Exposure Draft (ED) 17 Segment Reporting Proposed International Public Sector Accounting Standard (IPSAS)
Comments from the Association of Chartered Certified
Accountants
May 2001
ACCA welcomes IFAC's proposal to publish an IPSAS, regarding the disclosure requirements of groups of activities, which aims to support decision making and accountability. In general ACCA is supportive of the proposed standard which, if adopted by public sector entities world wide, should help to harmonise the existing diverse range of financial reporting practices and hence will assist users to better understand the aggregate financial statements and assess their performance. The standard should also support comparability of information, enhance public sector accountability and transparency and aid inter authority benchmarking exercises.
We respond to the specific matters raised for comment as follows.
Specific Matters for Comment
(a) ACCA supports the view that the scope of this standard should not be constrained by IAS 14, Segment Reporting to apply to public sector entities which trade equity or debt securities publicly and to entities that are in the process of issuing equity or debt securities in public securities markets or to the whole of government accounts. Our main reason is that users of segment reports are likely to be wide ranging.
(b) ACCA believes that if segment information is to be reported on the same basis as internal reporting to the governing body and senior management, then this practice may result in different segments being identified than would be the case under IAS 14 which relates segment reporting to risks and returns. It is our view that the standard should adopt a more prescriptive approach which would require public sector entities to report on the outcome of specific policy areas or functions in order to enhance accountability for service delivery within allocated resources (taxes, grants and loans) and hence aid comparability of information.
(c) We believe that segments should reflect programs, outputs, ministries portfolios consistent with the basis of reporting to senior management and the governing board; at the whole of government level, identified segments may need to be made consistent with or cross referenced to functional classifications used for statistical returns.
(d) If the standard adopted the approach outlined in point (b) above then the question of ambiguity (where segment information is reported on more than one basis internally to senior management and the governing body) would not arise.
(e) ACCA does not believe that it is necessary to include a commentary to explain the unlikely identification of segments. We do not believe that senior management should be allowed to only differentiate between budget and non budget dependent activities or between business and non business operations for segment reporting. This basis of reporting is unlikely to be the sole reporting mechanism used for decision making and risk management purposes.
(f) We agree that the additional disclosures of geographical/service line relationships will enhance the usefulness of the financial statements. We do not believe, however, that such requirements should be made too onerous or greater than the scope given to private sector entities which produce such information by way of a note to the accounts.
(g) ACCA acknowledges that even though some revenue items and certain liabilities may not be reliably allocated, public sector entities should be encouraged to adopt a purchaser/provider relationship model which produces consistent and comparable information regarding the allocation or apportionment of overheads and support services.
(h) It is ACCA's view that entities should be required, as opposed to encouraged, to disclose the broad operating objectives established for each segment and to provide an explanation as to whether those objectives were achieved.
(i) It is our view that segment information should be reported also by entities adopting the cash basis of accounting.