New development: The IPSASB project on accounting for social benefits—IPSAS 42

This article explores the work undertaken by the International Public Sector Accounting Standards Board (IPSASB) in developing IPSAS 42 on ‘Social Benefits’, which was probably the IPSASB’s most challenging project to date. The authors explains IPSAS 42’s approach to liability recognition with the overriding considerations behind the IPSASB’s final decisions. In 2012, the EC identified the lack of a standard on social benefits in the IPSASB’s suite of standards as one of the arguments against the application of IPSASs in the EU, so this article is important in terms of the IPSASs being used as the basis for EPSASs (European Public Sector Accounting Standards).Unless governments can take appropriate timely remedial action, various factors, such as aging populations, will have a severely detrimental impact on future public sector service delivery potential. Governments may be able to address this in part if they can raise additional income or reduce expenditure sufficiently; often highly challenging. Raising additional income such as by taxation may be problematical as populations age and personal income levels decline. Cutting public services may be politically difficult, as could be reducing social benefits. Some social benefit schemes might be discontinued; others significantly modified. However, many public sector entities will find that for certain of their social benefits schemes in place today, for example a state retirement pension, they will have to meet heavy social benefit payments well into the future. The IPSASB’s project on accounting for social benefits had to address this problem and determine whether social benefit schemes give rise to a liability and how it should be recognized and measured.