| The Board continues its discussions on accounting for social benefits |
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Accounting for social benefits has been a topic of debate for decades, internationally and locally. After many years of consultation and deliberation, the International Public Sector Accounting Standards Board (IPSASB) issued IPSAS 42 on Social Benefits in 2019, to fill the long standing gap in their literature.
.The Accounting Standards Board (Board) has a strategy to converge with IPSAS, where appropriate for the local environment. Given the complexity of the matter, the Board waited for IPSAS 42 to be finalised so the appropriateness for the local environment could be assessed, before commencing the development of a Standard of GRAP on Social Benefits (the Standard) in 2021. Local stakeholders are no strangers to the issues and debates internationally, as many of them have taken part in the IPSASB’s processes by participating in local roundtable discussions, workshops, drafting comment letters, etc. This has given the Board a good starting point for the local process.
Although accounting for social benefits may not impact many entities, it is core to the reporting of those entities who do provide them, and the financial statements of these entities have many users. Almost every citizen is affected by government’s provision of social benefits at some point in their life, either as a contributor or a beneficiary. The provision of social benefits is also a high priority for government, as many of the benefits support the achievement of the National Development Plan 2030.
The Board therefore recognises the importance of developing a Standard that: results in information in financial statements that meets users’ needs, including those who contribute to, and are beneficiaries of social benefits; is conceptually sound, i.e. aligned to the ASB’s Conceptual Framework; and is implementable by entities reporting on social benefits, e.g. considers resource constraints of entities such as the information available and systems in place. |
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| What has the Board considered to date? |
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| The Board agreed early on that although IPSAS 42 will be used as a starting point, the Standard would depart in key areas from IPSAS 42 - such as the recognition point of a liability. In IPSAS 42, entities that do not voluntarily apply the insurance approach (which requires the application of IFRS 17 on Insurance Contracts), would recognise a liability only when a payment has been verified. Stakeholders locally did not agree with the limited information about the liability that this approach provides in the financial statements. |
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As was the case internationally, the debate locally is focused on (a) when a liability should be recognised, and (b) whether this point should be the same for all social benefits, or whether different points should be prescribed for social benefits that differ in nature.
The Board agreed with stakeholders that it may be necessary to distinguish social benefits by nature, and their nature is represented by how the benefits are funded (contributions, or through other means such as annual appropriations). The distinction exists in statistical reporting, and arguably, users need different information about these benefits. Concerns around the distinction, however, include that it adds complexity to the Standard.
There seems to be consensus among the majority of stakeholders and the Board that the event that gives rise to a social benefit liability is the event related to the social risk for which the social benefit is provided has occurred. However, it is not necessary for the recognition point to be the same as the past event, and the Standard could prescribe a later recognition point based on a balance of considerations.
The range of views expressed to date include: There is no need to distinguish types of benefits and all social benefits should be recognised at the same point. Some are of the view that the benefits should be recognised when the past event occurs, while others believe a later recognition point would be more appropriate. Benefits should be distinguished by nature. Contributory social benefits should be recognised when the past event occurs, while non-contributory social benefits should be recognised at a later point when they are reliably measurable. |
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