Preparing for IPSAS 41, the new public sector accounting standard – Business Daily
IPSAS 41 is the new International Public Sector Accounting Standard on Financial Instruments. PHOTO | POOL
IPSAS 41 is the new International Public Sector Accounting Standard on Financial Instruments. The standard was issued by the IPSASB in 2018, with an effective date of January 1, 2023.
The standard establishes the new requirements for classifying, recognising, and measuring financial instruments for public sector organisations.
It replaces the requirements in IPSAS 29 to ensure the convergence of IPSAS with IFRS (International Financial Reporting Standards) for countries that have adopted IPSAS. Therefore IPSAS 41 is similar to the IFRS 9 in many aspects.
The main features of IPSAS 41 include applying a single classification and measurement model for financial assets, a forward-looking expected credit loss model applicable to all financial instruments subject to impairment testing and applying an improved hedge accounting model.
Unlike the complex and challenging classifications rules in IPSAS 29, IPSAS 41 simplifies the classification of financial assets using two criteria which are the entity’s management model for managing financial instruments and the contractual cash flow of the financial instruments.
IPSAS 41 replaces the incurred loss model in IPSAS 29 with an expected credit loss (ECL) model. It is a three-stage forward-looking impairment model that overcomes the criticisms of IPSAS 29 regarding delayed recognition of impairment losses.
The ECL model is applied using a dual measurement approach whereby ECLs are estimated as either 12-month or lifetime ECLs. Public sector considerations in IPSAS 41 include guidance from IPSAS 29 like concessionary loans, fair value measurement considerations including inputs to valuation techniques and non-exchange revenue guidance, to name a few.
Jurisdictions that apply IPSAS 41 should also take note of the retrospective transition requirements and exceptions.
Public sector organisations with a reporting framework of IPSAS should be prepared for the transition to the new financial instruments standard by now and wrapping up their transition projects. It should include developing new credit policies and processes to address the new impairment requirements.
Securing investments in new systems and tools would also be required by many public sector organisations.
