Accounting Convergence Comes to Public Sector

The International Public Sector Accounting Standards Board is proposing new financial reporting requirements to help public sector entities account for financial instruments, such as derivatives, bonds, and loans, and produce global standards of transparency.

The proposed requirements from the IPSASB, which is part of the International Federation of Accountants, are contained in three newly released exposure drafts: ED 37, Financial Instruments: Presentation; ED 38, Financial Instruments: Recognition and Measurement; and ED 39, Financial Instruments: Disclosures. 

“The unprecedented scale of governmental intervention in the financial sector makes it essential that global transparency and accountability is enhanced through consistent financial reporting of their exposures to financial instruments,” said IPSASB chair Mike Hathorn (pictured) in a statement. “Approval of these EDs is just the beginning of a process by which the IPSASB will develop guidance that addresses financial instruments for the public sector and, in doing so, to ultimately develop guidance that addresses further public sector-specific issues.”

The EDs propose IPSASs that converge with the International Accounting Standards Board’s standards for financial instruments as of Dec. 31, 2008, with limited changes, representing a significant step in the IPSASB’s global convergence program, which is scheduled for completion by the end of this year. As part of this program, International Public Sector Accounting Standards will substantially converge with International Financial Reporting Standards approved as of Dec. 31, 2008, with limited changes to ensure consistency with other IPSASs, while addressing specific public sector issues.

Additional application guidance has been included in each ED on two key public sector issues. These include the provision by government of financial guarantees that are given at zero cost or below market price and, secondly, concessionary loans, that is, loans at below market interest rates. Governments have been using financial guarantees, such as guaranteeing bank deposits and low interest rate loans to support private sector businesses during the current economic crisis. Similar arrangements were also used prior to the crisis, often to achieve social objectives, such as to provide housing assistance.   

The IPSASB is requesting comments to be sent by July 31. They may be submitted by e-mail to EDComments@ifac.org.