Under IPSAS 42, a social benefit is recognized as a liability and an expense at the very moment each beneficiary satisfies all the eligibility criteria to receive a benefit payment, no earlier and no later. The Standard applies to annual periods beginning on or after January 1, 2023.
What Is the Objective of IPSAS 42?
The Standard states that "the objective of this Standard is to improve the relevance, faithful representativeness and comparability of the information that a reporting entity provides in its financial statements about social benefits as defined in this Standard."
How Does the Standard Define a "Social Benefit"?
The Standard defines social benefits as "cash transfers 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." The Standard therefore limits the concept of a social benefit to cash transfers, not in-kind transfers. It also states that "an entity that prepares and presents financial statements under the accrual basis of accounting shall apply this Standard in accounting for social benefits."
How Does the Standard Define the "Social Risks" a Benefit Is Meant to Mitigate?
The Standard defines social risks as "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." A social benefit is therefore a tool for addressing risks of a specific nature affecting particular individuals or households.
When Is a Liability for a Social Benefit Recognized?
The Standard sets out two conditions, stating that "an entity shall recognize a liability for a social benefit scheme when: (a) The entity has a present obligation for an outflow of resources that results from a past event," and that "(b) The present obligation can be measured in a way that achieves the qualitative characteristics and takes account of constraints on information in general purpose financial reports as set out in the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities."
What Event Gives Rise to This Obligation?
The Standard states clearly that "the past event that gives rise to a liability for a social benefit scheme is the satisfaction by each beneficiary of all eligibility criteria to receive a social benefit payment. The satisfaction of eligibility criteria for each social benefit payment is a separate past event." This means the obligation does not arise merely from the enactment of the legislation establishing the benefit, but when the specific beneficiary actually satisfies the eligibility conditions.
When Is the Expense Recognized, and When Does the Standard Become Mandatory?
The Standard states that "an entity shall recognize an expense for a social benefit scheme at the same point that it recognizes a liability," meaning the expense and the liability are always recognized simultaneously. It also states that "an entity shall apply this Standard for annual financial statements covering periods beginning on or after January 1, 2023. Earlier application is encouraged."
Legal References
- IPSAS 42 Social Benefits, paragraphs 1, 3, 5, 6, 9, 10, 35
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