Agenda Item 10: Public Sector Specific Financial Instruments Ross Smith, Technical Manager IPSASB Meeting June 24-27, 2014 Toronto, Canada Page 1 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Objective of Agenda Item Consider and provide directions on key issues Materials Presented • Agenda Item 10.1 Issues Paper • Agenda Item 10.2 SA GRAP 108 Statutory Receivables Page 2 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Background (paras. 3 – 6) • March Meeting: – Discussion of issues: Monetary reserve transactions • Issues to be addressed further in September – Monetary Gold – IMF SDRs and IMF Transactions – Currency and Coin Page 3 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Issues (para. 6) Discussion of issues on: • Statutory receivables • Statutory payables • Securitizations Page 4 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Task Force (Para. 7) • Look to add two members to TBG • IMF member identified • Central bank working group Page 5 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Statutory Receivables & Payables (1) (Para. 9) Gap in IPSAS literature for non-contractual receivables and payables • IPSAS 28-30, Financial Instruments – contractual only • Non-contractual transactions Page 6 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Statutory Receivables & Payables (2) (Paras. 12-18) Statutory receivables and payables arise through laws, legislation or regulation, types of transactions categorized as follows: • Taxes • Government transfers • Fines and penalties • Fees • Social benefits Page 7 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Statutory Receivables & Payables (3) (Para. 18) Key factor is the non-contractual nature of transactions (taxes, transfers, penalties & fines, fees and social benefits) Matters for Consideration: (i) Agree with the analysis of the nature of transactions (contractual vs. non-contractual); and (ii) Aware of other types of transactions which should be considered? Page 8 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments National Standards & Others (Paras. 19 – 23) • South Africa GRAP 108 Statutory Receivables • Canada PS 3510, Tax Revenue • Canada PS 3410, Government Transfers • New Zealand Treasury – guidance on tax receivables • Australia – Statutory receivables not financial instruments Matter for Consideration: Other national standards or other sources for further research? Page 9 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Statutory Receivables (1) (Paras. 24 – 28) • IPSAS 9 and IPSAS 23 cover recognition criteria and initial measurement for receivables • Guidance for subsequent measurement and derecognition/impairment in IPSAS 29 for contractual receivables • Lack of guidance for subsequent measurement and derecognition/impairment for non-contractual receivables Page 10 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Statutory Receivables (2) (Paras. 29 – 30) Need exists to address identified gap in IPSAS literature • Approach one: Update IPSAS 23 to address identified gap • Approach two: New standard similar to SSASB GRAP 108 Matter for Consideration: Note information on statutory receivables and provide directions on the two proposed approaches to address accounting for statutory receivables Page 11 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Statutory Payables (1) (Paras. 31 – 37) IPSAS guidance for accounting for payables in the following standards: – IPSAS 19, IPSAS 25, IPSAS 29 and IPSAS 1 • If entity has a liability, assessment as to whether it arises from a contract. • Contractual liabilities – IPSAS 28-30, Financial Instruments • Non-contractual – consider IPSAS 19 for uncertain items – When timing and amount is certain – lack of guidance Page 12 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Statutory Payables (1) (Paras. 38 – 39) Need to address identified gap in IPSAS literature • Approach one: New IPSAS based on IPSAS 19 • Approach two: Do nothing at this time – preparers to continue to use IPSAS 3 Matter for Consideration: Note information on statutory payables and provide direction on the two proposed approaches to address accounting for non-contractual payables Page 13 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Securitizations (1) (Paras. 40 – 43) • Securitizations common in the private and public sector • Complex and types of schemes vary • Securitization schemes are always contractual in nature • Securitization of assets not recognized in the statement of financial position • Used as alternative method for raising capital Page 14 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Securitizations (2) (Paras. 44 – 46) Types of securitizations: • Asset-backed securities (ABS) • Mortgage-backed securities (MBS) • Collateralized debt obligations (CDO) • Future flow securitizations Future flow securitizations occur most often in the public sector. Page 15 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Securitizations (3) (Paras. 47 – 48) Future flow securitizations can be undertaken for several reasons: • Obtain better rates for borrowing • Obtain foreign denominated currency • As a result of restrictions on conventional borrowing • Increase liquidity of non-liquid receivables Page 16 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Securitizations (4) (Paras. 49 – 50) Public sector securitization examples • Mexican states securitized future vehicle ownership and payroll taxes • Australia considering securitizing student debt • The UK securitized £900 million in old student debt in 2013. Considering further securitizations of student debt and assets of the Royal Mail Page 17 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Securitizations (5) (Paras. 51 – 55) Originator transfers assets to SPV for a Originator lump sum payment. SPV issues debt securities backed by SPV assets from originator. Cash flows from assets fund payments to CMIs. CMIs CMIs buy debt securities issued by the SPV. Page 18 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Securitizations (6) (Paras. 56 – 60) National standards and other guidance • GASB Statement No. 48, Sales and Pledges of Receivables and Future Revenues • SNA 2008 22.131 and 22.132 • Eurostat decision – STAT/07/88 Page 19 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Securitizations (7) (Paras. 61 – 67) Accounting for securitizations • Contractual • IPSAS 28-30 and IPSAS 6-8 • IPSAS 29.AG51 – requires an assessment as to if the – SPV is consolidated, if so detailed step by step process to determine if the assets are derecognized and passed through to investors (partially or completely) • IFRS 12, Disclosure of Interests in Other Entities Page 20 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Securitizations (8) (Paras. 68 – 69) Options for members to consider • Approach one: Do nothing and rely on existing application guidance in IPSAS 29 • Approach two: develop additional guidance or a separate IPSAS to address the issue of future flow securitizations of assets not recognized Matter for Consideration: Note information on securitizations and provide direction on the two proposed approaches to address accounting for securitizations Page 21 | Confidential and Proprietary Information
Public Sector Specific Financial Instruments Project Output (1) (Paras. 70 – 71) • Distinction between topics related to monetary reserve transactions, statutory receivables/payables and securitizations • Staff view that initial project output would be separate consultation paper Matter for Consideration: Directions on the proposal from staff on separate consultation papers Page 22 | Confidential and Proprietary Information
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