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We’ll shortly have publication of IPSAS 42 Social Benefits. This standard is one of several related initiatives dealing with liabilities and expenses arising from non-exchange transactions and, on the other side of the fence, revenue from exchange and non-exchange transactions.

ISPAS 42 deals with cash transfers provided by States to specific individuals or households who meet eligibility criteria and, which, also mitigate the effect of social risk and address the needs of society. Examples of these could include state pensions, unemployment and welfare benefits that form part of the general income of the recipient. The Standard will not extend to situations where the State provides funds to be used by the recipient to purchase specific goods or services. Neither does the Standard address topics such as the liability or expense to transfer funds to other organisations in a non-exchange transaction.

The recognition of the liability and cost related to social benefits is tied to the IPSASB’s framework definition of a liability and requires a present obligation for an outflow of resources from a past event. The past event will be the satisfaction by the beneficiary of all eligibility criteria for the next payment and the present obligation will be to make the next benefit payment. Let’s apply this to the situation of a pensioner who receives a state pension payment, a month in arrears, on the 15^th of each month and that the State has a 31 December year end. Assuming the pensioner satisfied the eligibility criteria for their payment on 16 December with the payment due on 15 January, then at 31 December the State should book a liability and expense for one-month’s pension. At the start of this project there had been discussion about liabilities extending to the present value of estimated future payments to the claimant, so the conclusion reached in the Standard, albeit sensible, seems something of an anti-climax!

The Standard does come with some hefty disclosure requirements including a new line on the position statement and there is an alternative measurement basis for benefits that are more in the nature of state sponsored insurance schemes.

Look out for its publication in early February with an effective date of 1 January 2022.