Social Benefits – what are they? (Part 1)

Until 2019, there was no guidance internationally on accounting for social benefits. The International Public Sector Accounting Standards Board (IPSASB) developed IPSAS 42 on Social Benefits to fill this gap in the literature. The Accounting Standards Board (ASB) has started its project to provide guidance for the local environment. We’ll look at the work done by the IPSASB in this article and consider the South African environment in an upcoming article.

What is the history of social benefits in IPSAS?

Before IPSAS 42, social benefits were broadly described in IPSAS as goods, services and other benefits provided in the pursuit of the social policy objectives of a government. These benefits could have included the delivery of services to a community (e.g. health, education, housing, transport, etc.)  and financial assistance to individuals or households to meet particular needs or supplement their income (e.g. because of age, disability, unemployment, etc.).

From this broad description of social benefits, the IPSASB took a long time to develop the guidance in IPSAS 42, including the definition. Consensus could not be reached about accounting for such a wide range of social benefits. In particular, it was difficult to determine the obligating event that gives rise to a social benefit liability for government. In developing IPSAS 42, alignment with GFS and new literature of the IPSASB such as the IPSASB’s Conceptual Framework were considered. The definition was narrowed to include the idea of mitigating social risk for the needs of society as a whole and focused on cash benefits.

What are social benefits in IPSAS 42?

The IPSASB’s work resulted in the following definition of social benefits in IPSAS 42:

Cash transfers provided to:

1. specific individuals and/or households who meet eligibility criteria;
2. mitigate the effect of social risks; and
3. address the needs of society as a whole.

Social risk is defined in IPSAS 42 as:

Events or circumstances that:

1. relate to the characteristics of individuals and/or households (e.g. age, health, poverty and employment status); and
2. may adversely affect the welfare of individuals and/or households, either by imposing additional demands on their resources or by reducing their income.

Based on these definitions, the IPSASB identified that the following types of benefits could be social benefits as they are, (a) cash payments to individuals or households who meet eligibility criteria, (b) they mitigate social risks, and are (c) for the benefit of society as a whole:

	Disability pensions
	State retirement pensions
	Unemployment benefits

The IPSASB assessed that the following types of benefits would not meet the definition of a social benefit:

• Retirement benefits to government employees: these are employee benefits and do not address the needs of society as a whole.
• Universal healthcare services: the benefits are provided in-kind, and they meet the definition of individual services.
• Disaster relief: mitigates the effect of a geographical risk rather than a social risk.
• Defence services: the services are provided in-kind, and they are not too specific individuals but are consumed collectively.

IPSAS 42 becomes effective 1 April 2023 for entities that apply IPSAS.

Disclaimer

The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.