Chartered Accountants ANZ and CPA Australia have made a joint submission to the International Public Sector Accounting Standards Board (IPSASB) on its trilogy of exposure drafts (EDs) on revenue and transfer expenses:
- ED 70 Revenue with Performance Obligations
- ED 71 Revenue without Performance Obligations, and
- ED 72 Transfer Expenses.
Responses to a Consultation Paper in 2017 influenced the IPSASB’s approach to:
- Reconsidering the exchange vs non-exchange revenue approach
- Approaches for revenue recognition, and
- Measurement of non-contractual receivables and payables.
ED 70 is aligned with IFRS 15 Revenue from Contracts with Customers and is intended to supersede IPSAS 9 Revenue from Exchange Transactions and IPSAS 11 Construction Contracts. Unlike the current revenue standards, which classify revenue based on an exchange or non-exchange distinction, ED 70 differentiates revenue transactions based on whether or not the transaction has a performance obligation, which is defined as a promise to transfer goods or services to a purchaser or a third-party beneficiary.
ED 71 is an update of IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and Transfers). It deals with revenue transactions that do not have performance obligations (i.e. fall outside the scope of ED 70), but have “present obligations” or no obligations.
ED 72 contains new concepts and it proposes guidance for transfer expenses, where a transfer provider provides resources to another entity without receiving anything directly in return. A transaction can fall within the scope of both ED 70 and ED 72 or ED 71 and ED 72. ED 70 and ED 71 provide guidance for the transfer recipient’s revenue and ED 72 for the transfer provider’s expense.
We support the IFRS 15 convergence that ED 70 is aiming to achieve, but ED 70 needs to be amended to make it more fit for purpose for the public sector.
Regarding ED 71, we have emphasised that there is a need for revenue deferral and more guidance for revenue with and without performance obligations in the public sector, and we strongly encourage the IPSASB to go ahead with the project. However, we have both conceptual and practical issues with ED 71.
On ED 72, we have emphasised that public accountability of transfer expenses is important, although we have reservations regarding the approach taken in ED 72. Particularly, there is a lack of definition and guidance around the term, “monitoring” as referred to in the “Public Sector Performance Obligation Approach” proposed.