Accounting for Social Benefits and Collective and Individual Services and Emergency Relief
The International Public Sector Accounting Standards Board (IPSASB) has released a new standard for social benefits. (IPSAS) 42, Social Benefits, address a wide range of significant government expenditures that directly impact the lives of citizens globally.
IPSAS 42 provides much-needed guidance on accounting for social benefits expenditure, which comprises about one fifth of GDP across OECD countries. It defines social benefits as cash transfers paid to specific individuals and/or households to mitigate the effect of social risk. Specific examples include state retirement benefits, disability benefits, income support and unemployment benefits. The new standard requires an entity to recognize an expense and a liability for the next social benefit payment.
IPSAS 42 represents a big step forward for global financial reporting in the public sector and fills one of the major gaps in IPSASB’s suite of standards. Social benefits has been a challenging issue because of the differing, strongly held views as to when a liability for social benefits arises. IPSAS 42 aims to increase transparency and comparability in public sector financial reporting.
Closely relating to this IPSAS 42 on Social Benefits, IPSASB has recently come up with exposure Draft on accounting for collective and individual services. ED 67 proposes new requirements for accounting for collective services (such as defense at national-levels and street lighting at sub-national levels), individual services (such as healthcare and education) and emergency relief.
For collective and individual services, ED 67 proposes that an expense is recognized at the point of service delivery. ED 67 also proposes that an expense and liability is recognized for some emergency relief, but not where emergency relief is delivered as an ongoing activity of government.
The distinction between social benefits and collective and individual services is important, but the accounting treatment of these transactions must be conceptually consistent. The ED 67 together with IPSAS 42, will allow stakeholders to identify and account more consistently for the full range of social policy obligations of government.
