Comments from ACCA to the IPSASB Governance Review Group
29 April 2014
ACCA welcomes the opportunity to comment on the proposals for the future governance of the IPSASB. We believe our professional accountancy expertise; experience and international reach across the public sector will allow us to make an informed contribution to proposals for the future governance and oversight of the IPSASB. The views expressed in this response reflect the opinions of our Global Public Sector Forum, which includes senior finance professionals, academics and advisors from around the world.
For a number of years ACCA has been highly supportive of the work of the IPSASB and of its close working relationship with the IASB to interpret IFRS accounting standards for the public sector and the development of International Public Sector Accounting Standards (IPSASs).
We believe that international consistency and comparability of accounting standards for the public sector should continue to be at the heart of the objectives of the IPSASB. The introduction of oversight arrangements of the Board will serve to increase public confidence in both the standards setting process and the quality of financial reporting standards. It may also provide an impetus for more widespread adoption by public bodies of generally accepted public sector accounting standards.
In our view this consultation is very timely, particularly given the need for governments to become more accountable and transparent in the aftermath of the financial crisis. This is particularly important as the current debate on introducing and implementing European Public Sector Accounting Standards (EPSAS) has given rise to an intense public debate in Europe. These developments make it all the more important that oversight of the IPSASB is expediently addressed. It is also critical that the IPSASB continues to develop a close working relationship with the EC to avoid overlap and duplication of effort.
Irrespective of the final option selected, we urge the Review Group to minimize disruption to the functioning of public sector accounting standard-setting activities. Strengthened governance arrangements should be implemented in an effective and timely manner to increase the confidence of those using, adopting, and intending to adopt IPSASs. The proposed changes should not interfere with the IPSASB delivering its planned work programme.
We believe that the best long-term solution would be for monitoring and oversight of the IPSASB to come under the auspices of the IFRS Monitoring Board and Trustees (option a), particularly given that accounting standards are converging globally with countries looking towards IFRS and IPSAS. A key benefit of this option is that it would facilitate long - term convergence of financial reporting standards between the private and public sectors.
We recognise that bringing the IPSASB under the umbrella of the IFRS Foundation’s Monitoring Board will not be without additional cost and will pose challenges to the composition of the monitoring board, its terms of reference and funding. The lack of representativeness of the IPSASB was raised as an issue by EUROSTAT so will need to be taken into account as part of any reorganisation. The Monitoring Board will need to include representatives of a wider public interest and individuals with expertise of public sector accounting. Despite the challenges and complexities we believe that these are not insurmountable in the long run.
Should option (a) be discounted, option (b), of introducing a separate monitoring and oversight board for the IPSASB within IFAC, would provide a short to medium term solution. But this arrangement would still leave unresolved issues, such as Board representativeness and potential conflicts of interest.
We do not support option (c), of establishing a separate body outside of IFAC. At this point in time we think that it is an unrealistic option, particularly given the current economic climate. It would be unlikely that governments and/or supranational institutions would be able to make the funds available to support such a body. Its introduction would also pose practical difficulties in terms of staffing, resourcing and government involvement. The latter is problematic as demonstrated by the proposed governance model set out by Eurostat for developing EPSASs. Many commentators fear the potential effects of large-scale government involvement will result in undue political influence in the standard setting process. These concerns have not been sufficiently addressed by Eurostat.
Do you agree there is a need to strengthen the monitoring and oversight of the IPSASB? If so, do you favour?
(a) Monitoring and oversight of the IPSASB by the IFRS Foundation’s Monitoring Board and Trustees?
(b) Separate monitoring and oversight boards for the IPSASB, while it remains under the auspices of the IFAC?
(c) Re-establishing the IPSASB outside of IFAC with its own monitoring and oversight bodies?
(d) Another approach, including some combination or sequenced implementation (e.g. short-term/long-term approaches) of the above options? If so, please describe.
We fully agree that the monitoring and oversight arrangements of the IPSASB should be strengthened. In our view IPSASB is a well functioning body and there are no serious operational issues with it. But the fact that the IPSASB, alone among the IFAC standard-setting bodies, is not currently subject to any oversight mechanism is an anomaly that needs to be addressed. We understand that it has now been a number of years that IFAC has been considering options to improve the governance of the IPSASB to bring it in line with the arrangements of other international standard setting boards and we are pleased to see that this issue is being tackled with renewed vigour by the IPSASB Governance Review Group.
The need for enhancing governance arrangements for the IPSASB was reinforced by various stakeholders in the public consultation on governance of standard-setting arrangements undertaken by the IFAC, Monitoring Group in 2012. At the heart of this public consultation was the need to ensure that the public interest continues to be served in a parallel manner as other international standard setters, such as the Monitoring Board of the IFRS foundation.
It was clear from stakeholders’ responses to the public consultation that in order to instil confidence in the quality of the standards and the standard setting process that a body must be able to demonstrate and adhere to the principles of independence, accountability and objectivity. Above all, the governance structure should ensure that standard setting is protected from vested interests. We believe that a strong governance and oversight function would give assurance and promote confidence to those public bodies adopting the standards. It may also provide an impetus for more widespread adoption of generally accepted public sector accounting standards.
Arguably, if the governance and oversight issue of the IPSASB had been resolved earlier, EUROSTAT would have had less cause to reject IPSAS for member states on the basis of the lack of oversight of the IPSASB. Of course, there were other issues raised by EUROSTAT such as the lack of representation on the board, but nevertheless the absence of oversight was raised as an area of significant concern.
Our view is that the best long-term solution would be for monitoring and oversight of the IPSASB to come under the auspices of the IFRS Monitoring Board and Trustees, particularly given that accounting standards are converging globally, with most countries looking towards IFRS and IPSAS. Also, the boundaries between the public and private sector sectors are becoming increasingly blurred. A key benefit of this option is that it would facilitate long - term convergence of financial reporting standards between the private and public sectors. We also agree with the Independent Review Team’s view that the IFRS Foundation’s Monitoring Board and Trustees have well established public interest procedures, resources and competence. These features can be readily applied to the setting of public sector accounting standards.
Bringing the IPSASB under the umbrella of the IFRS Foundation’s Monitoring Board will not be without additional cost and will pose challenges to the composition of the monitoring board, its terms of reference and funding. The lack of representativeness of the IPSASB was raised as an issue by EUROSTAT so will need to be taken into account as part of any reorganisation. The Monitoring Board will need to include representatives of a wider public interest and individuals with expertise of public sector accounting, but we believe that these challenges are not insurmountable in the long run.
Our understanding is that the Trustees’ strategy review in 2012 did not fully rule out extending the IFRS Foundation’s Monitoring Board and Trustees activities, rather that certain conditions would need to be met to allow the Foundation to extend its scope. In light of these developments we would suggest that the IPSASB continues to have a dialogue with the IASB with a view to pursuing this as a long-term option. The IASB and IFAC have recently signed a memorandum of understanding that sets out mutual interests, communication and co-operation processes. In our view this provides a good basis to build upon.
Failing any progress or agreement for the IPSASB to come under the umbrella of the IFRS Foundation’s Monitoring Board then option (b), of introducing a separate monitoring and oversight board for the IPSASB, while it remains under the remit of the IFAC, could provide a good alternative short to medium-term solution.
Pursuing option (b) in the short to medium-term would appear on the surface to be a straightforward solution. A separate PIOB could be implemented relatively quickly and would introduce due process to standard setting for the public sector. However, this option is also not without its challenges. In particular, the proposed governance model still runs the risk of receiving accusations about its lack of independence, for example, continued reliance on IFAC for the bulk of its funding raises questions about the Board’s independence from the accounting profession. There are also cost implications and the proposals set out in the consultation paper do not address issues of representativeness of the Board. This was a concern raised in EUROSTAT’s report ‘Towards implementing harmonised European Public Sector Accounting Standards’ (2013)
We believe that option (c), of establishing a separate body outside of IFAC, is unrealistic, particularly given the current economic climate. It would be unlikely that governments and/or supranational institutions would be able to make the funds available to support such a body. Its introduction would also pose practical difficulties in terms of staffing, resourcing and governmental involvement. The latter is problematic as demonstrated by the proposed governance model for developing EPSASs set out by Eurostat. Many commentators fear the potential effects of large scale government involvement will result in undue political influence in the standard setting process. These concerns have not been sufficiently addressed by Eurostat.
a) Do you agree with the proposed remit for the IPSASB monitoring and oversight body(ies) in section 1V, paragraph A? Are there other issues that should be addressed?
The consultation paper does not sufficiently make clear the specific remit of each body in the proposed governance structure. However, it does set out the three key aims. We agree that the public interest is best served by independent standard-setting arrangements with strong oversight, but it is not clear to us why an oversight body would “establish the standard-setting strategy and governance arrangements”. We believe that it is the role of the IPSASB to establish its standard-setting strategy as an independent standard-setting board with appropriate public interest oversight. However, there is a role for the oversight function to review the broad strategic issues affecting financial reporting standards.
We also strongly support the five essential responsibilities outlined for oversight and monitoring functions as set on in IFAC’s paper ‘International Standard-setting in the Public Interest, and IFAC’s response to the Consultative Report on the Review of the IFRS Foundation’s Governance in April 2011’.
Do you agree with the proposed composition of the IPSASB monitoring body in section IV, paragraph B? Are there any other institutions or stakeholders who should be represented?
We believe it is critical that individuals nominated and appointed to the new governance body are suitably qualified, competent and respected in their field, so that they can inspire confidence in the standards that are produced.
However, given the characteristics of an oversight board, it will be important that members are recruited not solely for their technical competence, but for their wider ability to oversee the process of standard setting and to ensure due process has been followed. In addition, while we agree that the membership of the governance body should include some with experience in the public sector, it is not necessarily the case that all members of the governance body would need to have a public sector background. For example, including individual/s with international or national standard-setting experience can introduce valuable insights, challenge and contributions about the standard-setting process.
Do you agree with the proposed composition of the IPSASB oversight body in section IV, paragraph B? In addition to the public sector background, are there any other competencies, interests, or stakeholders who should be represented?
ACCA has nothing further to add other than as set out above in our response to question 3.
Are there any other aspects related to the governance of IPSASB that you believe the Review Group should consider before presenting its final recommendations? If so, please describe.
ACCA has no further comments to make on the proposed governance arrangements for the IPSASB.