IPSASB: key characteristics of the public sector with potential implications for financial reporting

Comments from ACCA to the International Public Sector Accounting Standards Board, August 2011.

ACCA welcomes the opportunity to comment on the above Exposure Draft (ED). ACCA is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. We support our 147,000 members and 424,000 students throughout their careers, providing services through a network of 83 offices and centres. A significant number of our members work with public services.

General comments

We are supportive of the development of a conceptual framework for the public sector as set out in our responses to previous consultations. In our view the ED sets out the distinctive factors of the public sector relatively well. However, some areas would benefit from further clarification, for example, the definition of the public sector.

In our experience defining the public sector is no easy task, not least because of the changing public sector landscape where increasingly the private sector is being used to deliver public services. There are also a number of definitions in existence with different conceptual bases. For example, the UN defines the public sector as ‘general government corporations’. In contrast the OECD defines the public sector as ‘comprising of the general government sector plus all public corporations including the central bank’, whereas the IMF defines the public sector as ‘central government, state government and local organisations’. The ED discusses a definition for financial reporting purposes, but does not explicitly set out which definition it has adopted, if any and the rationale for choosing it. Given the importance of the definition to the conceptual framework and key characteristics of the public sector, we consider it essential that the document clarifies this.

The ED would additionally benefit from recognising that the composition of the public sector varies by country by country, for example the provision of healthcare is not necessarily a public service in every country. Also, it would be helpful if the ED addressed some grey areas, for example, the implications for financial reporting where public sector functions are contracted out to the private sector. This would have implications for recognising a domain much wider than just local and central government and regulators.

It would also be helpful if the terminology used in the definition is consistent with other organisations such as the UN. For example, ‘intergovernmental’ is a term more commonly used in the public sector to describe organizations, such as the European Union and UN.

As a final point, given the changing landscape of the public sector, perhaps a wider definition of ‘public services’ would be more appropriate for considering financial reporting. This would recognise that there is no longer a need to focus on government control and ownership, but that public services may have some element of government funding, ownership, public direction or regulation.

Specific questions

Q1. Do you agree that this document provides useful background information on the key characteristics of the public sector and identifies some potential implications of those key characteristics for financial reporting? If not, please indicate how you would modify the document.

We agree that the document provides useful background information on key characteristics of the public sector and identifies some potential implications for financial reporting. However, as stated above it need to address the definitional elements.

Q2. Do you agree that this document should be included as part of the IPSASB’s literature? If you agree, where do you think the material in this document should be located:

(a) As part of the Conceptual Framework;

(b) As a separate section of the Handbook of International Public Sector Accounting Pronouncements

(c) Elsewhere with some other status – please specify?

We agree that the document would be useful to include in IPSASB’s literature. It would enhance understanding of the conceptual framework by providing useful contextual/background information. We support the direction of the ED and note that it is relatively well drafted.