Editorial: IPSASB and academia: a promising co-operation

Introduction: valuation and measurement

Transition from a cash to an accrual basis of accounting and reporting widens the boundary of public sector financial reporting and therefore increases the completeness and the usefulness of its outputs. The inclusion of long-neglected non-financial items—either measured at cost or at a current valuation—results in a completely new set of information that allows both users and preparers a much wider perspective to assess public sector entities’ performance. But such a transition requires addressing important cultural, organizational and technical changes and challenges. Among them, measurement issues have significant implications for both public sector organizations’ accountability, and for decision-making (Capalbo et al., 2014; Lapsley, 1980). The selection of one or more measurement bases from the options developed by theory and practice will affect the nature and the usefulness of the information the financial statements will be able to produce.

Each measurement basis supports a different concept of income and wealth which affects the meaning of the figures in the financial statements—the choice of measurement basis is critical in determining the message the preparer wishes to convey to users. Moreover, the selection of measurement bases is likely to affect the behaviour of the phenomena under measurement because, as long acknowledged in the accounting literature (Solomons, 1978), measurement results and decisional behaviour are strongly interdependent (American Accounting Association, 1977). Stark evidence of such interdependence can be found in the political interference that the European Commission (EC) exercised to relax fair value accounting rules during the financial crisis of 2008, on the assumption that write-downs due to falling market prices might deplete bank capital and set off a downward spiral.

Despite the importance that measurement has in the transition from cash to accrual accounting, the academic public sector accounting literature has not devoted much attention to the topic. In addition, compared with the private sector accounting literature, studies on the application of the various measurement bases in the public sector have been extremely limited. In its Conceptual Framework (CF), the International Public Sector Accounting Standards Board (IPSASB) requires that measurement bases be selected in a way that ‘that most fairly reflect the cost of services, operational capacity and financial capacity of the entity in a manner that is useful in holding the entity to account, and for decision-making purposes’ (IPSASB, 2010). While this has clarified IPSASB’s perspective on the objectives of public sector measurement, many issues remain unsolved, especially insofar as the application of the measurement bases listed in the CF is concerned. That this is an area where the IPSASB especially needs the support of academic research became very clear when the IPSASB started its measurement project and began to look at the issues of accounting for heritage, for infrastructure assets, and for natural resources.

The relationship between IPSASB and academia

The IPSASB has always had strong links with academics through its membership. Professor Ian Ball was the chair of the IPSASB’s precursor body (the International Federation of Accountants Public Sector Committee, which was established in 1994) between 1995 and 2002. IPSASB’s chair between 2010 and 2015, Professor Andreas Bergmann, was also an IPSASB member between 2006 and 2009. Other academics who have served on the IPSASB include Professor Mariano D’Amore (2010 to 2015), Professor Adriana Tiron Tudor (2012 to 2017), and Professor Francesco Capalbo (2017 to 2019).

However, we believe that the IPSASB should be engaging much more with researchers—in much the same way as the International Accounting Standards Board (IASB) works with academia through its research forum. In order to start do this, IPSASB hosted the International and European Public Sector Accounting Standards Roundtable at the 2018 European Accounting Association Conference in Milan, and this was followed by the IPSASB research forum in Naples in September 2019. This Public Money & Management (PMM) mini theme includes a selection of the papers presented at that forum. The forum had 111 attendees from 16 different countries, representing 34 universities and 17 public sector accounting institutions (including the EC, national treasuries and supreme audit institutions).

The Naples forum, and this theme, are important steps towards a stronger dialogue between academia and practice, addressing a much debated and critical issue in accounting and public sector accounting literature: measurement (Tucker et al., 2019; Ter Bogt & Van Helden, 2012; Van Helden, 2019; Ferry et al., 2019). As a result of the forum, the IRSPM’s Accounting and Accountability Special Interest Group (SIG), the CIGAR network, and EGPA’s XII Permanent Study Group (PSG) have jointly established a task force that brings together academics from the three research networks interested in providing comments on IPSASB exposure drafts in order to help improve the public sector standard setting process.

Background to the theme: the IPSASB measurement project

Originally adopted as a project in 2015, IPSASB’s project brief for public sector measurement was re-approved in March 2017, with the objectives of:

Issuing amended International Public Sector Accounting Standards (IPSAS) with revised requirements for measurement at initial recognition, subsequent measurement and measurement-related disclosure; providing more detailed guidance on the implementation of replacement cost and cost of fulfilment and the circumstances under which these measurement bases will be used; and addressing transaction costs (IPSASB, 2017).

The main drivers for the project were the publication by the IASB of IFRS 13, Fair Value Measurement in May 2011, and IPSASB’s CF in October 2014. After completing the CF, the IPSASB recognized a need to better align IPSAS measurement requirements and guidance with the principles in the CF.

The IPSASB issued a consultation paper, Measurement, on 30 April 2019. The paper provided both a concepts-based discussion, identifying areas where the IPSASB had reached preliminary views and, in an illustrative exposure draft, an idea of what a final IPSAS could look like, given the IPSASB’s preliminary views. The consultation paper discussed three questions: what measurement basis to use in the context of the CF and examining possible sources of application guidance; how to implement the bases comparing accounting standards with the approaches taken in the standards issued by the International Valuation Standards Council in 2017 and the International Monetary Fund’s Government Finance Statistics Manual 2014; and which bases to use in particular circumstances.

The papers in this theme

The four papers we have included in our PMM theme provide fresh, energizing, perspectives on issues of measurement and standard setting in the public sector. The fil rouge connecting them is the recognition of the inherent complexity of measurement in the public sector, and the need to reconcile divergent views, definitions, translations. This is especially important in a context where publicness counts (Steccolini, 2019) and, thus, technical, professional and political rationalities intertwine, dimensions of performance are multi-faceted, and accounting standards and standard setting processes and governance have increasingly come to reflect the tensions between private-sector influences, and public sector practices and traditions.

Complexity is something public sector standard setters need to take into account in their work, and may even become greater as new challenges loom ahead, including climate change and environmental sustainability, demographic changes, migration movements and rising inequalities, and the continuous emergence of shocks with disruptive global consequences (terrorist attacks, pandemics, economic crises). These issues pose new challenges for public sector accounting scholars and standard setters alike, which will be hopefully addressed in the years to come. The papers in this PMM theme serve as good starting point for practitioners and academics.

Our first paper is by Caruana (2021) who provides an in-depth analysis and critique of the IPSASB’s consultation paper on measurement. Her work highlights the importance of addressing issues of measurement, while pointing to the challenges facing IPSASB in writing an ambitious consultation paper. In particular, she suggests that the consultation paper does not consider all the possible measurement methods; that there is a need to align and clarify the terminology used throughout the CF and the individual IPSAS; and, importantly, that the IPSASB should make more significant efforts in taking into consideration actual government accounting practices, rather than concepts derived from private sector standards and practices.

The complex nature of measurement in the public sector, and its consequences for standard setting and accounting practices, also set the scene for our second contribution by Conrath-Hargreaves et al. (2021). Analysing experiences of translation and application of IPSAS within specific national or supranational settings, and especially the EPSAS case, the authors discuss the risks of mismatches between global aspirations and concepts, and local expectations and experiences. In doing so, they underline the importance of the current measurement project in reducing inconsistencies between the CF and individual standards at the global level, and thus inform standard setters’ measurement projects at the local level.

Next, Lombardi et al. (2021) provide a concrete illustration of the general considerations above by looking at the specific case of infrastructure assets. In analysing the state of the art of infrastructure assets accounting standards, comparing standards across different countries, they highlight that, both in practice and in the literature, there is still no convergence regarding the best accounting treatment, and describe the main challenges still outstanding in terms of their definition, recognition and measurement.

Finally, Dabbicco (2021) sets new ambitious goals for standard setters and scholars, stressing the need to develop more research as well as providing guidance on reporting on natural resources. Pointing to the important roles of reporting and standards in making natural resources, and their depletion, more visible, the author highlights the challenges and issues to take into consideration when developing frameworks and guidelines for natural resources reporting, advancing possible, concrete, solutions.

The four studies in our PMM theme provide food for thought for practitioners, policy-makers and academics. In closing this editorial, the guest editors wish to thank the independent and anonymous reviewers for their time and dedication to ensure the papers accepted for publication met rigorous academic standards. We hope this PMM theme will provide useful insights for IPSASB’s work programme, as well as for scholars interested in embarking in new research in public sector accounting standards and standard setting.

Disclosure statement

No potential conflict of interest was reported by the author(s).