What is the “Unit of Account”?

The unit of account is the rights (or groups of rights), or obligations (or groups of obligations), or a group of rights and obligations considered when applying the recognition criteria and measurement principles.

The unit of account is a new concept that the IPSASB proposes introducing to its Conceptual Framework. The proposed principles are drawn from the IASB’s Conceptual Framework.

The unit of account is an area that is not precisely defined in accounting literature and requires a high degree of judgement. The Conceptual Framework primarily outlines the principles for the standard-setters to apply, and therefore the judgement would hopefully rest with the individual Boards rather than preparers.

A few critical proposals regarding unit of account are as follows:

1. Unit of account only applies to recognition and measurement. It does not deal with presentation and disclosure. Also, offsetting a right and obligation is not linked to a unit of account, but presentation in the financial statements. (????)
2. The cost-benefit constraint is considered in selecting a unit of account to recognise and measure assets and liabilities. 
3. Units of accounting selected should provide useful information to users. This means that the information provided about assets and liabilities and related revenue and expenses should:

• Be relevant to users. It may be appropriate to treat a group of rights and obligations as a single unit of account if it provides more relevant information than if each separate right or obligation is a separate unit of account. As examples, the rights and obligations:
• Cannot be or unlikely to be the subject of separate transactions.
• Cannot or are unlikely to expire in different patterns.
• Have similar characteristics and risks.
• Are used together in operational activities conducted by an entity to provide services or produce cash flows that are measured by reference to estimates of their interdependent service potential or future cash flows.
• Faithfully represent the substance of a transaction or other event from which they have arisen. As a result, it may be necessary to treat the rights and obligations from separate events as a single unit of account, or to separate the rights and obligations from a single source.

Have your say?

It is important that you have your say on the proposed changes. Comment to the IPSASB is due on 31 May 2022. As the ASB ‘s Conceptual Framework is based on the IPSASB’s, any changes would need to be considered by the Board. The ASB will have a series of roundtable discussions to discuss the proposed changes in ED 81 so that comments can be submitted to the IPSASB. ED 81 of the IPSASB has been published concurrently by the ASB as ED 197. Information about the project can be accessed using this link. If you are interested in joining the discussions, please contact  E van der Westhuizen at eliznav@asb.co.za.