The International Public Sector Accounting Standards Board, the governmental standard-setting unit of the International Federation of Accountants, has issued a statement that, for the first time, establishes requirements for the recognition and measurement of revenues derived from taxes and transfers in countries that recognize the board's international standards.It was also the first time that the IPSASB has developed a governmental accounting standard from scratch, rather than adapting a private-sector standard for governmental purposes.

IPSASB chair Philippe Adhémar called the standard, International Public Sector Accounting Standard 23, Revenue from Non-Exchange Transactions (Taxes and Transfers), "a significant achievement," and said that "compliance with IPSAS 23 will enhance the quality, comparability and transparency of financial reporting by public sector entities around the world."


It was the peculiar nature of governmental revenue raised through taxation that led to such a fundamental standard being issued so late in the IPSASB's 20-year history, according to the board's technical director, Stephenie Fox.

Recognizing the difficulty of building a governmental accounting standard from the ground up, the board first issued a series of relatively easy standards, then took on non-exchange transactions and the revenues derived from them.

The board took over four years to write the standard. Speaking from IPSASB headquarters in Toronto, Fox said that the incubation period was long for several reasons, including the fact that the standard was not derived from an existing private-sector standard, that the board lacks the funding needed to expedite the development of standards, that the definition and treatment of transfers (i.e. inflows other than taxes) was complex, and that the board's due process takes a long time because of the international structure of the board and staff.

Fox said that the standard would have little impact on governments that have already adopted full accrual accounting, such as Canada's. The standard does not affect federal, state or local governments in the United States, where state and local governments follow standards set by the Governmental Accounting Standards Board, and the federal government follows the standards of the Federal Accounting Standards Advisory Board.

The standard takes a transactional approach that requires governmental entities to determine whether inflows of resources from non-exchange transactions meet the definition of an asset and the criteria for recognition as such.

If the transactional inflow meets those criteria, revenues equal to the increase in net assets associated with an inflow of resources are recognized at fair value at the date of acquisition. The entity should also determine whether a liability should also be recognized.

Trouble With Transfers

While the tax aspect of the standard was relatively easy to define, transfer transactions presented the board with more difficult concepts. Transfers include debt forgiveness, assumption of liabilities, fines, bequests, gifts, donations, and services in kind. The board dedicated much of its deliberations to the differences between restrictions, conditions and stipulations on transferred assets, and how to disclose each in financial statements.

"The transactional approach isn't totally new to accounting, but it's been an evolutionary trend," Fox said. "In the past, we focused on defining what revenue was, whereas now we look at an asset and liability approach, a principles-based approach that looks at individual transactions and looking at inflows to decide if they meet the asset definition ... . That's been evolutionary and certainly contributed to the debate."

GASB has already promulgated a similar standard, Statement 33, Accounting and Reporting for Non-Exchange Transactions, which was issued about seven years ago. GASB technical director David Bean, who was on the IPSASB sub-committee that wrote the international standard, said that it is very close to the U.S. standard, and will improve comparability.

On January 1, Bean became the U.S. representative member. He said that since Statement 33 is relatively new, the board is not likely to amend it soon in an effort to converge with the international standard. When the GASB statement comes up for a review, however, the board may consider attempting to converge.

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