By Nick Mann | 6 March 2013
Any future introduction of harmonised public sector accounting standards across the European Union should be based on the International Public Sector Accounting Standards, the European Commission said today.
In a long-awaited report, the commission said that while it was ‘clear’ Ipsas could not be easily implemented in EU member states in their current form, the standards should be an ‘indisputable reference’ for any potential EU-wide accounting standards moving forward.
The report is the result of a consultation launched by the EU statistical service Eurostat last year to explore whether Ipsas could be implemented EU-wide as part of the ‘six pack’ of fiscal management measures agreed by EU member states.
According to the commission, there would be ‘distinct benefits’ for public sector management and governance in adopting a single set of accruals-based accounting standards at all levels of government throughout the EU.
‘Harmonised accruals-based government accounting improves transparency, accountability, and the comparability of financial reporting in the public sector, and may serve to improve the efficiency and effectiveness of public audit,’ it added.
The final decision as to whether to move to an EU-wide system of accruals-based accounting standards falls outside of the scope of this report, the Commission said.
But adopting such a system would ‘dramatically reduce the complexity of methods and compilation processes used to transform these data onto a quasi-harmonised basis and minimise risk as regards the reliability of the data notified by member states and published by Eurostat’.
‘Key’ Ipsas principles could be used as the initial basis for any European Public Sector Accounting Standards, while Ipsas commonly agreed by member states could also be used, the Commission said.
It noted that any Epsas would have to maintain ‘close links’ to the Ipsas Board and it would be important not to create ‘unnecessary’ divergence between Ipsas and Epsas.
The Commission concluded, however, that Ipsas are not currently complete in terms of coverage or practical applicability to important areas of government finance, such social benefits. Ipsas also offer the potential for choosing between alternative accounting treatments, which would limit their use for harmonisation.
The commission also stressed that any move to accruals-based accounting would come at a cost to member states. The potential cost for a medium-sized EU country moving from cash- to accrual-based accounting for central government could be €50m, while for larger member states and those with more complex accounting systems it could be ‘much higher’. Accruals and budgeting reforms have cost France €1.5bn over the past decade, the commission noted.
But it noted that the multitude of different approaches to accounting that currently exist suggest that harmonisation would bring about a reduction in bureaucracy and costs which, in the medium-to-long term, would ‘far outweigh’ these costs.
Before a decision is made on whether to actually create and implement Epsas, the Commission said that more work was needed to review the pros and cons of the changes and the likely costs and benefits.
Preparatory information gathering and the development of a ‘roadmap’ to detail the steps that need to be taken should begin this year, the Commission said.
In a statement, CIPFA noted the commission had highlighted that Ipsas were ‘the only internationally recognised set of public sector accounting standards’ but had also stressed the need for more detailed and prescriptive guidance, Epsas, to ensure consistency of application.
Ian Carruthers, CIPFA’s policy and technical director, said: ‘The global financial and sovereign debt crises have highlighted the damaging consequences of weak public financial management around the world and the need for urgent and co-ordinated action to resolve the problem.
‘The consistent adoption of accrual reporting in central, state and local governments across Europe as recommended by Eurostat would be a major step towards strengthening public financial management in the region, as well as providing an important lead for other parts of the world.’
CIPFA welcomed Eurostat’s recognition that Ipsas were an ‘indisputable’ reference point for developing harmonised accounting standards in Europe, he said.
‘However, the extent to which future public finance information is comparable globally will depend on how closely Eurostat follows Ipsas in its implementation requirements,’ he added.