Silence does not always mean consent
Mark Hucklesby, National Technical Director, for chartered accountants Grant Thornton New Zealand, looks at Government moves to reduce the cost and complexity associated with preparing and filing financial statements. This is the third of three articles and it covers the public sector.
Making more than 2,500 schools change their balance dates from December to June is just one of many changes that may result if proposals put forward by the Accounting Standards Review Board (ASRB), come into effect.
Other significant changes, including the way the Government presently reports its segment information, which is currently institutionally based (ie Core Crown, Crown entities and state owned enterprises) are also mooted.
Why these changes? Because the ASRB is suggesting that the NZ IFRS (the New Zealand equivalents of International Financial Reporting Standards) should be replaced with International Public Sector Accounting Standards (IPSAS). The move from a December to a June balance date for schools will align with IPSAS requirements which do not permit parent and subsidiary balance dates to be any more than three months apart.
Although the ASRB has made it very clear that these are proposals only, it’s seeking feedback to assess whether its proposals focus on “what needs to be reported”, and those put forward by the Ministry of Economic Development (MED), that focus on “who has to be reported” are appropriate and reasonable. Deadlines for both submissions close on 29 January 2010.
Since 2004, many changes have been made to the IPSAS to improve their quality and relevance for public sector entities. This is largely because the governing body that creates these standards, the International Public Sector Accounting Standards Board, has been actively pursuing a strategy to ensure that IPSAS reflects IFRS (but in a public sector context) and wherever possible, eliminating inconsistencies between these two sets of international accounting standards.
Given this, the ASRB believes that IPSAS represents a creditable alternative for New Zealand to consider given the angst that surrounds NZ IFRS and the way it’s been adapted to accommodate the financial reporting needs of the public sector.
Just before Kevin Brady stepped down from his role as the Controller and Auditor-General, he submitted to Parliament an 84 page report on standard setting options for the public sector. He provided four options for the ASRB to consider.
First, enhance IFRS, and by that, start with IFRS but make appropriate changes that include removing standards that are not relevant to the public sector; altering language to make it relevant; remove unnecessary disclosure requirements and amend recognition, measurement and presentation requirements when they are clearly not appropriate for the public sector. His view was that NZ IFRS has not gone far enough to meet the reporting needs of public sector entities.
Second, adopt IPSAS and if any changes need to be made these should be restricted to removing options where IPSAS allows alternative permissible treatments and add disclosure requirements where appropriate.
A third option, to enhance IPSAS by taking the standards as issued by the IPSASB and then adapting them specifically for New Zealand through altering the language to make it relevant to New Zealand situations; removing or adding disclosure as required; amending recognition, measurement and presentation requirements where necessary and creating relevant guidance and new standards outside of the IPSAS, when circumstances require.
Brady’s final option, which would consume a great deal of time and resources, is that New Zealand specific standards are created for the public sector. Implementing this option would require the ASRB to completely change the way it has operated in the past and would require significant Government funding. That said, the clear benefit to the country would be that the ASRB would be free to draw on principles, ideas and requirements from various sources, including IPSAS and IFRS.
No matter what option and deployment strategy is followed, creating standards for the public sector will always be challenging. Consider for one moment the range of entities that the standards need to cover: everything from the Crown, government departments, crown entities, state owned enterprises, through to school boards of trustees, council-controlled entities, local authorities, reserve boards and even cemetery boards!
Going forward IPSAS looks the most likely candidate. Coupled to this the ASRB is proposing a reduced disclosure regime for public sector entities whose annual expenditure falls between $2 million and $20 million. Where an entity in the public sector has annual expenditure below $2 million, then some simple format reporting based on accrual accounting is proposed to ensure that all public sector entities can be made accountable for their actions.
The key take away from all this is that before 29 January 2010, both the MED and the ASRB are seeking feedback on what option sits most comfortably with those affected by these proposals. The last time an opportunity like this came up for comment was nearly 20 years ago. If you have concerns, make sure that your silence is not taken to be consent.
Financial Reporting Adviser - Changing New Zealand’s financial reporting landscape
For further information, contact:
Mark Hucklesby
National Technical Director
T+ 09 308 2534
M+ 021 664 585
E mark.hucklesby@nz.gt.com