As a result of the financial crisis and its continuing impact on Europe, attention has increasingly been focused on improving financial reporting by EU member governments.
There is broad agreement that better public financial management requires an accounting regime providing comprehensive information on a public sector entity’s financial situation – in other words, adopting an accrual, resource-based view. There has been less agreement on how this is to be achieved. Some EU member states, including the UK, have made good progress towards adopting international standards either through International Public Sector Accounting Standards (IPSAS) or International Financial Reporting Standards (IFRS). Others have made little substantial movement away from traditional cash accounting.
To promote a more unified system of accounting, the European Commission, through Eurostat, has espoused the development of European Public Sector Accounting Standards (EPSAS). The aim is to produce harmonised, accrual-based accounting standards that improve transparency, allow cross-border benchmarking, increase accountability of public decision makers, and may also foster intergenerational equity through better informed fiscal policy.
In March 2013 the commission issued a report, Towards implementing harmonised public sector accounting standards in the member states. This suggested that in their current state IPSAS cannot be simply implemented by member states, but that they represent a natural starting point and ‘indisputable reference’ for potential European standards. After publication of the report, Eurostat organised a conference in May 2013 in Brussels. As a next step it was proposed to develop a commission communication, setting out its thinking to ready the ground for a potential legislative proposal in 2015.
Eurostat commissioned a study in 2013 to assess the likely economic and social impacts of the proposed EPSAS reform, taking IPSAS as a proxy for future EPSAS. The study, prepared by PwC, was published in August 2014 and also analysed existing IPSAS standards and their application in member states. CIPFA, with the Treasury, made a significant contribution to the study, providing information on the application of international financial standards and the implications of moving to a full accruals and resource- based system of accounting.
There has been much debate within the European profession about EPSAS. In the UK, concerns have been raised about the implications for member states that have already adopted international standards, and whether new European standards are required or existing international standards should be used unamended. CIPFA has been engaged in this debate, individually and working through the Consultative Committee of Accountancy Bodies in the UK and CIPFA representatives on FEE working groups and IPSASB.
Brussels recently confirmed that the commission communication on EPSAS will not now go ahead. Instead, in June a working group will be constituted to assist Eurostat in developing a conceptual framework for EPSAS along with guidance on initial implementation.
From a UK viewpoint it is reassuring that there appears to be an emerging consensus that IPSAS will be the default position for development of the new standards. Eurostat has also confirmed that countries which are already applying international standards will not be expected to take a retrograde step. Much of the devil will be in the detail and CIPFA urges public sector accountants to follow the debate through CIPFA’s website and the EPSAS website set up by the European Commission. Whatever the final outcome, developments in Europe are likely to have an increasing part to play in UK public sector reporting.
