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Background on PSC Standard Program and Note on Pension Accounting Developments
Paul Sutcliffe and Ahmad Hamidi-Ravari on 8/8/2003 3:00:30 PM
The note presents the IFAC (International Federation of Accountants) work on International Public Sector Accounting Standards (IPSASs) issued by its Public Sector Committee (PSC). It then reports on pension accounting.

Employer scheme

The authors note the suite of the twenty existing IPSASs does not currently include a standard which prescribes requirements for financial reporting of pensions provided to government employees as consideration for the services they provide as employees. However, IPSASs do specify a hierarchy of guidance that preparers may refer to in developing their own accounting policies on financial reporting issues for which a specific IPSAS has not been issued (see IPSAS 1 paragraph 42). Accordingly, when developing their own accounting policies for financial reporting of employee benefits including employee pensions, preparers will consider the requirements of IAS 19 Employee Benefits, the standard recognized by the International Accounting Standard Board (IASB - see the EDG contribution by Ahmad Hamidi-Ravari). IAS 19 is being reviewed (see the EDG contribution by Anne McGeachin).

Social security and assistance

IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets provides guidance on the recognition, measurement and disclosure of a wide range of provisions, and the disclosure of contingent liabilities (by reference to IAS 37 Provisions, Contingent Liabilities and Contingent Assets). IPSAS 19 excludes from its scope social policy obligations of governments that arise from non-exchange transactions. IPSAS 19 paragraph 9 explains that "the exclusion of these provisions and contingent liabilities from the scope of this Standard reflects the Committee's view that both the determination of what constitutes the "obligating event" and the measurement of the liability require further consideration before proposed Standards are exposed. For example, the Committee is aware that there are differing views about whether the obligating event occurs when the individual meets the eligibility criteria for the benefit or at some earlier stage. Similarly, there are differing views about whether the amount of any obligation reflects an estimate of the current period's entitlement or the present value of all expected future benefits determined on an actuarial basis."

The PSC has established a Steering Committee on Social Policy Obligations (SPO), which is developing an Invitation to Comment (ITC) for issue in late 2003 or early 2004. The ITC identifies the key issues to be addressed and the views of the Steering Committee on how those issues should be resolved. The ITC will be published by the PSC and comments are sought from interested parties - a comment period of four to six months is likely to be provided. The PSC will then consider the views of the Steering Committee and comments thereon as it develops an Exposure Draft of proposed requirements.

The SPO Steering Committee has focused on the following three different recognition points: (1) when a legal obligation arises, (2) when all eligibility criteria for benefits are satisfied and cash transfers are due and payable or goods or services are due to be delivered or (3) when key participatory events have occurred that lead an individual to have a reasonable expectation of satisfying eligibility criteria and the government has no realistic alternative but to settle the obligation. This may be prior to the point at which individuals satisfy all eligibility criteria and therefore be prior to the point at which cash transfers are due and payable or goods or services are due to be delivered. The amount of the liability will be (a) any current entitlements to individuals that have already met the eligibility criteria (cash transfers are due and payable or goods and services are due to be delivered); and (b) in the case of ongoing benefits which are subject to regular satisfaction of eligibility criteria, estimated future entitlements, assuming that individuals meet all eligibility criteria in future periods.

As reported at PSC meetings in April and July 2003, there is a high level of agreement amongst Steering Committee members that a liability would only be recognized for legal obligations and other amounts "due and payable" in respect of the provision of individual and collective benefits in the form of services and direct transfers. The Steering Committee members hold differing views of when a liability should be recognized for aged pension obligations, with a number of Steering Committee members being of the view that a liability would arise at a point prior to a legal obligation arising and prior to amounts being due and payable, and should be recognized on an accruing basis.

At the July 2003 PSC meeting, a number of PSC members noted that while they supported many of conclusions reached by the Steering Committee, they continued to have reservations about the recognition of pension liabilities and similar benefits on an accruing, rather than on a "due and payable" basis and the ITC should make it clear that the views of the Steering Committee were not necessarily those of the PSC. The draft ITC will be updated and presented to the PSC at its next meeting for approval to issue.

Paul Sutcliffe is technical director and Ahmad Hamidi-Ravari is Project Manager, IFAC PSC.

The IFAC (International Federation of Accountants) is the global organization for the accountancy profession (at It works with its 155 member organizations in 113 countries to protect the public interest by encouraging high quality practices by the world's accountants. IFAC members represent 2.4 million accountants employed in public practice, industry and commerce, government, and academe.

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