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IFRS Technical Update
A review of IPSASB Exposure Draft 63 Social Benefits
By Caroline Aggestam Pontoppidan
IASeminars Faculty Member
In October 2017 the IPSASB issued Exposure Draft 63 Social Benefits. ED 63 follows a Consultation Paper in 2015. The project’s objective is to establish the recognition and measurement requirements for social benefits.
Currently, social benefits may be accounted for under IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets. However, IPSAS 19 contains a scope exclusion which allows preparers not to apply IPSAS 19 to social benefits which are provided in non-exchange transactions. ED 63 proposes to recognise social benefits as current liabilities. On initial recognition, these would be recorded as expenses in the statement of financial performance. Subsequently, changes would also be recognised in the statement of financial performance.
ED 63 (paragraph 6) defines social benefits as those provided to:
- (a) Specific individuals and/or households who meet eligibility criteria;
- (b) Mitigate the effect of social risks; and
- (c) Address the needs of society as a whole; but
- (d) Are not universally accessible services.
Social risks are events or circumstances that:
- (a) Relate to the characteristics of individuals and/or households – for example, age, health, poverty and employment status; and
- (b) May adversely affect the welfare of individuals and/or households, either by imposing additional demands on their resources or by reducing their income.
The ED defines social benefits as an insurance-like activity aimed to (b) mitigate the effect of social risks on (a) specific categories who meet eligibility criteria, in view to (c) address the needs of society as a whole, while (d) differing from universally accessible services.
Drawing upon this definition as an insurance-like activity, ED 63 provides two accounting options:
- A) The insurance approach permits, but does not require, adherence to IFRS 17 Insurance Contracts (or equivalent national standard) when the social benefit scheme is fully funded from contributions and managed as an issuer of commercial insurance contracts. The insurance approach involves recognising and measuring the liability at the present value of estimated future cash flows.
- B) The obligating event approach recognises the liability for the present obligation on the nearest next benefits which are estimated to be paid to current beneficiaries who already meet all eligibility criteria at the reporting date.
The Exposure Draft raised the following matters for comment:
Specific Matter for Comment 1:
Do you agree with the scope of this Exposure Draft, and specifically the exclusion of universally accessible services for the reasons given in paragraph BC21(c)?
Specific Matter for Comment 2:
Do you agree with the definitions of social benefits, social risks and universally accessible services that are included in this Exposure Draft?
Specific Matter for Comment 3:
Do you agree that, with respect to the insurance approach:
- (a) It should be optional;
- (b) The criteria for determining whether the insurance approach may be applied are appropriate;
- (c) Directing preparers to follow the relevant international or national accounting standard dealing with insurance contracts (IFRS 17 Insurance Contracts and national standards that have adopted substantially the same principles as IFRS 17) is appropriate; and<
- (d) The additional disclosures required by paragraph 12 of this Exposure Draft are appropriate?
Specific Matter for Comment 4:
Do you agree that, under the obligating event approach, the past event that gives rise to a liability for a social benefit scheme is the satisfaction by the beneficiary of all eligibility criteria for the next benefit, which includes being alive (whether this is explicitly stated or implicit in the scheme provisions)? If not, what past event should give rise to a liability for a social benefit?
It should be noted that ED 63 includes an alternative view where some IPSASB Members proposed a different approach to recognition and measurement.
Specific Matter for Comment 5:
Regarding the disclosure requirements for the obligating event approach, do you agree that:
- (a) The disclosures about the characteristics of an entity’s social benefit schemes are appropriate;
- (b) The disclosures of the amounts in the financial statements are appropriate; and
- (c) For the future cash flows related to from an entity’s social benefit:
- (i) It is appropriate to disclose the projected future cash flows; and
- (ii) Five years is the appropriate period over which to disclose those future cash flows.
Specific Matter for Comment 6:
The IPSASB has previously acknowledged in its Conceptual Framework that the financial statements cannot satisfy all users’ information needs on social benefits, and that further information about the long-term fiscal sustainability of these schemes is required. RPG 1 Reporting on the Long-Term Sustainability of an Entity’s Finances, was developed to provide guidance on presenting this additional information.
Read more from Caroline on IFRS and IPSAS:
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