Financial Reporting Under the Cash Basis of Accounting
Executive summary
The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on Exposure Draft 32, Financial Reporting Under the Cash Basis of Accounting the Disclosure Requirements for Recipients of External Assistance. These comments have been prepared in consultation with members of ACCA's Public Sector Technical Issues Panel, a group of experienced accountants working in the public sector.
ACCA welcomes the main thrust of the changes made in developing this Exposure Draft. We are pleased that the level of mandatory disclosures has been reduced and that a number of requirements are now to be encouraged .
Especially with the relatively minor changes we are suggesting, we consider the following objectives set by the International Public Sector Accounting Standards Board for the proposed standard will be met:
- to increase the comparability and usefulness of the financial information to users of the statements
and
- reduce the costs that recipients of such assistance face in complying with the different reporting requirements that may be imposed on them by providers of assistance (paragraph BC 3).
Specific matters for comment
1. Whether the designation of certain disclosures as required and other disclosures as encouraged is appropriate. If the proposed designation is not considered appropriate, please identify the amendments and/or reclassifications you consider appropriate.
ACCA largely agrees with the designation of disclosures as either required or encouraged as indicated in the ED. We consider however, that it would be more appropriate for one of the disclosures currently considered to be required to only be encouraged and one of the encouraged disclosures reclassified as being required.
The exposure draft currently requires undrawn external assistance to be disclosed in the notes to the accounts (paragraph 1.9.16). Unfortunately, the timing of the actual payment of external assistance, even where this is “committed under a written agreement”, is often unknown. In addition, such assistance will often be denominated in a foreign currency and thus the actual amount eventually to be received in the currency of the reporting entity will not be known accurately. For these reasons, we consider that such discloses should only be encouraged rather than being required.
We consider that where external assistance is received from more than one provider then this should be analysed to show the amount received from each provider. This is currently encouraged in paragraph 2.1.63. In addition, we consider that the notes to the financial statements should provide details of the assistance received in the currency in which it was provided.
This proposal would enable the providers of external assistance to gain significant additional assurance from the audited financial statements of recipient governments at little additional cost to such governments. It would mean that the providers would be able to compare their own figures of the amount of assistance provided to that recorded in the audited financial statements of the relevant recipient country. They should thus gain significant comfort that the receipt of their external assistance and its eventual use for payment for goods and services had been audited by the recipient government's auditors.
2. Whether the Cash Basis IPSAS “Financial Reporting Under the Cash Basis of Accounting” should be amended to include the additional required and encouraged disclosures, or whether the required and encouraged disclosures should be issued as a separate “stand alone” Cash Basis IPSAS.
ACCA considers that it would be preferable to amend the Cash Basis IPSAS to include the additional disclosures (as was the case with the recent amendment concerning the reporting of budgetary information) rather than issuing a separate IPSAS. This would maintain the current position of having one comprehensive standard for the cash basis of accounting.
3. Whether the proposed definition of “external assistance” in paragraph 1.9.1 is sufficiently broad to encompass all official resources received.
ACCA considers that the definition of “external assistance” in paragraph 1.9.1 is sufficiently broad to encompass all official resources received. However, we consider that additional guidance should be provided to clarify that the requirements do not include reporting on the receipt of assistance from Non-Governmental Organisations, for example, Oxfam.
4. Whether the separate disclosures of the amount of external assistance should be required on the face of the Statement of Cash Receipts and Payments as is currently required in paragraph 1.9.6, or whether the IPSAS should allow such disclosure to be made either on the face of the Statement of Cash Receipts and Payments or in the notes thereto.
It may be easier for some reporting entities to provide these disclosures in the notes to their financial statements. We consider that the prime aim of the proposed standard is to facilitate and increase the comparability of the reporting of external assistance which has actually been received. Thus ACCA considers that reporting entities should be given the option of disclosing the amount of external assistance in the notes to the financial statements, especially where the amounts of such external assistance are not substantial.
5. Whether other sources of assistance, such as assistance provided by nongovernmental organizations (NGOs), should also be included in the definition of “external assistance”. Currently, the proposed Standard requires that entities disclose all official resources received. Official resources as defined in paragraph 1.9.1 would exclude certain assistance received from NGOs.
ACCA does not consider that external assistance provided by NGOs should also be included in the definition of “external assistance”. However, we would be content for such assistance to be encouraged by Part 2 of the proposed amendments to the Cash Basis IPSAS especially where it was substantial.
6. Whether the Standard should encourage the disclosure of specific categories of external assistance or only the disclosure of external assistance by “significant classes” without further specification. Paragraph 2.1.60 encourages the disclosure of external assistance by significant classes. Paragraph 2.1.61 includes a description of some such classes.
ACCA does not consider that such recommendations should be extended.
7. The proposal to require disclosure of the balance of undrawn external assistance loans and grants (paragraph 1.9.16), and encourage disclosure of changes therein during the period (paragraph 2.1.65(c)).
ACCA considers that such proposals should only be encouraged and thus included in Part 2 of the proposed amendments to the Cash Basis IPSAS.
8. Whether the disclosure of the terms and conditions of external assistance agreements that determine or effect access to, or limit the use of, external assistance which is currently encouraged (paragraph 2.1.69), should be reclassified as a required disclosure.
ACCA does not consider that this disclosure should be reclassified as a required disclosure.
9. Whether it is appropriate to encourage disclosure of the value of external assistance received in the form of non-cash goods and services (paragraph 2.1.85) and, if an entity elects to make such disclosure, to require disclosure of the basis on which that value was determined (paragraph 1.9.18).
ACCA supports this proposal.
10. Whether the transitional provisions in paragraphs 1.9.26 and 1.9.27 are appropriate:
(a) Paragraph 1.9.26 provides for a transitional period of two years for disclosure of the balance of undrawn external assistance; and
(b) Paragraph 1.9.27 provides an exemption from the requirement to disclose comparative figures during the first year of application of the requirements relating to external assistance.
The IPSASB would welcome comments on whether other requirements of this Standard should also be subject to transitional provisions.
ACCA supports the proposed transitional provisions. However, we consider that disclosure of the balance of undrawn external assistance should merely be encouraged.
11. Whether there are additional disclosures that have not been dealt with and should be required or should be encouraged.
The proposed standard should note the particular challenges of accounting for emergency assistance, especially when this is made in-kind or to third parties. Thus, in most cases, it should be recognised that such external assistance will not be disclosed in the financial statements of recipient governments (an exception could be emergency assistance provided in cash direct to the recipient government)