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Valuations in the Public Sector

Are we seeing tangible steps towards an international consensus?

Download ED 76

Conceptual Framework Update

Download ED 77


Download ED 78

Property, Plant and Equipment

Download ED 79

Assets held for sale and discontined operations

The International Public Sector Accounting Standards Board (IPSASB) develops financial reporting standards for public sector entities (IPSAS).  Some may wonder why these are needed when there are the International Financial Reporting Standards (IFRS) which are now used or recognised in nearly 150 countries around the World. However, problems can arise in trying to apply IFRS to organisations that exist not to generate financial returns for investors but to provide public services, many of which are not directly cash generating.  The IPSAS are based on the principles in IFRS but with necessary adaptations to reflect matters that are particular to the public sector.

One of the main difficulties in applying IFRS to the public sector is around measurement, and in particular valuation.  Like the private sector, public sector entities have assets and liabilities but the question of how the benefit of these should be measured in the financial statements has proved an intractable problem.  There is very little consistency between countries on either what types of asset or liability should be included in public sector accounts, and when they are, whether they are measured on the basis of what they cost to provide or on some form of current value.

Why does this matter?  Unlike companies where an obligation to report performance consistently is necessary for investor information and regulatory oversight, governments are sovereign and can set the rules to suit their circumstances.  However, since governments also borrow in the financial markets, the integrity of their public accounts is becoming a matter of increasing concern. As long ago as 2013 the IMF published a paper that highlighted significant discrepancies between the approaches taken by goverments to valuing their non financial assets which concluded that improving the consistency and transparency about the extent and value of assets would improve economic management.

In April 2019 the IPSAS Board issued a consultation paper for a possible new standard on Measurement to examine various measurement bases and provide guidance on their application.  We submitted comments on this, which can be seen below.


In April 2021 the Board issued four Exposure Drafts ED 76, 77, 78 and 79. Perhaps of most interest to valuers is a proposal to introduce a new valuation concept, Current Operational Value (COV), into the suite of measurement options.  This is introduced in the amendments to the Conceptual Framework (ED 76) and explained in more detail in ED77.  While we believe there is a need for a valuation basis that is suitable for assets held to provide a public service, we have a number of concerns about the proposals for COV, which we explain in the responses we submitted to the ISPASB.

Following the closing of the consultation on the Exposure Drafts the Board found that the proposals for COV attracted the most diversity of opinion.  Some were broadly happy with the proposals, other felt they needed developing the principles further and some wanted the concept abandoned.  In the light of this it will first concentrate and finalising the other measurement issues and turn its attention to COV in the second part of 2022.


Useful Links:

IPSASB Measurement Project Page
Valuology’s Comments on Consultation Paper

Additional information on 2021 Exposure Drafts 76,77,78 and 79

Valuology's Comments on Exposure Drafts   

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