IPSAS conceptual framework and views on selected national frameworks

A navegação consulta e descarregamento dos títulos inseridos nas Bibliotecas Digitais UC Digitalis, UC Pombalina e UC Impactum, pressupõem a aceitação plena e sem reservas dos Termos e Condições de Uso destas Bibliotecas Digitais, disponíveis em https://digitalis.uc.pt/pt-pt/termos. Conforme exposto nos referidos Termos e Condições de Uso, o descarregamento de títulos de acesso restrito requer uma licença válida de autorização devendo o utilizador aceder ao(s) documento(s) a partir de um endereço de IP da instituição detentora da supramencionada licença. Ao utilizador é apenas permitido o descarregamento para uso pessoal, pelo que o emprego do(s) título(s) descarregado(s) para outro fim, designadamente comercial, carece de autorização do respetivo autor ou editor da obra. Na medida em que todas as obras da UC Digitalis se encontram protegidas pelo Código do Direito de Autor e Direitos Conexos e demais legislação aplicável, toda a cópia, parcial ou total, deste documento, nos casos em que é legalmente admitida, deverá conter ou fazer-se acompanhar por este aviso. IPSAS conceptual framework and views on selected national frameworks Autor(es): Jorge, Susana Publicado por: Imprensa da Universidade de Coimbra URL persistente: URI:http://hdl.handle.net/10316.2/47453 DOI: DOI:https://doi.org/10.14195/978-989-26-1861-6_8 Accessed : 27-Mar-2023 09:19:18 digitalis.uc.pt pombalina.uc.pt EUROPEAN PUBLIC SECTOR ACCOUNTING PETER C. LORSON SUSANA JORGE ELLEN HAUSTEIN (EDS.) SÉRIE ENSINO IMPRENSA DA UNIVERSIDADE DE COIMBRA COIMBRA UNIVERSITY PRESS 2019 Verificar dimensões da capa/lombada. Lombada com 46mm Peter Lorson is Full Professor holding the Chair of Financial Accounting, Auditing and Management Control; Executive Director of the Center for Accounting and Auditing at University of Rostock, Germany, and member of the Working Group „Integrated Reporting“ (Schmalenbach Association for Business Administration; Schmalenbach-Gesellschaft für Betriebswirtschaft e.V.). He is coordinator of the EU-funded projects ‘Developing and implementing European Public Sector Accounting modules’ (DiEPSAm) and ‘Empowering Participatory Budgeting in the Baltic Sea Region’ (EmPaci). His preferred research fields are Financial and Management Accounting and Reporting for Private and Public Sector Organizations as well as Convergence of Accounting, Management and Reporting Systems (external - internal, national - international, private - public sector, financial - sustainability). Susana Jorge is tenured professor with accreditation at the Faculty of Economics, University of Coimbra, Portugal, and lecturer in Business Financial Accounting and Public Sector Accounting. She is researcher in Public Sector Accounting and Management, especially focusing on financial reporting and in Local Government, affiliated researcher of CICP – Centro de Investigação em Ciência Política (Research Centre in Political Science), University of Minho, Portugal, and collaborator researcher at the CeBER – Center for Business and Economics Research, University of Coimbra, Portugal. She is chair of the Executive Board of the Comparative International Governmental Accounting Research (CIGAR) network. Ellen Haustein is a postdoctoral researcher and lecturer at the Chair of Financial Accounting, Auditing and Management Control at University of Rostock, Germany. She obtained her doctoral degree in management accounting at University of the West of England in Bristol. She is coordinator of the EU-funded projects ‘Developing and implementing European Public Sector Accounting modules’ (DiEPSAm) and ‘Empowering Participatory Budgeting in the Baltic Sea Region’ (EmPaci). PETER C. LORSON SUSANA JORGE ELLEN HAUSTEIN (EDS.) Public sector accounting (PSA) and reporting was subject to considerable national reforms during the last decades and is in the focus of the European Commission aiming to harmonize the accounting systems of its Member States by developing European Public Sector Accounting Standards (EPSAS). Therefore, the topic is of high relevance for both academia and practitioners. This book provides different views about PSA in Europe as of today. It spans topics such as history of PSA, its differences to private sector accounting and finance statistics, as well as budgeting. A main part is devoted to International Public Sector Accounting Standards (IPSAS) by addressing their spread, conceptual framework and selected public sector specific standards, including a case study. Also, consolidated financial reporting is covered by drawing examples. This textbook is not only of use for students and researchers, but interested readers that seek for broad perspectives on PSA such as practitioners and members of intergovernmental organisations. It intends to complement university teaching modules on PSA as those accessible for free under www.offene.uni-rostock.de/online-course-european-public- -sector-accounting. IMPRENSA DA UNIVERSIDADE DE COIMBRA COIMBRA UNIVERSITY PRESS EURO PEAN PUBLIC SECTOR ACCOUNTING ChaPter 8 iPsas ConCePtual frameWork and vieWs on seleCted national frameWorks Susana Jorge University of Coimbra, Portugal [email protected] https://orcid.org/0000-0003-4850-2387 Summary This chapter is about conceptual frameworks in public sector accounting, particularly addressing the IPSAS conceptual framework. While taking this as a reference, the chapter also offers brief views on selected national frameworks from a group of European countries–namely the UK, Finland, Austria, Germany and Portugal–, as illustrative examples of how conceptual frameworks can approximate or diverge from that of IPSASB. The explanations enable an understanding of the role of a conceptual framework underlying public sector accounting standards, as well as the main issues normally included in it. KeywordS financial information, users, qualitative characteristics, elements of financial statements, measurement criteria https://doi.org/10.14195/978-989-26-1861-6_8 182 1. Introduction The beginnings of accounting conceptual frameworks (CFs) may be found in the 1930s in the USA, originating in the accounting profession. A clear attempt to reach an accounting theory was the American Accounting Association 1966 “A Statement of Basic Accounting Theory” (ASOBAT)1. However, it was not before 1973, with the creation of the Financial Accounting Standards Board (FASB), that accounting conceptual frameworks began to be discussed and developed across countries, starting from the Anglo-Saxon world. FASB’s CF, started in 1973, was the major and most complete one, comprising several statements on a wide range of financial accounting and reporting matters (e.g., objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements, recognition and measurement in financial statements, and presentation of financial statements). This work has inspired others, such as those from the Accounting Standards Committee in UK, and more recently, that from the International Accounting Standards Board (IASB). As to public sector accounting (PSA), the origins of its CFs come from the USA as well, being derived from those of business accounting, at least in the last forty years. Separating between federal accounting and governmental accounting for state and local level, the latter followed, since the 1930s, principles and standards issued by a national council (currently the Governmental Accounting Standards Board – GASB). However, at the beginning of the 1980s, FASB, which was concerned explicitly with business organizations, started to concern itself with nonbusiness organizations too, issuing a statement on the objectives of financial reporting by nonbusiness organizations, conflicting with GASB’s responsibilities2. Nowadays, GASB focuses on state and local government accounting, including non-for-profit public sector units. Since its establishment in 1984, GASB has initiated its own CF, starting from the FASB’s framework; currently, some important 1 Jones (1992). 2 Jones (1992). 183 pronouncements are GASB Concept Statements no. 1 (1987), no. 4 (2007) and no. 6 (2014). At the federal level, there is the Federal Accounting Standards Advisory Board (FASAB) Handbook of Federal Accounting Standards and Other Pronouncements (2012), including the Statements of Federal Financial Accounting Concepts no.1 to no.7. While, in principle, there should be only one commonly accepted (financial) accounting theory, historically derived from practice, it is acknowledged that, even within business accounting, developing a single generally accepted accounting CF is not easy. Additionally, considering that accounting is to be a purposive activity, aimed at producing and reporting information that must be useful for somebody to do something,3 the development of accounting CFs has been based on approaches considering the users of financial accounting reports and their needs,4 which, in turn, are determined by the context where they act. Environment is deemed to determine the objectives of accounting information and consequently other dimensions of the accounting CF.5 This explains why, although based on business accounting, specific CFs (as standards) have been especially derived and developed for PSA. Even those who argue for ‘one single world of accounting’ recognize that there might be context specifics determining PSA particularities, hence requiring its CF to reflect differences (e.g., different concepts and different interpretations of principles), at least at a detailed level, from the one for financial accounting overall. Accordingly, though deriving from the IASB’s CF, the IPSASB (2014) published a specific CF for PSA, considering the following public sector specific characteristics6: – The primary objective of delivering public services – rather than to make profits and generate a return on equity for investors; requires 3 Jones and Pendlebury (2010). 4 Jones (1992). 5 Vela Bargues (1992). 6 See IPSASB (2014, preface). 184 information beyond financial position, financial performance and cash flows, to properly evaluate the performance of public sector entities; – Non-exchange transactions (e.g., taxes and grants) – the involuntary and compulsory nature of major contributions makes accountability an overriding purpose of GPFRs; – A budget to be accomplished – considering the budget as an instrument of public policy and a law, GPFRs must report on the budget (public policies) accomplishment; – Nature of the programs and longevity of the public sector – financial statements have to be complemented with information allowing the assessment of sustainability in the long run, and the going concern principle cannot be assessed only by the net financial position; – Nature and purpose of public sector assets and liabilities – there are infrastructure and other public domain assets (e.g., heritage, military assets) difficult to measure and with no market; entities assume certain liabilities in order to provide a public service (e.g., the provision of social benefits); – The regulatory role of public sector entities – in order to safeguard public interest or bring the market to function; judgment is required to evaluate whether the regulatory role creates assets or liabilities; – Relationship to statistical reporting – public sector accounts, namely concerning the General Government Sector, are input for the National Accounts and Government Financial Statistics – convergence is needed but differences remain. In the European context, some diversity can be found regarding public sector accounting CFs. While the UK is IFRS-based (e.g., The Government Financial Reporting Manual – FreM, revised on an annual basis), in Continental countries there are some IPSASB’s adopters (e.g., Spain, Portugal, France and Austria), whereas others are based on deeply-rooted national traditions, even though some concepts of the IPSASB’s might be adopted (e.g., Germany and Finland). This chapter continues discussing the definition and role of a CF and the authority of the IPSASB’s CF over the standards or recommended 185 practice guidelines. It follows by presenting and explaining the main topics addressed in the IPSASB’s CF. In a first part, the objectives, users and qualitative characteristics of the GPFR information are introduced; and in a second part, the definitions, recognition and measurement criteria for the elements within the financial statements are discussed. Finally, it presents a comparative-international analysis of the principal topics/concepts included in the frameworks of a group of European countries (Austria, Finland, Germany, Portugal and the UK) taking the IPSASB’s CF as a benchmark. 2. The role of the CF versus the public sector accounting standards The literature has presented several definitions for a CF in accounting, emphasizing different elements, either focusing on its contents, or on its purposes.7 However, commonalities point to a definition of a CF that, in the first place, embraces accounting objectives that will guide the establishment of fundamental principles and key concepts, which, in turn, will be followed by more procedure-oriented standards. The IPSAS CF presents a definition as a basic theoretical structure addressing the main elements of the financial statements, which establishes the concepts that underpin general purpose financial reporting […] by public sector entities that adopt the accrual basis of accounting.8 These concepts are assets, liabilities, revenue, expenses, net financial position, ownership contributions and ownership distributions, for which the CF also outlines recognition and measurement criteria to be considered overall in the standards. The CF also defines the objectives and main users of GPFRs, and the qualitative characteristics of financial information. The IPSAS CF applies to GPFRs of governments at all levels, as well as to other public sector entities. 7 Vela Bargues (1992). 8 IPSASB (2014, CF 1.1). 186 Historically, because accounting theory has developed from practice,9 CFs follow the standards, and not the opposite. Therefore, reasons for the existence of accounting CFs include the need to have harmonized concepts – a common explicit theoretical reference (set of concepts and principles based on postulates or premises) capable of giving coherence to accounting practices, and on which rules (standards) and recommendations must rest – and to give legitimacy to the standards themselves and to the work of standard-setters.10 Therefore, the CF is not a standard, as it does not offer (binding) guidance for recognizing, measuring, presenting and disclosing specific transactions or topics. These authoritative requirements are for the IPSAS, and in cases of conflict between these and the CF, the standards requirements prevail.11 Overall, the main purposes and importance of a CF in PSA may be summarized as: – To support preparers of the financial statements, in the application of (accrual-based) PSA standards (e.g., IPSAS and future EPSAS) and in the accounting treatment of topics that become relevant as a matter of the standards; – To help in forming opinion about the adequacy of the financial statements to the standards (auditors’ perspective); – To support users in the interpretation of the information within the financial statements prepared by public sector entities; and – To offer PSA standard-setters the proper concepts needed to prepare PSA standards. CFs are accounting theory, and hence, conventionally concerned with financial accounting. They do not address management accounting, because they are concerned with accounting for external providers of finance12; 9 Jones and Pendlebury (2000). 10 Jones (1992); Jones and Pendlebury (2000). 11 IPSASB (2014, CF 1.2-1.3). 12 Jones and Pendlebury (2000). 187 they do not embrace budgeting either, perhaps because budget theory has much to do with political science and also with economics, particularly public finance, which do not seem so attractive for accounting theorists (academics/researchers) and even less for professionals. Nevertheless, in some jurisdictions, like in Portugal, there was a need to create a CF also for budgetary (cash-based) accounting and reporting, defining specific principles and terms – some terms with a similar designation in financial accounting have different meanings in budgetary accounting – e.g., revenue/expenditure, current/non-current, financial assets/liabilities13. The IPSAS CF does not refer particularly to budgetary reporting. However, as explained in other chapters, the scope of GPFRs admittedly embraces information and statements to report also on how budgets have been accomplished. 3. The IPSAS CF – part I The IPSAS CF is nowadays the only one existent at an international level, with wider geographic scope and resorting to the CFs from FASAB, GASB and specially that of IASB, as sources of inspiration. Therefore, the remainder of this chapter concentrates on the IPSAS CF as the main international benchmark. Like the IPSAS, the CF is not obligatory, as the IPSASB does not have enforcement power; to be in force, IPSAS must be formally and/or legally adopted by each country or jurisdiction. Moreover, as explained, standard requirements supersede CF principles. 13 See Decree-Law 192/2015 – NCP 26, PORTUGAL, DECRETO-LEI nº192/2015, of 11 September, Sistema de Normalização Contabilística para as Administrações Públicas (SNC-AP). 194 (e.g., Portugal). An IPSAS-based accounting system implies economic control criteria to prevail over ownership and legal-based control criteria, hence, as it was significant changes in asset recognition in countries where the legality principle used to prevail. 3.3. Qualitative characteristics (and main constraints) of the financial information In order to be useful, information included in GPFRs of public sector entities must contain certain attributes. The IPSAS CF explains that these qualitative characteristics are: relevance, faithful representation, understandability, timeliness, comparability, and verifiability,28 with no particular hierarchy of importance. The IPSAS CF vastly develops these issues,29 which may be summarized as follows. Financial and non-financial information is said to have relevance when it ‘makes a difference’ in achieving the objectives of financial reporting. In order to be relevant, information must have confirmatory value, predictive value, or both, the confirmatory and predictive roles of information being interrelated (e.g., historical information helps to make judgments about the future). Materiality establishes the quantitative threshold for relevance. Information must be a faithful representation of the economic and other phenomena that it purports to represent. The presentation of the phenomena must be neutral (neither biased, nor intentionally selected), complete (without material omissions) and as free from error as is possible.30 Free from error does not mean complete accuracy in all respects; instead, it means there are no errors or omissions individually or collectively material in the description of the phenomenon. Faithful representation also implies depicting the substance of the underlying transaction, using prudence while making judgments needed 28 IPSASB (2014, CF 3.2). 29 IPSASB (2014, CF 3). 30 IPSASB (2014, CF 3.14). 195 under conditions of uncertainty (e.g., in making estimates, such that assets or revenue are not overstated, and liabilities or expenses are not understated); these judgments might not be so neutral. To be useful, information must also be understood by the users, implying a certain balance between complexity and simplicity, and using plain language; understandability may be enhanced by comparability. Users are assumed to have reasonable knowledge about the entity and be able to read its financial information. Information must be made available before it loses its capacity to be useful; if it is delayed, relevance might be jeopardized, so timeliness is a critical quality of financial information. Still, some items may continue to be useful for long periods after the reporting date. Information must also be comparable (in time and in space), allowing users to identify similarities and differences between two sets of phenomena. Comparability differs from consistency and uniformity (same accounting principles/policies), although consistency is required to assure comparability. Finally, information must be verifiable, to help ensuring that it faithfully represents the economic and other phenomena that it purports to represent. Also referred to as ‘supportability’,31 verifiability means that information must be supported by evidence, allowing independent observers to reach a consensus that it appropriately reflects the entity’s reality. Verification may be done directly (e.g., counting cash), or indirectly (e.g., calculating the carrying amount of inventory). There are issues constraining the attainment of the above qualitative characteristics, and, as also acknowledged by the IPSAS CF, the balance between them is not easy, as they sometimes conflict. Figure 8.1 illustrates this. 31 IPSASB (2014, CF 3.26). 196 Figure 8.1: Qualitative characteristics (QCs) – balance and constraints Source: IPSASB (2014, CF 3.32-3.42) 4. The IPSAS CF – part II This section explains the principal elements of the financial statements, and their recognition and measurement criteria, as in the IPSAS CF.32 4.1. Elements of the financial statements Financial statements are demonstrations representing the financial and economic reality of a public sector entity. Main financial statements are: statement of financial position, statement of financial performance, cash flow statement, statement of changes in net assets, and notes (IPSAS 1 – Presentation of financial statements and IPSAS 2 – Cash Flow Statements). Overall, they reflect the financial effects of transactions and other events, by grouping them into broad classes which share common economic characteristics – these are called elements of financial statements. Demonstrating the entity’s financial position includes: assets (plus other resources), liabilities (plus other obligations), ownership contributions 32 IPSASB (2014, CF 5 to 7). 197 and ownership distributions. Other resources and other obligations refer to deferred outflows and inflows, respectively. The ‘net financial position’ presented in this statement, also called Balance Sheet, is (…) the difference between assets and liabilities after adding other resources and deducting other obligations recognized in the statement of financial position. Net financial position can be a positive or negative residual amount.33 Revenue and expenses are the elements to demonstrate the entity’s financial performance, in a statement where the bottom line is the (accrual-based) deficit or surplus. Recognizing items in these elements means incorporating them in the amounts displayed on the face of the appropriate financial statements, in accordance with the criteria established in the CF.34 Overall, recognition criteria require that the item satisfies the definition of the element, and that it can be measured with reliability. Therefore, understanding the definitions of each type of element of the financial statements in the public sector setting is critical, as these identify recognition criteria. An asset is defined as a resource presently controlled by the entity as a result of a past event, with service potential or the ability to generate economic benefits.35 Consequently, as in the private sector, also considering the substance over legal form, ownership is not a requirement for an asset to be recognized in a public sector entity. Controlling the resource, instead, is critical, meaning the entity has the ability: to use the resource (or direct other parties on its use) so as to derive the benefit of the service potential or economic benefits embodied in it; or to determine the nature and the way other entities make use of the economic benefits generated by the resource.36 33 IPSAS (2014, CF 5.28). 34 IPSASB (2014, CF 6). 35 IPSASB (2014, CF 5.6-5.7). 36 IPSASB (2014, CF 5.11-5.12). 198 A past transaction is also a requirement leading to the present control of an asset; it may result from internal development, an exchange (e.g., purchase) or non-exchange transaction (e.g., donation or the exercise of sovereign tax powers).37 The service potential is the distinctive factor in the definition compared to business accounting, given that many assets in the public sector do not generate economic benefits. It refers to the asset’s capacity to provide services that contribute to achieving the entity’s objectives, without necessarily generating net cash inflows or equivalents for the entity (e.g., recreational, heritage, community, and defense assets), (…) which are held by governments and other public sector entities, and which are used to provide services to third parties. Such services may be for collective or individual consumption.38 Still, some assets also generate future economic benefits, i.e., cash or equivalent inflows (or a reduction in cash or equivalent outflows), derived from an asset’s use in the production and sale of services (e.g., water provision), or from the direct exchange of an asset for cash or other resources.39 A liability is a present obligation of the entity for an outflow of resources, which results from a past event.40 It has to be a binding obligation (either legally or non-legally), regarding which an entity has little or no realistic alternative to avoid an outflow of resources; therefore, it implies an outflow of resources from the entity for it to be settled, and it is always towards a third party. It may be originated by an exchange or a non-exchange transaction. The past event leading to the present obligation might be more or less straightforward to identify, depending on whether an arrangement has a legal form and is binding, or not.41 For example, an 37 IPSASB (2014, CF 5.13). 38 IPSASB (2014, CF 5.9). 39 IPSASB (2014, CF 5.10). 40 IPSASB (2014, CF 5.14). 41 IPSASB (2014, CF 5.15-5.26). 199 invoice coming from a contract with a supplier undoubtedly generates a present obligation; however, a legal suit in court may require the entity to assess whether there will be a liability – the outflow might not be certain yet and/or might not be reliably measured. Therefore, a legal obligation, enforceable in law (even if it may arise from a variety of legal constructs), gives rise to a liability. But, a non-legal (though binding) obligation, because the party to whom the obligation exists cannot take legal (or equivalent) action to enforce settlement, only gives rise to a liability under certain conditions. These are:42 – The entity has indicated to other parties that it will accept certain responsibilities; – The entity has created a valid expectation of those other parties that it will discharge those responsibilities; – The entity has little or no realistic alternative to avoid settling the obligation arising from those responsibilities. Accordingly, in a government setting, political promises do not give rise to these types of obligations. Ownership contributions and distributions, for (from) the net financial position, are inflows (outflows) of resources to an (from the) entity, contributed by (distributed to) external parties in their capacity as owners, which establish or increase (return or reduce) an interest in the Net Financial Position of the entity.43 Although these notions are more related to business accounting, they may also apply in public sector organizations, e.g., in businesstype government entities with shareholders, applying PSA standards. The figure of ‘the owner’ and ownership interests may arise when one entity contributes resources to provide another entity with the capacity to start operational activities. This is the case in public hospitals in Portugal, which 42 IPSASB (2014, CF 5.23). 43 IPSASB (2014, CF 5.33-5.37). 200 are companies under the business law, owned by the government and subject to the public sector accounting system. In the public sector, contributions to, and distributions from, entities are sometimes linked to the restructuring of government [or of public sector organizations] and will take the form of transfers of assets and liabilities rather than cash transactions.44 Ownership distributions may derive from: a return on investment; a full or partial return of investment; or a return of any residual resources, in the event of the entity being wound up or restructured.45 Revenue and expenses are, respectively, increases or decreases in the net financial position of the entity, other than increases or decreases arising from ownership contributions or distributions.46 The entity’s surplus or deficit for the period is the difference between revenue and expenses reported in the statement of financial performance (also called Income Statement). Revenues and expenses are distinct from cash flows, and their matching to ascertain the surplus or deficit is rather debatable in the public sector, as will be discussed in Chapter 9. Revenues and expenses arise from exchange and non-exchange transactions, or from other events, such as: changes in prices and unrealized increases and decreases in the value of assets and liabilities; the consumption of assets through depreciation; and erosion of service potential and ability to generate economic benefits through impairments.47 Recognizing an item in the financial statements, apart from fulfilling the definition, requires attach a monetary value to it. This process entails 44 IPSASB (2014, CF 5.36). 45 IPSASB (2014, CF 5.37). 46 IPSASB (2014, CF 5.29-5.32). 47 IPSASB (2014, CF 5.31). 201 selecting an appropriate measurement basis, ensuring that the measurement is sufficiently relevant and faithfully representative.48 4.2. Measurement criteria Measuring implies determining the monetary amounts to be used in the valuation of the elements to be recognized in the financial statements, by selecting specific measurement bases. Regarding the objectives of measurement, the IPSASB instructs that an entity must select measurement bases that most fairly reflect its cost of services, operational capacity and financial capacity, and are useful in holding the entity to account and for decision-making purposes.49 These measurement bases must also provide information that meets the qualitative characteristics. The CF does not propose a single measurement basis (or combination of bases) for all transactions, events and conditions; instead, it provides guidance on the selection of a measurement basis for assets and liabilities, based either on the historical cost or current value, and may be entry (recognizing) values or exit (derecognizing) values. From this range of criteria, each IPSAS then specifies which basis is to be specifically used. Entry values and Exit values – For assets, entry values essentially reflect the cost of purchase/ acquisition (e.g., historical cost and replacement cost); exit values reflect the economic benefits from sale, or the amount that will be derived from use of the asset (e.g., net selling price and value in use). – For liabilities, entry values relate to the transaction under which an obligation is received or the amount that an entity would accept to assume a liability; exit values reflect the amount required to fulfil 48 IPSASB (2014, CF 6.7-6.8). 49 IPSASB (2014, CF 7.2-7.4). 202 an obligation or the amount required to release the entity from an obligation. Observable and Unobservable Measures – Certain measures may be classified according to whether they are observable in an ‘open, active and orderly market’ (e.g., market value/ fair value), or instead need to be calculated (e.g., value in use). – Observable measures are likely to be more understandable and verifiable than unobservable measures; they may also be more faithfully representative of the phenomena they are measuring. As displayed in Figure 8.2, there is a large variety of measurement bases suggested. And even if within each standard the options may be reduced, it is a fact that there is too much flexibility and diversity, which jeopardizes the comparability claimed for the IPSAS. Figure 8.2: Measurement criteria Source: IPSASB (2014, CF 7) Figure 8.2 shows different criteria regarding the current value of assets and liabilities, though some are mirrored concepts. Replacement cost in assets is equivalent to the assumption price in liabilities; both are entry criteria, and they may be the most suitable for reflecting either the financial or the operational capacity of the entity, being 203 the amount the entity would pay for the asset and would be willing to accept for the liability. Likewise, net selling price for assets pairs with cost of release for liabilities; both are exit criteria, and they reflect respectively the amount the entity can obtain from selling the asset (less costs of sale) and the amount the entity would be willing to pay to immediately ‘get rid of’ the obligation. Contrary to the market value (in business accounting called ‘fair value’), which may be an exit or entry criteria, these criteria do not require an open, active and orderly market or the estimation of a price in such a market. Because of this requirement, market value is eventually the least likely applied criterion, as for many assets in the public sector there is no market, and even less so for liabilities. Value in use as an exit value for assets, is often complex to obtain, as it implies calculating the net present value of cash flows generated by the assets or, for non-cash generating assets, calculating the remaining service potential (frequently using replacement cost as a surrogate). Its complexity makes it inappropriate to reflect the entity’s costs of services and reduces its usefulness in assessing its operational and financial capacity. Historical cost, an entry criterion both for assets and liabilities, is probably the most suitable for reflecting the entity’s cost of services. 5. Comparative analysis of different CFs This section presents a summarized comparative-international analysis involving the different CFs of several European countries – Austria, Finland, Germany, Portugal and the UK – taking the one from the IPSASB as reference. These are illustrative examples on how national CFs may approximate or diverge from that of the IPSASB. The issues to be compared are financial statements (FS) objectives and main users (Table 8.2), main accounting principles (Table 8.3), FS elements and recognition criteria (Table 8.4), and measurement criteria used in financial accounting (Table 8.5). These tables were prepared based on Brusca et al. (2015) with some additions from the countries’ CFs. 210 As to the elements of financial statements, although similarities can be found to those in business accounting, again public sector context specifics require particularities in the definitions, impacting on their recognition, and specially on their measurement criteria. Finally, despite the international reference of the IPSAS CF, not all countries necessarily follow this, as they do not follow IPSAS. Countries with very deep-rooted accounting national traditions, such as Germany and Finland, tend to diverge from the IPSASB’s perspective – even if some of their principles and concepts may approach this, a more conservative posture is clear. Bibliographic references BRUSCA, Isabel; CAPERCHIONE, Eugenio; COHEN, Sandra and MANES-ROSSI, Francesca (eds.) (2015) – Public Sector Accounting and Auditing in Europe – the Challenge of Harmonization, Basingstoke: Palgrave Macmillan, ISBN: 9781137461339. IPSASB (2014) – The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities, International Public Sector Accounting Standards Board (IPSASB) – International Federation of Accountants (IFAC), New York. JONES, Rowan (1992) – The development of conceptual frameworks of Accounting for the Public Sector; Financial Accountability and Management, 8(4), pp. 249-264. JONES, Rowan and PENDLEBURY, Maurice (2000) – Public Sector Accounting; Pitman, ISBN: 9780273646266, 5th ed. JONES, Rowan and PENDLEBURY, Maurice (2010) – Public Sector Accounting, Pearson Education, ISBN: 9780273720362, 6th ed. JORGE, Susana; JESUS, Maria Antónia; NOGUEIRA, Sónia (2016) – Information brokers and the use of budgetary and financial information by politicians: the case of Portugal; Public Money and Management, 36(7), pp. 515-520. RUTHERFORD, Brian A. (1992) – Developing a Conceptual Framework for Central Government Financial Reporting: Intermediate Users and Indirect Control; Financial Accountability and Management, 8(4), pp. 265-280. VELA BARGUES, José Manuel (1992) – Concepto y Principios de Contabilidad Pública; Instituto de Contabilidad y Auditoría de Cuentas; Ministerio de Economía e Hacienda; Madrid, ISBN: 9788447600137. Additional readings AGGESTAM-PONTOPPIDAN, Carolin and ANDERNACK, Isabelle (2016) – Interpretation and application of IPSAS; Hoboken: John Wiley & Sons. 211 JONES, Rowan (ed.) (2011) – Public Sector Accounting, 4 volumes, Los Angeles: Sage Publications, Sage library in Accounting and Finance. JORGE, Susana (ed.) (2008) – Implementing Reforms in Public Sector Accounting; Imprensa da Universidade de Coimbra (Coimbra University Press); Coimbra. OULASVIRTA, Lasse (2014) – The reluctance of a developed country to choose International Public Sector Accounting Standards of the IFAC. A critical case study; Critical Perspectives on Accounting, 25(3), pp. 272-285. OULASVIRTA, Lasse (2016) – Accounting principles, Global Encyclopedia of Public Administration, Public Policy, and Governance. Chapter on “Accounting, Budgeting and Financial Management”, A. Farazmand (ed.), Springer International Publishing Switzerland. Discussion topics – What is the role of a CF compared to that of PSA standards? – What are the main objectives and who are the main users of financial (and budgetary) information reported by public sector entities, according to the different CFs presented in this chapter (comparative-international perspective)? – What are the main recognition criteria for assets, liabilities, expenses and revenues, according to the different CFs presented in this chapter (comparative-international perspective)? – Distinguish the main criteria which can be used to measure assets, liabilities, expenses and revenues within the financial statements, according to the different CFs presented in this chapter (comparative-international perspective).