CONSOLIDATION OF FINANCIAL STATEMENTS OF PUBLIC SECTOR ENTITIES OF UKRAINE THROUGH THE PRISM OF THE CONCEPTUAL FRAMEWORKS OF IFRS AND IPSAS

Abstract

This study provides an in-depth analysis of the impact of modern financial reporting concepts on the methodology for the consolidation of financial statements in both the private and public sectors. The  research examines the essence of a «group» as a single economic entity in accordance with the Conceptual Framework for Financial Reporting (IFRS) and the Conceptual Framework for General Purpose  Financial Reporting by Public Sector Entities (IPSAS). The boundaries of the reporting entity are explored based on the reporting entity concept, the principle of substance over form, de facto control, and agency relationships (principal-agent involvement). A significant focus is placed on a comparative analysis of the  three elements of control (power, exposure to variable benefits/returns, and the link between power and benefits) as defined in IFRS 10 Consolidated Financial Statements and IPSAS 35 Consolidated Financial Statements. The study analyzes indicators of control and the mechanisms of its exercise within the Ukrainian legal framework, specifically based on the Model Charter of a State Owned Unitary Enterprise. In this context, the author draws a clear distinction between protective rights and substantive rights of the controlling entity. Building on this theoretical foundation, the article proposes a model for the consolidation of public sector financial statements at the whole-of government level based on IPSAS. The implementation of this model requires a strategic transition from National Public Sector Accounting Standards (NPSAS) to the full adoption of IPSAS. Furthermore, it necessitates the mandatory application of IFRS for all state-owned enterprises (SOEs). The study notes that the legislative decision regarding the mandatory transition of all state enterprises in Ukraine to IFRS has already been enacted. The proposed approach aims to ensure high-quality, transparent, and internationally comparable financial reporting for the Ukrainian public sector.