The International Public Sector Accounting Standards Board (IPSASB) held their first meeting of the year in New York with a number of interesting projects to report back on, including sustainability reporting and presentation of financial statements.

IPSASB is the public sector accounting standards setting board affiliated to IFAC and consists of 18 Board members from all over the world who convene four times a year. IPSASB’s staff are based in Toronto, Canada.

Sustainability reporting

IPSASB agreed with the staff proposals to link climate reporting to international commitments (see below) and to differentiate between an entity’s own operations and climate policy/regulatory activity. More clarity is needed for defining policy impact and whether it is impacting the entity’s own operations, external stakeholders or both.

IPSASB identified three inherent and interlinked tensions within the sustainability project. The first is the focus on public sector specific sustainability reporting issues, the second is speed of delivery and the third is adoption.

To explain further, one option would be to focus on the operational aspects of sustainability reporting which would then become a private sector alignment project (aligning to ISSB’s climate standard S2 for example). To ensure timely delivery of the project, this approach would most likely result in the postponing of the guidance in relation to impact of policies/regulation to a second phase. Whilst this would speed up the delivery of the project, it would not be the response that stakeholders are looking for.

The adoption of these standards must be acceptable from a political point of view and any references to the UN Sustainable Development Goals (SDGs) and the Paris Agreement to limit global warming to 1.5C would need to be carefully considered. However, these commitments provide the context in which government entities operate and should inform IPSASB’s thinking.

Natural resources

It was originally envisaged that this project would be voted through to the exposure draft stage, but this has been postponed until September primarily due to split views on the proposed scope.

The project currently proposes quite a narrow scope of only considering natural resources held for conservation purposes. Some Board members had concerns that this narrow scope would not be meeting stakeholders’ expectations since some natural resources might not meet this specific criterion such as city parks. Following on from this, there is a risk that appropriate disclosures will be limited if assets don’t fall within the natural resources IPSAS.

The IPSASB Chair acknowledged the range of views regarding scope and that the project had not deal with obligations, intangible assets nor broader sustainability items. But he stressed the importance of delivering a standard, which could command support, within a reasonable period of time. The Chair proposed to put a range of proposals out for consultation.

The definition of conservation as ‘The act of managing and protecting a natural resource from degradation due to human activity’ was agreed subject to the removal of ‘due to human activity’. This should also help when reviewing and finalising the scope of the project.

There was also some debate about whether natural resources could be held for economic benefit and thus be measured at fair value under a current value model. Currently the assumption is that natural resources cannot be held for economic benefit and should therefore be measured at current operational value if using a current value model. This will be revisited as part of the scope of the project as outlined above.

Presentation of financial statements

At the March meeting IPSASB staff were still awaiting IASB’s issuance of IFRS 18, Presentation of Financial Statements, to assess how the content of that standard can be brought into IPSAS and how much might have to be adapted for the public sector context.

The March meeting was therefore focused on areas where adaptations might be required, depending on user needs.

There were differing views on the project proposal to introduce requirements for additional comparative information (‘third balance sheet’ introduced by IAS 1 in 2007) for certain situations, such as when a new accounting policy is applied retrospectively. Some questioned the usefulness of this additional information and the cost of producing it whilst others did not see a specific public sector reason not to align to IAS 1 and now IFRS 18. The final consensus was to include the additional comparative information.

One of the main discussion points was around the requirements in IFRS 18 for a Statement of Comprehensive Income, something that IPSAS have not yet adopted. Unrealised gains and losses are currently reported in net assets/equity.

IPSASB generally supported the idea of disclosing certain items in Other Comprehensive Income (OCI). Some cautioned that care would be needed in determining how the information in an OCI equivalent is presented to ensure that users are fully informed about the nature of the items presented therein. The risk is that political actors mistake income in OCI for usable reserves against which programmes can be budgeted.