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IPSASB Proposes Public Sector Lease Accounting Model

31 January 2018

The International Public Sector Accounting Standards Board® (IPSASB®) has released its Exposure Draft (ED) 64, Leases. The comment deadline is 30 June 2018.

The Exposure Draft proposes a new lease accounting model for public sector entities. ED 64 includes a single right-of-use model for lease accounting designed to replace the model in International Public Sector Accounting Standards (IPSAS) 13, Leases, the current standard. The IPSAS 13 model is a risks and rewards incidental to ownership model. ED 64 also proposes new public sector specific accounting requirements for leases at below market terms (also known as ‘concessionary leases’) for both lessors and lessees.

The accounting requirements applicable to lessees under the proposal, if adopted, would be converged with International Financial Reporting Standard (IFRS) 16, Leases. Like IFRS 16, it would require lessees to recognise a right-of-use asset and a lease liability for all leases, except for short-term leases and leases of low-value assets.

Lessors would be required to apply a right-of-use model specifically designed for public sector financial reporting. This model differs from the risks and rewards incidental to ownership model for lessors in IFRS 16 by:

  • Continuing to recognise and measure the leased asset according to the applicable IPSAS
  • Recognising a lease receivable and a liability (unearned revenue) as a result of the lease contract, except for short-term leases.

For lessors in concessionary leases, ED 64 proposes to measure leases at fair value. Under this proposal, if adopted in its current form, the lessor would recognise the subsidy granted to lessees as a day-one expense and revenue over the lease term. The lessee under this proposal would measure concessionary leases at fair value and recognise revenue in accordance with IPSAS 23, Revenue from Non-Exchange Transactions (Taxes and Transfers).

The IPSASB has also released an At-a-Glance document that provides an overview and summary of ED 64.

ED 64 is available on this link. https://www.ifac.org/publications-resources/exposure-draft-64-leases

The At-a-Glance document is available on this link. http://www.ifac.org/system/files/publications/files/Exposure-Draft-64-Leases-At-a-Glance_0.pdf

IPSASB Proposes Strategy and Work Plan for 2019-2023

The International Public Sector Accounting Standards Board® (IPSASB®) has published the Consultation Document, Proposed Strategy and Work Plan 2019-2023. The comment deadline is 15 June 2018.

The IPSASB describes the strategic objectives and themes for the upcoming cycle as ‘Strengthening Public Financial Management (PFM) globally through increasing adoption of accrual-based [International Public Sector Accounting Standards] IPSAS’.  It plans to deliver on this objective through a focus on two primary activity areas in the public interest, specifically:

  • Developing IPSAS and other high-quality financial reporting guidance for the public sector
  • Raising awareness of IPSAS and the benefits of accrual adoption.

According to the Consultation Document, the IPSASB will use five strategic themes to focus its work within these two areas of activity. Work in the first activity area, developing and maintenance of standards and guidance, will follow three themes: Theme A - setting standards on public sector specific issues; Theme B – maintaining IFRS convergence; and Theme C – developing guidance to meet users’ broader financial reporting needs.

Work relating to the second activity, raising awareness and promoting adoption of IPSAS, will concentrate on two themes: Theme D - promoting IPSAS adoption and implementation; and Theme E - advocating the benefits of accrual in strengthening public financial management (PFM).

The proposed Work Plan is constructed around the five specific themes. To develop standards on critical areas in public sector accounting, the IPSASB proposes to take on three new major public sector specific projects: accounting for natural resources, discount rates, and differential reporting. The IPSASB believes that successful completion of these projects will ‘provide great public interest benefits’.

In addition, the IPSASB will continue to maintain convergence with International Financial Reporting Standards (IFRS), where appropriate, and to work with others to promote IPSAS adoption and emphasise the importance of accrual-based information for strengthening PFM. 

The IPSASB has also developed companion documents to assist stakeholders in evaluating the proposals. These include the At-a-Glance document, Strategy and Work Plan 2019-2023 Consultation Document, and Appendix B: Analysis of Potential Projects Against Selection Criteria.

The Consultation Document and its companions are available on this link. http://www.ifac.org/publications-resources/ipsasb-proposed-strategy-and-work-plan-2019-2023

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