SPRING 2014
FMI
*
IGF JOURNAL
5
A Dawn for European Public Sector
Accounting Standards
Gillian Fawcett
It’s been a long time coming. A new
dawn is a breaking across Europe as it
wakes up to the fact that Member States
are in need of quality and comparable
accruals based accounts for 90,000
governments, regional and local bodies
and expenditure totalling 6.2 trillion
euros. They need accruals to support
the surveillance and coordination of
fiscal and macroeconomic policies in
the EU and for the transparency and
accountability of the management of
public bodies.
In the context of EU fiscal surveillance
and the excessive deficit procedure,
the European Commission (EC) has
the task of regularly assessing the
quality both of actual data reported by
Member States and of the underlying
government sector accounts compiled
according to the European Statistical
Accounts (ESA). Recent incidences of
inappropriate financial reporting by
some governments has led to a need
for improved financial information to
enhance quality and to mitigate the risks
of poor financial data. Furthermore, the
impact of the economic and financial
crisis has highlighted the need to
strengthen the economic governance
structure for the euro area and the
European Union as a whole. Part of
the reform package includes moving
to accruals based accounts, as recently
reported in an EC Report to the Council
and European Parliament
Towards
implementing Harmonised European Public
Sector Accounting Standards in Member
States’
(2013).
Although the Report highlights
the benefits of moving to accruals
accounts, there isn’t full support for
IPSAS accruals from Member States.
For example, Germany appears to be an
opponent of IPSAS accruals based on
the results of an EC consultation. 19 out
of the 68 respondents said ‘no’ to the
suitability of IPSAS accruals and 16 of
these related to Germany. To date, the
main area of debate has tended to focus
on whether or not the EU should adopt
International Public Sector Accounting
Standards (IPSAS) or develop a
specific set of European Public Sector
Standards (EPSAS). Despite the lack
of consensus by Member States about
the applicability of IPSAS accounting
standards for the EU or indeed the
development of specific EU standards,
the EC has recommended EPSAS as the
way forward.
The Report concluded that whilst
IPSAS were not suitable of being
adopted in their entirety, IPSAS would
provide a suitable reference framework
for their development. Full scale
adoption of IPSAS fell short of the
mark because of key concerns about
the legitimacy of the standard setting
process, the completeness of accounting
standards and unresolved issues about
the governance and oversight of IPSASB.
Since the adoption of the Report’s
findings by the Council and European
Parliament, the pace of change has
stepped up and processes are underway
to introduce governance structures and
legislation to begin to embed EPSAS
in the DNA of the EU. This is going
ahead without unanimous support and
with the form of governance structure
and standard setting process continuing
to be hotly debated. On the one hand,
there is some merit in developing
EPSAS as it would give the EU the
capacity to develop its own standards
to meet its own requirements, but on
the other hand, there is a danger that
the introduction of EPSAS will send
mixed messages and confusion to those
governments in the rest of the world.
The development of EPSAS comes at
a time when accounting standards are
converging globally, particularly within
developing countries that are looking
towards introducing International
Financial Reporting Standards (IFRS)
or IPSAS.
Over the last few years IPSASB’s
approach has meant that IPSASs have
converged with IFRS except where there
have been good public sector reasons
for not doing so. It has also plugged
the gaps where necessary. It is hoped
by many commentators that at the very
least EPSAS should be closely aligned to
IPSAS as practicably possible. Fingers
remain crossed that the sentiments set
out by the EC of using IPSAS standards
as a “framework reference point” will
be implemented so that potential
deviations and interpretations from the
suite of IPSAS standards are minimized.
In my view, EPSAS should be soundly
based on IPSAS so that public sector
accounting standards are aligned with
those of the rest of the world and are
consistent with the listed company
sector that complies with IFRS.
There are clear lessons that can be
learnt from how IFRS was adopted
across the European Union (EU) for
listed companies. The endorsement
process adopted was relatively efficient
andmeant that there were few deviations
from the full IFRS. In light of IFRS
Photo courtesy: Miejskie Rzeki
