysis.

“When government and public sector financial reporting is mentioned, you often hear a view that the public sector is different; sometimes differences can be exaggerated or underestimated,” IPSASB chair Andreas Bergmann said in a statement. “This exposure draft tries to identify areas that really do need to be considered by standard setters when developing the concepts for public sector financial reporting. We are interested to hear stakeholder views on whether we have identified the right areas.”

To access the exposure draft or to submit a comment, visit the IFAC Web site at Comments on the exposure draft are requested by Aug. 31, 2011. The IPSASB is inviting all stakeholders to comment on the exposure draft. So comment away.

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