International Public Sector Accounting Standards Board (IPSASB) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities Consultation Paper 1 issued September 2008 for comment by March 31, 2009 Joint Comments by The Institute of Chartered Accountants of Sierra Leone (ICASL) and The Council for Standards of Accounting, Auditing, Corporate & Institutional Governance (CSAAG) Sierra Leone March 2009. Page 1 of 7 CSAAG is the national standard setter of Sierra Leone that was established in 2008, in the public interest, under the sponsorship of ICASL. Its constitution and its multi‐stakeholder Governing Board mandate that it must operate autonomously from ICASL and with independence in its operations. General Comment by ICASL & CSAAG There appears to be an over‐emphasis on the “financial” aspects of reporting in the title and in the contents of the conceptual framework. Public sector entities, as with the wider public benefit entity sector are validated by a wide measure of financial and operational/service delivery objectives. The traditional preoccupation of the IASB with the financial bottom line in the conceptual framework for profit seeking entities is inappropriate for the public sector. In this sector, financial information primarily derives meaning from its integration with other quantitative and qualitative information that together provides an indication of the “public sector bottom line” (PSBL) in four dimensions: 1. Inputs – the resources used in the activities reported upon (including financial resources). 2. Outputs – the results of the related transactions and activities. 3. Outcomes – what was achieved by the results and 4. Impacts – the difference made to the lives and/or interests of constituents, voters, taxpayers, development partners, special interest groups and other stakeholders. In this view, it is inappropriate to develop a conceptual framework for general purpose financial reporting for public sector entities. Instead, we may more appropriately refer to a conceptual framework for general purpose “accounting and reporting by public sector entities”. The latter statement recognises that, in seeking to measure the “bottom line” of public sector entities, any meaningful report must explicitly recognise that the “reporting” aspects must include and integrate financial and other quantitative and qualitative performance indicators. It is recommended that the title of the conceptual framework be amended accordingly. IPSASB PRELIMINARY VIEW (PV) 1 ‐ THE AUTHORITY OF THE IPSASB FRAMEWORK (FOLLOWING PARAGRAPH 1.7) The IPSASB Framework will not establish new authoritative requirements for financial reporting by public sector entities that adopt IPSASs, nor will it override the requirements of existing IPSASs. In selecting accounting policies to deal with circumstances not dealt with in IPSASs or other guidance issued by the IPSASB, public sector entities will refer to, and consider the applicability of, the definitions, recognition criteria, measurement principles, and other concepts identified in the IPSASB Framework. ICASL & CSAAG Comment on PV 1 A conceptual framework must, in principle, have long term authority on all matters that fall within its purview. Consequently, it should be a basis for identifying where existing IPSAS may require change. Whilst the IPSAS will continue to have over‐riding authority in the short to medium term – when proposals for amendment are being examined ‐ in the fullness of time the Framework should direct efforts that will deliver changes to those IPSAS. 16
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International Public Sector Accounting Standards Board (IPSASB) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities
Consultation Paper 1 issued September 2008 for comment by March 31, 2009 Joint Comments by The Institute of Chartered Accountants of Sierra Leone (ICASL) and
The Council for Standards of Accounting, Auditing, Corporate & Institutional Governance (CSAAG) Sierra Leone March 2009.
Page 1 of 7
CSAAG is the national standard setter of Sierra Leone that was established in 2008, in the public interest, under the sponsorship of ICASL. Its constitution and its multi‐stakeholder Governing Board mandate that it must operate autonomously from ICASL and with independence in its operations. General Comment by ICASL & CSAAG There appears to be an over‐emphasis on the “financial” aspects of reporting in the title and in the contents of the conceptual framework. Public sector entities, as with the wider public benefit entity sector are validated by a wide measure of financial and operational/service delivery objectives. The traditional preoccupation of the IASB with the financial bottom line in the conceptual framework for profit seeking entities is inappropriate for the public sector. In this sector, financial information primarily derives meaning from its integration with other quantitative and qualitative information that together provides an indication of the “public sector bottom line” (PSBL) in four dimensions:
1. Inputs – the resources used in the activities reported upon (including financial resources). 2. Outputs – the results of the related transactions and activities. 3. Outcomes – what was achieved by the results and 4. Impacts – the difference made to the lives and/or interests of constituents, voters, taxpayers,
development partners, special interest groups and other stakeholders. In this view, it is inappropriate to develop a conceptual framework for general purpose financial reporting for public sector entities. Instead, we may more appropriately refer to a conceptual framework for general purpose “accounting and reporting by public sector entities”. The latter statement recognises that, in seeking to measure the “bottom line” of public sector entities, any meaningful report must explicitly recognise that the “reporting” aspects must include and integrate financial and other quantitative and qualitative performance indicators. It is recommended that the title of the conceptual framework be amended accordingly.
IPSASB PRELIMINARY VIEW (PV) 1 ‐ THE AUTHORITY OF THE IPSASB FRAMEWORK (FOLLOWING PARAGRAPH 1.7)
The IPSASB Framework will not establish new authoritative requirements for financial reporting by public sector entities that adopt IPSASs, nor will it override the requirements of existing IPSASs.
In selecting accounting policies to deal with circumstances not dealt with in IPSASs or other guidance issued by the IPSASB, public sector entities will refer to, and consider the applicability of, the definitions, recognition criteria, measurement principles, and other concepts identified in the IPSASB Framework. ICASL & CSAAG Comment on PV 1 A conceptual framework must, in principle, have long term authority on all matters that fall within its purview. Consequently, it should be a basis for identifying where existing IPSAS may require change. Whilst the IPSAS will continue to have over‐riding authority in the short to medium term – when proposals for amendment are being examined ‐ in the fullness of time the Framework should direct efforts that will deliver changes to those IPSAS.
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International Public Sector Accounting Standards Board (IPSASB) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities
Consultation Paper 1 issued September 2008 for comment by March 31, 2009 Joint Comments by The Institute of Chartered Accountants of Sierra Leone (ICASL) and
The Council for Standards of Accounting, Auditing, Corporate & Institutional Governance (CSAAG) Sierra Leone March 2009.
GPFRs are financial reports intended to meet the common information needs of a potentially wide range of users who are unable to demand the preparation of financial reports tailored to meet their specific information needs. ICASL & CSAAG Comment on PV 2 It may be necessary to refer to General Purpose Accountability Reports (GPARs) to reflect the fact that these reports must carry the full set of financial and other quantitative and qualitative information that spans the four dimensions of the PSBL.
IPSASB PRELIMINARY VIEW 3 ‐ THE USERS OF GPFRS (FOLLOWING PARAGRAPH 2.7)
As a mechanism for focusing on their common information needs, the potential users of GPFRs of public sector entities are identified as:
- recipients of services or their representatives;
- providers of resources or their representatives; and - other parties, including special interest groups and their representatives.
The legislature is a major user of GPFRs. It acts in the interest of members of the community, whether as recipients of services, providers of resources, or citizens with an interest in, or need for, particular services or activities. ICASL & CSAAG Comment on PV 3 See our comment on PV2.
IPSASB PRELIMINARY VIEW 4‐ THE OBJECTIVES OF FINANCIAL REPORTING (FOLLOWING PARAGRAPH 2.22)
The objectives of financial reporting by public sector entities are to provide information about the reporting entity useful to users of GPFRs for:
- accountability purposes; and - making resource allocation, political and social decisions.
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International Public Sector Accounting Standards Board (IPSASB) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities
Consultation Paper 1 issued September 2008 for comment by March 31, 2009 Joint Comments by The Institute of Chartered Accountants of Sierra Leone (ICASL) and
The Council for Standards of Accounting, Auditing, Corporate & Institutional Governance (CSAAG) Sierra Leone March 2009.
Page 3 of 7
ICASL & CSAAG Comment on PV 4 See our comment on PV2. In addition, it may be appropriate to change the “and” that is at the end of line 3 to “including but not limited to”. It is considered that the process of accountability is a cycle that includes the making of appropriate supportive or corrective decisions by principals (including some users) in respect of information on actions taken by their agents (public sector entities). Given the increasingly worrisome evidence of the global and local “impacts” of the decisions and activities of the public sector (it is noted that the private sector also has a major role) in the destabilisation and degrading of the natural environment, we believe that it would be remiss not to mention this aspect of “impact” measurement within the objectives of accountability reporting. This is particularly appropriate as the evidence indicates that the impacts will have major economic and financial ramifications in the medium to long term. The expansion of the conceptual framework to include the four dimensions of the PSBL makes this mention inevitable and fitting. Of course, the methods of reporting on this aspect may require improvement. But a conceptual framework must not be limited by current constraints. It sets out targets and agendas for evolution.
IPSASB PRELIMINARY VIEW 5 ‐ THE SCOPE OF FINANCIAL REPORTING (FOLLOWING PARAGRAPH 3.18)
The scope of financial reporting encompasses the provision of financial and non‐financial information about:
- economic resources of the reporting entity at the reporting date and claims to those resources; - the effect of transactions, other events, and activities that change the economic resources of the
reporting entity and claims to those resources during the reporting period, including cash inflows and outflows and financial performance;
- the reporting entity’s compliance with relevant legislation or regulation and legally adopted or
approved budgets used to justify the raising of monies from taxpayers and ratepayers; - the reporting entity’s achievement of its service delivery objectives; and - prospective financial and other information about the reporting entity’s future service delivery
activities and objectives, and the resources necessary to support those activities.
It also encompasses explanatory material about: (a) the major factors underlying the financial performance of the entity, the achievement of its service delivery and other objectives and the factors which are likely to influence its performance in the future; and (b) the assumptions underlying and major uncertainties affecting the information included in GPFRs.
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International Public Sector Accounting Standards Board (IPSASB) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities
Consultation Paper 1 issued September 2008 for comment by March 31, 2009 Joint Comments by The Institute of Chartered Accountants of Sierra Leone (ICASL) and
The Council for Standards of Accounting, Auditing, Corporate & Institutional Governance (CSAAG) Sierra Leone March 2009.
Page 4 of 7
ICASL & CSAAG Comment on PV 5 See our comment on PV2. In addition, this scope is more effectively structured and justified within the format provided by the PBSL. Further, it is considered that "explanatory material" should include a clear statement of the strategic role of the public sector as a whole in relation to the other sectors of the society and an explanation of how the reporting public sector entity, its activities and allocated resources have been aligned to that strategic intent. This statement will provide much needed clarity of thought and action in the practices of the public sector as well as aid the process of internal (from the executive/legislature to the implementing entity) and external (from the reporting entity to external stakeholders) accountability and its sub‐process of decision making by users. In practice, there are many strategic models ranging from the centralised and dominant “command” role of the public sector to the “laissez faire” model in which the public sector is primarily a regulator (“pusher and challenger”) of other sectors. It is, however, noted that there many instances where there is muddled, confused and sometimes conflicting models of action by the operating entities within a given public sector. This serves to intensify uncertainty and consequently depress economic activity in other sectors (and ultimately depress public revenue). It is thus useful that the accountability report should provide a platform for the strategic intent to be communicated by agents (public entities) to principals (including many users) and other stakeholders. In this way, it can also serve the purpose of stimulating the resolution of conflicting strategies within the public sector of a given country. The inclusion of strategic intent in accountability reports will enable the definition of the minimum set of information that must be included in such reports. These will be the performance indicators that provide information on the Critical Success Factors (CSFs) that must be achieved if the strategic goals of the public entity are to be met. These CSFs must reflect the four dimensions of the PSBL. They must also satisfy the “necessary and sufficient rule”. The necessary rule says that something is a CSF only if it is essential to achieving the strategy of the public entity. The sufficiency rule states that the full set of CSFs required for a successful strategy execution must be identified and reported upon. It will not be necessary for the accountability report to include performance indicators that lie outside that set. It could be argued that the CSF indicators should provide the basic set of information for General Purpose Accountability Reporting. They would provide the information required for the assessment, by users, of the appropriateness to their needs and interests, of the strategic intent – planned and/or as revealed by practice‐ of the public entity. Information requirements that go beyond this aspect will by definition be special purpose reports.
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International Public Sector Accounting Standards Board (IPSASB) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities
Consultation Paper 1 issued September 2008 for comment by March 31, 2009 Joint Comments by The Institute of Chartered Accountants of Sierra Leone (ICASL) and
The Council for Standards of Accounting, Auditing, Corporate & Institutional Governance (CSAAG) Sierra Leone March 2009.
Page 5 of 7
IPSASB PRELIMINARY VIEW 6 ‐ EVOLUTION OF THE SCOPE OF FINANCIAL REPORTING (FOLLOWING PARAGRAPH 3.22)
The scope of financial reporting should evolve in response to users’ information needs, consistent with the objectives of financial reporting. ICASL & CSAAG Comment on PV 6 See our comment on PV2. We consider that the evolution of accountability reporting may be at differing speeds within the public sector of a given country. For example, the central government may report on a cash or modified cash basis and may require whole of government consolidation on that basis. However, there may be autonomous agencies of government that have the resources (and are required by the pressure of principals and other stakeholders) to deploy accrual accounting processes. They may also have the resources to simultaneously provide the cash basis reports required for whole of government consolidation. In this way, they can provide a valuable test bed for the eventual migration of central government to the accruals basis. It is proposed that the framework explicitly recognises the potential for, and value of, such “multi‐speed” evolution of the scope of accountability reporting within a single jurisdiction.
IPSASB PRELIMINARY VIEW 7 ‐ THE QUALITATIVE CHARACTERISTICS OF INFORMATION INCLUDED IN GPFRS (FOLLOWING PARAGRAPH 4.40)
The qualitative characteristics of information included in GPFRs of public sector entities are:
- relevance, which encompasses confirmatory value, predictive value, or both; - faithful representation, which is attained when depiction of economic or other phenomena is
complete, neutral, and free from material error; - understandability; - timeliness; - comparability; and - verifiability (including supportability).
Constraints on financial reporting are materiality, cost, and achieving an appropriate balance between the qualitative characteristics.
ICASL & CSAAG Comment on PV 7 See our comment on PV2.
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International Public Sector Accounting Standards Board (IPSASB) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities
Consultation Paper 1 issued September 2008 for comment by March 31, 2009 Joint Comments by The Institute of Chartered Accountants of Sierra Leone (ICASL) and
The Council for Standards of Accounting, Auditing, Corporate & Institutional Governance (CSAAG) Sierra Leone March 2009.
Page 6 of 7
The qualities stated appear to relate to the attributes of information that is primarily relevant to the measurement of individual assets and liabilities. There appears to be a case for a quality that deliberately takes the “big picture” and considers the impact of the interaction of the micro‐focussed‐qualities (possibly both within and external to the reporting entity) for the entire accountability report of the entity. The need for such a “macro‐focussed” qualitative benchmark has become evident from the events of the prevailing global financial crisis in which it would appear that the reporting processes focussed on micro qualities whilst ignoring macro indicators of impending trouble. We recommend the inclusion of the macro quality of “credibility”. This would be a form of systemic risk review, requiring that the preparation of accountability reports must consider the effects of the interaction of micro‐qualities both internal and external to the reporting entity on the sensibility of the report. This characteristic may require the scanning of the event horizon for factors, which would not be seen by a focus on the other qualitative characteristics, but that may lead to a material revaluation of individual assets and liabilities.
IPSASB PRELIMINARY VIEW 8 ‐ CHARACTERISTICS OF A REPORTING ENTITY (FOLLOWING PARAGRAPH 5.10)
The key characteristic of a reporting entity is the existence of users who are dependant on GPFRs of the entity for information for accountability purposes, and for making resource allocation, political, and social decisions.
A public sector reporting entity may be an entity with a separate legal identity or other organisational structure or arrangement. ICASL & CSAAG Comment on PV 8 See our comment on PV2.
IPSASB PRELIMINARY VIEW 9 – THE COMPOSITION OF A GROUP REPORTING ENTITY (FOLLOWING PARAGRAPH 5.35)
A group reporting entity will comprise the government (or other public sector entity) and other entities when the government (or other public sector entity):
- has the power to govern the strategic financing and operating policies of the other entities (a
“power criterion”); and - can benefit from the activities of the other entities, or is exposed to a financial burden that can
arise as a result of the operations or actions of those entities; and can use its power to increase, maintain, or protect the amount of those benefits, or maintain, reduce, or otherwise influence the financial burden that may arise as a result of the operations or actions of those entities (a “benefit or financial burden/loss” criterion).
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International Public Sector Accounting Standards Board (IPSASB) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities
Consultation Paper 1 issued September 2008 for comment by March 31, 2009 Joint Comments by The Institute of Chartered Accountants of Sierra Leone (ICASL) and
The Council for Standards of Accounting, Auditing, Corporate & Institutional Governance (CSAAG) Sierra Leone March 2009.
Page 7 of 7
ICASL & CSAAG Comment on PV 9 We recommend a principle of “subsidiarity” in the disclosure of non‐financial information to the separate entities of a public group that is subject to consolidation. This would require the fullest possible disclosure at the lowest level of entity that has direct responsibility for a transaction or activity. The information disclosed in consolidated reports should include summaries of such information and a guide to where users can obtain full information in the reports of a subsidiary. Such a subsidiarity principle will facilitate the accountability of public sector entities to their immediate stakeholders. Signed:
Ms. Majorie I. Hedd Mr. Omodele R. N. Jones President 2008/2009 Chairman The Institute of Chartered Accountants of Sierra Leone
Council for Standards of Accounting, Auditing, Corporate & Institutional Governance (CSAAG) Sierra Leone
