ED 90 – the ripple effect of IPSAS 46 Measurement

Abstract

This article is a technical review of ED 90 (Exposure Draft) issued by the International Public Sector Accounting Standards Board (IPSASB) in 2024 in view of the applicability of IPSAS 46, the new standard on measurement in public sector financial reporting applicable from 1 January 2025. After summarising the requirements of IPSAS 46, the review analyses the ED as to the anticipated effects of these requirements on existing IPSAS. Particular attention is given to the areas that appear problematic, from the questions put forward by the IPSASB itself to the respondents of the ED, and when alternative views are presented on particular issues. Current operational value is coveted as an important measurement basis that fills a gap in the previous valuation methods applicable across the standards. Even though falling under the current value model, it is different from fair value, with the aim of the IPSASB being to target the specific requirements of the financial measurement of public sector assets that lack an active market. However, there are still uncertainties surrounding the applicability of current operational value for standards like IPSAS 31 Intangible assets and IPSAS 43 Leases. These uncertainties reflect the underlying problem of referring to techniques (such as discounted cash flow techniques) that are popularly used in private sector accounting. The review concludes that the historic cost model remains the more relevant model to be used in public sector accounting. The current value model necessitates the use of estimates which would be questioned in the public sector context. Whatever approach is taken, such estimates are subjective and should not be included as transactions in the accounting system. Only in this way can accountability, transparency and equity be maintained from financial reporting by public sector entities.