ARCHIVED - Evaluation of International Public Sector Accounting Standards Board Contribution Program

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III Profile of IFAC and IPSASB and the IPSASB Contribution Program

A. About IFAC and the IPSASB

1. Background on IFAC

The International Federation of Accountants (IFAC) is a worldwide association of accounting professionals and organizations. Its mission is to serve the public interest by continuing to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by:

• Establishing and promoting adherence to high-quality professional standards.
• Furthering the international convergence of such standards.
• Speaking out on public interest issues where the profession's expertise is most relevant.

2. History of Public Sector Accounting Standards Development

In 1986, IFAC set out a public sector group, originally named the Public Sector Committee, with a mission to focus on the specific needs of this sector. The mandate of the Committee was to develop programs for the improvement of public sector financial management and accountability, including financial reporting, auditing, corporate governance, and management accounting. By 1996, following considerable background work, the Public Sector Committee embarked on a standards program directed at developing International Public Sector Accounting Standards (IPSASs) for financial reporting.

The actual standards development work began in 1997. The initial phase involved converting several of the private sector standards (International Accounting Standards (IASs)) published by the International Accounting Standards Board (IASB). The process used by the IPSAS technical working group was to review the private sector standards and revise these standards to the extent appropriate for the public sector. This phase of the public sector standards development program was funded by the IFAC, the Asian Development Bank, the International Monetary Fund (IMF), the United Nations Development Programme (UNDP), and the World Bank, and was completed in 2002.

3. Establishment of IPSASB

In 2004, IFAC moved to establish an independent Board – the IPSAS Board – with revised terms of reference to reflect that the mandate of the Board would focus on issuing International Public Sector Accounting Standards (IPSASs). This development followed the model that had been established by the private sector accounting standards body.¹ Further details on the mandate, membership and operations of IPSASB can be found in Appendix D.

The IPSASB functions as an independent standard-setting body under IFAC. It achieves its objectives by:

• Issuing International Public Sector Accounting Standards (IPSASs).
• Promoting acceptance of IPSASs and international convergence to these standards.
• Publishing other documents which provide guidance on issues and experiences in financial reporting in the public sector.

Resource constraints at the time meant deferring a large portion of the IPSASB convergence project. The main resources were dedicated to improving the public sector standards already developed, initiating projects on employee benefits and impairment of cash generating assets. The IAS Improvement Project focused on updating 11 IPSASs issued in 2003. The updated IPSASs were approved by the IPSASB in November 2006.

However at the same time the renewal program of global accounting standards, initiated by the International Accounting Standards Board (IASB), was moving rapidly ahead with an extensive work program that included issuing new International Financial Reporting Standards (IFRSs) (including interpretations) as well as revising and updating existing IASs. Given the rapid progress of the IASB in developing and publishing private sector accounting standards – the IASB was well financed and directed by a full-time board – and the relative lack of resources of the IPSASB, a significant gap developed between the private and public standards. The link, previously established between the IPSASs and IFRSs, was being eroded and the IPSASB was then in a position of playing "catch-up."

At this juncture, the IPSASB secured new funding, largely from the Government of Canada (the IPSASB contribution program), and a proportionate grant from the CICA. The CICA funding is referred to as "in-kind" funding but in fact is a five-year $C200,000 per year transfer to the IFAC. A CICA representative indicated that the funding is earmarked for a salary of an IFAC technical manager directly engaged in the IPSAS development process.

B. Background and Rationale for the IPSASB Contribution Program

In August 2006 the Treasury Board of Canada approved the terms and conditions for a contribution program supporting the IPSASB. The purpose of the contribution program was to further the development of international public sector accounting standards and to increase the visibility of Canada in the setting of these standards.

The main aspects of the rationale for the contribution program are as follows:

• Financial reporting standards are moving towards international convergence. The standardization of accounting guidance for private sector accounting standards is well advanced, and it is widely acknowledged that standards for the public sector should follow suit.
• IPSASB is one of four standard-setting boards under the International Federation of Accountants (IFAC) and is responsible for establishing international accounting standards for the public sector. IPSASB addresses the accounting and financial needs of governments by issuing and promoting benchmark guidance, conducting educational and research programs, and facilitating the exchange of information among accountants who work in the public sector or rely on its work.
• The Office of the Comptroller General (OCG) within Treasury Board Secretariat (TBS) is responsible for researching, recommending and implementing the Government of Canada's accounting policies and financial reporting standards government wide. High quality financial reporting standards are an important component in achieving federal accountability.² The IPSASB was facing resource constraints which were expected to negatively affect its ability to progress with the development of international standards.

The IFAC was also seeking a new location for the IPSASB Secretariat which was located in Australia. The federal contribution, along with a corresponding grant from the Canadian Institute of Chartered Accountants (CICA) was intended to influence IFAC's decision to relocate the IPSASB secretariat to Toronto.

With this decision Canada became one of a few countries to provide ongoing funding to the IPSASB, thus focusing attention on, and providing leadership for many items on the IPSASB agenda. This was particularly important at early stages in the development of global public sector accounting standards. It demonstrated continued leadership of Canada at the IPSASB level. Currently the VP Standards, CICA and the Auditor General of Canada are IPSASB members.

C. Resources

The contribution program provides an annual contribution to the IPSASB of $200,000 commencing in 2006-2007 and ending in 2010-11, for a total cost of $1,000,000. As per the terms and conditions of the agreement between the Government of Canada and IFAC dated January 18, 2007, quarterly payments are made to the IFAC on behalf of IPSASB.

The purpose of the funding as stated in the quarterly correspondence (invoice) to the OCG from IFAC was "to facilitate the development of International Public Sector Accounting Standards (IPSASs)." From the wording in this correspondence it can be assumed that the funds were directed toward the general program activities of IPSASB and not to any specific project or activity.

The correspondence accompanying the quarterly invoice for payment notes that the IPSASB budget and actual expenditures exceeds the amount of the grant provided by the Government of Canada. IFAC meets the balance of the expenditure with grants from other governments and international organizations and from its own revenue sources.

The annual budget of the IPSASB in 2009 was $US1.7 million. The Government of Canada contribution represents approximately 15 per cent of the IPSASB's annual budget. Revenues from sales of products and grants from other governments, international organizations (e.g., the World Bank) and the accounting industry comprise the balance of the budget. The IPSASB quarterly budget shows that approximately 80 per cent of the budget is expended on salaries, consultants and travel.

The invoice is also accompanied by supporting documentation; a copy of the IPSASB Financial Statement (for the period in question) signed by IFAC's Director of Governance and Operations (chief financial officer); a copy of the IPSASB budget for the year in question (cash expenditures for the quarter); and, a copy of the IPSASB's report on activities for the period.

D. Governance

The roles and responsibilities of the key players involved are set out in the Risk-based Audit Framework section of the terms and conditions and are as follows:

• OCG is responsible for annual financial monitoring of the recipient's compliance the terms and conditions. The Comptroller General or designate is responsible for expenditure initiation and contract performance.
• The Corporate Services Sector (CSS) is responsible for ensuring that the contribution payments comply with TBS policy requirements, both in their approval and their administration, which includes Section 33 payment processes.
• TBS Internal Audit's role is to provide assurance on the adequacy of integrated risk management practices, management controls and frameworks and information used for decision making and reporting on the achievement of the overall project objectives. Based on a risk assessment undertaken by IAEB at the time the agreement was established, it was concluded that the risk profile of the Program was low

E. Logic Model

A logic model for the IPSASB contribution agreement was prepared based on the review of documents and is presented in Figure 1.

Figure 1: IPSASB Logic Model Contribution Program

Figure 1 - Text version

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