The recent sovereign debt crisis in Europe showed that a lack of comparability between member states’ accounting, and the incoherence between government accounting and financial statistics, can impact macroeconomic stability, surveillance and policymaking. Also, the current state of public sector accounting in some member states has been identified as a significant weakness. Greater transparency and accountability of the public sector is necessary in order to restore the public finances, and to ensure more effective delivery of public services and better stewardship of taxpayers’ money. The European Commission has also recognised that a harmonisation of public sector accounting at micro level leads to better fiscal data at macro level.
With the aim of harmonising public sector accounting in member states, Eurostat – the European Union’s official statistical body – has evaluated the suitability of the existing International Public Sector Accounting Standards (IPSAS) for member states, on behalf of the European Commission. The 2013 report based on this analysis showed that more reliable, timely and comprehensive financial information, which includes comparable statistical accounting and financial accounting, necessitates a common, robust and accruals-based accounting and reporting framework. The report concluded that developing specific European Public Sector Accounting Standards (EPSAS) would be the way forward in the EU.
Fiscal transparency and the comparability of public sector accounting, and financial reporting between and within member states, is considered to be the main objective of EPSAS. Eurostat underlines the need for accrual accounting in order to achieve greater transparency in the public sector. Moreover, harmonised accounting is needed for better comparability within the public sector. Taken together, this would benefit the EU as a whole. Since EPSAS focuses solely on accounting/financial reporting and not on budgeting, the coexistence of cash-based budgetary frameworks and accrual accounting/financial reporting systems is not questioned. Member states’ sovereignty in budgeting matters is not touched by the EPSAS reform.
A critical matter in this harmonisation process is the role of IPSAS. In presentations, Eurostat has stated that “EPSAS will be the European interpretation of IPSAS”. This view is in line with the 2013 report of the European Commission that found that the IPSAS standards represent an indisputable reference for potential EU harmonised public sector accounts. This shows that EPSAS pays tribute to IPSAS as being the internationally accepted public sector accounting standard and that characteristics of the European public sector accounting tradition will be considered in the development of EPSAS.
Eurostat’s current project plan for the EPSAS reform focuses on establishing the standard-setting framework and on preparatory work for the technical development of the standards. The EPSAS working group contributes to setting-up the technical and legal framework required for EPSAS. The group mainly consists of representatives from member states and European/international institutions, as well as EPSAS cells. These include the cells for “first-time implementation of EPSAS” and “principles related to EPSAS standards”.
Eurostat’s work on harmonising public sector accounting currently focuses on the developments of technical issues papers on selected public sector specific topics. The following table provides an overview of those topics:
- Relief for smaller and less risky entities
- Approach for narrowing down of options
- Accounting for taxes
- Accounting for heritage assets
- Accounting for employee benefits (pensions)
- Accounting for social benefits
- Accounting for infrastructure assets
- Segment reporting
- Accounting for military assets
- Accounting for social contributions
Based on the results of this preparatory work, a legal framework for EPSAS shall be established. The actual implementation of EPSAS shall then take place in a staged process. According to the project plan, this might start in 2020. Given the role that IPSAS will play in the EPSAS reforms, Eurostat recommends the voluntary implementation of accrual-basis IPSAS until the EPSAS standards are finally developed.
Thomas Müller-Marqués Berger is a speaker at the CIPFA International Seminar on 24-25 November at the European Court of Auditors in Luxembourg. Click here to watch the CIPFA international seminar live on 24–25 November 2016. A full recording of the seminar will also be available a few days after the event.
