Henning Diederichs: My name is Henning Diederichs. I’m the manager in the public sector here at ICAEW. Today I’m pleased to say that I’m joined by Ian Carruthers, who is the Chair of the International Public Sector Accounting Standards Board, which is a bit of a mouthful, so we’re just going to abbreviate that to the IPSASB. Ian is also a longstanding member of the Institute. So just to get into some of the questions I’d like to pose to you, Ian, there is always a lot happening in the public sector, I don’t doubt we could spend many an hour discussing various topics. But I would just like to get going on the recent meeting we had in Portugal. In September, the IPSASB welcomed standard setters and various other delegates from around the world to the fourth Public Sector Standard Setters Forum, which took place in Portugal. The attendees – there were over 100, from 36 different countries – we collaborated to scope out new projects, and shape the IPSASB’s next five-year strategy, and engaged in a lively discussion around the advancement of sustainability reporting in the public sector and beyond. I was there, it was really great, really engaging, but for you, what were the sort of three main takeaways of that meeting?

Ian Carruthers: Thanks Henning, and it’s good to be able to join you today. I think it was a great event, we were really pleased that we were able to hold it. And I think, with all the different people we have from around the world, it shows you what a diverse and vibrant community we’ve got. That really also reflects the fact that we’re in the middle of this very strong period of growth in the use of accrual accounting by governments around the world. It’s forecast to be up to 50% by the end of 2025, and then up into the 70s by the end of the decade, and that’s happening around the world – Latin America, Africa and Asia. And I think you saw that reflected in the delegates that we had there.

I think what also is a consequence of that, and it’s a challenge for IPSASB going forwards, is the diversity of needs. The fact that now, the standards are very much being used around the world, that then is going to start to make us think well, do we need to change the balance of our work, perhaps move more towards providing interpretations of the standards, post-implementation reviews, and so on, particularly after the reactive standards programme we’ve had over the last few years.

And then on the financial reporting side, we talked about IPSASB’s two new projects, on presentation of financial statements in differential reporting. And I think on both this was the first time that we’ve really discussed them. And, although we’ve taken them on, we haven’t yet got formal project briefs on either of those. But it really showed how important those are going to be, and how much interest there was. And certainly the range of ideas on how we should take those forward and what should be in those projects. So it certainly showed us, they’re both going to be important projects, but neither is going to be easy. So those were my takeaways on the financial reporting side.

HD: Fantastic. I must admit, I’ve rarely seen standards, or setting standards that are easy. They’re always more complicated than you think, but certainly differential reporting is going to be challenging. Thank you very much for that, Ian. One big topic that was discussed a lot, and that is sustainability. And obviously, recently there were two consultations on this wider topic. One was literally about what steps, or in what format, the IPSASB should or shouldn’t be involved in this space. And then obviously, you have this more of a back-end looking at natural resources projects on the go. I mean, for me, my impression, and looking at the other discussions at the forum, is that you are, in some way, on the cusp of something really new, potentially, depending on which route you take. My question to you, as the chair of a financial standard-setting body is, does it make you nervous because you are potentially heading into an area that is not as familiar to you, you know, being the sort of front half of the annual report. What is your take on that?

IC: Well, I suppose probably I share the trepidation that we all feel at the moment. I mean, sustainability reporting is taking us all into new areas, whether we’re preparers, standard setters or auditors. And I think one of the question marks for us is if we move into the space – and it still is an if, the board hasn’t taken that decision that it definitely is moving forward, although our stakeholders have given us very strong support, both through the roundtables that we did around the world and through the written responses we received. I think that the key requisite for both the board and its stakeholders is: don’t move into this area at the expense of financial reporting. There’s no doubt, you know, there’s a very big agenda in that area. And I think everybody’s saying, look, don’t let up on that. Don’t, you know, drop the baton on that one. Notwithstanding the importance of sustainability reporting, I think, as you said, we have started to move into that space a little bit with natural resources, which goes across both general-purpose financial statements, the traditional accounts, and into the narrative reporting space. We’re also just about to release an exposure draft of additional guidance on our two recommended practice guidelines on service performance reporting, and long-term financial sustainability, showing how you can already use those for sustainability reporting issues – green bonds, green taxes, green infrastructure, those sorts of things. So I think we’re already kind of moving into that space. But I think there’s no doubt that it is big, and there’s a lot potentially to do.

But on the upside, if I look at it, I think what it does do is it emphasises the importance of the public sector, both in terms of the size of its own activities, you know, employing 20% of workforce around the world, 40% of GDP on average, in OECD countries. And that’s not just government’s own activities, it’s actually the way it influences behaviour elsewhere in the economy, you know, trying to get to net zero and climate targets and things like that. Also, as was shown in the World Bank report earlier on this year, the importance to the global bond markets: 40% of the 100 trillion-dollar global bond market being public sector bonds. So, I think yes, there are challenges, but also, it really shows the importance of the public sector, and arguably, actually, that moves the public sector right back up on to the top table, if you like. So I think, yes, you’re right, challenges, but I think also opportunities in terms of protocol and importance and ability to be part of the dialogue as well, with that very active agenda, whether you’re talking about, you know, the reporting agenda with the ISSB’s work, you know, also with potentially collaborating with GRI. So I think, you know, those are important opportunities, but also very big segments of challenges.

HD: Yeah, absolutely, I share your views. And some of the numbers, you sort of said it was 40% of GDP, huge workforce, and the sheer activity and often the estates that governments have, and amount of land that they own, you know, there’s obviously a public interest element as well, and then becoming active in the space. So I totally agree. Coming back to me with something, what you said earlier, and then combining your views on sustainability reporting. You said, and there’s no denying this, the move to accruals accounting, and then the adoption of IPSAS either directly or indirectly, that’s clear to see for everybody. So, you said 50% 2025, and then up to 70% at the end of the decade. And when I then look at the sustainability reporting side of things where we are a little bit you know, that word trepidation, what you use earlier and it is there, is about the sort of capacity of the public sector, you know, we know that finance teams have been not as large as they used to be and the financial reporting burden just for the standards that already exist is quite severe, these reports are quite hefty, and then everybody wants them to be timely, etc. So, you know, you touched upon it a little bit before but you know, as adoption increases, there will be a conflict, because, you know, what about the sort of burden on preparers, but then users demands, because there is an opportunity with sustainability to really elevate the usefulness for these annual reports, should that information be included there. So, I just wanted to see maybe over sort of medium to longer term, how you see the IPSASB board’s role evolve in this, given this sort of background, and this movement?

IC: I mean, I think you’re right, you know, we are going to have to think very carefully about where we put our efforts, because there’s a lot to balance. And the forum in Portugal was the very first discussion which will lead into the developments of the world strategy for 2024 through to 2028. And I think there’s no doubt that that adoption and implementation piece is going to be really important. And, you know, we can play our part as a standard setter in facilitating that. But again, in the AI space, it’s very much about partnerships. It’s partly about partnerships with International Federation of Accountants, with things like pathways to accrual, and so on, so the resources they can provide, but at a country level, I think it’s very much about working with the relevant authorities in those countries and with the professional accountancy organisations. ICAEW does a lot around the world in terms of promoting and encouraging the adoption of accrual across the governments. And I think that’s going to be ever more important, frankly, certainly over the next five to 10 years. From our point of view, we’ve got to make sure that the standards that we’ve set actually are useful and that they can be used in practice. So I think that means a lot of dialogue with stakeholders. We’ve started doing roundtables regularly in regions around the world. And I think that’s got to carry on. But we need those formal feedback mechanisms, we’ve got to carry on addressing the remaining gaps in the standard suite.

And you mentioned natural resources. I think that’s hugely important for many countries around the world. I’m not sure we’re going to necessarily address everything they want, in that I suspect that won’t put everything on the balance sheet by a long chalk. It may be almost the opposite. But I think that’s going to be really important in there. And that gives the crossover I think, between financial reporting and the broader reporting landscape. And I think there’s no doubt that you see this that, as sustainability reporting becomes more common, there are going to be impacts on traditional financial reporting from that. So we’re going to have to watch for that, be it in the field of intangibles or in the natural resources or wherever. And I think then that that big challenge is if we move into sustainability reporting, I mean, it’s a huge arena, we will certainly and both ISSB and GRI have said they’d be willing to collaborate with us moving forward, I think that will be really important. And I suspect, personally, that the board would quite like to do what it did with financial reporting, to begin with, to gain coverage, to draw on the existing guidance that there is there, before really starting to get into some of the more public sector-type areas. And I think that’s where the whole environmental and social governance arena is going to be really important, the focus on sustainable development goals, and so on. And I suspect, you can do a lot with existing guidance, and building off that in the short term.

But there may well be some big areas, as we found with financial reporting, like taxation, social benefits, the equivalence in sustainability reporting, which we would need to get into, but in due course, I think. And I think, you know, moving into sustainability reporting, if we go there, it is very much going to be about providing guidance in the public sector. And in making sure that’s focused right, not creating divergences for the sake of divergence. I think, you know, there’s no doubt people want interoperability, they want symmetry between the sectors where it’s appropriate, and it’s in everybody’s interest that we leverage the skills that we have. I think there’ll be a lot that’s common, I suspect, there will be differences, but I think at the moment, we just need to get moving and actually explore the terrain, and make sure we draw on the best of what’s already there, at the same time making sure we are actually doing what public sector needs.

So I think there’s no shortage of challenges in 2024 to 2028, but actually, I do genuinely think it’s going to be a really exciting period for IPSASB, and public sector reporting, both financial and sustainability, around the world. And that, of course, means opportunities for the profession, which is absolutely great.

HD: Absolutely. So thank you very much, Ian, that brings us to the end of my questions. Just reflecting on what you were saying, my view, having followed IPSASB now for a few years is that, you have these couple of outstanding public sector-specific standards that are due to come out – that’s all around that non-exchange transactions on the expenses on the income side – but once that’s in place, then you have a pretty much complete suite of standards that are public sector specific and applicable. And when it comes to sustainability, I mean, it’s such a huge space, but we shouldn’t forget that you already have got quite a lot of guidance out there already. And it shouldn’t really prevent any, any jurisdiction from going ahead and doing what’s right for them.

IC: What the new exposure draft 83 is on reporting on sustainability programme information is really showing people they can get started now on that, and I think that’s really important because this is urgent, and it impacts all of us so sooner that government really starts moving the better.

HD: Exactly, and the signals that that would send out so that’s a brilliant way to end that. So Ian, thank you very much again for your time, and I look forward to following the IPSAS board and the next strategic time period of 2024 to 2028, I think will be very exciting. So all the best.

IC: Okay, thank you very much. Bye for now.