EU moves a step closer to Epsas

2 Jul 13
After years of talks, it now looks as if the EU is ready for European public sector accounting standards. But, as ever, the devil is in the detail, as Nick Mann found at a conference on the project held in Brussels

By Nick Mann | 2 July 2013

After years of talks, it now looks as if the EU is ready for European public sector accounting standards. But, as ever, the devil is in the detail, as Nick Mann found at a conference on the project held in Brussels

Back in November 2011, the European Commission began exploring whether a single set of public sector accounting standards should be introduced across the European Union. But it took until March 2013 for the project to really take off. That’s when the commission published a report concluding there would be ‘distinct benefits’ for member states approving a single set of accrual-based accounting standards. It also recommended that International Public Sector Accounting Standards should serve as an ‘indisputable reference’ for these European Public Sector Accounting Standards.

Then, in a move that suggested things were gathering pace, hundreds of accountants, auditors, academics and politicians from across the EU met in May to discuss the next steps for the project. The name of the event itself – ‘Towards implementing Epsas’ – gave a sense that this was now a initiative with purpose, as did the attendance of some of the EU’s leading figures, all of whom endorsed the project.

Topping the bill was European Council president Herman Van Rompuy, who told the conference in no uncertain terms: ‘We need harmonised public sector accounts in Europe. The deeper economic and financial integration of the union calls for further harmonisation of public sector statistics.’

Van Rompuy said the EU’s revised ‘two-pack’ fiscal framework – which includes the reinforced Stability and Growth Pact and further measures aimed at increasing budgetary surveillance – required closer monitoring of countries’ public finances. ‘Such enhanced fiscal surveillance needs adequate accounting underpinnings, where country monitoring takes place on a level playing field, where there is no room to shun responsibility through budgetary gimmickry,’ he explained.

‘The reliability and timeliness of fiscal statistics is essential for the smooth functioning of a rules-based budgetary framework that includes recommendations and even sanctions to member states in breach of the rules.’

Van Rompuy’s enthusiasm for the project within the context of closer European integration was unsurprisingly echoed by  Algirdas Šemeta, the European commissioner for taxation, customs, statistics, audit and anti-fraud, who has overall responsibility for the Epsas initiative.

‘The prospect of further fiscal and economic intervention in the EU highlights the need for harmonised public sector accounting standards in order that budgetary decisions at a national level can be assessed at an EU level,’ he told the event.

Epsas would also lead to the strengthening of a ‘common European culture’ in public sector accounting. ‘Supreme audit institutions will share common standards when auditing Epsas-based accounts and it will benefit the efficiency and effectiveness of their work,’ he explained.

With glowing endorsements for the project also coming from bodies such as the European Court of Auditors and European Central Bank, you could be forgiven for thinking the argument for Epsas – with Ipsas playing a key role – was a done deal.

But nothing in the EU decision-making process is ever that straightforward. Various speakers during the event made it clear that there were still major issues to be addressed before concrete proposals could be made.

As anyone who read the responses to the commission’s consultation on Epsas will know, there is no unanimity on exactly what part Ipsas should play in any standards.

Throughout the conference, there were rumours of discord from some member states. France, for example, is understood to want a greater emphasis on individual countries’ experience of the shift to accrual-based accounting, where Ipsas haven’t always played a significant role.

Thomas Müller-Marqués Berger, chair of the Federation of European Accountants’ public sector committee and a partner with Ernst & Young, acknowledged there was still a lack of consensus in the accountancy profession over whether a separate set of public sector standards was needed.

‘European governance of the standards could also be reached by an endorsement process, such as that used for International Financial Reporting Standards, or a process such as that in the UK public sector,’ he explained. ‘The question is still valid whether it is worth creating a new body for standards. Concerns still exist.’

Some member states have highlighted a lack of EU public sector involvement in the Ipsas-standard setting process as a key barrier to these standards forming the basis of any Epsas. Müller-Marqués Berger stressed that this needed to be addressed as soon as possible to provide clarity for member states.

‘We already see reform initiatives in member states being lost due to the uncertainty of moving forward,’ he explained. He warned that if the next couple of years were spent purely agreeing exactly how Epsas were to be set and implemented, ‘I would not see the advantage of Epsas anymore’.

With that in mind, it’s little surprise that the governance question was right near the top of the ‘to-do’ list of François Lequiller, director for government finance statistics at Eurostat, the EU’s statistical service, which is exploring the potential for the standards.

Having the right system of governance was an ‘unavoidable condition for any advancement of the project’, he stressed. The commission planned to consult on this issue before publishing a paper later this year, he said.

However, he defended the role the commission currently envisages for Ipsas in any standard-setting process. ‘Epsas governance should be independent from the Ipsas board, but these mechanisms should be implemented using Ipsas as a starting point. Ipsas exist and are recognised as the international reference point. There is no need to reinvent the wheel.’

At a time of tightening public purses across Europe, the commission will also look at the potential costs of moving to Epsas. ‘On flexibility, we will be analysing the possibility of reducing the burden and complexity of the standards for small public entities,’ Lequiller said. He even mooted the possibility of introducing standards in stages to reduce the burden on member states.

The range of issues under consideration shows how much work has to be done, but Lequiller held out the tantalising prospect of a framework regulation being submitted to the European Parliament and Council in 2014 or early 2015. ‘This would set out the general principles – accrual, double-entry – which would confirm a reference to Ipsas as a starting point, which would define the governance and which would set the process of adoption of Epsas,’ he said.

His comments clearly indicate the commission not only believes the argument for Epsas has been won, but that the real challenge lies in getting the project off the ground. Or, as Lequiller pointed out: `‘We are nearly all here convinced more or less that Epsas – harmonised accrual accounting – is beneficial and is an essential project for the EU and its citizens. But it’s up to us to demonstrate that it is realistic and achievable.’

This article first appeared in the July/August edition of Public Finance

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