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FEE welcomes the publication of this CP as the IPSASB’s latest initiative to drive forward the debate on the appropriate accounting treatment of social benefits. The treatment of social benefits has long been seen as a crucial public sector-specific accounting issue and the lack of an IPSAS dealing with this matter has been held out by some parties as a reason that IPSASs as a whole are not suitable for adoption. Consequently, FEE believes timely completion of this project is of crucial importance, which is one of the reasons that FEE supports IPSASB’s decision to limit the scope of the CP to exclude exchange transactions and collective goods and services.
The provision of social benefits constitutes a significant proportion of government expenditure in most developed countries. The demographics of many developed countries show an ageing population and a decreasing birth rate – this will simultaneously increase the need for many types of social benefit whilst reducing the tax base with which to pay for them. Consequently, FEE regards the proper accounting and disclosure of the ongoing costs of providing social benefits as a vital element in the crucial public debate on the sustainable funding of public sector services.
It is primarily for this reason that FEE does not support the social contract approach outlined as an option in the CP. This approach, where recognition is based on strict legal entitlement and where future payments of benefits are matched to future taxation receipts (even if the obligation arises from past events), would not achieve the objective of making public sector liabilities more transparent. Additionally, the concept of intergenerational solidarity that underpins the social contract approach may not be appropriate for those countries where a falling population is predicted.
FEE believes that it is important that all public sector bodies properly disclose their financial liabilities arising out of past events – this is crucial information for all stakeholders and will also assist these bodies in their management of resources. For this reason, FEE supports the IPSASB’s preliminary view that a combination of the obligating event approach and the insurance approach (for certain contributory schemes) is the best method to meet the objectives of public sector financial reporting.
However, the obligating event approach is not without its complications, particularly in respect of determining the point at which an obligation should be recognised in the financial statements. FEE considers that there may not be one specific point of recognition that is suitable for all types of social benefits. For example, FEE considers that there are good reasons for recognising liabilities under pension schemes at an earlier point than accident benefit schemes.