COMMISSION STAFF WORKING DOCUMENT Accompanying the document Report from the Commission to the Council and the European Parliament Towards implementing harmonised public sector accounting standards in Member States The suitability of IPSAS for the Member States
Date: 2013-03-06
Institutions: European Commission
Subjects: EU Member State, European accounting system, approximation of laws, public debt, public expenditure

EUROPEAN 
COMMISSION 

Brussels, 6.3.2013  
SWD(2013) 57 final 

COMMISSION STAFF WORKING DOCUMENT 
Accompanying the document 

Report from the Commission to the Council and the European Parliament 

Towards implementing harmonised public sector accounting standards in Member 
States 
The suitability of IPSAS for the Member States 

{COM(2013) 114 final} 

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COMMISSION STAFF WORKING DOCUMENT 
Accompanying the document 

Report from the Commission to the Council and the European Parliament 

Towards implementing harmonised public sector accounting standards in Member 
States 
The suitability of IPSAS for the Member States 

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TABLE OF CONTENTS 

CHAPTER 1 ............................................................................................................................... 5 

1. 

1.1. 

1.2. 

1.3. 

Background and rationale for the assessment .............................................................. 5 

The appropriateness of the accruals principle is indisputable, be it for macro or 
micro fiscal monitoring ................................................................................................ 5 

Towards a harmonised accounting standard?............................................................... 8 

Overview of the staff working document..................................................................... 8 

CHAPTER 2 ............................................................................................................................. 11 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

2.5. 

Description of IPSAS standards ................................................................................. 11 

Introduction ................................................................................................................ 11 

Suite of standards ....................................................................................................... 12 

The features of the standards...................................................................................... 15 

The process of IPSAS standard-setting ...................................................................... 32 

Structure, organisation and governance arrangements of the IPSAS Board.............. 35 

Annex 2.1: Schematic representation of the IPSAS standards, grouped by their main 
focus ......................................................................................................................................... 39 

Annex 2.2: References concerning the IPSAS standards ......................................................... 40 

CHAPTER 3 ............................................................................................................................. 42 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

Current state of play in public accounting and auditing in the EU ............................ 42 

Diversity within and across the Member States ......................................................... 42 

Overview of public sector accounting practices......................................................... 42 

Links to IPSAS in the government accounting systems of the Member States ......... 44 

Public sector accounting and auditing in each Member State.................................... 47 

CHAPTER 4 ............................................................................................................................. 71 

4. 

4.1. 

4.2. 

4.3. 

4.4. 

4.5. 

4.6. 

The relationship between Government Finance Statistics and IPSAS....................... 71 

Introduction ................................................................................................................ 71 

Background ................................................................................................................ 71 

Conceptual differences between IPSASs and statistical guidelines........................... 72 

Presentational differences........................................................................................... 75 

Latest initiatives ......................................................................................................... 76 

Commission considerations........................................................................................ 77 

CHAPTER 5 ............................................................................................................................. 79 

5. 

IPSAS and accruals implementation processes.......................................................... 79 

5.1. 

Introduction ................................................................................................................ 79 

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5.2. 

5.3. 

5.4. 

5.5. 

5.6. 

Transition to the Accrual Basis of Accounting: Guidance for Governments and 
Government Entities — IPSASB Study 14................................................................ 79 

First-time adoption project of IPSAS Board .............................................................. 84 

Views expressed on process and timetable in the public consultation....................... 85 

Implementation experiences....................................................................................... 86 

Cost of adopting accruals accounting as experienced or estimated by countries....... 93 

Annex 5.1: Cost of accruals implementation............................................................................ 96 

CHAPTER 6 ............................................................................................................................. 98 

6. 

6.1. 

6.2. 

6.3. 

The need for harmonised standards and suitability of IPSAS.................................... 98 

Advantages of harmonised accruals-based public accounting standards ................... 98 

Advantages and disadvantages of IPSASs as the harmonised standards ................. 102 

Benefits and costs of implementing IPSAS or other harmonised accruals 
accounting standards ................................................................................................ 109 

6.4. 

Conclusions concerning the IPSAS standards, governance and resources .............. 110 

Annex 6.1: Detailed comments on the substance of certain IPSASs ..................................... 112 

Annex 6.2: Experience of adopting IFRS in the EU .............................................................. 116 

Annex 6.3: Adoption process for accounting rules applicable to EU institutions and 
bodies...................................................................................................................................... 119 

Annex 6.4: List of IPSASs and related accounting rules applicable to EU institutions 
and bodies ............................................................................................................................... 120 

CHAPTER 7 ........................................................................................................................... 122 

7. 

7.1. 

7.2. 

7.3. 

How to move towards implementing EPSAS?......................................................... 122 

European Public Sector Accounting Standards — EPSAS...................................... 122 

Governance of a future EPSAS ................................................................................ 122 

A process and a timetable towards EPSAS .............................................................. 122 

Annex 7.1: A possible classification of the IPSAS standards ................................................ 125 

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CHAPTER 1 

1. 

BACKGROUND AND RATIONALE FOR THE ASSESSMENT 

This  staff  working  document  accompanies  the  Report  from  the  Commission  to  the 
Council  and  the  European  Parliament  responding  to  the  request  in  Article  16(3)  of 
Council  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States that ‘by 31 December 2012, the Commission shall assess the suitability 
of the International Public Sector Accounting Standards for the Member States’. 

In the current context of the financial crisis, the role of fiscal discipline in safeguarding 
economic and monetary union is evident. The corollary of this is that monitoring fiscal 
discipline  should  rely  on  high-quality  measurement  of  the  fiscal  situation  of  each 
Member  State.  Financial  stability  is  based  on  trust,  and  lack  of  trust  in  the  way  the 
financial situation of the government of Greece was measured has been one element in 
the sovereign debt crisis. These concerns are reflected in Article 126 of the Treaty on 
the Functioning of the European Union (TFEU). More rigorous monitoring of the fiscal 
situation  and  building  better  tools  to  measure  and  forecast  this  fiscal  situation  are  the 
focus  of  Directive  2011/85/EU1,  of  the  so-called  6-pack  and  the  2-pack  legislative 
packages2, and of the present staff working document. 

This  document  discusses  how  one  of  these  tools,  the  possible  role  of  harmonised 
accruals-based EU public sector accounting standards, can be used to build this trust. 

1.1. 

The  appropriateness  of  the  accruals  principle  is  indisputable,  be  it  for 
macro or micro fiscal monitoring 

There are two principle methods of accounting — cash and accruals — which differ as 
to the time at which a transaction is recorded. Cash-based accounts record transactions 
when  the  amount  is  received  or  paid.  Accruals-based  accounts  record  when  the 
transaction  occurs,  regardless  of  when  the  payment  is  actually  received  or  made. 
Financial management, whether at the macro level (general government) or at the micro 
level (the government entity) should be based on the principle of accruals accounting. It 
is  important,  nevertheless,  to  note  that  moving  to  accruals-based  accounts  need  not 
mean  that  the  cash  basis  is  abandoned.  Cash  data  remain  important,  and  in  many 
Member States they are used as the basis for government budgeting. 

The macro level is already accruals based … 

Currently, fiscal monitoring at EU macro level uses a statistical framework. Article 126 
TFEU  states  that  ‘Member  States  shall  avoid  excessive  government  deficits’  and 
requires the Commission to monitor the ratio of planned or actual government deficit, 
and the ratio of government debt, to gross domestic product. Neither of these indicators 
should  in  principle  exceed  the  reference  values  specified  in  Protocol  No  12  on  the 
excessive deficit procedure, annexed to the Treaties. The Protocol defines these values 
as 3 % and 60 %, respectively, for deficit and debt, and lays down the requirement that 
they  follow  the  definitions  of  the  European  System  of  Integrated  Economic  Accounts 
(ESA 95), which is the statistical framework for describing the economy. 

ESA 95 records flows on an accruals basis, which it defines as ‘when economic value is 
created,  transformed  or  extinguished,  or  when  claims  and  obligations  arise,  are 

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Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States. 
http://ec.europa.eu/economy_finance/articles/governance/2012-03-14_six_pack_en.htm. 

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transformed or are cancelled’. Data based on accruals accounting are indispensable for 
macro-economic analysis, and in particular for analysing the fiscal situation of general 
government as a macro agent. GDP, the principal indicator in national accounts, is the 
aggregate  sum  of  all  the  outputs  of  the  economy.  Output  in  national  accounts  is 
measured  on  an  accruals  basis  as  the  economic  value  created  during  the  reference 
period, whether or not this output was actually sold during the period. Thus, rather than 
record  output  as  equal  to  sales  (cash  basis),  market  output  is  measured  as  sales  plus 
changes in inventories (accruals basis). Starting with this fundamental way of recording 
output, the accruals-based approach to measurement is followed throughout the system 
of national accounts, including for general government. 

Accruals accounting is indispensable to the sound monitoring of macro-economic fiscal 
policy,  as  it  links  the  accounting  recording  to  the  moment  the  policy  is  decided  and 
implemented.  For  example,  a  VAT  rate  increase  implemented  in  December  will  most 
probably lead to a rise in government cash revenues only in January, taking into account 
the delay in collecting the tax. However, in accruals accounting this increase in revenue 
will already start to be recorded in December, to reflect the fact that taxpayers will have 
already  started  to  pay  the  higher  tax  in  December.  Also,  as  for  a  private  company, 
accruals accounting makes it possible  to assess the correct balance  sheet position of  a 
government  at  the  end  of  the  period,  because  it  takes  into  account  all  obligations  and 
claims due at this date, as well as other assets. In the VAT example above, the asset side 
of  the  balance  sheet  at  end-December  is  boosted  by  the  potential  VAT  to  be  paid  in 
January. Accruals accounting also makes it possible to relate the change in the balance 
sheet  to  revenues  and  expenses  generated  during  the  period.  Moreover,  accruals 
accounting  in  the  public  sector  is  a  useful  tool  to  avoid  some  of  the  window-dressing 
that  is  made  possible  by  cash  accounting,  where  payments  can  be  advanced  or 
postponed in order to record them in the period of the government's choosing. Finally, 
the  important  advantage  of  accruals  over  cash  accounting  is  that  both  assets  and 
liabilities  are  consistently  recorded,  making  it  possible  to  have  a  complete  and 
consistent picture of the real financial position and of whether it is sustainable. 

It  is  because  of  these  advantages  that  policymakers  opted  to  use  ESA  95  as  the 
accounting framework for fiscal monitoring under the Maastricht Treaty, and why this 
document takes it as given that macro fiscal reporting should be accruals based. 

… and accruals accounting is also essential at micro level … 

Whatever is true for macro-economic accounts for the entire general government sector, 
which  is  composed  of  thousands  of  micro-entities,  should  also  apply  to  those  micro-
entities (or at least those of economic significance). Compiling accruals-based accounts 
for  central  government  budget  entities,  or  for  government  agencies  or  large 
municipalities,  is  essential  to  enable  the  managers  of  these  entities  to  monitor  their 
economic and balance sheet performances. 

There have been a number of initiatives around the world over recent decades, seeking 
to improve the way public money is used, and to make public entities more accountable. 
Using  accruals  accounting  to  measure  the  assets  and  liabilities  of  government  entities 
can provide answers to essential questions, such as: What are the important assets and 
liabilities  of  government  entities  and  how  effectively  are  they  managed?  Has  the 
financial position improved or deteriorated during a certain period? How vulnerable are 
government entities to changing economic conditions and financial adversity? 

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In  the  interests  of  accountability,  government  entities  should  report  on  their  use  of 
public  resources.  This  should  include  information  that  enables  citizens  and  their 
representatives  to  assess  (a)  how  the  entity  has  carried  out  its  responsibilities  for 
managing  public  resources,  (b)  how  those  resources  have  been  used  to  deliver  the 
entity’s objectives, and (c) compliance with the necessary controls regulating the use of 
public money. Such reporting informs economic, political and social decision-making. 
While  individual  citizens,  and  other  non-expert  users  of  general  purpose  financial 
reports,  may  have  little  or  no  direct  capacity  to  make  resource  allocation  decisions 
concerning individual government entities, their elected representatives may do. 

In summary, the implications of not having robust and transparent accruals accounting 
for  financial  reporting  and  financial  management  may  include  an  increased  risk  that 
government  services  are  being  delivered  ineffectively  or  inefficiently,  and  that 
investment  decisions  do  not  take  full  account  of  the  potential  costs  and  benefits,  for 
example because they are made with a short-term focus, without paying due regard to 
their full future costs and benefits. Robust accounting standards are important to ensure 
that, in difficult financial times, the reported financial information remains both reliable 
and credible (i.e. trustworthy and accepted as such). Strong standards reduce the scope 
and the temptation to manipulate information in  order to  hide problems.  The sooner a 
problem is recognised the sooner it can be addressed. Having early warning of problems 
often means that their impact is much less than otherwise. 

Accruals  accounting  which  conforms  to  robust  accounting  standards  provides  the 
transparency  needed  for  markets  to  function  properly,  without  which  investors  in 
government  securities  might  enter  into  transactions  without  a  proper  understanding  of 
the  level  of  associated  risk.  This  in  turn  could  create  a  contagion  risk,  acting  as  a 
significant  impediment  to  financial  stability.  Transparent  financial  reporting  leads  to 
greater market confidence and lower interest costs. 

… finally, micro and macro can converge on the principle of accruals accounting 

Accruals accounting is the basis for all macro statistical accounting, such as in the ESA, 
since  it  is  best  suited  for  analysis,  surveillance  and  policy  advice.  But  the  ESA  is  a 
macro statistical framework. It is not applicable at the micro level of individual entities. 
Thus, compiling ESA accounts means using the available entity-level accounts, which 
have themselves been compiled according to national government accounting standards, 
and  transforming  them  into  ESA  terms.  When  these  national  government  accounting 
standards are cash-based there is a need to transform them into accruals data, and this 
can create many difficulties3. Having entity-level audited financial reporting data on an 
accruals basis would substantially reduce the risk of systematic errors in the data used 
for  preparing  government  finance  statistics  and  hence  in  the  data  used  for  policy-
making. 

Overall, the case for the ‘principle’ of accruals accounting at macro and micro levels is 
clear.  This  document  will  therefore  dwell  no  further  on  the  ‘principle’  of  accruals  but 
rather consider the question ‘which accruals-based system?’ 

3 

ESA accounts are produced in a many EU countries from cash-based public accounting systems, 
to  which  a  series  of  ‘accruals  adjustments’  are  made.  These  adjustments  are  estimated  on  a 
macro  basis,  and  as  a  consequence  they  are  approximations.  Where  there  are  no  accruals 
accounts at the micro level, financial transactions and balance sheets have to be derived from a 
mix of different sources, leading to a ‘statistical discrepancy’ between the deficit compiled via 
non-financial accounts and the deficit compiled via financial accounts. 

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1.2. 

Towards a harmonised accounting standard? 

Member  States  are  legally  bound  to  adhere  to  the  statistical  principles  and  quality 
criteria laid down in Article 338(2) TFEU. However, even where accruals-based public 
accounting data are available, there is currently a lack of comparability and coherence 
between the government accounting standards applied in different Member States, and 
even  within  individual  Member  States.  Having  common  accounting  standards  would 
ensure higher-quality and more transparent financial reporting, giving reassurance that 
government accounts provide a complete and comparable view of the financial position 
and  performance  of  each  Member  State,  and  imparting  international  acceptance  and 
legitimacy. In the context of enhanced budget integration within the EU, common high-
quality  accruals  standards  could  be  an  essential  tool  for  achieving  the  necessary 
reliability and comparability of the reported information. 

The  Excessive  Deficit  Procedure  (EDP)  ‘macro’  statistics  would  be  considerably 
improved by requiring all government entities to use the same accounting standards. It 
would enable a common bridge table to be used between the upstream accounts and the 
ESA  accounts;  this  would  greatly  facilitate  the  work  needed  to  produce  data  of  the 
highest  quality,  as  well  as 
integrated 
revenue/expenditure  and  balance  sheets  would  make  it  easier  to  eliminate  statistical 
discrepancies.  There  would  be  in-built  information  on  contingent  liabilities.  It  would 
facilitate the emergence of a network of European auditors, able to share their resources, 
training,  and  experience  in  applying  a  single  set  of  accounting  standards.  These 
developments  would  advance  the  internal  market  in  financial  services,  including 
ancillary services related to public sector auditing. Last but not least, it could pave the 
way, in the medium term, to a fully integrated public finance system, in which macro 
accounts could finally be built by aggregating harmonised micro accounts. 

the  verification  process.  Having 

This  document  therefore  focuses  on  the  case  for  harmonised  public  sector  accounting 
standards in the EU. What it boils down to is ‘Are the IPSASs a suitable set for these 
future harmonised public accounting standards for the EU Member States?’ 

1.3. 

Overview of the staff working document 

1.3.1.  Description of IPSAS 

Chapter 2 describes the International Public Sector Accounting Standards (IPSAS). The 
links between the private and public sectors in all EU countries create a strong need for 
connected  financial  reporting  between  these  sectors,  and  accruals  accounting  systems 
such  as  IPSAS  are  very  strongly  connected  to  private  sector  accounting  standards. 
Governments  need  to  achieve  the  same  high  quality  and  transparency  of  financial 
reporting as the private sector. IPSASs are developed by the International Public Sector 
Accounting  Standards  Board,  which  is  a  standing  committee  of  the  International 
Federation of Accountants. They aim ‘to enhance the quality and transparency of public 
sector  financial  reporting’.  The  process  of  standard  setting,  the  governance  of  IPSAS 
and the 32 accruals-based standards are described, along with one cash-based standard. 

1.3.2.  Current state of play in public accounting and auditing in the EU 

ESA  data  are  derived  from  Member  States’  public  accounting  data,  which  vary  from 
purely cash-based to full accruals, passing through many intermediate mixed modes. In 
practice  a  wide  range  of  accounting  systems  are  used  across  the  EU  and  even  in 
different  government  entities  within  individual  countries.  Chapter  3  of  this  document 

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gives an overview of government accounting and auditing practices in the EU Member 
States. 

1.3.3.  The relationship between GFS and IPSAS 

The  United  Nations  System  of  National  Accounts  (SNA)  2008  discusses  the  links 
between  national  accounts  and  business  accounting  practices  and  recognises  ‘the 
increasing  use  of  international  accounting  standards  by  corporations  and  in  the  public 
sector’4. In particular it frequently refers to ‘the International Public Sector Accounting 
Standards  Board  (IPSASB)  norms.  In  several  cases,  notably  on  pension  liabilities  and 
intangible assets, the feasibility of including certain items in the SNA is dependent on 
the  application  of  the  international  accounting  standards’5.  The  ESA,  which  is  the 
European version of the SNA, also considers that ‘In order to extract information from 
business accounts, national accountants should understand the international accounting 
standards for private corporations and for government bodies. The standards for private 
corporations  are  drawn  up  and  maintained  by  the  International  Accounting  Standards 
Board  (IASB),  and  for  government  bodies,  by  the  International  Public  Sector 
Accounting Standards Board (IPSASB)’6. 

However, the accruals standards that have been developed for the SNA or the ESA are 
not  fully  consistent  with  the  accruals  standards  developed  under  IPSAS.  Chapter  4  of 
this  document  gives  an  overview  of  the  relationship  between  IPSAS  and  SNA/ESA-
based government finance statistics. 

1.3.4. 

IPSAS and accruals implementation processes 

Chapter  5  gives  an  overview  of  previous  work  by  the  IPSAS  Board  to  facilitate  the 
transition to the accruals basis of accounting, and of their ongoing project on ‘First-time 
adoption’. 

This chapter also summarises the views expressed on the adoption process and on the 
timetable  in  the  Commission’s  public  consultation  on  the  suitability  of  IPSAS  for 
adoption  by  Member  States7,  which  was  held  in  the  context  of  this  assessment,  and 
which  provides  an  overview  of  the  costs  experienced  by  countries  and  entities  which 
have undertaken an accruals implementation project. 

1.3.5.  Advantages and disadvantages of IPSAS adoption 

In practice IPSAS has some important advantages and disadvantages as a reference for 
the general government entities of EU Member States. The pros and cons of each of the 
32  accruals-based  standards  and  of  adopting  the  suite  as  a  whole  are  discussed  in 
Chapter 6. This part of the document draws on the results of a public consultation and 
on  the  focused  discussions  within  a  task  force  composed  of  experts  and  practitioners 
from the Member States. 

There is an annex detailing the process used for adopting IFRS accounting standards for 
the  private  sector  in  the  EU,  and  a  description  of  the  process  used  to  adopt  the 

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7 

System of National Accounts, 2008, page 10, chapter 1.F. ‘Links with business accounting’. 
System of National Accounts, 2008, page 11, chapter 1.F.1. ‘International accounting standards’. 
Proposal  for  a  Regulation  on  the  European  system  of  national  and  regional  accounts  in  the 
European Union, COM(2010) 774 , §21.04. 
See http://epp.eurostat.ec.europa.eu/portal/page/portal/public_consultations/consultations/ipsas. 

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accounting  rules  applicable  to  the  Institutions  and  other  bodies  of  the  EU,  which  are 
based on IPSAS8. 

1.3.6.  Conclusions, proposals and timetable 

Chapter  7  of  this  document  presents  the  Commission’s  conclusions.  It  sets  out  the 
expected  benefits,  summarises  the  available  information  on  costs,  and  discusses  the 
conditions  and  a  possible  timetable  for  adopting  harmonised  accounting  standards  for 
all entities of general government in the EU Member States. 

8 

The  process  used  to  set  the  accounting  standards  for  the  EU  Institutions  and  bodies  and  its 
relationship with IPSAS is described in Annexes 6.2, 6.3 and 6.4. 

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CHAPTER 2 

2. 

DESCRIPTION OF IPSAS STANDARDS 

2.1. 

Introduction 

The  International  Public  Sector  Accounting  Standards  (IPSASs)  are  accounting 
standards developed by the International Public Sector Accounting Standards Board, a 
standing committee of the International Federation of Accountants (IFAC). IFAC is an 
international  body  representing  167  member  bodies  in  127  countries.  Its  aim  is 
‘strengthening the accountancy profession around the world by developing high quality 
professional standards’. IFAC established the Public Sector Committee, the predecessor 
of  the  IPSAS  Board,  as  the  standard-setting  body  for  public  sector  entities  in  1987;  it 
initiated the standard-setting programme in 1996. 

IPSAS are a set of accounting standards that, according to the IPSAS Board’s mission 
statement,  aim  ‘to  enhance  the  quality  and  transparency  of  public  sector  financial 
reporting’. This objective is to be achieved by: 

• 

• 

• 

• 

‘Establishing high-quality standards for use by public sector entities; 

Promoting the acceptance, and the international convergence to, IPSASs; 

Providing  comprehensive 
management and decision making; and 

information  for  public  sector  financial 

Providing  guidance  on  issues  and  experiences  in  financial  reporting  in 
the public sector’9. 

The  standards  are  accruals  based,  with  the exception  of  one  standard  which  addresses 
cash-based accounting10. 

They  set  out  recognition,  measurement,  presentation  and  disclosure  requirements  in 
relation  to  ‘General  Purpose  Financial  Reporting’  (GPFR),  and  related  financial 
disclosures, in a government’s annual reporting. 

GPFR comprises not only financial statements (referred to as General Purpose Financial 
Statements  [GPFS])  but  also  refers  to  all  financial  reports  intended  to  provide 
information that is relevant to the needs of users11. 

In  some  cases  the  IPSAS  Board  may  issue  non-binding  guidance  on  general  purpose 
financial  reporting.  It  may  include  non-financial,  post  and  prospective  financial, 
compliance, and additional explanatory information12. 

The core of financial reporting under IPSASs consists of: 

• 

• 

The statement of financial position (IPSAS 1); 

The statement of financial performance (IPSAS 1); 

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10 

11 
12 

http://www.ifac.org/public-sector/about-ipsasb. 
Much  of  this  chapter  is  focused  on  the  accruals  standards;  however  a  description  of  the  cash 
basis standard is also given at the end of section 2.3. 
See Conceptual Framework ED 1 Par.1.3. 
The IPSAS Board has issued recommended practice guidelines that are not part of IPSAS (e.g. 
reporting  on  the  long-term  sustainability  of  an  entity’s  finances).  Moreover,  the  IPSAS  Board 
has issued 14 studies on issues related to public sector financial reports, as well as a number of 
occasional papers. 

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• 

• 

• 

The cash flow statement (IPSAS 2); 

The statement of changes in net assets/equity (IPSAS 1); and 

The notes to the financial statements, or annex (IPSAS 1). 

IPSASs  are  applicable  by  governments  at  national  and  regional  level  (e.g.  state, 
provincial, territorial governments), as well as at local level (e.g. municipalities, towns) 
and related government entities (e.g.  agencies, funds,  extra-budgetary entities). IPSAS 
standards are also used by some intergovernmental organisations, but are not designed 
to apply to government business enterprises (GBEs)13. 

2.2. 

Suite of standards 

Currently  there  are  32  IPSAS  standards  on  the  accruals  basis  of  accounting.  They  are 
numbered by order of issuance. Further standards are being developed. 

The  majority  of  these  accruals-based  standards,  where  there  are  no  public  sector 
specificities to take into account, are based primarily on existing International Financial 
Reporting  Standards  (IFRS),  in  line  with  the  explicit  and  overarching  aim  of 
convergence  between  IPSAS  and  IFRS14.  This  is  intended  to  ensure  that  most 
transactions common to the private and the public sector are accounted for in the same 
way. 

Public sector-specific standards 

In some cases adaptations to IFRSs are needed to meet the specific requirements of the 
public sector. Where there is no corresponding IFRS to meet a particular public sector 
requirement, the IPSAS Board issues a new specific public-sector-oriented IPSAS. 

IPSASs which have been issued on public sector-specific topics so far and which do not 
have an equivalent in IFRS are: 

IPSAS 21 Impairment of non-cash-generating assets 

IPSAS 22 Disclosure of information about the general government sector 

IPSAS 23 Revenues from non-exchange transactions (taxes and transfers) 

IPSAS 24 Presentation of budget information 

IPSAS 32 Service concession arrangements (public-private partnerships). 

To  enhance  initiatives  of  common  interest,  the  International  Accounting  Standards 
Board  (IASB)  and  IFAC  signed  a  memorandum  of  understanding  in  2011  which 
defined  their  respective  roles  in  the  standard-setting  process  and  in  terms  of 

13 

14 

A  government  business  enterprise,  that  is  a  financial  and  non-financial  public  corporation,  is 
defined as a public sector entity that (a) has the power to contract in its own name, (b) has been 
assigned  the  financial  and  operational  authority  to  carry  on  a  business,  (c)  sells  goods  and 
services in the normal course of its business to other entities at a profit or full cost recovery, and 
(d) is not reliant on continuing government funding to be a going concern. The standards applied 
by  GBEs  are  the  International  Financial  Reporting  Standards  (IFRS)  or  the  private  sector 
accounting standards under their national jurisdiction. 
In the private sector the development of IFRS started with GAAP (generally accepted accounting 
principles)  addressing  the  need  to  agree  common  generally  accepted  principles  underpinning 
financial reporting. IAS (International Accounting Standards) were developed between 1973 and 
2001 by the Board of the International Accounting Standards Committee (IASC). In 2001, the 
newly  created  International  Accounting  Standards  Board  (IASB)  took  over  responsibility  for 
setting International Financial Reporting Standards from the IASC. 

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communication  and  cooperation  between  them,  including  in  the  area  of  public  sector 
accounting standards. 

Any entity wishing to declare itself ‘IPSAS compliant’ must apply all IPSAS standards. 

IPSAS measurement bases 

Since measurement bases for the different types of assets and liabilities are a key aspect 
of many IPSASs, a brief description of them precedes the summary of the standards. 

The measurement basis determines the value or amount at which an asset or liability is 
stated  at  initial  recognition  and  subsequently  in  financial  statements.  The  principal 
measurement bases used in IPSAS correspond to those of IFRS15. They are: 

(a) historical cost (cost); and 

(b) fair value and, related to that, market value. 

Historical  cost  represents  the  amount  of  cash  or  cash  equivalents  paid  to  acquire  the 
asset (it is an entity-specific rather than market-based price). In the context of property, 
plant  and  equipment,  historical  cost  includes  the  transaction  costs  and  any  directly 
attributable  costs  associated  with  bringing  the  asset  to  the  location  and  up  to  the 
condition  necessary  for  it  to  be  capable  of  operating  in  the  manner  intended  by 
management. 

Where assets are purchased in exchange transactions, a historical cost measurement is 
easily  obtainable  and  simple  to  apply.  Issues  arise  when  assets  are  not  purchased  in  a 
single  straightforward  transaction  or  when  they  are  constructed  by  the  entity,  where 
many  costs  (e.g.  labour,  materials,  energy)  have  to  be  allocated.  Where  several  assets 
are  acquired  in  a  single  transaction,  the  price  paid  must  be  allocated  to  the  individual 
assets. Moreover, where assets are subsidised or contributed, a transaction price, even if 
available,  would  not  faithfully  represent  historical  cost.  IPSAS  therefore  specify  that 
where an asset is acquired through a non-exchange transaction, its cost is deemed to be 
its fair value at the date of acquisition. 

Liabilities measured on the historical cost basis are stated at the amount received in the 
transaction under which the obligation is assumed. 

Fair value is the amount for which an asset could be exchanged, or a liability settled, 
between  knowledgeable,  willing  parties  in  an  arm’s-length  transaction.  The  definition 
applies equally to buyers and sellers. 

In  the  absence  of  market-based  evidence,  because  of  the  specialised  nature  of  certain 
items of plant and equipment, fair value may need to be estimated by using a surrogate 
such as depreciated replacement cost or reproduction cost. 

Similar to fair value, IPSAS also defines market value as the amount obtainable from 
the sale, or payable on the acquisition, of a financial instrument in an active market. It 
therefore  reflects  the  economic  and  financial  environment  prevailing  at  the  reporting 
date. 
Fair value is used as the initial measurement basis for financial instruments16. It is also 
the subsequent measurement  basis for  many  financial instruments, especially  financial 

15 

IFRS 13, applicable from 1 January 2013, defines fair value as ‘the price that would be received 
to sell an asset or paid to transfer a liability in an orderly transaction between market participants 
at the measurement date’. 

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assets (most financial liabilities are subsequently measured at amortised cost using the 
effective interest method). IPSAS 17 — Property, plant and equipment — allows both 
the cost model or fair value under the revaluation model, for measurement after initial 
recognition. 

Where markets are active and liquid, fair value measurement is likely be straightforward 
to apply. 

However, in some cases, a market price may not be directly observable. In such cases, 
observable  market-based  information  may,  where  available,  be  used  to  estimate  fair 
value, but there  are cases  where  valuation models do not rely on observable data. For 
example,  the  fair  valuation  of  highly  specialised  assets  (which  are  encountered 
frequently  in  the  public  sector)  or  of  heritage  assets  may  require  more  challenging 
valuation techniques. 

In the case of non-exchange transactions (where an asset is acquired for free or at a very 
low price or where the asset is donated) IPSAS takes the approach that fair value (as at 
the  date  of  acquisition)  is  more  faithful,  representing  the  actual  value  received  by  the 
entity as a result of the transaction. 

Other  measurement  bases  and  measurement  approaches  in  IPSAS  include  amortised 
cost, current replacement cost (for inventories), net realisable value, settlement amount, 
recoverable  amount,  and  present  value,  the  definitions  of  which  are,  in  the  IPSAS 
glossary:17 

Amortised  cost  of  a  financial  asset  or  financial  liability:  The  amount  at  which  the 
financial  asset  or  financial  liability  is  measured  at  initial  recognition  minus  principal 
repayments,  plus  or  minus  the  cumulative  amortisation  using  the  effective  interest 
method  of  any  difference  between  that  initial  amount  and  the  maturity  amount,  and 
minus  any  reduction  (directly  or  through  the  use  of  an  allowance  account)  for 
impairment or uncollectability. 

Current replacement cost: The cost the entity would incur to acquire the asset on the 
reporting date18. 

Net realisable  value:  The  estimated selling price  in  the ordinary course of operations, 
less  the  estimated  costs  of  completion  and  the  estimated  costs  necessary  to  make  the 
sale, exchange or distribution. 

Settlement  amount:  The  best  estimate  required  to  settle  the  present  obligation  in 
recognition of provisions, and defined as the amount that an entity would rationally pay 
to settle the obligation at the reporting date or to transfer it to a third party at that time. 

Recoverable amount (of an asset or a cash-generating unit): The higher of an asset’s 
or a cash-generating unit’s fair value less costs to sell and its value in use. 

16 

17 

18 

For financial assets or financial liabilities not ‘at fair value through surplus or deficit’ transaction 
costs that are directly attributable to the acquisition or issue of the financial asset or liability are 
added. 
Discussions held so far on the IPSAS Board’s conceptual framework project (see section 2.5.4) 
have  suggested  that  it  will  be  inappropriate  to  adopt  one  single  measurement  basis  for  all  the 
elements of financial reporting. 
Current replacement cost is only used in IPSAS 12, Inventories, in the current suite of IPSASs. 
A number of features of replacement cost are under discussion in the conceptual framework. 

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Recoverable  amount  (of  property,  plant,  and  equipment):  The  higher  of  a  cash-
generating asset’s fair value less costs to sell and its value in use. 

Recoverable service amount: The higher of a non-cash-generating asset’s fair value less 
costs to sell and its value in use. 

Present value: The discounted cash flows expected to be generated by the asset in the 
ordinary  course  of  operations.  Accordingly,  the  present  value  of  a  liability  comprises 
the discounted cash flows required to be paid to settle the liability in the ordinary course 
of  operations.  This  measurement  basis  is  used,  for  example,  for  measuring  provisions 
where the effect of the time value of money relating to the settlement of the obligation is 
material.  Specific  examples  of  present  value  are  given  by  IPSAS  21  and  26  for 
measuring  value  in  use  of  non-cash-generating  assets  and  cash-generating  assets 
respectively. 

More  details  on  these  measurement  bases  and  approaches  can  be  found  in  the 
description of the standards in the next section of this document. 

The  IPSAS  Board  has  recently  issued  an  Exposure  Draft,  Measurement  of  Assets  and 
Liabilities in Financial Statements, which considers appropriate measurement bases for 
assets  and  liabilities,  dependent  on  the  economic  circumstances.  When  finalised,  this 
might  lead  to  a  change  in  the  measurement  bases  used  in  IPSASs.  Any  change  in 
existing requirements will be preceded by a thorough due process19. 

2.3. 

The features of the standards 

The  2012  edition  of  the  Handbook  of  International  Public  Sector  Accounting 
Pronouncements, which contains the text of each IPSAS and other explanatory material, 
is available at: 

https://www.ifac.org/publications-resources/2012-handbook-international-public-sector-
accounting-pronouncements 

Short  summaries  of  the  accruals  standards  are  provided  below.  They  draw  on  the 
information on the IPSAS Board website, in the IPSAS Board handbooks and in other 
published summaries, to which references are given at the end of this chapter. 

IPSAS 1: Presentation of financial statements 

IPSAS 1 occupies a key position among the current 32 IPSAS standards in that it sets 
the objective and the elements required for the presentation of general purpose financial 
statements (GPFS) by public entities under the IPSAS accruals basis of accounting20. 

IPSAS  1  requires  a  fair  representation  of  the  financial  position,  financial  performance 
and  cash  flows  of  an  entity.  This  implies  the  faithful  representation  of  the  effects  of 
relevant transactions, other events and conditions in accordance with IPSAS definition 
and recognition criteria. 

In order to comply with this requirement an entity must comply with general qualitative 
characteristics  which  derive  inspiration  from  generally  accepted  accounting  practices 
and which apply to all IPSAS. 

19 

20 

Conceptual  Framework  Exposure  Draft  3,  Measurement  of  Assets  and  Liabilities  in  Financial 
Statements, published in November 2012. 
The entity on which the set of IPSAS reports (the ‘reporting entity’) is defined as a government 
or other public sector organisation, programme, or identifiable activity that prepares GPFRs. A 
reporting entity may be a ‘group reporting entity’. 

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The  standard  also  specifies  that  an  entity  can  only  claim  IPSAS  compliance  when  it 
complies with the requirements of all IPSASs. 

The IPSAS qualitative characterises are: 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

understandability 

relevance 

materiality 

reliability 

faithful representation 

substance over form 

neutrality 

prudence 

completeness 
comparability (across time and between entities)21. 

The  standard  expressly  recognises  constraints  and  trade-offs  concerning  the  relevance 
and the reliability requirements and more specifically with regard to: 

• 

• 

• 

timeliness 

balance between benefit and costs 

balance between qualitative characteristics. 

It  also  gives  definitions  of  key  accounting  terms,  such  as  assets,  liabilities,  future 
economic  benefits  or  service  potential,  net  assets/equity,  revenue,  expense,  economic 
entity,  government  business  enterprise,  and  materiality.  It  gives  general  guidelines  on 
how to apply the going concern concept, the consistency of presentation, materiality and 
aggregation, offsetting and comparative information. 

GPFS must comprise the following components: 

• 

• 

• 

• 

• 

• 

a statement of financial position (balance sheet) 

a statement of financial performance 

a statement of net assets/equity 

a cash-flow statement 

a comparison of budget and actual amounts, if the budget is published 

notes  on  the  basis  of  the  preparation  of  the  statements,  accounting 
policies, disclosures, supplementing and explanatory information. 

IPSAS 1 lays down minimum requirements on the presentation of financial position and 
financial performance line items. It also specifies further minimum requirements on the 
presentation of financial statements, notably with respect to periodicity (at least annual), 
the coverage of the main financial statements and the classifications to be used within 
them.  With  regard  to  classifications,  the  items  on  the  statement  of  financial  position 

21 

Qualitative characteristics are under discussion as part of the conceptual framework project. 

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(balance  sheet)  should  be  classified  by  maturity  (as  an  exception,  classification  by 
liquidity applies when this provides more reliable and relevant information), and there is 
a  choice  of  how  to  break  down  expenses  in  the  statement  of  financial  performance 
(income statement): between nature and function22. 

An  illustrative  financial  statement  structure  is  appended  to  the  implementation 
guidance. 

IPSAS 2: Cash flow statement 

This standard requires the reporting of changes in the entity’s cash and cash equivalents 
during a given period. 

The  statement  of  cash  flow  must  identify  the  sources  of  cash  inflows,  the  items  on 
which  cash  was  expended  during  the  period  (outflows),  and  the  cash  and  cash 
equivalents balance as of the reporting date. 

It  should  classify  activities  as  operating  (i.e.  from  taxes,  sales  of  goods  and  services, 
etc.), investing (i.e. cash flow related to property, plant, equipment and other long-term 
assets, equity or debt instruments, loans, futures contracts, etc.), or financing (i.e. flows 
related to short or long-term borrowing). 

Two  methods  for  compiling  the  cash  flow  statement  from  operating  activities  are 
allowed: the direct method (recommended), and the indirect method. 

Under the direct method major classes of gross cash receipts and gross cash payments 
are  disclosed.  Entities  reporting  cash  flows  from  operating  activities  using  the  direct 
method  are  also  encouraged  to  provide  a  reconciliation  of  the  surplus  /deficit  from 
ordinary activities with the net cash flow from operating activities. 

Illustrative examples of cash flow-statements are appended to the standard. 

IPSAS 3 Accounting policies, changes in accounting estimates and errors 

This standard  sets the criteria for selecting and  changing  accounting policies, together 
with the accounting treatment and disclosure of changes in accounting policies, changes 
in accounting estimates, and corrections of errors. 

Accounting  policies  are  the  principles,  bases,  conventions,  rules  and  practices  applied 
by  an  entity  in  the  preparation  and  presentation  of  financial  statements.  Changes  in 
accounting estimates are adjustments to the carrying amount of assets and liabilities or 
changes  in  the  useful  life  of  an  asset  which  result  from  new  and  more  reliable  and 
relevant information and that, accordingly, do not constitute corrections of errors. 

The standard provides for a situation where there is no applicable IPSAS available for a 
transaction, other event or condition. 

It  prescribes  a  basis  for  management  judgment  in  choosing  accounting  policies  —  to 
comply  with  the  qualitative  characteristics  set  out  in  IPSAS  1  —  including  the 
following elements: 

(1) 

IPSASs  and  any  relevant  implementation  guidance  dealing  with  similar  and 
related issues; 

22 

IPSASs  set  out  minimum  requirements  and  specified  statements,  but  without  a  mandatory 
format. 

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(2) 

(3) 

The  definitions,  and  recognition  and  measurement  criteria,  for  assets, 
liabilities, revenue and expenses described in other IPSASs; and 

The most recent pronouncements of other standard-setters, notably IFRS, and 
accepted public and private sector practices. 

The standard also deals with the correction of material prior-period errors. These are to 
be  corrected  retrospectively  in  the  financial  statements  for  one  or  more  prior  periods 
after  their  discovery,  by  restating  the  comparative  amounts  for  the  prior  periods  in 
which the error occurred, or by restating the opening statement of financial position if 
the error occurred before the earliest period presented. There are recognised limitations 
and constraints in respect of retrospective application and retrospective restatement. 

IPSAS 4 The effects of changes in foreign exchange rates 

This  standard  prescribes  how  entities  should  account  for  their  foreign  currency 
transactions and foreign operations in their financial statements, and how an entity may 
translate financial statements into a ‘presentation currency’ (the currency in which the 
financial statements are presented). This differs from the functional currency, which is 
the  currency  of  the  primary  economic  environment  in  which  the  entity  operates.  The 
standard  sets  the  rules  for  general  issues  such  as  the  exchange  rates  to  be  used  (in 
general spot rates at the time of transaction or position) and the accounting treatment of 
changes in exchange rates. 

IPSAS 5 Borrowing costs 

This  standard  prescribes  the  accounting  treatment  for  borrowing  costs,  which  include 
interest  and  other  related  expenses  (i.e.  amortisation  of  discounts  or  premiums  on 
borrowings) incurred by an entity in connection with the borrowing of funds. 

Two accounting treatments are allowed: 

(1) 

(2) 

The expense model (benchmark treatment) under which all borrowing costs are 
recognised as expenses in the period when they are incurred; and 

The  capitalisation  model  (alternative  treatment)  under  which  borrowing  costs 
directly  attributable  to  the  acquisition  or  construction  or  production  of  a 
qualifying asset as part of the cost of the asset are capitalised, but only when it 
is  probable  that  these  costs  will  result  in  future  economic  benefits  or  service 
potential  to  the  entity,  and  the  costs  can  be  measured  reliably.  Examples  of 
qualified assets include office buildings, hospitals, and infrastructure assets. 

IPSAS 6 Consolidated and separate financial statements 

This  standard  sets  requirements  for  preparing  and  presenting  consolidated  financial 
statements for an economic entity under the accruals basis of accounting. Together with 
IPSAS 7 and 8 it also prescribes how to account for investments in controlled entities, 
jointly controlled entities and associates in separate financial statements. 

The  standard  defines  ‘control’  as  the  power  to  govern  the  financial  and  operating 
policies of another entity so as to benefit from its activities. 

Consolidated financial statements are financial statements of an economic entity defined 
as  a  group  that  includes  one  or  more  controlled  entities,  based  on  a  line-by-line 
aggregation  of  similar  or  identical  financial  and  non-financial  items  (proportionate 
method).  The  only  exception  is  for  controlled  entities  where  control  is  intended  to  be 

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temporary  and  held  for  disposal  within  12  months  and  for  which  management  is 
actively seeking a buyer. 

Minority interests are accounted for separately in net assets/equity. 

IPSAS 7 Investments in associates 

This standard provides the basis for accounting by an investor where the investment in 
the associate takes the form of a shareholding or other formal equity investment. 

It applies to all investments in which an investor has significant influence (except for a 
venture  capital  organisation  or  a  mutual  fund,  unit  trust  or  similar  entity,  such  as  an 
investment-linked insurance fund, which are measured at fair value). 

Significant influence is defined as the power to participate in the financial and operating 
policy decisions of the investee, but not to  exercise control or joint control over those 
policies.  It  is  presumed  to  be  present  if  the  investment  held,  directly  or  indirectly,  is 
20 % or more of the voting power over the associate. 

The  equity  method  is  used  for  all  investments  in  such  associates.  Under  the  equity 
method,  the  investment  is  initially  recorded  at  cost.  It  is  subsequently  adjusted 
according  to  the  investor’s  share  of  the  investee’s  post-acquisition  change  in  net 
assets/equity.  The  investor’s  statement  of  financial  performance  reflects  in  its 
surplus/deficit its share of the investee’s surplus or deficit. 

IPSAS 8 Interests in joint ventures 

This standard prescribes the accounting treatment required for interests in joint ventures, 
regardless of the structures or legal forms within which the joint venture takes place. It 
applies to all investments in which the investor has joint control, which is defined as the 
agreed  sharing  of  control  of  two  or  more  parties  over  an  activity  by  a  binding 
arrangement. 

Joint  ventures  may  be  classified  as  jointly  controlled  operations,  jointly  controlled 
assets and jointly controlled entities. 

Different  accounting  treatments  apply  for  each  of  these  types  of  joint  venture.  For 
jointly  controlled  entities,  two  accounting  policies  are  permitted:  the  proportionate 
consolidation method (see the description under IPSAS 6) and the equity method (see 
the description under IPSAS 7). 

IPSAS 9 Revenue from exchange transactions 

This  standard  prescribes  the  accounting  treatment  for  revenue  arising  from  exchange 
transactions and events. 

Exchange transactions are defined as transactions in which one entity receives assets or 
services,  or  has  liabilities  extinguished,  and  directly  gives  approximately  equal  value 
(primarily  in  the  form  of  cash,  goods,  services,  or  use  of  assets)  to  the  other  party  in 
exchange. 

The general principles are that revenue is recognised when it is probable that economic 
benefits or service potential will flow to the entity, and the amount of the revenue can 
be  measured  reliably.  Revenue  is  measured  at  the  fair  value  of  the  consideration 
received or receivable. 

When  revenue  is  from  the  rendering  of  services  and  the  outcome  can  be  reliably 
estimated, the reference is to the stage of completion of the transaction at the reporting 

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date. For practical reasons, the standard allows recognition on a straight-line basis over 
the specified timeframe. 

Revenue  from  the  sale  of  goods  can  be  recognised,  subject  to  the  general  principles, 
when:  significant  risks  and  rewards  have  been  transferred  to  the  purchaser;  there  is  a 
loss of effective control by the seller over the good sold; the amount of revenue and the 
costs incurred or to be incurred in respect of the transaction can be reliably measured; 
and  it  is  probable  that  the  economic  benefits  or  service  potential  associated  with  the 
transaction will flow to the entity. 

Interest  is  to  be  recognised  on  a  time  proportion  basis  that  takes  into  account  the 
effective  yield  on  the  asset;  royalties  are  recognised  as  they  are  earned  in  accordance 
with the substance of the relevant agreement; and dividends or their equivalents are to 
be  recognised  when  the  shareholder’s  or  the  entity’s  right  to  receive  payment  is 
established. 

IPSAS 10 Financial reporting in hyperinflationary economies 

This  standard  concerns  entities  reporting  in  the  currency  of  a  hyperinflationary 
economy, to ensure that the information provided in any financial statement (including 
the consolidated financial statement) is meaningful. 

Any  non-monetary  items  that  are  not  carried  at  amounts  current  at  the  reporting  date 
(such  as  net  realisable  value  and  fair  value)  must  be  restated  to  amounts  which  are 
current  at  the  reporting  date  by  applying  a  general  price  index.  The  surplus  or  deficit 
from  the  net  monetary  position  must  be  disclosed  separately  in  the  statement  of 
financial performance. 

IPSAS 11 Construction contracts 

This standard prescribes the accounting treatment for revenue and costs associated with 
construction  contracts  for  cases  where  the  public  sector  entity  acts  as  a  contractor.  It 
gives guidelines on items to include in contract costs and contract revenue. 

When  the  outcome  of  a  construction  contract  can  be  reliably  estimated,  the  standard 
rules  are  for  accounting  under  the  ‘stage  of  completion’  method,  according  to  which 
revenue  and  costs  are  to  be  recognised  by  reference  to  the  stage  of  completion  of 
contract activity at the reporting date (percentage of completion method). If the outcome 
cannot be reliably estimated, revenue is recognised only to the extent of contract costs 
which have been incurred and that will probably be recoverable, and contract costs are 
recognised as expenses in the period in which they are incurred. 

IPSAS 12 Inventories 

This standard prescribes the accounting treatment of inventories, notably the amount of 
costs  to  be  recognised  as  an  asset  and  carried  forward  until  the  related  revenues  are 
recognised.  The  inventories  to  be  covered  include  goods  specifically  related  to  the 
public sector, such as goods purchased or produced for distribution for ‘no charge or for 
a nominal charge’, as well as strategic stockpiles and weapons. 

Inventories  outside  the  scope  of  this  standard  include  work  in  progress  under 
construction contracts (covered by IPSAS 11), financial instruments (covered by IPSAS 
28 and 29), biological assets and agricultural produce (covered by IPSAS 27), work in 
progress of services to be provided for no or a nominal charge directly in return from 
the recipients. 

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Initial measurement is in general at cost. Inventories are subsequently to be measured at 
the  lower  of  cost  and  net  realisable  value.  Where  inventories  are  acquired  through  a 
non-exchange transaction, their cost is to be measured as their fair value at the date of 
acquisition. However, inventories are required to be measured at the lower of cost and 
current  replacement  cost  where  they  are  held  for  distribution  at  no  charge  or  for  a 
nominal charge or for consumption in the production process of goods to be distributed 
at no charge or for a nominal charge. 

When  inventories  are  sold,  exchanged  or  distributed,  the  carrying  amount  is  to  be 
recognised  as  an  expense  in  the  period  in  which  the  related  revenue  is  recognised.  If 
there is no related revenue, the expense is recognised when the goods are distributed or 
related services have been rendered. 

IPSAS 13 Leases 

This standard prescribes, for lessees and lessors, the appropriate accounting policies and 
disclosures to apply in relation to finance and operating leases. 

The classification of leases depends on the substance of the transaction rather than the 
form of the contract. A lease is classified as a finance lease if it transfers substantially 
all risks and rewards incidental to ownership of an asset. The title may or may not be 
eventually transferred. Examples of criteria that lead to such a classification are: 

• 

• 

• 

The lease covers the major part of the asset’s life, or the lessee has the option 
to  purchase  the  asset  at  a  price  sufficiently  lower  than  fair  value  so  that  it  is 
reasonably certain that the option will be exercised; 

The ownership is transferred at the end of lease term; 

The present value of lease payments is substantially equal to or greater than the 
leased asset’s fair value. 

All other leases are classified as operating leases. 

The  standard  does  not  cover  leases  related  to  exploring  non-regenerative  resources, 
licensing  agreements  for  intellectual  property  and  copyrights,  investment  property 
covered under  IPSAS  16, and certain leases related to biological assets covered under 
IPSAS 27. 

The standard sets the rules of accounting for the leased asset, the outstanding liabilities, 
the  lease  payments  and  the  finance  revenue  in  the  financial  statements  of  the  two 
parties, for each of the two categories of lease. 

IPSAS 14 Events after the reporting date 

This standard concerns events, favourable or not for the entity, that occur between the 
reporting date and the date when the financial statement is authorised for issue. 

Events  after  the  reporting  date  that  provide  evidence  of  conditions  that  existed  at  the 
reporting  date  are  considered  to  be  ‘adjusting  events’;  events  after  the  reporting  date 
that indicate conditions arising only after the reporting date are considered to be ‘non-
adjusting events’. 

The  reporting  date  is  the  last  day  of  the  reporting  period  to  which  the  financial 
statements relate. The date for authorisation for issue is the date on which the financial 
statements  have  to  be  finalised  for  issue.  The  audit  opinion  is  provided  on  those 
finalised financial statements. 

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Only adjusting events should be taken into account in reported financial statements. 

This standard also deals with the ‘going concern’ concept. The standard requires that an 
entity should not prepare its financial statements on a going concern basis if events after 
the reporting date indicate that the going concern assumption is not appropriate. 

IPSAS 15 Financial instruments 

This  standard  will  be  superseded  by  IPSAS  28  to  30  from  1  January  2013,  and  is 
therefore  not  described  here.  IPSAS  15  nevertheless  remains  applicable  until  the  new 
standards apply or become effective. 

IPSAS 16 Investment property 

This  standard  prescribes  the  accounting  treatment  for  investment  property  and  related 
disclosures. 

An investment property is property held (whether by the owner or under a finance lease) 
to earn rentals or for capital appreciation or both. 

The  standard  does  not  cover  property  for  use  in  the  production  or  supply  of  goods  or 
services  or  for  administrative  purposes,  or  property  for  sale  in  the  ordinary  course  of 
operations,  and  does  not  apply  to  owner-occupied  property  or  property  that  is  being 
constructed or developed for future use as investment property. 

Investment property is to be recognised as an asset when and only when: 

• 

• 

It  is  probable  that  the  future  economic  benefits  or  service  potential  that  are 
associated with the investment property will flow to the entity; and 

The cost or fair value of the investment property can be measured reliably. 

The standard requires investment property to be measured initially at its cost, including 
transaction costs. Where an investment is acquired through a non-exchange transaction 
at no cost, or for a nominal charge, its cost is to be measured at its fair value at the date 
of  acquisition.  After  recognition  an  entity  may  choose  to  measure  the  property  using 
either a fair value model or a cost model. If a cost model is chosen, the fair value of the 
investment property must also be disclosed. 

IPSAS 17 Property, plant and equipment 

This  standard  prescribes  the  accounting  principles  for  property,  plant  and  equipment 
assets. 

These  assets  include  infrastructure  assets,  such  as  road  networks,  sewer  systems,  and 
communication  networks,  special  military  equipment,  heritage  assets,  and  natural, 
technological and environmental assets. 

According to this standard, items of property, plant and equipment are to be recognised 
as  assets  only  if  it  is  probable  that  the  future  economic  benefits  or  service  potential 
associated with the item will flow to the entity, and the cost or fair value of the item can 
be measured reliably. 

The initial recognition of such an asset is generally at cost, with the components of cost 
described by the standard. For assets acquired through a non-exchange transaction, the 
cost to be recorded is their fair value at the date of acquisition. 

For measurement after recognition, IPSAS 17 allows a choice of accounting models to 
apply to an entire class of property, plant and equipment: 

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• 

• 

Cost model: the asset is carried at cost less any accumulated depreciation and 
any impairment losses; or 

Revaluation model: the asset is carried at a revalued amount, which is its fair 
value at revaluation date less subsequent depreciation and impairment losses. 

Depreciation  is  charged  systematically  over  the  asset’s  useful  life  and  separately  for 
each part of the asset’s class. The depreciation method must reflect the pattern in which 
the  entity  is  expected  to  consume  the  asset’s  future  economic  benefits  or  service 
potential. 

Subsequent related expenditure on these assets should be added to an asset when they 
improve the condition of the asset and it is probable that the future economic benefits in 
excess of the originally assessed value of the existing asset will flow to the entity. 

Under  this  standard  the  recognition  of  heritage  assets  is  optional.  An  entity  which 
recognises  heritage  assets  is  required  to  comply  with  the  standard’s  disclosure 
requirements  with  respect  to  those  heritage  assets  that  are  recognised  and  may,  but  is 
not required to, apply the standard’s measurement requirements. 

IPSAS 18 Segment reporting 

This  standard  establishes  principles  for  the  disclosure  of  financial  information  by 
segment, which may be either service or geographical segments. 

Each  entity  is  required  to  analyse  its  organisation  and  reporting  system  to  determine 
each  distinguishable  activity  or  group  of  activities  as  separate  segments  where  this  is 
appropriate for the purpose of evaluating the entity’s past performance and of making 
decisions about the future allocation of resources. 

An entity must then disclose for each individual segment the segment revenue, expense, 
assets and liabilities, based on the accounting policies applied for the whole group. The 
standard gives guidelines on how such items can be defined and measured. 

IPSAS 19 Provisions, contingent liabilities and contingent assets 

This  standard  defines  these  items,  prescribes  appropriate  recognition  criteria  and 
measurement bases for them, and sets out related disclosure requirements. 

The  scope  of  the  standard  excludes  social  benefits  provided  by  an  entity  for  which  it 
will  not  receive  consideration  that  is  approximately  equal  to  the  value  of  goods  and 
services provided, directly in return from the recipients of the benefits (i.e. for free or at 
a ‘not significant price’). Other exceptions from the scope of the standard are, notably, 
provisions arising from financial instruments carried at fair value, provisions arising in 
relation to income taxes and employee benefits, and provisions covered by other IPSAS. 

Contingent  assets  and  liabilities  are  defined  as  possible  assets  and  obligations  arising 
from  past  events  whose  existence  will  only  be  confirmed  by  the  occurrence  or  non-
occurrence of one or more uncertain future events not wholly within the control of the 
entity.  A  contingent  liability  may  also  be  a  present  obligation  that  arises  from  past 
events  but  is  not  recognised  because  an  outflow  of  resources  is  not  probable  or  the 
amount of the obligation cannot be measured with sufficient certainty. 

Contingent  assets  and  liabilities  are  not  recognised  by  an  entity  in  its  financial 
statement, but are disclosed. 

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By  contrast,  provisions  are  a  liability  which  result  from  present  obligations  and  for 
which  it  is  probable  that  an  outflow  of  resources  will  be  required  to  settle  the 
obligations, but whose timing or amount are uncertain. Provisions are recognised by the 
entity  when  a  reliable  estimate  is  available  and  measured  at  the  best  estimate  of 
settlement  amount  of  the  expenditure  needed  to  settle  the  obligations.  When  a  large 
population  of  items  is  involved  in  measuring  the  amount  of  provision,  the  expected 
value method of estimation should be used, by weighting all possible outcomes by their 
associated probabilities. 

IPSAS 20 Related party disclosures 

This standard aims to ensure that financial statements disclose the existence of related 
party relationships, where control exists, and provides for the disclosure of information 
about  transactions  between  the  entity  and  its  related  parties  (for  example  agency 
arrangements, 
licence  agreements,  finance  arrangements,  provision  of 
guarantees). 

leases, 

Related  parties  include  parties  which  control  or  have  significant  influence  over  the 
reporting  entity,  such  as  controlling  entities,  associates,  owners  and  their  close  family 
members,  major  investors,  key  management  personnel,  and  entities  controlled  by  the 
reporting entity. 

Disclosure  of  remuneration  of  key  management  personnel  and  their  close  family 
members (including an analysis by type of remuneration) is also required. 

IPSAS 21 Impairment of non-cash-generating assets 

This  standard,  which  was  specifically  developed  for  the  public  sector,  prescribes  the 
procedures  that  an  entity  applies  to  determine  whether  a  non-cash-generating  asset  — 
not  held  with  the  primary  objective  of  generating  a  commercial  return  —  is  impaired 
and to ensure that impairment losses are recognised. 

Assets  that  are  excluded  from  the  scope  of  the  standard  include  assets  arising  from 
construction  contracts  and  financial  assets,  inventories,  investment  property  that  is 
measured using the fair value model, and property, plant and equipment and intangible 
assets that are regularly revalued in accordance with the revaluation models in IPSAS 
17 and 31. 

The standard states that an entity must assess whether there is an indication that such an 
asset may be impaired. An impairment loss should be recognised immediately in surplus 
or deficit when the carrying amount of the asset exceeds its recoverable service amount, 
which is itself determined as the higher of (a) the asset’s fair value less costs to sell and 
(b) its value in use. In impairment testing it is not always necessary to determine both 
fair value and value in use; where either of these amounts exceeds the asset’s carrying 
amount, the asset is not impaired. 

The  standard  describes  possible  alternative  approaches  to  determining  fair  value  less 
cost to sell for the (frequent) cases of public sector assets not traded in an active market, 
and defines the value in use of a non-cash-generating asset as the present value of the 
remaining service potential as determined by a suitable approach (to be chosen from a 
depreciated replacement cost approach, a restoration cost approach, and a service units 
approach). 

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IPSAS 22 Disclosure of financial information about the general government sector 

This  standard,  which  was  specifically  developed  for  the  public  sector,  establishes 
disclosure  requirements  for  those  governments  that  elect  to  present  information  about 
the  general  government  sector  (GGS)  in  their  consolidated  financial  statements.  This 
IPSAS specifically sets aside the application of IPSAS 6, thereby allowing an aggregate 
presentation  which  can  reconcile  the  statistical  reporting  boundary  for  the  general 
government sector with the IPSAS reporting boundary. 

The  standard  requires  a  different  treatment  for  investments  in  the  public  corporations 
sectors to what is normally required by IPSASs. IPSAS 6 requires full consolidation of 
all controlled entities on a line-by-line basis; IPSAS 22, on the other hand, requires the 
public financial corporations sector and the public non-financial corporations sector to 
be  presented  as  investments  (i.e.  in  the  form  of  shares  or  other  equity)  of  the  general 
government sector in other sectors. 

The standard specifies the disclosures to be made in respect of the general government 
sector, which include: 

(a)  Major classes of assets, liabilities, revenue, expenses, and cash flows; 

(b)  The  significant  controlled  entities  that  are  included  in  the  general 

government sector and any changes in those entities; 

(c)  A  reconciliation  of  the  general  government  sector  disclosures  and  the 
consolidated financial statements of the government, showing separately 
the  amount  of  the  adjustment  to  each  equivalent  item  in  those  financial 
statements. 

IPSAS 23 Revenue from non-exchange transactions (taxes and transfers) 

This  standard,  which  was  specifically  developed  for  the  public  sector,  prescribes 
requirements  for  the  financial  reporting  of  revenue  arising  from  non-exchange 
transactions,  other  than  non-exchange  transactions  that  give  rise  to  an  entity 
combination. 

Non-exchange transactions are transactions in which an entity either receives assets or 
services  or  has  liabilities  extinguished,  without  directly  giving  approximately  equal 
value  in  exchange  to  the  other  party.  Notable  examples  of  non-exchange  transactions 
are taxes and transfers. 

The  standard  recognises  as  assets  (and  therefore  as  revenue,  except  where  a  related 
liability is recorded) the inflow of resources from non-exchange transactions when: 

• 

• 

the definition of assets (from IPSAS 1) is met, and 

the  asset  is  recognised  (when  it  is  probable  that  the  future  economic 
benefits  or  service  potential  associated  with  the  asset  will  flow  to  the 
entity; and the fair value of the asset can be measured reliably). 

An asset acquired through a non-exchange transaction should initially be measured at its 
fair value as at the date of acquisition. Revenue from non-exchange transactions should 
be measured as the amount of the increase in net assets recognised by the entity. 

On the specific matter of taxes, the standard establishes a general principle that an entity 
is  to  recognise  an  asset  in  respect  of  taxes  when  the  taxable  event  occurs  —  to  be 
determined by individual jurisdictions on a tax-by-tax basis — and the asset recognition 

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criteria are met. The assets should be measured at fair value, which may mean using an 
estimation based on historical experience in cases where there is a separation between 
the timing of the taxable event and the collection of taxes. If necessary, this estimation 
may be revised in accordance with IPSAS 3. 

IPSAS 24: Presentation of budget information in financial statements 

This  standard,  which  was  specifically  developed  for  the  public  sector,  requires  a 
comparison of (original and final) budget amounts and actual amounts to be disclosed in 
the financial statements of entities (for those entities which are required or elect to make 
their  approved  budgets  publicly  available).  The  comparison  must  be  made  either  as  a 
separate  additional  financial  statement  or  as  additional  budget  columns  in  the  primary 
financial  statement  (the  latter  only  where  the  financial  statements  and  the  budget  are 
prepared  on  a  comparable  accounting  basis).  All  comparisons  of  budget  and  actual 
amounts must be presented on a comparable basis to the budget (i.e. accruals or cash). 

An  explanation  of  material  differences  between  the  budget  and  actual  amounts,  and 
certain  other  disclosure  items,  are  also  to  be  presented.  Notably,  where  the  financial 
statement  and  the  budget  are  not  prepared  on  the  same  basis,  there  must  be  a 
reconciliation at an aggregate level of (a) the actual amounts on a comparable basis to 
the budget as presented in the ‘statement of comparison of budget and actual amounts’, 
and (b) the amounts presented in the financial statement. 

IPSAS 25 Employee benefits 

This standard prescribes the accounting and disclosure for employee benefits. It requires 
an  entity  to  recognise  accrued  employee  benefits  as  an  expense  and  liability.  The 
principle underpinning the accounting treatment is that the cost of providing employee 
benefits is to be recognised in the period in which the benefit is earned by the employee 
(service rendered), rather than when it is paid or payable. 

All  forms  of  consideration  provided  by  an  entity  to  its  employees  in  exchange  for 
services  rendered  are  treated  under  the  standard  (i.e.  short-term  benefits,  post-
employment  benefits,  other  long-term  benefits,  and  termination  benefits),  other  than 
share-based transactions and employee retirement benefit plans. 

Post-employment benefit plans (predominantly pensions) are further classified as either: 

(a)  Defined contribution plans; or 

(b)  Defined benefit plans, 

and the accounting treatment of these benefits depends on this sub-classification. 

Under a defined contribution plan, the entity’s obligation for each period is determined 
by the (generally undiscounted) contribution; consequently no actuarial assumptions are 
required to measure the liability and the expense and there is no actuarial gain or loss to 
be recorded. 

Under defined benefit plans, the actuarial obligations are more complex to calculate and 
there is held to be a probability of actuarial gain and loss. 

The  standard  examines  the  main  parameters  needed  to  calculate  the  actuarial  cost, 
notably: 

(1)  The present value of defined benefit obligations and the fair value of any 

plan assets (net pension liabilities); 

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(2)  Current  service  cost  (the  annual  pension  contribution  required  to  cover 

future liabilities); 

(3)  Using  the  projected  unit  credit  method  to  measure  its  obligations  and 

costs; 

(4)  Attributing  benefits  to  periods  of  service  under  the  plan’s  benefit 
formula,  unless  an  employee’s  service  in  later  years  will  lead  to  a 
materially higher level of benefit than in earlier years; 

(5)  Using  unbiased  and  mutually  compatible  actuarial  assumptions 
concerning  demographic  variables  (such  as  employee  turnover  rate  and 
mortality  of  recipients)  and  financial  variables  (such  as  discount  rate, 
future salaries level, future medical costs). Financial assumptions should 
be based on market expectations at the reporting date, for the period over 
which  the  obligations  are  to  be  settled.  The  rate  used  to  discount  post-
employment benefit plans should reflect the time value of money. 

Extensive  note  disclosures  are  required  for  post-employment  benefits  (for  example  on 
the actuarial assumptions used). 

IPSAS 26 Impairment of cash-generating assets 

This standard sets out the procedures that an entity applies to determine whether a cash-
generating  asset  is  impaired  and  to  ensure  that  impairment  losses  are  recognised.  The 
standard also specifies when an entity should reverse an impairment loss and prescribes 
the necessary disclosures. 

Cash-generating  assets  are  defined  as  assets  held  with  the  primary  objective  of 
generating a commercial return. 

Assets  that  are  excluded  from  the  scope  of  IPSAS  26  include  assets  arising  from 
construction  contracts  and  financial  assets,  inventories,  investment  property  measured 
using the fair value model, property, plant and equipment and intangible assets regularly 
revalued in accordance with the revaluation models in IPSAS 17 and 31, and deferred 
tax assets and assets arising from employees’ benefits. 

Under  this  standard,  an  entity  must  assess  at  each  reporting  date  whether  there  is  any 
indication  that  an  asset  may  be  impaired.  In  that  case,  the  entity  must  estimate  the 
recoverable amount. 

An  impairment  loss  of  a  cash-generating  asset  is  the  amount  by  which  the  carrying 
amount of an asset exceeds its recoverable amount. 

The recoverable amount of an asset is the higher of its fair value less costs to sell and its 
value in use. 

The impairment test is performed under criteria listed in the standard. 

IPSAS 27 Agriculture 

This  standard  prescribes  the  accounting  treatment  and  disclosures  for  agricultural 
activity. 

It applies to biological assets and agricultural produce at the point of harvest when they 
relate  to  agricultural  activity,  with  the  definition  of  agriculture  activity  determining 
which  of  those  assets  fall  within  the  scope  of  the  standard  (i.e.  the  standard  does  not 
deal with biological assets used in activities such as research, education or transport). 

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The  standard  requires  an  entity  to  recognise  a  biological  asset  or  agricultural  produce 
when: 

(a) 

(b) 

The entity controls the asset as a result of past events; 

It is probable that future economic benefits or service potential associated with 
the asset will flow to the entity; and 

(c) 

The fair value or cost of the asset can be measured reliably. 

Biological  assets  (including  those  acquired  through  non-exchange  transactions)  and 
agricultural  produce  are  measured  at  fair  value  less  costs  to  sell.  The  standard 
establishes  initial  and  subsequent  measurement  requirements  for  biological  assets  and 
agricultural  produce  at  the  point  of  harvest.  Generally,  the  quoted  market  price  in  an 
active  market  represents  the  best  measure  of  the  fair  value  of  a  biological  asset  or  of 
agricultural produce. If an active market does not exist, the standard provides guidance 
on choosing another measurement basis. 

IPSAS 28 Financial instruments: Presentation 

IPSAS 29 Financial instruments: Recognition and measurement 

IPSAS 30 Financial instruments: Disclosures 

Taken together, standards 28, 29, and 30 deal with the different aspects of reporting for 
financial instruments. 

IPSAS  28  establishes  principles  for  presenting  financial  instruments  as 
liabilities or equity, and for offsetting financial assets and financial liabilities. 

IPSAS 29 establishes principles for recognising and measuring financial assets, 
financial liabilities, and some contracts to buy or sell non-financial items. 

IPSAS  30  prescribes  disclosures  that  enable  financial  statement  users  to 
evaluate the significance of financial instruments, an entity’s financial position 
and performance, the nature and extent of the risks of financial instruments to 
which an entity is exposed, and how the entity manages the risks. 

The  following  gives  an  overview  of  each  standard  on  financial  instruments  but  is  not 
intended to give a comprehensive description of their requirements. 

IPSAS 28 

This  standard  establishes  a  number  of  definitions,  including  financial  instruments, 
financial asset and financial liability, and requires financial instruments to be classified 
from the perspective of the issuer, according to the substance of the arrangement. 

It prescribes principles for classifying and presenting financial instruments as liabilities 
or equity instruments, for related interest, dividends, losses and gains, and for offsetting 
financial  assets  and  liabilities.  It  also  deals  with  more  specific  instruments  such  as 
puttable instruments, treasury shares, and members’ shares in cooperative entities, and 
with  specific  public  sector  instruments  such  as  concessionary  loans  and  financial 
guarantee contracts entered into at nil or nominal consideration. 

The  standard  does  not  cover  interests  in  controlled  entities  (IPSAS  6),  associated 
(IPSAS 7) or joint ventures (IPSAS 8), employer rights and obligations under employee 
benefit  plans  (IPSAS  23),  obligations  arising  from  insurance  contracts  (except  for 
derivative  and  financial  guarantee  contracts),  insurance  contracts  that  contain  a 

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discretionary  participation  feature,  and  share-based  payment  transactions.  It  does, 
however, include insurance contracts that involve the transfer of financial risks. 

IPSAS 29 

This standard establishes principles for the recognition, derecognition and measurement 
of financial assets and financial liabilities. 

The accounting treatment depends on the category of financial instrument, based on a 
classification specified in the standard. 

Financial assets are classified (for the purpose of measuring a financial asset after initial 
recognition) in four categories: 

(1) 

(2) 

(3) 

(4) 

Financial assets at fair value through surplus or deficit; 

Held to maturity investments; 

Loans and receivables; and 

Available for sale financial assets. 

Financial liabilities are classified in two categories (for the same purpose): 

(1) 

(2) 

Financial liabilities at fair value through surplus or deficit; and 

Other financial liabilities. 

An entity is required to recognise a financial asset or a financial liability in its statement 
of financial position when that entity becomes a party to the contractual provisions of 
the instrument. 

When  a  financial  asset  or  financial  liability  is  initially  recognised,  the  entity  is  to 
measure it at its fair value plus, in the case of a financial asset or financial liability not at 
fair  value  through  profit  or  loss  (surplus  or  deficit),  any  transaction  costs  that  are 
directly attributable to the acquisition or issue of the asset or liability. 

An entity may opt to recognise normal purchases and sales of securities in the market 
place consistently either at trade date or settlement date. 

After initial recognition, the entity should measure: 

• 

• 

• 

Financial assets at fair value through surplus or deficit at fair value without any 
deduction of cost, and available-for-sale financial assets, including derivatives 
that are assets, at their fair value without any deduction for any transaction cost 
they may incur on sale or other disposal; 

Loans  and  receivables  and  held-to-maturity  investments  at  amortised  cost, 
using the effective interest method; 

Investments in equity instruments that do not have a quoted market price in an 
active  market  and  whose  fair  value  cannot  be  reliably  measured,  and 
derivatives that are linked to and must be settled by delivery of such unquoted 
equity instruments; these are to be measured at cost. 

Fair value is defined as the amount for which an asset could be exchanged, or a liability 
settled,  between  knowledgeable,  willing  parties  in  an  arm’s-length  transaction.  The 
standard also establishes requirements on how to determine fair value (i.e. quoted prices 
in an active market). 

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Subsequent  measurement  of  financial  liabilities  also  depends  on  their  classification. 
Financial liabilities at fair value through surplus or deficit, including derivatives that are 
liabilities, are measured at their fair value (gains and losses are recognised in surplus or 
deficit). Other financial liabilities are measured at amortised cost. 

The standard also provides guidance on accounting for concessionary loans. These are 
loans granted to or received by an entity on below-market terms. In this case there is a 
difference between the fair value of the concessionary loan and the loan proceeds. In the 
case of a concessionary loan received by a public sector entity, any difference between 
the fair value of the loan and the transaction price (the loan proceeds) is accounted for in 
accordance  with  IPSAS  23.  The  exchange  component  is  recognised  and  initially 
measured in accordance with IPSAS 29. In the case of a concessionary loan granted by 
a public sector entity, the standard requires that the difference between the fair value of 
the loan and the transaction price (the loan proceeds) be treated as an expense. 

IPSAS 30 

This  standard  establishes  disclosure  requirements,  which  include  general  information 
about financial assets and financial liabilities by category, and special disclosures when 
the  fair  value  option  under  IPSAS  29  is  used.  It  also  covers  reclassifications,  de-
recognitions,  pledges  of  assets,  embedded  derivatives,  and  breaches  of  terms  of 
agreements. Specific disclosures are required for concessionary loans, information and 
accounting policies, hedge accounting, the fair values of  each  class of financial assets 
and financial liabilities, and qualitative and quantitative disclosures about exposures to 
risks  and  the  management  of  those  risks  (the  three  types  of  risks  identified  as  credit, 
liquidity and market risks). 

IPSAS 31 Intangible assets 

This  standard  prescribes  the  accounting  treatment  for  intangible  assets  that  are  not 
covered  by  other  standards,  including  certain  public-sector-specific  issues  such  as 
intangible heritage assets. 

An  intangible  asset,  whether  purchased  or  self-created,  is  recognised  if  it  is  probable 
that  the  future  economic  benefits  or  service  potential  that  are  attributable  to  the  asset 
will flow to the entity, and the cost or fair value of the asset can be measured reliably. 

The definition of an intangible asset includes a requirement that the asset be identifiable 
(in  other  words,  the  asset  must  be  separable  from  the  entity,  or  arise  from  a  binding 
arrangement including contractual or legal rights). 

Examples  of  intangible  assets  that  may  be  recognised  by  public  sector  entities  in 
accordance with the standard  include acquired computer software, databases, acquired 
patents  and  copyrights  in  areas  such  as  tourism,  research,  education,  and  health,  and 
research and development activities. 

This standard does not cover powers and rights conferred by legislation, a constitution, 
or by equivalent means; nor does it cover goodwill arising from an entity combination. 

All  research  costs  are  expensed  when  incurred  (there  is  no  intangible  asset  created). 
Development  costs  are  capitalised  only  after  the  entity  can  demonstrate  that  the 
technical  and  commercial  feasibility  of  the  resulting  product  or  services  has  been 
established, that the entity intends to complete the intangible asset and use it or sell it, 
and that it is able to use it or sell it. 

EN 

30 

   EN 

 
The  initial  measurement  is  at  cost.  The  standard  allows  a  choice  for  the  subsequent 
measurement of intangible assets, which may be accounted for using a cost model or a 
revaluation model. Under the cost model, assets are carried at cost less any accumulated 
amortisation and any accumulated impairment losses. If an intangible asset has a quoted 
market price in an active market, the use of a revaluation model is permitted. 

IPSAS 32 Service concession arrangements: Grantor 

This  standard,  which  was  specifically  developed  for  the  public  sector,  prescribes  the 
accounting  and  reporting  requirements  for  service  concession  arrangements  by  the 
grantor, where the grantor is a public sector entity. 

Service concession arrangements are defined as binding arrangements between a grantor 
and  an  operator  that  involve  the  delivery  of  public  services  related  to  the  service 
concession asset. 

Where  there  is  a  service  concession  arrangement,  the  grantor  recognises  a  service 
concession asset (and a liability) if: 

(a) 

(b) 

The grantor controls or regulates what services the operator must provide with 
the asset, to whom it must provide them, and at what price; and 

The grantor controls — through ownership, beneficial entitlement or otherwise 
—  any  significant  residual  interest  in  the  asset  at  the  end  of  the  term  of  the 
arrangement. 

For a ‘whole-of-life’ asset, only the conditions under (a) need to be met. 

For initial measurement the grantor must recognise the asset at fair value. Subsequently 
the asset will be accounted for as a separate class of asset, as either a non-financial asset 
or an intangible asset, and thereafter measured using the appropriate standard. 

Financial reporting under the cash basis of accounting 

Although IPSAS is an accruals-based accounting standard, there is also an IPSAS cash 
basis standard. 

The  objective  of  this  standard  is  to  provide  guidance  on  financial  reporting  under  the 
cash  basis  of  accounting,  which  recognises  transactions  and  events  only  when  cash  is 
received or paid by the entity. 

The  information  required  under  this  standard  covers  the  sources  of  cash  raised  during 
the  period,  the  purpose  for  which  the  cash  was  used  and  the  cash  balance  at  the 
reporting  date.  Cash  is  considered  to  be  controlled  by  an  entity  when  it  can  use  it  to 
achieve its objectives or can benefit from the cash and exclude or regulate the access of 
others to that benefit. 

The  standard  gives  a  definition  of  cash,  including  cash  equivalents:  defined,  as  in 
IPSAS  2,  as  short  maturity  (i.e.  three  months  or  less  from  the  date  of  acquisition) 
investments  that  are  readily  convertible  to  a  known  amount  of  cash  and  which  are 
subject to an insignificant risk of change in value. 

The financial statements under this standard comprise a statement of cash receipts and 
payments,  accounting  policies  and  explanatory  notes.  When  the  entity  makes  its 
approved budget publicly available, it may include a comparison of budget and actual 
amounts  either  as  a  separate  additional  financial  statement  or  as  an  additional  budget 
column (where the budget and financial statement are prepared on a comparable basis). 

EN 

31 

   EN 

 
The  statements  of  cash  receipts  and  payments  disclose  the  opening  and  closing  cash 
balances  of  the  entity,  the  total  cash  receipts  and  payments  and  an  appropriate  sub-
classification  thereof,  which  are  normally  reported  on  a  gross  basis.  The  standard 
requires  entities  to  report  in  a  separate  column  of  the  statement  of  cash  receipts  and 
payments  the  total  payments  and  the  sources  and  uses  of  expenditures  made  by  third 
parties  on  behalf  of  the  entity,  directly  settling  obligations  or  purchasing  goods  and 
services  for  the  benefit  of  the  entity,  and  separating  payments  made  by  third  parties 
which are not part of the reporting economic entity which it belongs. General purpose 
financial statements under the cash basis are to be presented at least annually. 

The  standard  also  gives  general  guidelines  on  the  application  of  consistency  of 
presentation,  aggregation  and  materiality,  comparative  information  and  correction  of 
errors. 

Total external assistance (defined as all official resources which the recipient can use or 
otherwise benefit from in pursuit of its objectives) received in cash should be disclosed 
separately  in  the  statement  of  cash  receipts  and  payments.  The  entity  should  also 
disclose  separately,  either  in  the  financial  statement  or  in  the  note,  total  external 
assistance  paid  by  third  parties.  The  standard  also  provides  for  disclosures  of  external 
assistance received in the form of loans or grants. 

There  is  also  guidance  on  consolidated  financial  statements  of  cash  receipts  and 
payments. 

Moreover,  the  standard  encourages  (but  does  not  make  mandatory)  additional 
disclosures.  Notably,  notes  to  the  financial  statements  may  provide  additional 
information  about  liabilities,  such  as  payables  and  borrowings,  and  some  non-cash 
assets such as receivables, investments and property, plant and equipment. 

2.4. 

The process of IPSAS standard-setting 

The  IPSAS  Board  (formerly  the  ‘Public  Sector  Committee’  [PSC])  issues  standards, 
exposure drafts for future standards, guidelines, studies and other documents23. 

The  IPSAS  Board  develops  a  ‘multi-year’  work  plan  on  which  the  Board  reports 
annually24  as  part  of  the  IFAC  annual  report.  The  latest  work  plan  for  2013-14  is 
currently under public consultation for the first time. The work plan defines the projects 
and initiatives the Board will undertake for the themes for which it considers there is a 
need to formulate guidance. 

The IPSAS Board members, in performing their role, are required to act independently 
of  the  organisations  which  employ  them,  thereby  providing  independent  standard-
setting for the public sector. 

23 

24 

The  development  of  IPSAS  was  an  initiative  of  the  International  Federation  of  Accountants 
(IFAC) creating (and funding) a ‘Public Sector Committee’ (1997). The PSC has been dealing 
with public sector accounting since 1987 with guidelines, studies and research report, but only in 
1996 was a project launched that was a turning point, with the PSC starting to formulate IPSAS 
with  the  aim  of  improving  and  harmonising  the  accounting  of  public  authorities.  In  2004  the 
name  of  PSC  was  changed  to  the  IPSASB.  The  IPSAS  Board  also  issued  guidance  on  the 
implementation of accruals accounting (‘Study 14’, now in its third edition, dated January 2011). 
So far, but the results of the current public consultations run by the IPSAS Board, on the work 
plan and reform of governance of the Board itself, may lead to a revision of the procedure. 

EN 

32 

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2.4.1.  The due process 

The  IPSAS  Board  adopts  a  formal  process  for  the  development  of  IPSAS  that  seeks 
input and feedback from its constituents25 on important projects, strategic priorities and 
technical issues in relation to its work programme. The process provides the opportunity 
for  comment  from  a  large  base  of  interested  parties:  auditors,  preparers  (including 
treasuries  and  finance  ministries),  standard-setters,  professional  accounting  bodies, 
academics,  lawyers,  and  other  individuals.  The  meetings  of  the  Board  are  open  to  the 
public.  Agenda  papers,  including  the  minutes  of  the  Board’s  meetings,  and  meeting 
highlights are published on the Board’s website: http://www.ifac.org/public-sector. 

As  regards  the  IPSAS  standards  themselves,  the  due  process  starts  with  a  decision  by 
the Board on whether a standard on a certain matter should be developed or not, or if an 
existing  standard  should  be  revised.  If  the  Board  approves,  a  project  will  be  initiated. 
Depending on the topic, the process for projects normally includes the following major 
components: 

• 

• 

• 

• 

Consideration  of  relevant  pronouncements  (i.e.  those  issued  by  IASB, 
national standard-setters, professional accounting bodies); 

Consultation paper and/or exposure draft for public comment; 

Consideration  of  comments  received  on  consultation  paper  and/or 
exposure draft within the comment period; 
Approval  of  the  standard  and  its  issuance26,  which  includes  a  ‘basis  for 
conclusion’ to explain how the Board reached its position. 

The same procedure applies for the withdrawal of a standard. 

A  consultation  paper  may  be  issued  in  some  cases  to  explore  the  subject  in  detail, 
providing the basis for further discussion and development. Then, or possibly without a 
consultation  paper  phase,  an  exposure  draft  of  the  proposed  IPSAS  is  developed, 
commonly  with  the  input  of  a  task  force  or task-based  group. All exposure drafts and 
consultation  papers  are  published  on  the  IPSAS  Board  website  with  a  fixed  comment 
period,  typically  a  minimum  of  four  months.  Comments  received  are  discussed  by 
IPSAS Board members, and are also published on the IPSAS Board website. 

The  approval  of  consultation  papers,  exposure  drafts,  and  IPSASs  requires  the 
affirmative vote of at least two-thirds of the IPSAS Board members (which corresponds 
currently to at least twelve of those present at the meeting). 

The  IPSAS  Board  has  established  ‘rules  of  the  road’  which  describe  the  process  for 
reviewing  and  modifying  IFRS  (and  in  some  cases  the  interpretations  of  the 
International  Financial  Reporting  Interpretations  Committee  (IFRIC)27).This  process 

25 

26 

27 

A Consultative Advisory Group is planned to be created to provide a forum in which the IPSAS 
Board can consult with representatives of different groups of constituents. 
In certain cases, there will not be an IPSAS, but some other form of document, for example a 
‘reporting practice guideline’ or other ‘non-binding’ document. IPSASs are sometimes published 
in languages other than English; however the English language version is authoritative. 
The  IFRS  Interpretations  Committee  is  the  interpretative  body  of  the  IASB.  It  has  14  voting 
members  appointed  by  the  trustees  and  drawn  from  a  variety  of  countries  and  professional 
backgrounds.  The  mandate  of  the  Committee  is  to  review  on  a  timely  basis  widespread 
accounting  issues  that  have  arisen  within  the  context  of  current  IFRSs  and  to  provide 
authoritative 
http://www.ifrs.org/The-
those 
on 
guidance 
organisation/Pages/IASCF-and-IASB.aspx. 

issues.  Cf. 

(IFRICs) 

EN 

33 

   EN 

 
                                                 
was established with the aim of converging the IPSASs with the International Financial 
Reporting  Standards.  The  IPSASB’s  staff  provides  the  analysis  for  the  Board’s 
discussion  of  whether  or  not  an  IFRS  should  be  adapted  for  the  public  sector,  i.e. 
whether there are public-sector-specific reasons for departing from those standards. This 
convergence  process  has  an  indirect  effect  in  that  the  current  IPSASs  are  based  on 
concepts  and  definitions  of  the  IASB’s  conceptual  framework,  modified  where 
necessary  for  a  public-sector-specific  approach.  The  current  development  of  the 
independent  IPSAS  conceptual  framework  therefore  addresses  the  recognised  need  to 
focus specifically on the public sector perspective. 

IPSASs  which  are  ‘converged  with  IFRS’  are  IFRSs  adapted  to  the  public  sector 
context. This requires changes to the style and terminology, and the addition of public-
sector-specific  examples,  but  may  also  involve  simplification,  clarification,  better 
definition,  or  amendment  arrangements  for  initial  adoption/transitional  provisions,  to 
reflect the different public sector environment. 

If  there  are  public-sector-specific  reasons  to  depart  from  IFRS  then  a  second  step  is 
applied.  This  involves  either  modifying  an  IASB  document  and  adapting  the 
terminology and style, or initiating a new public-sector-specific project, for example if a 
topic has not been addressed by IASB or if the public-sector-specific issue is deemed to 
be so fundamental as to warrant a departure from the IFRS. 

2.4.2. 

Structure and format of IPSASs 

Guidelines are used to structure IPSASs as follows: 

• 

• 

• 

• 

• 

• 

Overall structure of IPSASs; 

Objective; 

Definitions; 

Basis for conclusions; 

Consequential amendments and effective date; 

Appendices. 

In addition a paragraph is dedicated to the scope of the standards. 

IPSASs  usually  contain  both  authoritative  and  non-authoritative  material.  This  is 
indicated in the relevant standards. 

Authoritative  guidance  normally  includes  the  following  sections:  Objective,  Scope, 
Definitions,  Accounting  requirements,  Disclosure  requirements,  and  Transitional 
provisions (where additional to IPSAS 3), Effective date and Appendices on application 
guidance, other authoritative guidance, and amendments to other IPSASs. 

The  Basis  for  conclusions,  Illustrative  decision  trees,  tables  and  examples,  and 
Implementation guidance are normally non-authoritative. 

The  Objective  section  is  the  core  text  of  each  standard  and  summarises  its  purpose. 
Definitions  are  provided  for  terms  which  are  central  to  the  standard.  The  Basis  for 
conclusions provides background information on the issue and the rationale for adopting 
a particular approach in a standard where alternatives have been discussed and rejected. 

EN 

34 

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The basis for conclusions should also explain the public-sector-specific reasons why the 
IPSAS differs from the underlying IFRS28. 

2.5. 

Structure, organisation and governance arrangements of the IPSAS Board 

The IPSAS Board operates under the umbrella of the IFAC, which also supports other 
independent standard-setting boards: 

• 

• 

• 

International Auditing and Assurance Standards Board 

International Accounting Education Standards Board 

International Ethics Standards Board for Accountants 

The  IFAC,  through  its  standard-setting  boards,  establishes  international  standards  on 
ethics, auditing and assurance, accounting education, and public sector accounting, and 
promotes convergence to the standards issued by the boards as well as to the IFRSs set 
by the IASB. 

IFAC  member  bodies  and  associates  are  professional  accounting  organisations  (in 
public  practice,  education,  government  service,  industry,  and  commerce).  A  list  of 
IFAC members and associates is available on the IFAC website29. 

2.5.1.  Membership 

The IPSAS Board is composed of 18 volunteer members including a chair and a deputy 
chair.  Members  are  appointed  by  the  IFAC  Board,  with  15  members  nominated  by 
IFAC member organisations and three members appointed as public members. A public 
member is expected to reflect the wider public interesto30. The IFAC Board has agreed 
an amendment to the membership criteria effective January 2014 to withdraw the right 
for IFAC member bodies to be the sole groups who can nominate members for 15 seats. 
Instead these 15 members can be nominated from a broader constituency, for example 
governments,  public  agencies,  international  organisations,  or  the  general  public  in 
addition to IFAC member bodies. 

The  selection  process  for  the  IPSAS  Board  encompasses  factors  such  as  the  personal 
and professional qualifications of a nominee and representational constraints, including 
gender balance and geographical representativeness of the IPSAS Board, sector of the 
the 
accountancy  profession,  knowledge  of 
organisation, and level of economic development. 

institutional  arrangements,  size  of 

In 2012 the geographical composition of the Board was as follows: 

Europe:  France,  Germany,  Italy  (public  member),  UK,  Romania,  Switzerland 
(chair and public member) 

28 

29 
30 

For  more  details  see  ‘International  Public  Sector  Accounting  Standards  Board  Guidelines  for 
Structure and Format of IPSASs ‘- June 2010 - www.ipsasb.org. 
http://www.ifac.org/about-ifac/membership. 
IPSAS Board members may be accompanied at meetings by a technical adviser possessing the 
technical  skills  to  participate  in  the  debate,  and  who  has  the  privilege  of  the  floor  and  may 
participate  in  projects.  The  IPSAS  Board  may  grant  observer  status  to  representatives  of 
appropriate organisations that have an interest in financial reporting in the public sector and in 
endorsing  and  supporting  IPSASs,  and  that  possess  the  technical  skills  to  participate  in  the 
debate and provide ongoing input to the work of the IPSAS Board. Observers may attend IPSAS 
Board  meetings,  have  the  privilege  of  the  floor,  and  may  participate  in  projects.  See 
www.ipsasb.org. 

EN 

35 

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The  Americas:  USA,  Canada  (two  members,  one  of  whom  is  a  public 
member), Uruguay 

Asia: Japan, China, Pakistan 

Africa: Kenya, Morocco, South Africa 

Australasia: Australia, New Zealand 

Members  currently  include  representatives  from  ministries  of  finance  (four  members), 
government  audit  and  accounting  institutions  (eight  members),  public  practice  (two 
members),  academia  (three  members),  and  industry  (one  member).  Membership  does 
not include major international bodies, which attend IPSAS Board meetings as official 
non-voting  observers  (including  Eurostat  and  the  Budget  DG  for  the  European 
Commission,  and  the  International  Monetary  Fund  and  the  United  Nations).  The 
standard term for IPSAS  Board  members is three years, but  a  member may  serve  one 
additional consecutive term, up to a maximum of six years. The chair may serve three 
consecutive terms, for a total of nine years. Members' commitment is part-time31. The 
IPSAS Board is currently assisted by 8.5 full-time equivalent staff (one FTE is a visiting 
fellow), around a third of whom are European nationals, mainly based in Canada32. 

2.5.2.  Funding 

The  current  funding  scheme  of  the  IPSAS  Board  is  strongly  dependent  on  IFAC 
(International  Federation  of  Accountants),  Government  of  Canada,  CICA  (Canadian 
Institute  of  Chartered  Accountants)  and  some  multilateral  development  banks  (World 
Bank, Asian Development Bank). Other sources of revenue include other international, 
national and regional government entities, for example the governments of China, New 
Zealand and Switzerland, as well as the United Nations in the past. Some support in the 
form  of  personnel  may  also  come  from  national  standard-setters,  audit  firms  and 
national  authorities  (currently  Governmental  Accounting  Standards  Board  USA,  UK 
Accounting  Standards  Board  (past),  Ernst  &  Young  and  the  New  Zealand  External 
Reporting Board). 

As regards finance, the 2011 IFAC report sets out the latest figures for 2011 for IPSAS 
Board revenues: Total revenues of $ 2 048 093 are financed from external contributions: 
$ 632 545 (Canada, World Bank, ADB, etc.), IFAC: $ 1 416 52833. IFAC (taken together 
with  the  Forum  of  Firms,  a  voluntary  group  of  23  large  private  accounting  company 
networks  that  support  and  promote  the  consistent  application  of  high-quality  audit 
practices and standards worldwide)34 sources account for 69 % of financing. 

31 

32 

33 
34 

Members contribute about 500 hours per year, whereas the chair contributes about 1 500 hours 
per year. Cf. response of IPSAS Board to Eurostat public consultation on IPSAS, May 2012. 
The  International  Accounting  Standards  Board  (IASB)  is  an  independent  group  of  15  experts 
with  an  appropriate  mix  of  recent  practical  experience  in  setting  accounting  standards,  in 
preparing, auditing, or using financial reports, and in accounting education. Broad geographical 
diversity is also required. The Board is assisted by a staff of more than 100 professionals, who 
work  with  the  Board  and  project  teams,  conduct  research,  participate  in  roundtable  meetings, 
analyse oral and written comments received from the public, and prepare recommendations and 
drafts of documents for consideration by the Board. 
http://viewer.zmags.com/publication/ed4395af#/ed4395af/90. 
https://www.ifac.org/about-ifac/forum-firms. 

EN 

36 

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In the same period, the IFRS Foundation raised £ 20.6 million for the IASB35. For the 
latter  the  European  Commission  also  provided  financing  in  the  form  of  grants  (EUR 
12.75 million in the 2010-2013 period)36. 

Recent work planning has acknowledged the relatively limited resources available to the 
IPSAS  Board  at  both  Board  and  staff  levels,  particularly  compared  with  some  other 
standard  setting  boards  (for  example  the  IASB)  and  there  have  been  calls  for  a  larger 
and broader funding base. 

2.5.3. 

IPSAS Board oversight 

At  present  the  IPSAS  Board  is  not  overseen  by  an  external  body,  unlike  other  IFAC 
standard setters. Within the IFAC structure, the Public Interest Oversight Board (PIOB) 
and  the  Monitoring  Group  (MG)  play  a  role  in  oversight  of  international  standard 
setting in the public interest, specifically for the International Auditing and Assurance 
Standards  Board  (IAASB),  the  International  Ethics  Standards  Board  for  Accountants 
(IESBA), the International Accounting Education Board (IAESB), and the Compliance 
Advisory  Panel  (CAP)37.  Two  of  the  ten  members  of  the  PIOB  are  nominated  by  the 
European Commission which is also a member of the Monitoring Group. 

In those cases, even if the PIOB does not oversee the technical content of the standard-
setting  process38  it  does  provide  public  interest  oversight  of  due  process.  As  such,  it 
reviews  and  approves  the  composition  and  the  roles  of  the  Board,  evaluates  the 
procedures, oversees the organisational aspects and suggests projects to be added to the 
Board’s work programmes. 

The  current  funding  of  the  PIOB  scheme  is  extremely  dependent  on  IFAC.  The 
European  Commission  also  contributes  up  to  a  maximum  of  EUR  300 000  per  year, 
which represents around 22 % of total PIOB eligible expenses. 

The IPSAS Board has been discussing its structure and governance arrangements over 
recent  months.  Many  stakeholders  perceive  these  arrangements  as  inadequate  to 
safeguard  the  public  interest  and  unresponsive  to  the  independence  of  the  standard-
setting process. IFAC has consulted with some governments and other stakeholders and 
has confirmed this perception. The Board recognises the importance of strengthening its 
credibility and independence through a more appropriate system of governance, notably 
with  respect  to  external  public  interest  oversight.  Two  models  have  been  proposed  in 
this respect: 

• 

• 

35 

36 
37 
38 

A  model  based  on  the  oversight  regime  of  the  existing  Public  Interest 
Oversight Board (PIOB, see above). This model would require the appointment 
of  two  additional  members  to  the  PIOB  in  order  to  better  serve  public  sector 
interests.  This  model  would  require  additional  resources  to  address  the  extra 
costs  of  the  new  public  sector  members  as  well  as  increase  in  PIOB  staff 
resources. 

Oversight carried out by a dedicated body with high public sector involvement. 
This  model  would  also  require  additional  resources  and  it  is  likely  that  these 

http://www.ifrs.org/The-organisation/Governance-and-accountability/Annual-
reports/Documents/AR_2011.pdf. 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:253:0008:01:EN:HTML. 
The three boards set international standards in their respective areas. 
See www.ipiob.org for more information. 

EN 

37 

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would  be  at  a  significantly  higher  level  than  the  PIOB  model  since  no  such 
structure currently exists. 

At this stage, work is oriented towards the first model. In March 2012 the Monitoring 
Group launched a public consultation aimed at enhancing the oversight and governance 
of IFAC, including the IPSASB. It covered a range of topics, including organisational 
aspects, funding, and the composition and roles of the monitoring group, the PIOB and 
the standard-setting board. The consultation was closed on 28 June 2012 and the results 
and analysis of the responses should be available before the end of 2012. 

Other proposals under consideration by the Board to strengthen its governance are the 
appointment  of  a  full-time  chair,  ideally  by  2016  at  the  latest,  the  formation  of  a 
consultative advisory group by 2014 to 2015, a change in composition of the Board to 
introduce more public members (applicable for 2014), and greater resources39. 

2.5.4.  Latest work programme 

As previously mentioned, the IPSAS Board is developing a conceptual framework for 
general purpose financial reporting (GPFR) in order to make explicit the definitions and 
concepts  applied  by  the  IPSAS  Board  in  developing  IPSAS  and  the  core  principles 
underpinning GPFR by public entities when they adopt accruals accounting. It features 
the following issues: 

• 

• 

• 

• 

• 

Objectives of financial reporting; 

Scope of financial reporting; 

Qualitative characteristics of financial information; 

Characteristics of the reporting entity; 

Definition and recognition of the elements of financial statements; 

•  Measurement; 

• 

Presentation. 

The conceptual framework is not in itself a new rule-creating standard. Its objective is 
to provide a guide to developing and interpreting the standards. 

In  2011  the  IPSAS  Board  approved  three  new  projects  in  which  the  statistical 
community (including Eurostat) is actively participating: first-time adoption, IPSAS and 
GFS, and government business enterprises. These projects have a particular interest for 
the  conceptual  and  practical  issues  of  IPSASs  for  statistical  needs.  They  are  seen  by 
many  statisticians  as  opportunities  to  strengthen  the  link  between  public  sector 
accounting standards and the statistical bases of financial reporting, and would facilitate 
the  preparation  of  fiscal  statistics,  with  significant  gains  in  terms  of  efficiency  and 
information quality. 

Other important ongoing projects in the current IPSAS Board work programme include 
public  sector  combinations,  financial  statement  discussion  and  analysis,  and  reporting 
service performance. 

In July 2012, the IPSAS Board initiated a consultation on its work programme for 2013-
14  to  seek  views  on  how  it  should  allocate  its  resources  over  this  period.  It  will  then 
undertake a broader public consultation of its broad strategic direction in 2014. 

39 

Further discussion on governance and resources issues in Chapters 5 and 6. 

EN 

38 

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ANNEX 2.1: SCHEMATIC REPRESENTATION OF THE IPSAS STANDARDS, 
GROUPED BY THEIR MAIN FOCUS 

Presentation of accounts: 

IPSAS 1 - Presentation of financial statements
IPSAS 2 - Cash flow statements 
IPSAS 3 - Accounting policies, changes in accounting estimates and errors
IPSAS 10 - Financial reporting in hyperinflationary economies
IPSAS 18 - Segment reporting 

Income, and expenditure:

Financial position:

IPSAS 4: - The effects of 
changes in foreign currency 
exchange rates 
IPSAS 9: - Revenue from 
exchange transactions
IPSAS 11 - Construction 
contracts
IPSAS 23 - Revenue from non-
exchange transactions (taxes 
and transfers)

Employee benefits (pensions):

IPSAS 25 - Employee benefits

IPSAS 5 - Borrowing costs 
IPSAS 12 - Inventories
IPSAS 13 - Leases
IPSAS 14 - Events after the 
reporting date
IPSAS 16 - Investment property
IPSAS 17 - Property, plant, and 
equipment
IPSAS 19 - Provisions, 
contingent liabilities and 
contingent assets
IPSAS 21 - Impairment of non-
cash-generating assets
IPSAS 26 - Impairment of cash-
generating assets
IPSAS 31 - Intangible assets
IPSAS 32 - Service concession 
arrangements: Grantor

Financial instruments:

IPSAS 28 - Financial 
instruments: Presentation 
IPSAS 29 - Financial 
instruments: Recognition 
and measurement 
IPSAS 30 - Financial 
instruments: Disclosures
IPSAS 15 - Financial 
instruments: Disclosures 
and presentation 
(superseded) 

Consolidation and controlled entities:

IPSAS 6 - Consolidated and separate 
financial statements 
IPSAS 7 - Investments in associates 

Other specific standards
(for completeness):

IPSAS 24 - Presentation of budget information 
IPSAS 22 - Disclosure of information about 
the General Government Sector

EN 

39 

   EN 

 
 
ANNEX 2.2: REFERENCES CONCERNING THE IPSAS STANDARDS 

Accounting  Standards  Review  Board,  Suitability  of  IPSAS  review,  comparison  of 
IPSAS with NZ IFRS as at January 2010, May 2010 

Accounting  Standards  Review  Board,  Suitability  of  IPSAS,  Review  report  of  the 
Working Group, September 2010 

Australian  Accounting  Standards  Board,  (AASB),  AASB  1049  Whole  of  Government 
General Government Sector Financial Reporting, 2007 

Chan,  James  L.,  International  Public  Sector  Accounting  Standards:  Conceptual  and 
Institutional Issues, 2008. 

Deloitte, IPSAS Summary, 2012 edition, February 2012 http://www.iasplus.com 

European  Central  Bank,  ECB/Eurostat  Workshop  on  Pensions,  29-30  April  2009 
(Pension accounting standards), E-book edition, 2010. 

International  Federation  of  Accountants  (IFAC  —  International  Public  Sector 
Accounting Standards Board (IPSASB Study 14 — Transition to the Accrual Basis of 
Accounting:  Guidance  for  Governments  and  Government  Entities  (Third  Edition), 
January 2011 

International  Federation  of  Accountants  (IFAC)  —  International  Public  Sector 
Accounting Standards Board (IPSASB ) Response to Public Consultation Paper on the 
Suitability  of  the  International  Public  Sector  Accounting  Standards  for  EU  Member 
States, May 2012 

International  Federation  of  Accountants  (IFAC)  —  International  Public  Sector 
Accounting  Standards  Board  Draft  Consultation  Paper,  Alignment  of  IPSASs  and 
Government Finance Statistics Reporting Guidelines, June 2012 

International  Public  Sector  Accounting  Standards  Board  Guidelines  for  Structure  and 
Format of IPSASs ‘- June 2010 — www.ipsasb.org 

International  Public  Sector  Accounting  Standards  Board,  Process  for  Reviewing  and 
Modifying IASB Documents, October 2008 

International  Public  Sector  Accounting  Standards  Board  Conceptual  Framework  for 
General Purpose Financial Reporting by Public Sector Entities: Measurement of Assets 
and Liabilities in Financial Statements Phase 3: Consultation Paper, December 2010 

International  Public  Sector  Accounting  Standards  Board  (IPSASB),  Handbook  of 
International Public Sector Accounting Pronouncements 2012 Edition, Volume I and II, 
International Federation of Accountants (IFAC), June 2012 

Khan,  A.,  and  Mayes,  S.,  Transition  to  Accrual  Accounting,  Technical  notes  and 
manuals International Monetary Fund, Fiscal Affairs Department, September 2009 

Müller-Marqués  Berger,  T.,  IPSAS  Explained,  A  Summary  of  International  Public 
Accounting Standards, second edition, 2012 

Norman, Richard,  Accounting for government: How  New Zealand built an accounting 
system  that  tells  the  full  story  about  a  government’s  financial  performance,  Victoria 
Link Ltd, 1997 

EN 

40 

   EN 

 
SAP  for  Public  Sector  —  International  Public  Sector  Accounting  Standards  (IPSAS) 
Impacts and Compliance Aspects, 2011 

United  Nations  Educational,  Scientific  and  Cultural  Organisation  (UNESCO),  Policy 
Guidance Manual for International Public Sector Accounting Standards, 2009 Edition 

EN 

41 

   EN 

 
CHAPTER 3 

3. 

CURRENT STATE OF PLAY IN PUBLIC ACCOUNTING AND AUDITING IN THE EU 

3.1. 

Diversity within and across the Member States 

This  chapter  summarises  current  practices  in  public  sector  accounting  and  auditing  in 
the Member States. 

Eurostat  asked  a  consultancy  to  collect  detailed  information  on  public  accounting  and 
auditing  practices  for  each  Member  State40.  The  study  was  designed  as  a  stocktaking 
exercise and focused on the systems in place in 2012, but some additional information 
was  collected  on  planned  or  on-going  accounting  and  auditing  reforms,  and  on  how 
close existing accounting regimes were to IPSAS. 

This  information  was  gathered  with  two  objectives:  to  provide  information  to  support 
the  assessment  of  this  staff  working  document  and  to  support  Eurostat’s  work  on  the 
verification of debt and deficit data reported under the Excessive Deficit Procedure. 

In  practice,  the  overview  of  public  sector  accounting  and  auditing  practices  below 
shows  a  rather  complicated,  disparate  picture.  Without  going  into  full  detail,  it  shows 
that  current  public  sector  accounting  and  auditing  practices  vary  widely,  not  just 
between Member States but, in many cases, also across different levels of government 
within Member States. 

In the case of some countries, it may be that the information gathered for this study is 
either  incomplete  or  could  benefit  from  further  explanation.  In  other  cases,  on-going 
reforms mean that information will soon become outdated. Eurostat is making available 
the full report so that it can be further developed over the coming years. 

Below is a summary of the main results of the study. 

3.2. 

Overview of public sector accounting practices 

Table 3.1 below gives a summary of the main types of public sector accounting practice 
used in sub-sectors of general government in the Member States. 

The  study  shows  that  a  majority  of  Member  States  have  public  sector  accounting 
practices that can be characterised as accruals or modified accruals accounting across all 
levels of government. Although accruals or modified accruals public accounting data is 
available in these Member States, in many cases, parallel cash accounting systems are 
also maintained, and with few exceptions, budgeting is conducted on a cash basis. 

The  countries  that  reported  having  mixed  public  sector  accounting  systems  were 
Austria,  Cyprus,  Denmark,  Germany,  Hungary,  Ireland,  Italy,  Luxembourg,  Portugal, 
the  Netherlands  and  Slovenia.  These  Member  States  either  use  differing  public  sector 
accounting practices for differing levels or sub-sectors of government, or, for example, 
in  the  case  of  Slovenia  or  Hungary,  different  financial  statements  are  prepared  on 
different accounting bases. 

In Austria, the new accounting system implements accruals accounting for the federal 
government, but the states and municipalities operate cash-based systems. 

40 

Contract  reference  20405.2011.001-2011.219:  An  overview  and  comparison  of  public 
accounting and auditing practices in the 27 Member States. 

EN 

42 

   EN 

 
                                                 
In Cyprus, Ireland, Portugal and the Netherlands, central government applies cash or 
modified  cash  accounting,  while  local  government  uses  accruals  accounting.  In 
Portugal and Ireland, accounting reform, moving to accruals accounting, is underway 
for central government, and in Cyprus, reform is in the planning phase. 

In  Germany,  current  reforms  focus  on  the  modernisation  of  the  cash-based  system  at 
central and state levels. A minority of the federal states, and most of the municipalities, 
have introduced accruals accounting. 

In  Denmark,  the  central  government  and  regional  accounting  systems  are  accruals 
based, whereas for the municipalities, accounting is mainly cash based. 

In  Luxembourg,  central  and  local  government  entities,  with  the  exception  of  public 
establishments (e.g. research centres, state foundations) and public corporations follow 
cash  accounting  principles.  Similarly,  social  funds  also  use  accruals  accounting  rules 
based on the general accounting principles following the national GAAP. 

In Hungary, Italy and Slovenia, a cash/modified cash accounting system applies for all 
sub-sectors of government, although accruals/modified accruals accounting is also used 
when financial statements are prepared. 

Table 3.1: Summary of the accounting model applied by sub-sectors of government in 
the Member States 

Central 

State 

Local 

Accruals 

Modified accruals 

Combination  of  accruals 
and cash 

Cash 

Not applicable 

No  answer  or  pending 
reply 

Total 

12 

5 

5 

4 

- 

1 

27 

2 

- 

1 

- 

23 

1 

27 

Social 
funds 

13 

4 

4 

1 

1 

4 

14 

4 

7 

- 

- 

2 

27 

27 

The overview of Member States’ public sector accounting practices shows that they are 
very  heterogeneous.  No  two  countries  have  the  same  system  or  apply  the  same 
standards.  Moreover,  within  many  Member  States,  different  accounting  regimes  may 
apply for different types of government entities. 

Member  States  with  a  state  government  sector  tend  to  have  the  most  complex 
accounting arrangements, since state governments usually follow their own accounting 
standards,  which  may  differ  from  one  state  to  another.  More  of  the  newer  Member 
States follow an accruals accounting model than is the case for older Member States. In 
particular,  the  Baltic  countries  seem  to  have  accruals-based  standards close to IPSAS. 
Local governments are more likely to have an accruals accounting model than central 
governments. 

EN 

43 

   EN 

 
 
Financial audits 

Financial audits are performed in almost all Member States, though the scope of these 
varies. The approach to financial audit is not necessarily consistent across the EU but, 
overall,  audit  arrangements  appear  to  be  less  heterogeneous  than  accounting 
arrangements.  With  a  few  exceptions,  ISA  or  ISSAI  standards  are  applied  on  a 
voluntary or mandatory basis. 

Accounting and auditing reforms 

Many Member States are engaged in minor or major reforms, depending on the current 
status of their accounting and auditing arrangements. One group of countries — mainly 
those  which  have  recently  implemented  accruals  accounting  —  are  continuously 
improving and fine-tuning their public accounting systems, while another group is still 
in the process of implementation. There is also a smaller group of countries in which no 
reforms are scheduled or in which reforms are at an early stage of preparation. Finland, 
Poland and Luxembourg have projects underway to enhance their auditing systems. 

3.3. 

Links  to  IPSAS  in  the  government  accounting  systems  of  the  Member 
States 

IPSAS  is  a  relatively  recent  set  of  accounting  standards.  The  first  core  set  of  IPSASs 
was developed between 1996 and 2002, with major work to add further new standards 
and  achieve  substantial  convergence  with  IFRS  completed  in  the  decade  since  then. 
This  means  IPSAS  was  a  work-in-progress  when  many  Member  States  last  reformed 
their public sector accounting systems. As a result, links between IPSAS  and  national 
public sector accounting systems tend to be relatively recent. 

Nevertheless, the study shows that IPSAS is a point of reference or guidance for public 
sector accounting standards in just over half the Member States. Table 3.2 summarises 
how the different accounting standards used by Member States relate to IPSAS. 

IPSAS  is  reported  to  be  referred  to  or  used  as  a  basis  for  inspiration  where  deemed 
relevant for national public sector accounting standards in more than half the Member 
States (Austria, Belgium, Bulgaria, Czech Republic, Denmark, Estonia, France, Greece, 
Latvia, Lithuania, Malta, Romania, Slovakia, Spain and Sweden). 

The remaining Member States do not refer to IPSAS in their public sector accounting 
framework, but this does not necessarily mean that they are not aware of it, and, indeed, 
some of their national standards may nevertheless conform to IPSAS. 

EN 

44 

   EN 

 
Table 3.2: Relationship with IPSAS of the national public sector accounting systems of 
Member States 

IPSAS relation 

Total  Percentage 

National standard based on or orientated by IPSAS 

Some IPSAS references 

IPSAS for some Local Government entities 

None 

Grand Total 

9 

5 

1 

12 

27 

33 % 

19 % 

4 % 

44 % 

100 % 

In the study, Eurostat’s consultants developed an indicative measurement of how close 
each Member State’s national public sector accounting standards were to IPSAS. Such 
an  analysis  can  of  course  only  give  an  indication  of  this,  and  the  main  value  of  the 
results  may  actually  be  the  dispersion  of  the  scores,  rather  than  scores  for  individual 
countries. 

To perform this analysis, four characteristics were considered: 

• 

• 

• 

• 

Presentation  of  Financial  Statements.  This  dimension  seeks  to  assess  whether 
all  components  of  the  Financial  Statement  required  by  IPSAS  (according  to 
IPSAS 1) are published; 

Time of recording. This dimension indicates whether the accounting system is 
on a cash or an accruals basis, or modified cash or modified accruals basis; 

Property  plant  and  equipment  measurement  and  recognition.  This  dimension 
seeks  to  understand  whether  the  measurement  and  recognition  of  plant  and 
equipment is similar in spirit to the IPSAS principle (in particular IPSAS 17); 

Provision  measurement  and  recognition.  This  dimension  seeks  to  understand 
whether the measurement and recognition of provision is similar in spirit to the 
IPSAS principle (in particular IPSAS 19). 

As the analysis only takes into account  these four dimensions,  a score of 100 %, does 
not necessary mean that a Member State applies IPSAS in full. Given that a system of 
accounting  standards  involves  more  issues  than  those  specified  above,  this  scoring 
method does not give a full picture of the actual heterogeneity in accounting practices 
across Member States. 

Figure  3.1  shows  the  outcome  of  the  analysis  of  the  central  government  accounting 
practices. The equivalent charts for the other sub-sectors can be found in the complete 
version of the study. 

EN 

45 

   EN 

 
Figure 3.1: Closeness of Member States’ central government accounting practices to 
IPSAS 

The United Kingdom

Malta - EBUS GAPSE

Sweden - Central Government : States agencies

Sweden - Central Government : Other entities

Malta - EBUs

Estonia

France - Public Establishment 

France - Central Government : State

Hungary - Accounting Law

Spain - State, Autonomous bodies, public entities, social fund

Poland - Central Government : Budgetary units

Spain - Public corporations 

Lithuania

Finland - Central and government of Åland

Denmark - Central Government

Slovakia

Czech Republic - Special acc unit

Belgium - Central Government

Luxembourg - Public Establishment

Luxembourg - Public corporation

Portugal - POCP : other entities

Latvia

Poland 

Average

Bulgaria

Slovenia

Austria - Federal government

Romania

Italy - Central Government

Czech Republic - Non enterprise

Hungary - Public Accounting

The Netherlands - Central Governement

Malta - Central Government

Ireland - Central Government

Germany - Cash based Government

s
d
r
a
d
n
a
t
s

g
n
i
t
n
u
o
c
c
A

95%

95%

94%

93%

92%

91%

88%

87%

83%

77%

75%

75%

73%

72%

71%

69%

65%

65%

65%

65%

64%

63%

63%

63%

61%

59%

52%

51%

47%

46%

42%

42%

37%

36%

34%

Portugal - Budget execution : entities cash based

7%

Luxembourg - Central Government : State, Special Funds, State …

0%

Cyprus

21%

Based on this scoring system, the following conclusions may be drawn: 

0%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Score 

There  is  great  heterogeneity  in  terms  of  accounting  practices  across  Member 
States. Indeed, taking IPSAS as a benchmark, public accounting standards used 
in Member States range from over 90% similarity to less than 10 %.  

Member States that apply cash-based accounting standards obviously have the 
lowest scores for similarity with IPSAS. However, the score is not always close 
to zero, for example if, despite most or all public sector accounting being on a 
cash basis, sub-sectors of government publish statements of financial position 
and performance. 

Across the EU as a whole, local government generally scores closer on average 
to IPSAS than central government. 

According to the study, UK public sector accounting standards appeared to be 
closest  to  IPSAS.  Indeed,  the  UK  public  sector  accounting  standards  parallel 
IPSAS in that they are based on IFRS, adapted to the needs of the UK public 

EN 

46 

   EN 

 
 
 
sector.  This  similarity  in  the  origins  of  the  standards  explains  why  UK 
standards are so close to IPSAS. 

It  appears  that  the  more  complex  the  national  public  sector  accounting 
requirements  (in  the  sense  that  differing  requirements  apply  to  different  parts 
of government), the less similar that Member State’s accounting standards are 
to  IPSAS.  Member  States  with  the  least  complex  accounting  arrangements 
seem to be closest to IPSAS. For example, the UK and Estonia — which apply 
consistent standards across all sub-sectors of government — scored more than 
90 % in their similarity to IPSAS. 

3.4. 

Public sector accounting and auditing in each Member State 

Below is an overview of public sector accounting and auditing in each Member State. 
As  well  as  noting  the  different  accounting  practices  followed  in  the  public  sector,  the 
links between IPSAS and national public sector accounting standards are mentioned, as 
are  on-going  or  planned  accounting  reforms.  There  is  also  a  brief  description  of  the 
scope  of  the  financial  audit  framework  applied  in  each  Member  State  for  general 
government. 

This overview is based on more detailed information gathered within the study. 

Austria 

In Austria, taking into account the new legal requirements coming into force in 2013, 
accounting practices are as follows: 

Federal Government accounting 

Budgets and Closed Accounts Regulation 

Internal accounting rules 

Austrian commercial code 

Accounting Regulation 

The  Federal  Government  applies  the  ‘Federal  Government  Accounting  Law’.  Länder 
and  municipalities  apply  the  ‘Budgets  and  Closed  Accounts  Regulation’.  There  are 
Chambers in the central and state sub-sectors and they apply internal accounting rules. 
Social  funds41  follow  the  Accounting  Regulation,  which  is  broadly  similar  to  the 
‘Budgets  and  Closed  Accounts  Regulation’.  Other  entities  and  government  business 
entities  apply  general  national/international  rules  (like  the  Austrian  Commercial  Code 
or IFRS). 

The  new  accounting  system  takes  account  of  the  special  needs  of  the  Federal 
Government and is modelled on IPSAS standards to ensure international comparability. 

41 

Detailed information has not been provided on social funds. 

EN 

47 

   EN 

 
                                                 
Austria: Nature of accounting practices in the sub-sectors 

Financial statements 

Federal government 

Länder and municipalities 

Statement of financial position (balance sheet) 

Accruals accounting 

Not applicable 

Statement  of  financial  performance  (Income 
statement/profit and loss statement) 

Accruals accounting 

Accruals accounting  

Statement of changes in net asset 

Modified cash accounting 

Not applicable 

Cash flow statement 

Cash accounting 

Cash accounting 

The  Court  of  Auditors  performs  a  financial  audit  on  all  sub-sectors.  The  audit  is 
mandatory  and  funded  through  the  federal  budget.  The  auditing  standards  applied  are 
the  International  Standards  on  Auditing  (ISA)  and  the  International  Standards  of 
Supreme Audit Institutions (ISSAI). 
Belgium42 

Belgium  is  a  federal  state  in  which  the  regions,  communities  and  municipalities  are 
relatively independent, so there are many different public sector accounting practices. 

Belgium: Nature of accounting practices in the sub-sectors 

Financial statements 

Central 
government 

Flemish 
government 

local 

Walloon 
Brussels-Capital 
regions 
government 

and 

local 

Statement 
of 
(balance sheet) 

financial 

position 

Statement  of  financial  performance 
(In-come  statement/profit  and 
loss 
statement) 

Accruals 
accounting 

Accruals 
accounting 

Accruals 
accounting 

Accruals 
accounting 

Accruals 
accounting 

Accruals 
accounting 

Statement of changes in net asset 

Accruals 
accounting 

Modified  accruals 
accounting 

Accruals 
accounting 

Cash flow statement 

N/A 

Accruals 
accounting 

N/A 

At  Flemish  local  government  level,  IPSAS  has  provided  significant  inspiration  and 
guidelines for the legislator in developing the reformed accounting and reporting system 
for local governments. 

The local governments of Wallonia and the Brussels-Capital Region have been using a 
dual accounting system involving a financial accounting (double entry) and a budgetary 
accounting system (single entry) since 1995. 

A  project  named  FEDCOM  is  currently  underway  to  reform  and  implement  accruals 
accounting for federal public services. 

42 

Information for state governments and social security funds is not provided. 

EN 

48 

   EN 

 
                                                 
The  Court  of  Auditors’  financial  audits  include  the  federal  and  state  levels  and  the 
provinces  at  local  level.  Municipalities  and  public  corporations  are  not  audited  by  the 
Court, but by private audit firms. 

Bulgaria 

In Bulgaria, public sector accounting practices fall within two broad categories: 

Central  and  local  government  and  social  funds  apply  the  same  set  of  rules. 
These are defined in the Accountancy Act, which is closely linked to ESA and 
which lays down that the reporting of assets, liabilities, income, expenses and 
transactions  of  all  budget  entities  are  to  be  consolidated  by  the  Ministry  of 
Finance  on  the  basis  of  trial  balances  and  other  information  submitted  under 
the rules established by the Minister of Finance; 

Public  hospitals,  the  National  Railway  Infrastructure  Company,  and  the  Fund 
for  Local  Authorities  and  Governments  prepare  financial  statements  under 
IFRS  or  the  Bulgarian  National  Financial  Reporting  Standards  for  Small  and 
Medium-Sized Enterprises. 

Bulgaria: Nature of accounting practices in the sub-sectors 

Financial statements 

Central,  Local  government 
and Social Funds 

Public  hospitals,  NRIC  and 
FLAG 

Statement of financial position 
(balance sheet) 

Accruals accounting43 

Accruals accounting 

of 

Statement 
performance 
statement/profit 
statement) 

N/A 

financial 
(Income 
loss 

and 

Statement  of  changes  in  net 
asset 

N/A 

Accruals accounting 

Accruals accounting 

Cash flow statement 

Modified cash accounting 

Accruals accounting 

IPSAS  is  referred  to  in  the  Accountancy  Act.  There  are  currently  no  plans  for  further 
reforms. 

The Bulgarian National Audit Office performs financial audits for central government, 
local government and social funds. 

Public hospitals, the National Railway Infrastructure Company, and the Fund for Local 
Authorities are audited by statutory auditors, a Bulgarian-certified public accountant or 
by a registered auditing company. The National Audit Office follows the International 
Standards of Supreme Audit Institutions (ISSAI), which are mandatory. 

43 

In fact, the budget entities apply accruals accounting. The only exceptions in the consistency of 
applying the accruals basis are: in budget entities, depreciation is not accrued at the moment and 
taxes  and  social  contributions  are  reported  on  a  cash  basis  (for  notification  purposes  the  time-
adjustment approach is applied). 

EN 

49 

   EN 

 
                                                 
Cyprus44 

Central  government  is  composed  of  ministries  and  independent  authorities,  special 
funds and other not-for-profit organisations. 

Cyprus: Nature of accounting practices in the sub-sectors 

Financial statements 

Central 
(Ministries, 
Funds) 
and 
Security Funds 

government 
Special 
Social 

Central 
government: 
Not-for-profit 
organisations 

Local  government: 
Municipalities 

Statement  of  financial  position 
(balance sheet) 

Modified 
accounting 

cash 

Accruals 
accounting 

of 

Statement 
performance 
statement/profit 
statement) 

financial 
(Income 
loss 

and 

Cash accounting. 

Accruals 
accounting 

Statement of changes in net asset  Modified 

accounting 

Cash flow statement 

N/A 

cash 

Accruals 
accounting 

Accruals 
accounting 

Accruals 
accounting  

Accruals 
accounting 

Accruals 
accounting 

Accruals 
accounting 

Village authorities, which form a small part of local government, use cash accounting. 

The  Treasury  of  Cyprus  is  currently  conducting  a  study  to  identify  the  changes  that 
would  be  needed  and  likely  effects  of  a  move  to  accruals  accounting  following 
implementation of IPSAS. 

An  audit  by  the  Auditor  General  is  mandatory  for  all  sub-sectors.  An  annual  work 
programme  covers  the  financial,  compliance,  performance  and  technical  audits  to  be 
performed.  A  small  number  of  special  funds  are  also  subject  to  a  statutory  audit  by 
private  audit  firms.  In  addition,  the  Auditor  General  may  conduct  further  audit  work 
(financial, performance or other) as deemed necessary. 

Czech Republic 

In  the  Czech  Republic,  public  sector  accounting  practices  fall  within  two  broad 
categories: 

‘Special  accounting  units’  are  Government  and  Parliament,  budgetary 
organisations  (ministries,  central  offices  and  the  Land  Fund),  state  extra-
budgetary 
local  budgetary 
semi-budgetary  organisations  and 
organisations (regional offices, municipalities, etc.); 

funds, 

‘Non-enterprise  units’  include  non-profit  institutions  (public  universities, 
public research institutions, Vine-Grower Funds, schools, associations, etc.). 

The  social  funds  are  composed  of  health  insurance  companies  and  non-profit 
institutions.  The  former  are  regulated  by  the  Special  Accounting  Decree  for 

44 

Detailed information is provided only for the central government. 

EN 

50 

   EN 

 
                                                 
health insurance companies and the latter by accounting decrees for non-profit 
institutions. 

Czech Republic: Nature of accounting practices in the sub-sectors 

Financial statements 

Special accounting units 

Non-enterprise units 

Statement 
of 
(balance sheet) 

financial 

position 

Accruals accounting 

Statement  of  financial  performance 
(Income 
loss 
statement) 

statement/profit  and 

Accruals accounting 

Statement of changes in net asset 

Accruals accounting 

Cash flow statement 

Cash accounting 

Modified 
accounting 

Modified 
accounting 

N/A 

N/A 

accruals 

accruals 

A reform of public sector accounting was implemented in 2010 by central government, 
moving to accruals accounting. The objective was to provide accurate, timely, complete 
and consolidated information regarding the country’s public finances. This reform will 
affect all levels of government and aims to implement modern accruals accounting in all 
sub-sectors of government. The national public sector accounting standard is based on 
IPSAS. 

The Supreme Audit Office (SAO) performs audits combining financial and performance 
audit elements on all central level entities and on entities which manage the property of 
the State. It has no mandate to audit regional, local entities and municipalities. Auditing 
standards used by the SAO are close to ISA. 

Denmark 

Danish public sector accounting practices fall within three categories: 

The  central  government  and  extra-budgetary  entities  apply  the  Government 
Accounting Law45; 

The regions apply the Budget, Accounting and Auditing Order for Regions; 

The  municipalities  apply  the  Budget,  Accounting  and  Auditing  order  for 
Municipalities. 

funds 

for 
The  social 
unemployment  funds  are  prepared  according  to  the  legislation  that  private  companies 
follow if they are not using IAS/IFRS. 

follow  private  sector  standards.  Financial  statements 

The  central  government  and  regions  use  accruals-based  accounting,  whereas  the 
municipalities use mainly cash-based accounting. 

45 

Some  deviations  from  the  Government  Accounting  Law  exist  for  different  institutions.  For 
instance,  the  National  Bank  accounts  for  financial  assets  and  debt  based  on  fair  value,  market 
value, discounted cash flows, etc. Infrastructure assets and palaces and other cultural properties, 
for  instance,  are  not  accounted  for  under  the  accruals-based  method.  All  investments  and 
maintenance are listed and the state of plant and buildings are evaluated. 

EN 

51 

   EN 

 
                                                 
Denmark: Nature of accounting practices in the sub-sectors 

Financial statements 

Central government  Regions 

Municipalities 

Statement  of  financial  position  (balance 
sheet) 

Accruals 
accounting 

Accruals accounting  Cash and accruals 

accounting 

Statement  of 
(Income 
statement) 

financial  performance 
loss 

and 

statement/profit 

Accruals 
accounting 

Accruals accounting  Cash and accruals 

accounting 

Statement of changes in net asset 

Cash flow statement 

N/A 

N/A 

N/A 

N/A 

Accruals accounting  Cash and accruals 

accounting 

For  the  central  government  authorities,  the  application  of  IPSAS  is  an  issue  that  has 
been  and  continues  to  be  under  discussion.  Danish  accounting  standards  were 
implemented prior to the development of IPSAS, but when changes are considered for 
certain  standards,  IPSAS  is  used  as  inspiration  and,  if  considered  appropriate, 
implemented in line with other changes. No accounting reforms are planned in Denmark 
in the near future. 

It  is  mandatory  for  financial  statements  of  all  public  sector  entities  in  Denmark  to  be 
audited.  A  financial  audit  is  performed  by  the  National  Audit  Office  for  Central 
Government. Other government institutions, such as universities, high schools, etc., are 
audited by authorised public accountants, under instruction and review by the National 
Audit  Office.  The  financial  audits  of  the  regions,  municipalities  and  other  public 
entities, such as private schools, public corporations, etc., are performed by authorised 
public accountants. Auditors apply ISSAI and ISA standards.  

Estonia 

All  sub-sectors  of  the  general  government  apply  the  Estonian  Generally  Accepted 
Accounting Principles (GAAP), which are based on the Accounting Act, General Rules 
for  State  Accounting  (based  on  IPSAS)  and  Guidelines  of  the  Accounting  Standards 
Board (based on IFRS). 

Estonia: Nature of accounting practices in the sub-sectors 

Financial statements 

All sub-sectors 

Statement of financial position (balance sheet) 

Accruals accounting 

Statement  of  financial  performance  (Income 
statement/profit and loss statement) 

Accruals accounting 

Statement of changes in net asset 

Accruals accounting 

Cash flow statement 

Accruals accounting 

Profit-oriented corporations can choose to use IFRS. The differences between IFRS and 
the Estonian GAAP are eliminated in the consolidation process. 

There are currently no plans to reform auditing and accounting in Estonia. 

EN 

52 

   EN 

 
For  the  central  government,  the  National  Audit  Office  performs  the  financial  audit. 
Local  government,  the  social  funds  and  public  corporations  are  audited  by  private 
auditors.  The  National  Audit  Office  follows  ISSAI  standards,  while  private  auditors 
follow ISA. 

Finland 

The accounting framework for the public sector consists of two separate standards: 

The Law on the State Budget for the Central Government (except universities 
and the limited company Solidium, fully owned by the State of Finland); 

The Accounting Act for all other public sector entities. The Accounting Act is 
the financial framework covering the private sector and complies with the EU 
Fourth  and  Seventh  Company  Law  Directives  regarding  the  preparation  and 
presentation of financial statements. 

Social security services also belong to this group. 

Finland: Nature of accounting practices in the sub-sectors 

Financial statements 

Central government 

Other public entities 

Statement 
of 
(balance sheet) 

financial 

position 

Accruals accounting 

Accruals accounting 

Statement  of  financial  performance 
(Income 
loss 
statement) 

statement/profit  and 

Accruals accounting 

Accruals accounting 

Statement of changes in net asset 

Accruals accounting 

Accruals accounting 

Cash flow statement 

Accruals accounting 

Accruals accounting 

The accounting principles are based on Generally Accepted Accounting Principles and 
do not refer to IPSAS. There are no current plans to implement IPSAS in Finland. 

One current reform initiative in Finland relates to auditing, and it concerns the planned 
consolidation  of  public  sector  auditors  (chartered  public  finance  auditor)  and  private 
sector auditors (authorised public accountants). 

It is mandatory for the financial statements of all public sector entities in Finland to be 
audited  annually.  For  central  government  entities,  in  most  cases,  a  financial  audit  is 
performed by the National Audit Office. Municipalities and related entities are audited 
by  chartered  public  finance  auditors.  All  other  public  sector  entities,  such  as  social 
funds and public corporations, are audited by private sector auditors (authorised public 
accountants).  The  auditors  of  central  government  entities  follow  guidelines  based  on 
ISSAI  and  ISA  standards.  The  auditing  guidelines  are  set  out  in  national  manuals  for 
local government and the private sector. 

France 

Public sector accounting practices fall within four broad categories: 

The central government, where the Central Government Accounting Standards 
apply.  These  accounting  standards  comprise  a  set  of  Orders  following  the 
Constitutional  By-law  on  Budget  Acts  2001-692  of  1  August  2001.  This  text 

EN 

53 

   EN 

 
refers  to  the  French  Private  Sector  Standards  (Plan  Comptable  General  — 
PCG), IFRS, IPSAS and other specific standards applied to specific issues such 
as social benefits, tax revenues and heritage assets; 
National public establishments — in general46 — apply the M9 Order in terms 
of general accounting and budget. This order was legislated by the Directorate-
General for Public Finances (last updated on December 2011) and also refers to 
the French Private Sector Accounting Standard; 

Local  government  entities  follow  the  M  Orders  (M14,  M52,  M71  …).  These 
accounting  standards  are  enacted  by  the  relevant  ministries.  The  main 
accounting rules refer to the French Private Sector Accounting Standards; 

All systems and entities in the social funds, including social security statutory 
schemes,  apply  accounting  rules  embedded  in  the  French  Private  Sector 
Accounting  Standards  —  PCG  —  (reference  applicable  to  entities  in  the 
competitive  sector)  and  are  on  the  whole  similar.  Concerning  social  security 
schemes, there is only one type of accounting (accruals accounting; no budget 
accounting)  and  the  specific  accounting  standards  derived  from  the  private 
sector accounting standards (Plan comptable unique des organismes de sécurité 
sociale — PCUOSS) was adopted in 2001 

France: Nature of accounting practices in the sub-sectors 

Financial statements 

Central government  National 

public 

Statement  of  financial 
position (balance sheet) 

Accruals 
accounting 

Statement  of  financial 
(Income 
performance 
and 
statement/profit 
loss statement) 

Accruals 
accounting 

Statement  of  changes 
in net asset 

Accruals 
accounting 

Cash flow statement 

Accruals 
accounting 

establishments 

Accruals 
accounting 

Accruals 
accounting 

Local government  Social 
funds 

security 

Modified  accruals 
accounting 

Accruals 
accounting 

Modified  accruals 
accounting 

Accruals 
accounting 

Accruals 
accounting. 

Accruals 
accounting 

N/A 

N/A 

Accruals 
accounting 

Accruals 
accounting 

While  the  accounting  arrangement  may  seem  complex  in  terms  of  the  number  of 
accounting  laws,  French  private  sector  standards  are  the  current  root  of  these,  except 
when the specific characteristics of the public sector require the standards to be adapted. 
Even if all the orders and accounting laws stem from the Chart of Accounts and could 
be  considered  as  similar,  there  are  key  differences  between  them  on  some  essential 
issues. 

The  French  Public  Sector  Accounting  Standards  Board  (CNoCP:  Conseil  de 
normalisation  des  comptes  publics)  continuously  works  to  improve  the  accounting 

46 

Some national public agencies such as the City of Architecture and National Heritage apply the 
French private accounting standards. 

EN 

54 

   EN 

 
                                                 
standards  of  central  government,  public  establishments,  regional  and  local  authorities, 
and social security. 

The Court of Auditors performs an annual financial audit on the central government and 
the  most  important  compulsory  health  care  and  pension  schemes  (General  system). 
Local  government  accounts  are  not  subject  to  a  financial  audit,  but  a  legal  audit  is 
performed by the Regional Court of Auditors every four to five years (indicative). The 
Court of Auditors seeks to follow ISA standards of auditing as closely as possible.  

Germany 

In  Germany,  the  Haushaltsgrundsätzegesetz,  which  applies  to  the  central  and  the  state 
sub-sectors, allows either a cash-based or an accruals-based accounting approach. The 
Federal Government and the 16 federal states are autonomous and mutually independent 
in their budget management. 

The central government and the majority of the federal states use cash-based accounting 
and only a minority of states (Hamburg, Hessen, Bremen and Nordrhein-Westfalen) use 
or have started to implement a full accruals-based approach. 

Each federal state has the power to regulate the accounting system for the municipalities 
located  on  its  territory.  In  three  states,  the  municipalities  may  choose  a  cash-based 
accounting system. However, most municipalities have introduced accruals accounting. 
Even  if  the  accounting  standards  differ  between  individual  states,  local  governments 
that  prepare  accruals-based  financial  statements  follow  the  German  Commercial  Code 
(HGB) to a large extent. 

The social funds are composed of statutory pension insurance funds, statutory accident 
insurance  funds,  statutory  health  insurance  funds,  nursing  care  insurance  funds  and 
statutory unemployment insurance funds: 

Pension  insurance  uses  modified  cash  accounting.  The  guidance  is  designed 
specifically for this entity. 

Accident  insurance  (about  13  entities  for  private  sector  employees  and  about 
27  entities  for  public  sector  employees)  also  uses  a  modified  cash  basis  of 
accounting (with slightly different guidance for the two sectors). 

The  health  insurance  funds  (more  than  150  entities)  and  the  nursing  care 
insurance  funds  prepare  accruals-based  financial  statements.  The  regulations 
are  inspired  by  the  German  Commercial  Code  and  therefore  show  major 
similarities with this private-law standard. 

Unemployment insurance uses cash accounting. The standard is inspired by the 
Federal Government`s accounting law. 

The situation of government accounting reforms in Germany is rather diverse. Whereas 
at  local  level,  accruals  accounting  has  recently  been  implemented  or  reforms  are 
ongoing,  at  federal  level,  there  is  commitment  to  reforming  the  accounting  system 
within the cash basis of accounting. 

EN 

55 

   EN 

 
Germany: Nature of accounting practices in the sub-sectors 

Financial statements 

Central 
government/ 
majority  of  State  govern-
ment (cash based) 

Minority  of  State  govern-
ments  (accruals  based)/local 
governments 

Statement  of  financial  position  (balance 
sheet) 

N/A47 

Accruals accounting 

Statement  of 
(Income 
statement) 

financial  performance 
loss 

and 

statement/profit 

Cash accounting 

Accruals accounting 

Statement of changes in net asset 

Cash flow statement 

N/A 

N/A 

N/A 

Cash accounting 

Financial  audits  are  performed  by  the  Federal  Court  of  Auditors  for  the  central 
government, by state courts of auditors for state governments, and by regional and local 
audit  offices  for  local  government.  The  guidelines  developed  by  the  International 
Organisation of Supreme Audit Institutions (INTOSAI) are not mandatory, but accepted 
as best practice. 
Greece48 

The modernisation of public accounting in central government is under way, but for the 
time being, modified cash accounting is in place. 

All sub-sectors of government are audited by the Hellenic Court of Auditors. The Court 
is responsible for conducting ex-ante and ex-post audits. The former involves the audit 
of state and public corporation expenditure under specifically-issued laws. The second 
type of audit concerns the accounts of public accounting officers and the statements of 
public bodies and local administration agencies. 

Hungary 

Accounting  is  uniform  for  all  reporting  units  within  the  perimeter  of  government 
defined  by  law  and  called  the  ‘Legal  Government  Sector’.  Public  sector  accounting 
practices fall within two categories: 

Public  accounting:  Public  accounting  rules  for  all  units  that  are  part  of  the 
Legal  Government  Sector  and  that  follow  a  government  decree  with  crucial 
departures  from  general  business  accounting.  Social  funds  follow  the  same 
accounting principles; 

law:  The 

law’ 
institutional  coverage  of 
Accounting 
corresponds to units following the general accounting principles either directly 
in Act C 2000 on Accounting, or in Government Decree 224/2000 (XII. 19.) on 
the special provisions for book-keeping and preparation of financial statements 
of other entities. 

the  ‘Accounting 

47 

48 

Only  a  few,  incomplete  accruals-based  statements  of  financial  position  (balance  sheet)  are 
available. 
Due to the current Greek crisis, government representatives were for the most part unavailable to 
contribute  to  the  study.  Information  on  the  nature  of  accounting  practices  in  the  sub-sectors  is 
not provided. 

EN 

56 

   EN 

 
                                                 
Hungary: Nature of accounting practices in the sub-sectors 

Financial statements 

Public accounting 

Accounting law 

Statement  of  financial  position  (balance 
sheet) 

Accruals accounting 

Accruals accounting 

Statement  of  financial  performance  (Income 
statement/profit and loss statement) 

Cash accounting 

Accruals accounting 

Statement of changes in net asset 

N/A 

Accruals accounting 

Cash flow statement 

Cash accounting 

Accruals accounting 

In  Hungary,  there  are  neither  any  references  to  IPSAS,  nor  any  plans  to  further 
implement accruals accounting practices. 

Financial audit is performed by the State Audit Office for central government, the social 
funds  and  local  government.  Certain  types  of  local  government,  local  government 
entities49 and public corporations50 above a certain threshold are audited by private audit 
firms. The work of the State Audit Office is based on INTOSAI standards. 

Ireland 

Public sector accounting arrangements fall within two categories: 

Central government, which includes the departments of State, extra-budgetary 
funds,  other  non-market  agencies,  other  voted  expenditure  and  voluntary  and 
joint board hospitals. Social funds in Ireland are part of central government and 
are subject to the same accounting law; 

Local government, which comprises city councils and educational entities. 

Ireland: Nature of accounting practices in the sub-sectors 

Financial statements 

Central Government 

Local Government 

Statement  of  financial  position  (balance 
sheet) 

Cash accounting 

Accruals accounting  

Statement 
(Income 
statement) 

of 
financial 
statement/profit 

performance 
loss 
and 

Cash accounting 

Accruals accounting 

Statement of changes in net asset 

Cash flow statement 

N/A 

N/A 

N/A 

N/A 

49 

50 

Counties,  towns  with  rights  of  counties,  capital,  and  capital  districts,  local  governments  with 
annual  budgets  over  HUF  300  million  (≈  EUR  1  million)  and  having  debt  liabilities  or  with 
intention of borrowing are audited by private audit firms. 
This concerns all public corporations, public trust funds, and enterprises that maintain a double-
entry  bookkeeping  system  and  simultaneously  fulfil  two  criteria:  average  net  sales  revenue  is 
higher than HUF 200 million (≈ EUR 0.667 million) and average number of employees is higher 
than 50 in two preceding years. 

EN 

57 

   EN 

 
                                                 
At central government level, there is a reform agenda to move departments from cash 
accounting  to  accruals-based  accounting.  By  the  end  of  2005,  all  departments  had 
installed new (separate) information systems. The IPSAS standards are not well known 
in Ireland, but there are plans to research their applicability as an element of phase two 
of the accruals implementation reform. 

The Comptroller and Auditor General perform financial audits on central government. 
For local government audits, the Local Government Audit Service provides independent 
scrutiny of the financial stewardship of local authorities and other local bodies. Auditors 
apply ISA standards. 
Italy51 

Central  government  uses  a  modified  cash-based  accounting  system  called  the  ‘legal 
accruals’ system, which assigns resources in the budget when the obligations with third 
parties arise. Accruals accounting is also used, but not as the primary accounting system 
for some components of the financial statement. 

According  to  two  recent  legislative  decrees,  the  principle  for  the  cash-based  ‘legal 
accruals’ has been modified for local government and a few other kinds of entities into 
the  so-called  ‘enhanced  legal  accruals’.  Under  this  principle,  obligations  are  still 
recorded when the obligation arises, but the amount is imputed only in the year when 
payments  are  due.  This  innovation  has  been  authorised  for  three  years  on  an 
experimental  basis.  After  this,  a  decision will  be  made  concerning  the  basis  on  which 
harmonisation in public accounting will proceed. 

Italy Nature of accounting practices in the sub-sectors 

Financial statements 

Central Government 

Local Government 

Statement  of  financial  position  (balance 
sheet) 

Modified accruals/modified cash 
accounting 

Statement 
(Income 
statement) 

of 
financial 
statement/profit 

performance 
loss 
and 

Modified accruals/modified cash 
accounting 

Modified 
accruals/modified 
accounting 

Modified 
accruals/modified 
accounting 

cash 

cash 

Statement of changes in net asset 

N/A 

N/A 

Cash flow statement52 

Cash accounting 

Cash accounting 

Major  reforms  are  planned  over  the  coming  year  that  will  significantly  change  the 
accounting and auditing framework. The fundamental aspect of the current reform is the 
provision for an enabling act to harmonise the accounting systems and budget formats 
of  general  government  bodies;  therefore  a  single,  consistent  normative  framework  is 
laid down for all entities forming part of general government. The reform of the general 
accounting framework does not currently contain any reference to IPSAS principles. 

The Court of Auditors is responsible for the a priori audit of the legality of Government 
acts, and also for the a posteriori audit of the State Budget’s management. Ultimately, 

51 
52 

Information for social security funds has not been provided. 
Cash  flows  are  recorded  for  GFS  purposes  only  as  neither  central  government  nor  local 
government prepare a cash flow statement. 

EN 

58 

   EN 

 
                                                 
all state spending falls within its remit. Audit work is carried out by the Court`s central 
and  regional  chambers,  with  specific  audit  offices  examining,  at  central  level,  each 
ministry. On a voluntary basis, the Court of Auditors seeks to follow European Standard 
of Auditing standards as closely as possible. 

Latvia 

All general government entities, except public corporations and units, reclassified by the 
Central  Statistical  Bureau  from  the  non-financial  corporation  sector  to  the  general 
government  sector,  apply  the  same  Government  Regulation  on  Budgetary  Institutions 
Accounting,  which  refers  to  IPSAS,  and  the  general  principles  of  the  national  law  on 
accounting.  Public  corporations  and  reclassified  units  apply  the  national  law  on 
accounting and national accounting rules. 

Latvia: Nature of accounting practices in the sub-sectors 

Financial statements 

All sub-sectors of government 

Statement of financial position (balance sheet)  Accruals  accounting,  cash  accounting  for  recoverable, 
modified  accruals  accounting  for  taxes  and  transfers 
payable 

Statement  of  financial  performance  (Income 
statement/profit and loss statement) 

Modified accruals accounting 

Statement of changes in net asset 

Modified accruals accounting 

Cash flow statement 

Accruals accounting and cash accounting 

To  ensure  the  further  development  of  national  legal  bases  for  accruals  accounting,  a 
project  to  develop  national  IPSAS-based  accruals  accounting  standards  is  expected  to 
take place within the next three to five years, with possible further reconciliation with 
ESA and EDP statistics requirements. 

The institution in charge of the financial audit at both central and local government level 
is  the  State  Audit  Office.  For  government  and  municipal  entities,  there  is  also  a 
financial audit, which is carried out by private firms. Auditors apply ISA standards. 

Lithuania 

There is a single accounting principle, defined by law, which is accruals accounting for 
all levels of government. In addition to accruals accounting, all entities have to prepare 
budget execution reports, which are based on cash. The accounts are kept according to 
national  requirements  of  public  sector  financial  reporting  and  accounting  standards, 
which are based on IPSAS. 

EN 

59 

   EN 

 
Lithuania: Nature of accounting practices in the sub-sectors 

Financial statements  

All 

sub-sectors 

of 

government 

Statement of financial position (balance sheet) 

Accruals accounting 

Statement  of  financial  performance  (Income  statement/profit  and 

loss 

Accruals accounting 

statement) 

Statement of changes in net asset 

Cash flow statement 

Accruals accounting 

Accruals accounting 

The  National  Audit  Office  is  responsible  for  performing  financial  and  performance 
audits on central government, social and health funds. Local governments are audited by 
local  government  controllers  that  are  subordinate  to  the  Council  of  local  government 
and apply the methodology of the National Audit Office. Public audit requirements have 
been established by the Law on State Control and approved by the Order of the Auditor 
General and were replaced by direct application of ISA and ISSAI for financial audits 
from 1 June 2012. 

Luxembourg 

Public sector accounting practices fall into five categories: 

Entities  following  the  ‘Law  of  8  June  1999  on  government  accounting’:  The 
financial  reporting  of  the  Head  of  State,  Parliament,  Government,  ministries, 
special  funds  and  state  services  (such  as  high  schools  and  museums)  is  cash 
based; 

Public  establishments  (such  as  research  centres  and  state  foundations)  have 
used  a  standard  Chart  of  Accounts  PCN  since  2011.  The  generally  accepted 
accounting principle is based on the national LUX GAAP53; 

Public corporations follow private sector accounting standards; 

Municipalities  and  cooperations  of  municipalities  use  the  ‘modified  local 
accounting law’; 

Social  funds  use  uniform  social  security  accounting  rules  based  on  LUX 
GAAP, the generally accepted accounting principles. 

53 

Although a Chart of Accounts can also be tailored to an organisation’s specific needs, e.g. Law 
28 February1994. 

EN 

60 

   EN 

 
                                                 
Luxembourg: Nature of accounting practices in the sub-sectors 

Financial statements 

Entities 

Public 

Public 

Municipalities, 

Social 

following 

the 

establishments 

corporations 

cooperations of 

funds 

government 

accounting law 

municipalities 

Statement  of  financial 

N/A 

Accruals 

Accruals 

N/A 

position (balance sheet) 

accounting  

accounting  

Statement  of  financial 

N/A 

Accruals 

Accruals 

N/A 

performance 

(Income 

statement/profit 

and 

loss statement) 

Statement of changes in 

N/A 

net asset 

Cash flow statement 

N/A 

accounting 

accounting  

N/A 

N/A 

Accruals 

accounting 

Accruals 

accounting 

Luxembourg  applies  a  uniform  presentation  of  the  annual  accounts  for  each  sector.  It 
does  not  comply  with  IPSAS.  A  reform  introducing  a  new  standardised  Chart  of 
Accounts  for  the  budget  is  underway,  concerning  municipalities  and  cooperations  of 
municipalities. 

The  accounting  of  central  government  entities  is  subject  to  legal,  financial  and 
performance  compliance  audits  from  the  Court  of  Auditors.  Some  are  also  subject  to 
financial  audit  from  private  audit  companies.  Local  government  entities  are  subject  to 
legal  and  financial  audit  performed  by  the  Ministry  of  the  Interior  and  some  are  also 
subject  to  financial  audit  from  private  audit  companies.  The  social  security  funds  are 
subject to legal and financial audit from the General Inspection of Social Security. The 
approach  of  the  Court  of  Auditors  does  not  currently  follow  international  audit 
standards. A project is underway to develop auditing practices for public entities. 

Malta 

Public sector accounting practices fall within the following categories: 

Central government. Social security forms also part of central government; 

Extra-budgetary units (EBUs) and public corporations applying IFRS; 

Smaller  extra-budgetary  units  applying  General  Accounting  Principles  for 
Smaller Entities; 

Local councils. 

Malta’s  central  government  (Government/ministries  and  departments)  reporting  is  laid 
down  in  the  Financial  Administration  and  Audit  Act  (Chapter  174),  where,  under 
Article  67,  one  finds  the  reporting  requirements  that  the  Accountant  General  has  to 
present for each financial year. Such information as required by law is presented in the 

EN 

61 

   EN 

 
 
 
 
 
 
 
Financial  Report  published  annually  and  presented  to  Parliament  no  later  than  six 
months  after  the  close  of  the  fiscal  year.  This  Financial  Report  includes  a  detailed 
analysis of the financial transactions on a cash accounting basis. 

Malta: Nature of accounting practices in the sub-sectors 

Financial statements 

Government 

/ 

EBUs and public 

Smaller EBUs 

Local 

ministries 

and 

corporations 

councils 

departments 

Statement  of  financial  position 

Modified 

Accruals 

Accruals 

Accruals 

(balance sheet) 

accruals 

accounting  

accounting 

accounting 

accounting 

Statement 

of 

financial 

Accruals 

Accruals 

Accruals 

Accruals 

performance 

(Income 

accounting 

accounting 

accounting 

accounting 

statement/profit 

and 

loss 

statement) 

Statement of changes in net asset  N/A 

Accruals 

Accruals 

Accruals 

accounting 

accounting 

accounting 

Cash flow statement 

Accruals 

Accruals 

Accruals 

Accruals 

accounting 

accounting 

accounting 

accounting 

In  2002, 
the  Treasury  Department  started  preparing  accruals-based  Financial 
Statements. To date, these have only been used for reporting purposes and have never 
been published. Currently, such Statements are not statutory. Thus it follows that they 
are neither presented to the Parliament nor comprehensively audited. 

While ministries and departments use the Central Government Chart of Accounts, extra-
budgetary units, public corporations and local councils use their own Chart of Accounts. 

Some IPSAS standards are partially implemented. There are plans to implement IPSAS 
as the accounting standards to be used by central government, although the plan is still 
in the initial stages and no timescale is yet available. 

The  National  Audit  Office  performs  the  financial  audit  of  the  government,  ministries 
and  departments  and  extra-budgetary  units.  Extra-budgetary  units,  public  corporations 
and local councils are subject to a private financial audit. The auditing standards used 
are ISA and ISSAI. 

Netherlands 

Accounting  standards  differ  between  central  government,  local  government  and  social 
funds: 

Central government applies the standards in the ‘Comptabiliteitswet’; the law 
which  sets  the  rules  for  budgeting  and  reporting.  The  more  detailed  outlines 

EN 

62 

   EN 

 
and  models  are  written  down  in  the  ‘Rijksbegrotingsvoorschriften’,  a 
regulation from the Finance Minister. 

Local government uses an accounting standard for local governments (‘Besluit 
Begroting  en  Verantwoording’),  which  refers  to  the  Dutch  private  sector 
accounting standards laid down in the Dutch Civil Code Book 2, part 9; 

Social  funds  include  only  social  security  services,  which  apply  the  national 
GAAP (the ‘RJ’) and Dutch Civil Code Book 2, part 9. 

Netherlands: Nature of accounting practices in the sub-sectors 

Financial statements 

Central 

government 

Local government  Social funds  

Statement  of  financial  position  (balance 

Cash accounting54  Accruals 

Accruals 

sheet) 

accounting 

accounting 

Statement  of 

financial  performance 

The 

income 

Accruals 

Accruals 

(Income 

statement/profit 

and 

loss 

statement  is  a  mix 

accounting 

accounting 

statement) 

of  cash  accounting 

(receipts 

and 

expenditures)  and 

an  oversight  of 

liabilities 

Statement of changes in net asset 

N/A55 

Accruals 

Accruals 

accounting 

accounting 

Cash flow statement 

Cash accounting 

N/A 

Accruals 

accounting 

Central  government  applies  a  cash  accounting  system,  while  local  government  and 
social  funds  use  accruals  accounting.  However,  local  government  is  not  fully  on  an 
accruals basis, as some items are on a cash basis, or not recorded. There are currently no 
plans for accounting reform or for implementing IPSAS. 

The Court of Auditors performs financial audits for central government. The financial 
audit  of  local  government  and  social  funds  is  performed  by  private  accounting  firms, 
except for the municipalities of The Hague and Amsterdam. These two cities have their 
own audit service. The auditing standards are based on, and in line with, ISA as far as 
possible. 

Poland 

Public sector accounting practices fall within two categories: 

54 
55 

The state balance is in accordance with ESA standards. The ESA standards are accruals based. 
The statement of changes in net assets is included in the disclosure of the state balance. 

EN 

63 

   EN 

 
                                                 
Public  entities  with  legal  personality  (including  social  funds)  —  applying  the 
Accounting Act; 

Budgetary  units  —  applying  the  Accounting  Act  and  Minister  of  Finance 
Regulation 

In  Poland,  all  entities,  whether  public  or  private,  apply  the  Accounting  Act.  The 
budgetary  units  also  apply  the  Accounting  Act  provisions.  However,  in  addition,  they 
also follow the special provisions of the Regulation of the Minister of Finance of 5 July 
2010  on  special  accounting  rules  and  charts  of  accounts  for  the  state  budget,  and  for 
some other units of the public sector. These provisions help the budgetary units to issue 
the (cash-based) statements on budget execution. They also provide for a special Chart 
of Accounts and a template of the financial statement adjusted to the specific character 
of the public sector. 

Poland: Nature of accounting practices in the sub-sectors 

Financial statements 

Statement of financial position (balance sheet) 

Entities 
applying 
the 
Accounting Act

Accruals 
accounting 

Entities  applying  the 
Accounting  Act  and 
Minister  of  Finance 
Regulation 
(Budgetary units) 

Accruals accounting 

Statement  of  financial  performance  (Income  statement/profit 
and loss statement) 

Accruals 
accounting 

Accruals accounting 

Statement of changes in net assets 

Accruals 
accounting 

Accruals accounting 

Cash flow statement 

Cash method 

N/A 

IPSAS is neither applied nor referred to in Poland. 

The Supreme Audit Office audits budget execution for central government, the National 
Bank of Poland, state legal entities, and other state organisations. The Office does not 
audit  financial  statements.  It  applies  national  audit  standards.  Currently,  there  is  a 
reform of audit procedures underway in accordance with the amendment to the Act on 
the Supreme Audit Office of 22 January 2010.The objective is to streamline and legally 
consolidate the audit process. 

Portugal 

While  the  government  accounting  arrangement  may  seem  very  complex  in  terms  of 
number of accounting laws, the current root of all of these laws is the Official Plan of 
Public Accounting (POCP). This is an accruals-based accounting system, and integrates 
three interconnected subsystems in one accounting system: 

Budgetary  accounting  (modified  cash  basis)  —  linked  to  patrimonial 
accounting by accounts 251 and 252 — debtors and creditors 

EN 

64 

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Patrimonial56 accounting — accruals basis 

Analytical accounting — costing by functions and by product/area — accruals 
basis 

Some specific sub-sectors, such as education, social security, local government and the 
health sector, also use a system similar to POPC, the philosophy, principles and rules of 
which are almost identical (sectoral plans). 

We can, however, distinguish two accounting practices: 

Entities of the State, non-profit institutions of central government and regional 
government  only  use  budget  execution  accounting  (cash  basis),  although  this 
will change over the next few years. For these entities, statements of financial 
position and performance are not applicable; 

Other  entities  applying  the  POCP,  and  therefore  using  accruals  accounting, 
integrating accruals and budget execution accounting operations. 

Most  of  the  public  corporations  at  different  levels  of  government  apply  private  sector 
standards greatly inspired by IFRS. 

Portugal: Nature of accounting practices in the sub-sectors 

Financial statements 

Entities on cash basis  Other entities 

Statement of financial position (balance sheet) 

N/A 

Statement  of  financial  performance  (Income  statement/profit 
and loss statement) 

N/A 

Accruals 
accounting 

Accruals 
accounting 

Statement of changes in net asset 

N/A 

N/A 

Cash flow statement 

Cash accounting 

Cash accounting 

The POCP was approved by the Decree-Law 232/97 of 3 September and was a major 
step in the reform of the public accounting and financial administration in Portugal. The 
starting  point  for  reflection  on  the  need  for  accounting  reform  was  the  objective  of 
modernising public accounting and providing essential tools to support management of 
public entities and performance evaluation. The reform is still in progress and changes 
are  to  be  expected  in  standard-setting  accounting,  namely,  IPSAS  adoption.  However, 
no timeline has been set. 

The ‘Inspecção-Geral de Finanças’ (IGF) performs the financial audit for the central and 
local  government,  social  services  and  public  corporations.  But  it  is  the  ‘Tribunal  de 
Contas’,  the  Supreme  Audit  Office,  which  is  the  independent  body  with  a  nationwide 
audit  remit  and  with  the  most  substantial  area  of  work  in  ex-post  audits,  including 
performance audits. It is mandatory to apply the Audit and Procedures Manual. ISSAI is 
followed on a voluntary basis. 

Romania 

All general government entities apply the same accounting standards. 

56 

Business accounting. 

EN 

65 

   EN 

 
                                                 
Romania: Nature of accounting practices in the sub-sectors 

Financial statements 

All sub-sectors 

Statement of financial position (balance sheet)57 

Modified accruals accounting 

Statement of financial performance (Income statement/profit and loss statement) Modified accruals accounting 

Statement of changes in net asset 

Modified accruals accounting 

Cash flow statement58 

Cash accounting 

At the time of writing, only certain provisions of some IPSASs have been implemented. 
Over  the  next  three  years,  national  norms  will  be  improved  with  other  provisions. 
Beyond that period, additional provisions from IPSAS will be implemented if they are 
deemed  necessary.  Although  certain  regulations  are  inspired  by  IPSAS  principles,  no 
explicit reference is made to IPSAS as such. 

The Romanian Court of Auditors performs financial audits on central government, local 
government  and  social  services.  The  Court  has  developed  its  own  standards  in 
accordance  with  generally-accepted  international  audit  standards.  The  standards  are 
close to ISA. 

Slovakia 

A  single  accounting  law  applies  to  all  sub-sectors  of  government,  i.e.  central 
government, local level government and social funds. 

The  Ministry  of  Finance  has  adopted  accruals-based  accounting  principles,  based  on, 
but  not  fully  compliant  with,  IPSAS  principles.  The  Ministry  of  Finance  intends  to 
apply all IPSAS principles in the near future, as there are still some differences between 
current public sector standards and IPSAS. 

Slovakia: Nature of accounting practices in the sub-sectors 

Financial statements 

All levels of government 

Statement of financial position (balance sheet) 

Modified accruals accounting

Statement of financial performance (Income statement/profit and loss statement) Modified accruals accounting

Statement of changes in net asset 

Cash flow statement 

N/A 

N/A 

57 

58 

As  regards  the  system  used  for  the  financial  position  time  of  recording,  according  to  the 
applicable  legislation  no  obligations  are  provided  for  pensions,  impairment  is  optional, 
depreciation is partially provided for. 
Concerning the cash flow statement, the direct method — receipts and payments — is used. The 
cash  flow  includes  flows  from  operational,  investment  and  financing  activities,  for  each 
evidencing receipts, payments and net cash. Details are presented in the implementation account. 

EN 

66 

   EN 

 
                                                 
There is a project intended to implement a single state reporting and accruals accounting 
system. This project, initiated by the Ministry of Finance, will affect central and local 
government.  The  objective  is  to  improve  the  accounting  and  reporting  system  in  the 
public sector to enhance macroeconomic performance and fiscal transparency of public 
finances. 

The  Supreme  Audit  Office  is  responsible  for  legal  audits.  Internal  financial  audits  are 
conducted by the Ministry of Finance in compliance with the Act on accounting rules. 
Audit  reports  will  start  to  be  publicly  available  from  2013.  The  SAO  complies  with 
auditing standards issued by INTOSAI. 

Slovenia 

The Law on Accounting provides accounting rules for any entity that uses public funds 
from the State Budget. It does not make a distinction between central government and 
local government (municipality) entities59. 

Slovenia: Nature of accounting practices in the sub-sectors 

Financial statements 

All levels of government 

Statement of financial position (balance sheet) 

Modified accruals accounting 

Statement  of  financial  performance  (Income  statement/profit  and  loss 
statement) 

Modified  accruals  accounting/ 
cash accounting 

Statement of changes in net asset 

Modified accruals accounting 

Cash flow statement 

Cash accounting 

None  of  the  financial  statements  are  purely  accruals  based,  contrary  to  IPSAS,  but  a 
modified accruals accounting is generally used. Cash flow statements are drawn up on a 
cash accounting basis. No changes are planned and no reform is currently underway. 

The Court of Auditors performs an annual legal and financial audit of the final account 
of  the  central  government  budget  and  social  security  funds.  The  final  reports  of  other 
general government units (municipalities, public extra-budgetary funds, public agencies 
and public institutions of the central and local governments) are occasionally subject to 
legal,  financial,  performance  compliance  and  IT  audits  by  the  Court  of  Auditors.  The 
implementation of ISSAI standards is mandatory for the Court of Auditors. 
Spain60 

Public sector accounting practices fall within the following categories, representative of 
the heterogeneity of accounting practices in Spain: 

59 

60 

The difference in accounting arises between entities that use public funds but are not registered 
corporations  and  those  that  are  normal  registered  corporations  but  are  owned  effectively  by 
central  government  or  local  government.  The  entities  that  use  public  funds  but  which  are  not 
registered  corporations  follow  more  of  a  cash-based  accounting  system.  The  registered 
corporations that are effectively owned or controlled by central government or local government 
need to follow the same accounting rules (Slovenian Accounting Standards, which are similar to 
IFRS in most cases) as all registered corporations (publicly or privately owned). 
Information for autonomous communities, local governments and the central bank has not been 
provided. 

EN 

67 

   EN 

 
                                                 
Entities  applying  the  Public  Accounting  General  Plan  and  Accounting  Rules, 
including  the  State,  autonomous  bodies,  public  entities  and  social  security 
funds; 

Public  corporations  (financial  and  non-financial)  following  the  Accounting 
General Plan, including non-profit institutions; 

Autonomous communities applying the Regional Financial Laws and their own 
regional public accounting plans; 

Local  government  applying  the  Local  Financial  Law  and  Public  Accounting 
Plan for Local Bodies; 

The Central Bank applies the Eurosystem standards. 

Spain: Nature of accounting practices in the sub-sectors 

Financial statements 

Public 
following 
Entities 
Accounting  General  Plan  and 
accounting practices 

Public 
corporations 

Statement of financial position (balance sheet) 

Accruals accounting 

Statement  of  financial  performance  (Income 
statement/profit and loss statement) 

Accruals accounting 

Accruals 
accounting 

Accruals 
accounting 

Statement of changes in net asset 

Accruals accounting 

N/A 

Cash flow statement 

Cash accounting 

Accruals 
accounting 

In 2010, the Spanish administration adopted  a new, IPSAS-based  Accounting General 
Plan  and  Accounting  Rules,  and  is  currently  working  on  adapting  the  public 
consolidation regulation to IPSAS principles. The nature and scope of the existing plan 
for reform is the consolidation process; to define the framework applicable to the State, 
the  autonomous  and  local  public  sector;  and  to  adapt  the  Spanish  public  accounting 
regulation to IPSAS. 

The Court of Auditors and the regional courts of auditors perform a financial audit on 
all  sub-sectors  (ex-post  control).  On  a  voluntary  basis,  the  Court  of  Auditors  seeks  to 
follow ISA standards of auditing as closely as possible. The General Control and Audit 
Office  (IGAE)  and  the  General  Control  delegations  at  agencies  level  play  the  role  of 
internal controllers. 

Sweden 

Public sector accounting practices fall within four broad categories: 

Central government authorities; 

Other central government entities; 

Local  government 
councils); 

Social security funds. 

(municipalities,  municipal  associations  and  county 

EN 

68 

   EN 

 
Sweden: Nature of accounting practices in the sub-sectors 

Financial statements 

Central 

Other 

central 

Local 

Social 

government 

government 

government 

security 

authorities 

entities 

funds 

Statement  of  financial  position 

Accruals 

Accruals 

Accruals 

Accruals 

(balance sheet) 

accounting 

accounting 

accounting 

accounting 

Statement 

of 

financial 

Accruals 

Accruals 

Accruals 

Accruals 

performance 

(Income 

accounting 

accounting 

accounting 

accounting 

statement/profit 

and 

loss 

statement) 

Statement of changes in net asset  N/A 

N/A 

N/A 

Cash flow statement 

Accruals 

Accruals 

Accruals 

accounting 

accounting 

accounting 

N/A 

N/A 

The  Swedish  accounting  system  is  accruals  based.  On  a  basic  level,  there  are  strong 
similarities  between  the  State’s  accounting  principles  and  IPSAS  definitions  and 
principles,  as  national  standards  are  influenced  by  IPSAS  and  other  standards.  At 
present, no major accounting or audit reforms are being considered. 

Central government authorities, including the Swedish Pension Agency, come under the 
scope  of  the  financial  audit  of  the  Swedish  National  Audit  Office.  Municipalities, 
municipal  associations  and  county  councils  are  audited  by  auditors  appointed  by  the 
municipal  or  county  council.  Other  central  government  entities  and  the  Swedish 
National Pension Insurance Funds are audited by private audit firms. The auditors aim 
to follow ISA standards of auditing as closely as possible. 

UK 

Accruals  accounting  was  introduced  for  central  government  departments  and  other 
entities in 2000 (local government entities have accounted on an accruals basis since the 
19th century). Initially, UK GAAP was applied, but since 2009, accounting has been on 
the basis of IFRS, adapted as necessary for the public sector. Budgeting rules are also 
on an accruals basis, aligned as far as possible with IFRS, but with some differences to 
reflect  ESA  95  statistical  accounting  standards.  Technical  accounting  standards  are 
provided through financial reporting manuals issued by the relevant authorities. These 
manuals are prepared with advice given by the Financial Reporting Advisory Board, an 
independent body of experts whose role is to promote the highest possible standard in 
financial  reporting  by  government  and  to  help  ensure  that  any  adaptations  of,  or 
departures from, EU-adopted IFRS are justified and properly explained. 

UK: Nature of accounting practices in the sub-sectors 

Financial statements 

All sub-sectors of government

EN 

69 

   EN 

 
Financial statements 

All sub-sectors of government

Statement of financial position (balance sheet) 

Accruals accounting 

Statement of financial performance (Income statement/profit and loss statement) Accruals accounting 

Statement of changes in net asset 

Cash flow statement 

Accruals accounting 

Accruals accounting 

Public sector entities in the United Kingdom apply EU-adopted IFRS, adapted for the 
public  sector.  Overall,  the  system  is  similar  to  IPSAS  principles.  Where  EU-adopted 
IFRS is adapted and interpreted for the public sector, IPSAS is among the standards that 
can be used as a reference in developing these interpretations and other adaptations. 

The  National  Audit  Office  performs  financial  audits  of  UK-wide  central  government 
departments  and  a  wide  range  of  other  public  bodies.  The  devolved  governments  are 
audited  by  Audit  Scotland,  the  Wales  Audit  Office  and  the  Northern  Ireland  Audit 
Office  respectively.  At  present,  the  institution  in  charge  of  commissioning  audits  for 
English  local  government  is  the  Audit  Commission,  with  private  sector  firms 
undertaking  the  audit  work.  Audit  Scotland,  the  Wales  Audit  Office  and  the  Northern 
Ireland Audit Office either audit or commission audits of local government within their 
remit.  Public  corporations  are  audited  by  private  auditors.  All  financial  audits  are 
conducted  according  to  national  auditing  standards  issued  by  the  Financial  Reporting 
Council,  which  comply  with  EU  requirements  and  with  the  standards  of  the 
International Federation of Accountants. 

EN 

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CHAPTER 4 

4. 

THE  RELATIONSHIP  BETWEEN  GOVERNMENT  FINANCE  STATISTICS  AND 
IPSAS 

4.1. 

Introduction 

EU  governments  produce  two  main  types  of  financial  data  on  their  activities  — 
Government  finance  statistics  for  fiscal  policy  purposes  (including  statistics  for  the 
Excessive Deficit Procedure), and accounting and budgeting reports for  accountability 
and decision-making purposes relating to individual entities or groups of entities. 

The  relationship  between  the  two  types  of  report  is  important,  in  respect  of  both 
transparency  (explaining  to  users  the  differences  between  the  data  in  the  respective 
reports) and efficiency, since public accounting systems are generally the fundamental 
source of data for compiling government finance statistics (GFS). This chapter analyses 
the relationship between EU GFS and IPSAS. 

EU  Government  finance  statistics  are  based  on  the  methodological  rules  of  the 
European  System  of  Accounts  (ESA  95),  set  out  in  Council  Regulation  (EC)  No 
2223/96.  The  ESA  95  is  based  on  the  worldwide  System  of  National  Accounts  (SNA 
1993),  and  is  supplemented  by  further  Eurostat  decisions  and  guidance,  most  notably 
the ESA 95 Manual on Government Deficit and Debt. 

The European System of Accounts is currently being revised to bring it into line with 
the SNA 2008, and the ‘ESA 2010’ is expected to come into force in 2014. Given that 
few  fundamental  changes  are  being  made  with  respect  to  GFS,  the  analysis  in  this 
chapter is largely unaffected by the revision; however, it anticipates ESA 2010 changes 
in some places. 

It  is  also  important  to  note  that  EU  Member  States  also  prepare  government  finance 
statistics for reporting to the International Monetary Fund (IMF)61. Given that the IMF’s 
Government Finance Statistics Manual is based on the SNA, the conceptual differences 
between the IMF and EU GFS data are minimal; however, there are some presentational 
differences. This chapter focuses on the relationship between EU GFS and IPSAS. 

4.2. 

Background 

Statisticians and accountants have a long tradition of cooperation over the years, and it 
is noticeable that the development of the SNA has drawn heavily on the principles and 
presentation  of  business  accounting.  Statisticians  recognise  that  their  data  sources  are 
often based on financial reports. Nevertheless the SNA recognises that there are some 
fundamental differences in approach: 

The  design  and  structure  of  the  SNA  draws  heavily  on  economic  theory  and 
principles  as  well  as  business  accounting  practices.  Basic  concepts  such  as 
production,  consumption  and  capital  formation  are  meant  to  be  rooted  in 
economic theory. When business accounting practices conflict with economic 
principles, priority is given to the latter, as the SNA is designed primarily for 
purposes of economic analysis and policymaking. 

61 

Nearly two-thirds of EU Member States cooperate with Eurostat, so that Eurostat prepares their 
GFS reporting to the IMF from data reported to Eurostat. 

EN 

71 

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In  the  case  of  government  financial  data,  Eurostat  and  IMF  statisticians  have  been 
observers  at  the  IPSAS  Board  for  a  number  of  years,  and  have  worked  with  IPSAS 
Board staff on projects to explore the relationship between GFS and IPSAS. 

A Task Force on Harmonization of Public Sector Accounting (TFHPSA) was created in 
2003.  The  TFHPSA’s  major  areas  of  work  were  to  develop  proposals  for  changes  to 
government finance statistics and/or to IPSASs in the context of the 2008 update of the 
SNA,  and  in  doing  so  to  document  the  similarities  and  differences  between  the  two 
reporting systems. The Task Force published a detailed report in 200562 and an active 
work  programme  was  initiated,  which  notably  led  into  the  preparation  of  a  new 
IPSAS 22 (Disclosure of Financial Information about the General Government Sector) 
in 2006 and to input for the preparation of SNA 2008. 

4.3. 

Conceptual differences between IPSASs and statistical guidelines 

There are many similarities between IPSAS (based on business accounting approaches) 
and  GFS  (based  on  national  accounting  approaches).  Both  systems  seek  to  prepare  an 
integrated and consistent dataset (with data on both stocks and flows), with accruals as a 
guiding reporting principle. 

However, as mentioned above, the systems have different objectives, and this leads to 
certain  differences  of  both  substance  and  presentation.  Financial  statements  based  on 
IPSASs  are  predominantly  intended  to  meet  the  need  for  management  accountability, 
providing  an  evaluation  of  financial  performance  and  position,  and  thereby  aiding 
decision-making.  GFS  are  intended  to  be  used  in  a  macroeconomic  analysis  context, 
with  an  emphasis  on  international  comparability  of  aggregate  data  on  government 
finances. 

This difference in objectives is most evident in the entity on which the dataset reports 
(the so-called ‘reporting entity’). 

• 

• 

62 

63 

In  the  European  System  of  Accounts,  institutional  units  are  aggregated 
(generally on a consolidated basis) into sectors and subsectors. Each individual 
entity  in  the  economy  is  analysed  with  respect  to  its  autonomy  of  decision 
making, to determine if it can be considered to be an institutional unit. Those 
government-controlled  units  that  are  primarily  engaged  in  non-market 
(including redistributive) activities are included within the ‘general government 
sector’,  which  is  the  headline  reporting  entity  used  for  Excessive  Deficit 
Procedure purposes63. 

Under  IPSAS  the  ‘reporting  entity’  is  a  government  or  other  public  sector 
organisation, programme or identifiable activity that prepares general purpose 
financial  reports  (GPFRs).  A  key  characteristic  of  a  reporting  entity  is  that 
there are ‘users’ who depend on these reports for information about the entity. 
The  financial  information  of  any  bodies  controlled  by  the  reporting  entity  is 
wholly consolidated in its financial statements. Whilst it is possible to compile 

at 

http://www.ifac.org/sites/default/files/publications/files/international-public-

Available 
sector.pdf. 
One might nevertheless note the growing interest in data on the activities of public corporations 
in the context of EU economic governance reforms. 

EN 

72 

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a set of IPSAS-based statements for an aggregate of entities, including across 
government, this is rarely done in practice64. 

There  is,  however  a  standard  which  covers  ‘Disclosure  of  financial  information  about 
the  General  Government  Sector’  (IPSAS  22).  This  standard  specifically  sets  aside  the 
application  of  the  usual  IPSAS  consolidation  rules  (IPSAS  6),  thereby  allowing 
presentation of a general government set of IPSAS-based accounts which can be used to 
reconcile the statistical reporting boundary for the general government sector with the 
IPSAS reporting boundary65. 

It  is  conceivable  that  statistical  boundaries  can  form  a  basis  for  drawing  a  reporting 
boundary  in  public  accounting,  without  (as  in  IPSAS  22)  being  the  precise  boundary. 
This kind  of  approach  can  bring  the  two systems  closer together, whilst leaving some 
flexibility  for  reflecting  specific  national  circumstances,  though  at  the  cost  of 
introducing a possible lack of harmonisation between jurisdictions. 
Whilst  there  are  many  further  differences  in  detail  between  IPSAS  and  GFS66,  three 
major  groups  of  conceptual  differences  can  be  found  in  the  recording  of  stocks  and 
flows. 

(3) 

Treatment of revaluations 

GFS record all holding gains and losses (revaluations) in a separate account for ‘other 
economic  flows’,  and  therefore  they  are  not  included  in  recorded  revenues, 
expenditures,  or  the  net  lending/net  borrowing  of  government.  This  approach  reflects 
the view that revaluations can be considered as not being under government control and 
are therefore not relevant to fiscal policy analysis. 

IPSAS requires the majority of revaluations and changes in value to be recorded in the 
Statement  of  Financial  Performance  (and  therefore  in  the  ‘bottom  line’)  as  they  are 
perceived  to  be  relevant  to  a  measurement  of  government’s  activities.  The  main 
exceptions to this are foreign exchange gains and losses related to foreign subsidiaries 
and revaluations of property, plant, and equipment. These value changes are included in 
a separate financial statement, the Statement of Changes in Net Assets/Equity. 

(4) 

Recognition criteria for assets, liabilities, revenue and expenses 

GFS and IPSAS are both based on the principle of accruals and therefore seek to record 
economic  transactions  in  the  period  in  which  they  occur,  with  a  notable  caution  in 
anticipating  future  events.  Nevertheless  GFS  treat  uncertainty  about  future  economic 
outflows differently from IPSAS, recognising fewer liabilities than IPSAS. This may be 
seen in the following areas: 

• 

64 

65 

66 

Guarantees,  and  related  contingent  liabilities,  are  generally  not  recognised  in 
GFS  until  they  are  called67.  IPSAS  requires  that  where  there  is  a  present 

A  notable  exception,  though  on  an  IFRS  and  not  IPSAS  basis,  is  the  Whole  of  Government 
Accounts project implemented in the United Kingdom. 
In  practice  IPSAS  22  has  not  been  fully  applied  in  any  country.  The  closest  one  may  find 
internationally  is  probably  the  presentation  by  the  Australian  government  of  its  financial 
statements, which are closely reconciled with government finance statistics. This is summarised 
on the Consultation Paper issued under the IPSAS/GFS project (see section 4.5). 
These  differences  are  not  covered  here,  but  are  described  in  the  ISPAS  Board’s  Consultation 
Paper  mentioned  in  section  4.5.  Examples  include  recording  of  research  and  development, 
licences and service concessions. 

EN 

73 

   EN 

 
                                                 
• 

obligation  and  an  outflow  will  probably  occur,  a  reliable  estimate  of  the 
amount involved should be recognised as a liability. 

IPSAS  provides  for  the  recording  of  provisions  defined  to  be  liabilities  of 
uncertain  timing  or  amount  (IPSAS  19,  paragraph  18).  Provisions  include 
obligations  for  which  there  is  no  counterparty,  for  example  provisions  for 
restructuring  and  environmental  restoration.  They  also  include  such  issues  as 
non-performing  loans.  GFS  do  not  record  provisions  because  the  national 
accounts system is necessarily symmetric and the values of assets and related 
liabilities must match. 

Differences in the recognition of  liabilities  will lead to differences in the recording of 
revenues and expenditures under the two systems (for example, in general, expenditure 
relating to guarantees will tend to be recorded earlier under IPSAS than under GFS). 

(5) 

Valuation 

GFS adopts a general philosophy of using current market prices as the valuation basis 
for  assets  and  liabilities68.  IPSAS  requires  the  use  of  current  market  prices  for  many 
classes of assets and liabilities. However, for some classes, for example property, plant 
and  equipment,  IPSAS  allows  the  use  of  either  current  market  prices  or  historic  cost. 
For a small group of assets, most notably inventories, IPSAS requires a valuation basis 
other  than  current  market  prices.  Both  systems  allow  for  proxies  to  current  market 
prices. 

It should nevertheless be noted that IPSAS requires the valuation basis for all assets and 
liabilities  to  be  disclosed  and,  where  reporting  is  at  historic  cost,  IPSAS  often 
encourages or requires disclosure of fair value, if there is a material difference between 
the historic cost and fair value. 

Finally, the use of historic cost in the valuation of non-financial assets in IPSAS-based 
accounts  will  also  lead  to  differences  between  the  measure  of  depreciation  in  these 
accounts  and  the  measure  of  consumption  of  fixed  capital  in  GFS  (which  is  a  current 
prices-based  concept).  In  general,  during  periods  when  asset  prices  rise,  measures  of 
depreciation are lower than measures of consumption of fixed capital. It should also be 
noted  that  whilst  IPSAS  treats  depreciation  as  a  cost  in  the  Statement  of  Financial 
Performance,  GFS  includes  gross  fixed  capital  formation  as  expenditure  when 
calculating the surplus/deficit. 

(6) 

Application of the accruals principle 

Whilst the accruals principle is shared by GFS and IPSAS, there are some operational 
areas  of  application  of  the  principle  which  can  be  identified  as  potentially  leading  to 
differences in recording. One significant area for Europe is the time of recording of tax 
and social security contribution revenue: where GFS allows the possibility for Member 
States  to  record  them  on  a  ‘time-adjusted  cash’  basis,  as  an  alternative  option  to  an 
assessment  basis  (which  is  consistent  with  the  approach  in  IPSAS  for  non-exchange 
revenue  under  IPSAS  23).  A  large  majority  of  EU  Member  States  now  use  the  time-
adjusted  cash  approach  for  most  of  their  recording  of  taxes  and  social  contributions. 
Whilst the overall amount of revenue recorded on aggregate over time should be equal 

67 

68 

ESA 2010 will introduce a concept of ‘standardised guarantees’ which will lead to the recording 
of liabilities. 
Note,  however,  that  Maastricht  debt  measures,  relevant  to  the  EDP,  are  based  on  nominal 
valuation. 

EN 

74 

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under the two approaches, the distribution of that recorded revenue across time is likely 
to be different. 

4.4. 

Presentational differences 

In  addition  to  conceptual  differences  between  IPSAS  and  GFS,  the  way  in  which  the 
information is presented and the terms that are used (for the same or similar concepts) 
are  often  different.  It  can  therefore  be  difficult  to  compare  GFS  data  and  IPSAS 
financial statements and disclosures, even if the underlying information is consistent. 

Differences in presentation may be found at three levels: 

(a) 

The titles and purpose of statements 

The  ESA  system  has  a  standard  presentation  of  non-financial  and  financial  sector 
accounts,  which  is  used  for  both  general  government  and  other  sector  accounts  of  the 
economy and rest of the world69. In addition, the EU has adopted a specific approach70 
to presenting the following statistics: 

• 

• 

• 

• 

• 

• 

• 

Government Revenue 

Government expenditure 

Government Deficit/Surplus 

Transactions in Assets 

Transactions in Liabilities 

Other Economic Flows 

Balance Sheets 

IPSAS-based statements are described in IPSAS 1, and as a minimum include: 

• 

• 

• 

Statements of Financial Position or Statements of Assets and Liabilities 
(both equivalent to balance sheets), 

A  Statement  of  Financial  Performance  (also  called  Income  Statement), 
Statement of Revenues and Expenses, Operating Statement, or Profit and 
Loss Statement — which captures the type of transactions which fall into 
GFS government expenditure, revenue and deficit/surplus71, and 

A  Statement  of  Changes  in  Net  Assets,  which  includes  some  elements 
which GFS records as other economic flows. 

(b) 

The breakdowns provided 

GFS,  like  most  statistical  datasets,  use  a  highly  standardised  set  of  economic  and 
functional  classifications  to  ensure  comparability.  For  example,  GFS  relies  rely  on  a 
standardised  functional  breakdown  (health,  education,  etc.)  to  present  government 
expenditure.  These  detailed  classifications  are  very  useful  for  the  analysis  of  the 
financial  aspects  of  government  policies  by  specific  domain.  Whilst  there  are  certain 

69 

70 

71 

This is described in more detail on the dedicated Eurostat web pages for sector accounts, to be 
found at http://epp.eurostat.ec.europa.eu/portal/page/portal/sector_accounts/introduction/. 
See Eurostat’s GFS website, under the link to summary tables:  
 http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/introduction. 
A  major  difference  is  in  the  treatment  of  holding  gains  and  losses,  which  are  included  in  a 
Statement of Financial Performance but are not treated in GFS as expenditures and revenues. 

EN 

75 

   EN 

 
                                                 
fixed  line  items  and  breakdowns  in  IPSAS-based  financial  reports  —  for  example  a 
distinction between current and non-current assets and liabilities — there is also some 
greater  flexibility  in  presentation,  for  example  reporting  on  ‘segments’  to  fulfil  the 
requirements of IPSAS 18 (segment reporting). 

(c) 

Additional information provided 

GFS  statisticians  are  encouraged  (and  in  some  cases  obliged)  to  publish  their  data 
alongside  supporting  information  on  the  sources,  methods  and  information  on 
significant transactions or developments as metadata or footnotes to statistical reports. 
In  addition  to  legally  required  data  (in  the  European  Union,  under  the  EDP  reporting 
procedure  and  ESA  transmission  programme),  GFS  statisticians  may  also  report 
memorandum series on a voluntary basis. But it must be said that the volume of detailed 
information which is required and published in the EU is very significant. 

IPSAS-based statements have far fewer lines of information and breakdowns than GFS. 
However,  the  notes  to  the  financial  statements  can  be  particularly  detailed  since  they 
must include a summary of significant accounting policies, further detailed information 
about individual items reported on the face of a statement (for example, a break-down 
of  property,  plant  and  equipment  into  classes),  information  about  items  that  are  not 
recognised but nonetheless important (for example, contingencies) and risk information 
related to financial instruments. 

GFS, like other main statistical series, serve users by presenting (often long) time-series 
of  comparable  data,  which  means  that  new  source  data,  methodological  changes  and 
errors identified lead to revision of past data. In the case of EU GFS statistics, data are 
compiled  and  published  both  annually  and  quarterly.  IPSAS  only  requires  annual 
reporting, but allows for the possibility of more frequent reporting. Financial statements 
presented according to IPSAS require comparative information about only one previous 
year,  adjustments  to  prior  years  can  be  made  (the  number  of  prior  years  is  not 
specified). 

4.5. 

Latest initiatives 

In 2011 the IPSAS Board approved a new project, the Alignment of IPSASs and Public 
Sector  Statistical  Reporting  Guidance  project,  to  further  enhance  and  promote  the 
reconciliation  and  harmonisation  of  IPSAS  and  public  sector  statistical  reporting 
guidance. Eurostat and IMF statisticians are actively participating in the project. 

The  project  has  a  broad  approach,  dealing  with  both  conceptual  issues  and  practical 
issues,  such  as  guidance  on  developing  an  integrated  Chart  of  Accounts  designed  to 
encompass both IPSAS and statistical needs. 

A Consultation Paper relating to the project was published on 17 October 2012, seeking 
comments from constituents by 31 March 201372. 

The main points raised in the Consultation Paper — in addition to a detailed description 
of  work  undertaken  to  date  and  the  main  methodological  comparisons  between  the 
systems — are as follows: 

(7) 

72 

EN 

The  IPSAS  Board  notes  that  in  some  areas  —  due  to  different  user 
requirements  and  therefore  conceptual  approach  —  certain  differences  will 

http://www.ifac.org/publications-resources/ipsass-and-government-finance-statistics-reporting-
guidelines. 

76 

   EN 

 
                                                 
remain between IPSAS and GFS, and will therefore need to be managed. The 
strategy  for  managing  them  rests  on  three  possible  (and  complementary) 
approaches,  which  may  be  applied  according  to  the  type  of  difference  to  be 
managed: 

(a)  Choice of IPSAS accounting policy options. The IPSAS Board notes that 
where  IPSASs  offer  options  to  preparers,  one  option  may  be  aligned  or 
close  to  the  GFS  approach.  It  has  proposed  that  these  options  be 
highlighted in documents providing guidance for the adoption of accruals 
accounting,  so  that  preparers  are  aware  of  this  when  choosing  between 
possible options. 

(b)  Chart of accounts design. The IPSAS Board notes that chart of accounts 
design can address several types of difference, in particular presentation 
differences. The IPSAS Board proposes guidance on the development of 
integrated charts of account. 

(c)  Production of additional data. The IPSAS Board acknowledges that some 
additional information may need to be prepared for GFS compilers, if it 
is not built into the chart of accounts. 

The  IPSAS  Board  identifies  certain  initiatives  as  possibilities  with  respect  to 
IPSAS. In addition to general approaches which would raise the profile of GFS 
issues  when  standards  are  developed  and  discussed,  there  are  also  some 
specific proposals which may relate to ongoing or future projects. For example, 
one  involves  —  with  the  cooperation  of  GFS  compilers  and  the  International 
Valuation  Standards  Council  —  analysing  the  basis  for  valuation  of  assets 
between  the  two  systems.  The  IPSAS  Board  also  identifies  that  the  current 
IPSAS 22 (reporting on the general government sector) has not been taken up 
by  preparers,  and  considers  a  number  of  options  to  address  this.  The  IPSAS 
Board  asks  for  comments  on  its  proposals  and  any  further  suggestions  for 
opportunities to improve alignment. 

There  are  also  certain  initiatives  mentioned  which  GFS  compilers  could  take 
with  respect  to  alignment.  In  addition  to  possible  joint  work  on  valuation, 
specific  issues  mentioned  include  extractive  industries,  service  concessions, 
research  and  development,  and low interest rate loans.  The  Board  asks if  any 
further issues can be identified. 

(8) 

(9) 

The IPSAS Board has requested comments on the consultation paper by 31 March 2013 
and  will  then  analyse  responses  and  pursue  the  project.  In  the  consultation  on  its 
2013/2014 work programme73, the IPSAS Board set out plans to agree an exposure draft 
in September 2013 and to conclude the project in September 201474. 

4.6. 

Commission considerations 

In contrast to many other regions of the world, the public profile of GFS is very high in 
the EU because they are directly used in European policy making and fiscal control, and 
— in the absence of harmonised public accounting standards — have become, de facto, 
a common public accounting standard. 

73 

74 

http://www.ifac.org/publications-resources/ipsasb-consultation-paper-2013-2014-work-

See 
program. 
Some of these initiatives could be taken earlier as they do not require changes in standards. 

EN 

77 

   EN 

 
                                                 
Many  Member  States  take  great  account  of  statistical  considerations  when  designing 
and  implementing  budgetary  policy  and  in  their  national  budgeting  and  accounting 
systems.  Data  users  are  particularly  interested  in  the  reconciliation  between  public 
accounting  data  published  at  national  level  and  government  finance  statistics,  and 
sometimes  argue  that  differences  between  the  two  raise  quality  concerns  on  the  data, 
even when such differences are purely conceptual in nature. 

The underlying prerequisite for compiling high quality government finance statistics is a 
robust accruals-based public accounting system that is subject to strong internal controls 
and independent audit. This has become increasingly apparent in Europe, and Eurostat 
has taken concrete steps in developing its role in this area. 

interaction  between  possible 
This  context  explains 
implementation  of  micro-accounting  standards,  such  as  IPSAS,  in  Europe  and  the 
existing GFS-based structure. The two would need to exist side by side in the future. 

importance  of 

the 

the 

The  IPSAS  Board’s  ongoing  project  on  IPSAS/GFS  makes  practical  suggestions  for 
further  convergence  between  IPSAS  and  statistical  reporting,  whilst  recognising  that 
some conceptual differences will continue to need to be managed. 

It  is  nevertheless  important  to  underline  that  implementation  of  accruals-based  public 
accounting  systems  (whether  IPSAS-based  or  not)  should 
involve  statistical 
considerations  from  the  start.  For  example,  the  IPSAS/GFS  study  component  on 
designing  charts  of  account  is  expected  to  contribute  to  this  convergence,  and  could 
to,  and  processing  of, 
to  efficient  external  access 
potentially  be  broadened 
information75.  Furthermore,  incorporating  statistical  classifications  into  EU  public 
accounting standards would also improve the link between micro and macro data. 

It should also be noted that public accounting standard setting in Europe is much more 
closely associated with statistical guidelines than elsewhere in the world, and any future 
governance arrangements must take this into account. 

75 

For  example  by  drawing  on  experience  of  implementation  of  XBRL-based  reporting  in  the 
private sector. 

EN 

78 

   EN 

 
                                                 
CHAPTER 5 

5. 

IPSAS AND ACCRUALS IMPLEMENTATION PROCESSES 

5.1. 

Introduction 

This  chapter  focuses  on  the  two  related  issues  of  implementation  processes  and 
timetables. 

Firstly  it  summarises  the  main  issues  identified  in  the  guidance  for  governments  and 
government  entities  on  the  transition  to  accruals  accounting  provided  in  Study  14  — 
Transition  to  the  Accrual  Basis  of  Accounting:  Guidance  for  Governments  and 
Government Entities76, a study issued by the IPSAS Board itself. It then describes the 
related work currently being carried out by the IPSAS Board in the context of its first-
time adoption project. An overview is then given of views expressed on implementation 
processes and timetables in the context of the public consultation carried out by Eurostat 
for assessing IPSAS. 

Short overviews are then provided concerning the recent implementation experiences of 
four countries: Austria, France, Switzerland and the United Kingdom. 

Finally, since  the cost  of  the  transition from cash to accruals or from non-harmonised 
accruals to harmonised accruals would be substantial, Eurostat presents information that 
it has collected on the actual and estimated costs experienced by some Member States 
and other countries, as well as international organisations. 

5.2. 

Transition to the Accrual Basis of Accounting: Guidance for Governments 
and Government Entities — IPSASB Study 14 

Study  14  is  intended  to  assist  public  sector  entities  in  the  process  of  adopting  or 
considering  the  adoption  of  accruals  basis  IPSASs.  The  study  is  primarily  intended  to 
assist public sector entities make the transition from the cash to the accruals basis but it 
may  also  be  useful  for  entities  currently  reporting  on  an  accruals  basis  or  considering 
the adoption of IPSAS. 

Part  I  of  the  study  addresses  general  issues  associated  with  the  transition  to  accruals 
accounting, including factors influencing the nature and speed of the transition, options 
in respect of the transition paths, and the management of the transition process. It also 
considers issues associated with the identification, design, and delivery of training. 

The following texts are closely based on the explanations provided in Part I of Study 14. 

5.2.1.  Transition paths 

The style and speed of the transition to accruals accounting may vary greatly between 
entities.  A  wide  range  of  approaches  and  combinations  of  approaches  are  possible. 
Before  considering  alternative  transition  paths  it  is  necessary  to  have  a  clear 
understanding  of  the  gap  between  the  current  system  of  financial  reporting  and  the 
desired system of financial reporting. 

The  factors  that  may  influence  the  nature  and  speed  of  the  transition  to  accruals 
accounting include: 

76 

http://www.ifac.org/publications-resources/study-14-transition-accrual-basis-accounting-
guidance-governments-and-governm. 

EN 

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• 

The  system  of  government  and  the  political  environment.  Transition 
times  can  be  significantly  different  in  a  developed,  transitional  or 
developing  country  and  also  in  countries  with  a  presidential  or 
parliamentary system. 

•  Whether the reforms are focused solely on accounting change or whether 

they encompass other wider scale reforms. 

•  Whether the changes are being driven from the top down, or bottom up. 

• 

• 

• 

• 

The  current  basis  of  accounting  used  by  the  entity,  the  capability  of 
existing  information  systems,  and  the  completeness  and  accuracy  of 
existing information, particularly in relation to assets and liabilities. 

Any change to the basis of accounting for budgeting. 

The level of political commitment to the adoption of accruals accounting 
or harmonised accruals accounting. 

The  capacity  and  skills  of  the  people  and  organisations  responsible  for 
implementing the changes. 

The  reforms  may  be  applied  to  all  public  sector  entities  within  a  government,  or  they 
may  be  restricted  to  certain  types  of  entities.  For  example,  the  implementation  of 
accruals  accounting  may  occur  on  a  sector-by-sector  basis.  It  may  begin  with 
autonomous  and  semi-autonomous  government  entities  which  already  have  some 
responsibility for managing the resources under their control and which are outside the 
centralised  accounting  system.  Alternatively,  the  changes  may  focus  first  on  budget 
sector entities because such entities make up the core of government activities. 

It is possible to design different transition paths for different types or sizes of entities. 
For  example,  large  entities  may  be  delegated  authority  to  design  and  oversee  the 
development  of  their  financial  information  systems,  whereas  smaller  entities  may  be 
required to follow a centrally determined transition path, including the implementation 
of  specific  financial  information  systems.  For  example,  many  government  business 
enterprises (GBEs) will already use the accruals basis of accounting. The transition path 
for  such  GBEs  would  therefore  focus  on  ensuring  consistency  of  accounting  policies 
and other consolidation issues77. 

Where a government decides to implement whole-of-government reporting, there are a 
number  of  paths  it  can  take.  The  first  accruals  whole-of-government  reports  can  be 
required  at  the  same  time  as  the  first  accruals  reports  from  individual  entities  or  they 
may be delayed for a period to allow more time to focus on the transition by individual 
entities,  the  boundaries  of  the  reporting  entity  and  other  consolidation  issues. 
Consolidated  accruals  reports  for  various  sub-sectors  of  the  whole-of-government 
reporting  entity  could  be  produced  as  an  interim  step,  followed  by  complete  whole-
government  reports.  Another  option  would  be  to  prepare  a  consolidated  cash  flow 
statement as an interim step. 

Accruals accounting requires the recognition of all assets and liabilities which meet the 
definition  of  assets  and  liabilities  and  satisfy  the  criteria  for  recognition  of  assets  and 
liabilities. However, this does not preclude an entity from choosing to move to the full 
accruals basis by recognising assets and liabilities in stages. For example, it is possible 

77 

Under IPSAS GBEs would adopt IFRS requirements. 

EN 

80 

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to focus first on the recognition of short-term assets and liabilities such as debtors and 
creditors.  Recognition  of  property,  plant  and  equipment  would  often  occur  next, 
although recognition of property, plant and equipment  may  occur  in  stages with  those 
assets  that  are  readily  identified  and  measured  being  recognised  first.  Similarly,  the 
recognition  of  liabilities  can  occur  in  a  step-by-step  manner.  Public  debt  is  often 
recognised  first  because  an  entity  usually  has  reasonably  accurate  records  of  existing 
borrowings. Pension and other long-term obligations may be recognised in stages. 

5.2.2.  Transition period 

Usually, the resources available or the extent of political commitment will determine the 
period over which reforms occur. The length of this period may differ from jurisdiction 
to  jurisdiction.  Reform  periods  may  be  short  (roughly  one  to  three  years),  medium 
(roughly four to six years) or long (over six years). 

A short reform period may be appropriate where there is strong political support and a 
limited  number  of  entities.  Medium  reform  periods  provide  more  time  for  the 
preparation  of  detailed  implementation  plans,  the  development  of  accounting  policies, 
and  implementation  and  testing  of  new  systems.  They  also  provide  a  reasonably  long 
time  for  the  education  of  groups  such  as  government  employees  and  politicians 
regarding  the  changes.  In  selecting  a  time  frame  for  the  transition,  a  government  may 
also establish target dates or stages (milestones) for the achievement of various aspects 
of the reforms. Entities may be required to meet certain criteria by certain dates in order 
to progress to the next stage of implementation. 

5.2.3. 

Implementation plan 

The transition to accruals accounting is a major project for most governments. Like any 
large-scale project, it requires careful planning and management. Transition is likely to 
be smoother and faster when the following features are present: 

• 

• 

• 

• 

• 

• 

A  clear  mandate  from  the  appropriate  level  of  the  government  stating 
what the reforms will encompass, the expected timing and the authority 
of  various  government  bodies  to  initiate  the  changes  required.  Political 
commitment  from  both  the  governing  body  and  the  opposing  party: 
because  transition  may  occur  over  a  period  of  years  there  may  be  a 
change  of  government  or  changes  within  a  government  during  the 
transition period. 

The commitment of central entities and key officials. 

Adequate resources (human and financial). 

An effective project management structure. 

Adequate technological capacity and information systems. 

The  use  of  legislation  to  provide  formal  authority  for  the  changes  and 
demonstrate  the  strength  of  the  government’s  commitment  to  the 
changes. 

The entity in transition needs to develop an implementation plan to enable it to achieve 
its goals. The key headings for a generic implementation plan that indicates many of the 
issues that need to be considered and illustrate the size of the project are: 

EN 

81 

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Project initiation 

• 

• 

• 

• 

Document project and obtain project approval 

Establish the steering committee 

Prepare detailed project plan(s) 

Establish project team 

• 

• 

• 

• 

• 

Project sponsor 

Project manager 

Project team (team leader/director and other staff) 

Identify required resources 

Obtain required resources 

Detailed scoping and planning 

• 

• 

• 

Document  existing  processes,  procedures,  and  legislative  requirements 
(including existing accounting policies and systems) 

Identify  proposed  changes  or  areas  of  change  (including  proposed 
accounting policies and systems) 

Systems planning 

• 

• 

• 

• 

• 

• 

Identify structure/ownership of proposed systems 

Identify system requirements (existing and new systems) 

Identify control requirements 

Identify interfaces required 

Develop the chart of accounts 

Develop interfaces (if applicable) 

• 

Reporting 

• 

Develop new reporting requirements 

• 

Audit 

• 

• 

Liaise  with  external  auditor  to  assess  impact  of  changes  on  audit 
process 

Identify role of internal audit during the change process 

Develop communications plan 

Prepare 
accounting, and computer literacy) 

training  strategies  (for  example,  project 

team,  accruals 

Develop change management strategy 

• 

• 

• 

Implementation phase 

• 

• 

Initiate project management responsibilities and reporting structures 

Implement new systems/system changes 

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• 

• 

• 

• 

• 

• 

• 

Reporting 

• 

• 

• 

Implement interfaces 

Develop detailed accounting policies 

Develop/amend 
procedures 

supporting 

financial  management  policies 

and 

Implement roles and responsibilities 

Deliver training 

Obtain approval to switch to new systems 

Implement other phased projects (for example, the recognition of specific 
categories of assets or liabilities may be phased) 

Develop improved external and internal reporting 

Develop financial and non-financial performance measures 

Review controls and procedures that support the integrity of financial and 
non-financial information 

5.2.4.  Chart of accounts 

The  development  of  a  new  chart  of  accounts  is  a  key  step  in  the  adoption  of  accruals 
accounting.  A  well-planned  chart  of  accounts  can  assist  in  the  efficient  generation  of 
financial information for a variety of purposes. 

A chart of accounts is a systematic coding  system  for  the  classification and coding of 
transactions  and  events  within  the  accounting  system.  It  defines  the  organisation  of 
ledgers used within the accounting system. The types of classifications provided for by 
a  chart  of  accounts  may  include  economic,  functional,  administrative,  and  regional 
classifications  as  well  as  more  detailed  classifications  for  cost  centres,  programmes, 
projects, outputs, and outcomes. 

The  chart  of  accounts  is  not  used  solely  in  the  preparation  of  external  financial 
statements.  It  may  also  be  used  to  support  the  preparation  of  internal  management 
reports,  the  preparation  of  regulatory  information  and  the  tracking  of  expenditure 
against  budgets  and  the  preparation  of  fiscal  reports  for  the  European  System  of 
Accounts (ESA) 1995. In order to eliminate the unnecessary reclassification of financial 
data or duplicating the entry of data, it is helpful if the chart of accounts can support a 
range of governmental reporting requirements. 

Once  established,  the  chart  of  accounts  becomes  a  fundamental  component  of  the 
processing  of  financial  information  from  simple  tasks  like  paying  bills  to  complex 
activities such as financial reporting. Because it is embedded in the processing activities 
of  the  entity,  it  becomes  costly  to  change.  It  is  therefore  essential  that  the  chart  of 
accounts is carefully designed to allow for change and growth and to meet the various 
reporting needs of the entity. 

In a well-designed system, the chart of accounts should incorporate the budget accounts 
specified  in  the  budget  classification.  If  a  government  elects  to  report  on  the  accruals 
basis of accounting, but budget on a cash (or modified cash) basis, a combined chart of 
accounts will be more complicated as it will need to be able to generate both reports on 
both the accruals basis and cash basis of accounting. 

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Where a number of individual entities are required to provide information to a central 
entity  for  the  preparation  of  consolidated  financial  statements  or  for  other  reporting 
purposes, it is advised to have a central chart of accounts. Especially in a federal setting, 
where  there  is  no  such  reporting  requirement,  a  unified  chart  of  accounts  can  prove 
helpful in enabling GFS data to be generated in a cost-efficient manner. 

Following  the  development  of  a  new  chart  of  accounts,  it  is  necessary  to  assign 
responsibilities  for  the  day-to-day  management  of  the  chart  of  accounts  and  prevent 
unauthorised  changes.  Supporting  guidance  and  monitoring  may  also  be  required  to 
ensure consistent use of codes. 

5.2.5. 

Staff resources and training 

Besides the chart of account, another key element of successful  implementation  is  the 
adequacy of staff resource levels: 

• 

• 

• 

• 

All personnel — including management — involved in the transition to 
accruals  accounting  or  harmonised  accruals  accounting  should 
understand  the  reasons  for  the  change,  be  capable  of  implementing  the 
changes  they  have  responsibility  for,  operate  the  new  systems  and 
procedures, and understand the information produced. 

Entities  need  to  assess  the  impact  of  the  changes  on  the  competencies 
required in relevant positions, and develop a strategy which includes, but 
is not confined to, training for upgrading skills. 

Options  for  addressing  gaps 
include  recruitment, 
engagement of consultants, development of external courses, and training 
for existing staff. 

in  competency 

Separate  outreach  activities  and  information  materials  are  required  for 
educating  and  creating  awareness  in  groups  such  as  politicians  and  the 
media. 

5.2.6.  Audit requirements 

The accruals-based accounts will also have an impact on public sector audit. The audit 
of accruals-based financial statements is more complex and causes more judgments to 
be  made  by  the  auditor  than  the  audit  of  cash-based  financial  statements.  The  auditor 
(whether a private or public sector auditor) should have the relevant public sector and 
audit knowledge. The application of generally accepted auditing standards is necessary 
to  assure  a  uniform  audit  quality.  The  International  Organisation  of  Supreme  Audit 
Institutions (INTOSAI) provides professional standards and best practice guidelines for 
supreme audit institutions and quality control procedures in audit bodies may need to be 
enhanced  with  the  introduction  of  accruals-based  financial  statements,  as  audit 
judgments become more significant. 

5.3. 

First-time adoption project of IPSAS Board 

In 2011-2012 the IPSAS Board began developing a further project related to the first-
time adoption of accruals  IPSASs. The background to the project was that there is no 
standard that addresses the range of issues arising from first-time adoption of IPSASs, 
and it was considered that the development of a standard in this area would help in the 
implementation  of  accruals  IPSASs.  In  June  2011,  the  IPSAS  Board  approved  the 
project brief on the First-Time Adoption of IPSASs. 

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The  scope  of  this  project  is  to  consider  issues  related  to  public  sector  entities  that  are 
moving to accruals IPSASs not only from an accruals basis of accounting, but from a 
cash basis, modified cash basis or partial accruals basis of accounting. 

In particular, several IPSASs contain transitional provisions for when they are applied 
for the first time. Typically, these transitional provisions allow an entity additional time 
to meet the full requirements of a specific accruals-based IPSAS or provide relief from 
certain  requirements  when  initially  applying  an  IPSAS.  The  transitional  provisions 
govern the length of time available to make the transition and also indicate whether the 
IPSAS should be applied prospectively or retrospectively. These transitional provisions 
are the main focus of the project on first-time adoption. 

The aim of the IPSAS Board is to approve an Exposure Draft of the new standard for 
first-time adoption by March 2013. 

5.4. 

Views expressed on process and timetable in the public consultation 

Taking into account the importance of this subject and the potential interest of a wide 
range  of  stakeholders,  and  given 
implications  of  any 
recommendations  on  future  IPSAS  implementation,  Eurostat  launched  a  public 
consultation from 17 February to 11 May 2012. The consultation asked seven questions. 
All citizens and organisations were welcome to contribute to this consultation. 

the  potential  resource 

From  the  68  contributions  received,  59  respondents  expressed  views  concerning  the 
process  and  timetable  for  a  possible  future  implementation  of  IPSAS  in  EU  Member 
States. 

Overall, the respondents considered that implementing IPSAS would be a medium-term 
or long-term project, taking into account the scale and the costs. 

The  majority  of  responses  —  especially  from  the  German  regional  courts  of 
auditors  —  expected  that  more  than  10  years  would  be  needed  for 
implementation.  Another  significant  portion  of  respondents  thought  that  it 
would take 5 to 10 years, of which 3 to 4 years would be spent on legislation 
and  5  years  on  technical  implementation.  A  smaller  number  of  respondents 
considered that 3 to 5 years could or should be enough. 

fits 

for  all’  model 

One  issue  mentioned  by  several  respondents  was  the  need  to  establish  the 
starting  point  of  each  EU  Member  State.  Based  on  their  preparedness,  the 
timescales  may  differ  from  Member  State  to  Member  State.  As  probably  no 
‘one  size 
individual 
for 
implementation plans with milestones need to be developed which would allow 
progress  to  be  monitored  at  both  national  and  EU  levels.  In  this  context  a 
‘phased’ approach was proposed whereby standards could be implemented, for 
example,  either  sector  by  sector  or  beginning  with  recognition  of  financial 
assets  and  liabilities  and  covering  non-financial  later  so  as  to  mitigate  the 
impact of implementation. 

implementation  exists, 

Several  respondents  were  of  the  opinion  that  a  Regulation  would  be  more 
appropriate  than  a  Directive,  in  order  to  ensure  the  timely  and  consistent 
implementation  of  the  accounting  principles.  However,  a  few  respondents 
would  prefer  a  Directive  with  a  flexible  approach  and  with  scope  for 
derogations. 

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Some  of  the  contributors  also  emphasised  that  IPSAS  implementation  will 
require  substantial  staffing  resources,  new  IT  infrastructure  and  educational 
changes, which would make up the bulk of the expected expenditure. 

5.5. 

Implementation experiences 

5.5.1.  Country experience — Accounting reform in Austria 

Aim of reform 

– 

– 

– 

Strengthen accountability 

Improve budgetary decision making (more and better information) 

Address weaknesses of current system (input focus, no binding medium 
term perspective, dominance of annual cash flows) 

Austria  already  had  a  very  developed  and  comprehensive  accounting  system.  Some 
accruals elements were already in place (a kind of asset accounting), mainly due to the 
widespread cost accounting systems of several entities. 

The  timeline  and  the  process  of  implementing  accruals  budgeting  and  accounting  in 
Austria are illustrated in Figure 5.1. 

Figure 5.1: Implementation timeline for Austria 

This comprehensive reform is taking place only at federal level, although one state has 
already decided to implement a very similar reform, and other states are still considering 
it. 

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The  Austrian  budget  reform  is  a  very  comprehensive  approach  including  a  medium-
term  fiscal  framework,  new  budget  structures  (lump  sum  budgets),  performance 
budgeting  (with  a  special  focus  on  gender  budgeting),  result-oriented  management  of 
state  bodies  and  modernisation  of  the  budgeting  and  accounting  system  (accruals 
budgeting and accounting system oriented towards IPSAS). 

IPSAS was used as a reference for designing the Austrian federal accounting standards. 
87.5 %  of  IPSASs  were  implemented  or  would  be  implemented  if  applicable 
(Hyperinflation, Agriculture, Service Concessions, etc.). The  area of  controlled/owned 
entities was not implemented in line with IPSAS (no consolidation). 

Benefits expected and achieved, costs 

Although the first budget compiled and created under the accruals accounting system is 
currently being discussed in Parliament, several benefits have already become apparent: 

–  More  and  better  information  in  the  budgeting  process  (for  example 
depreciation,  provisions,  etc.)  leading  to  a  different  discussion  in 
Parliament. 

– 

– 

The  view,  from  start  to  finish,  of  the  necessary  future  tasks  of  certain 
ministries. 

Accruals  accounting  supports  the  identification  of  future/past  spending 
(back payments and advance payments). 

The cost of the overall reform currently amounts to roughly EUR 23 million, because all 
of  the  development  and  implementation  tasks,  as  well  as  training,  were  performed  by 
current staff members. 

Another aim of the reform was to reduce the efforts needed to transform the data onto 
an  ESA  basis.  How  successfully  this  aim  will  be  achieved  depends  on  the  further 
development of ESA. 

Concerning  the  implementation  of  an  accruals  budgeting  and  accounting  system,  two 
crucial  difficulties  were  encountered:  compensating  for  the  lack  of  accounting  know-
how in the public sector and ensuring the development of the necessary IT solutions for 
the  reform  elements.  From  the  Austrian  experience  a  comprehensive  approach  uniting 
all reform forces from all entities under one strategy seems to be the most promising. 

5.5.2.  Country experience — Accounting reform in France 

During  the  first  decade  of  the  21st  century,  France  implemented  a  comprehensive 
budgeting and accounting reform. The primary goal for the modernisation of the central 
government’s  financial  information  system  was  to  make  government  transactions  and 
financial information more transparent, presenting true and fair government accounts to 
the Parliament and to citizens. 

The  driver  for  the  French  public  accounting  reform  was  the  Parliament,  with  the 
approval of a constitutional by-law known as the LOLF78 — the Constitutional By-law 
of 1 August 2001 on Budget Acts. 

With  this  reform  the  previous  budgetary  structure  of  the  central  government  based  on 
budget chapters was reformed to a structure of missions, programmes and actions79 and 

78 

Loi organique nº 2001-692 du 1er août 2001 relative aux lois de finances. 

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broken down into public policy objectives and output measures. Greater autonomy and 
responsibility  was  given  to  departments  but  programme  managers,  too,  became  more 
accountable  regarding  the  use  of  their  appropriations.  Continuous  accruals-based 
accounting was introduced. Moreover, the annual set of accruals-based accounts for the 
central government is audited by the Supreme Court of Auditors. 

Concerning the history of public sector accruals accounting development, there are three 
major milestone periods: 

• 

• 

• 

In  the  first  period,  until  1962,  modified  cash  basis  accounting  with  a 
single entry system was applied by the whole public sector. 

From  1962  to  2005,  central  government  (and,  since  1962  with  major 
improvements  in  the  1990s,  for  public  agencies,  local  government  and 
social  security  funds)  used  modified  accruals-based  accounting,  with 
double-entry accounting and a chart of accounts (which was different for 
each of those entities). 
Since  2006,  for  the  central  government80,  accruals-based  accounting 
referring  to  domestic  public  accounting  standards,  with  double-entry 
accounting and a chart of accounts. 

In 2001, the LOLF provided for the introduction of accruals-based general government 
accounts on 1 January 2005, while maintaining the conventional budget presentation in 
terms of receipts and payments (cash basis which remains the main reference of annual 
budget acts). The LOLF required the keeping of three independent accounting systems, 
which should be interconnected: budgetary (cash basis) accounting, financial (accruals 
basis) accounting and management or costs accounting. 

According  to  Article  27  of  the  LOLF,  the  central  government  must  keep  accounts  of 
budgetary  receipts  and  expenditures  and  general  purpose  accounts  for  all  of  its 
transactions. In  addition,  it must implement an accounting system designed to analyse 
the cost of the various actions undertaken as part of its programmes. 

Moreover, Article 30 stipulates that these financial statements are based on the accruals 
accounting principle. Transactions are recognised in the financial year to which they are 
related, independently of the date of payment or receipt. The same principle is found in 
the legislation governing business financial statements. Consequently, the constitutional 
by-law  stipulates  that  the  accounting  rules  for  the  central  government  are  the  same  as 
those for business, except when differences are warranted by the specific nature of the 
central government’s activity81. 

79 

80 

81 

Each mission comprises a set of programmes to which appropriations are allocated and broken 
down into sub-programmes (actions). 
Local government, social security authorities and public agencies draw up their accounts on an 
accruals  basis  using,  when  it  is  relevant,  rules originating  from  the  standards  applicable  to  the 
individual financial statements of business undertakings, namely the plan comptable general, or 
general chart of accounts (PCG). 
Central Government Accounting Standards in France (RNCE — recueil des normes comptables 
de l’Etat) — the conceptual framework for central government accounting. 

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Road map for implementation 
For  the  implementation  of  the  central  government82  accruals  accounting  reform,  a 
detailed road map was put in place, with implementation phased over three stages: 

– 

Stage 1 — Building the foundations (Q1 2003) 

Structuring  the  missions,  programmes  and  sub-programmes;  Definition 
of  the  accounting  reference  framework  —  standards  and  new  chart  of 
accounts; Communication plans; 

– 

Stage 2 — Prefiguration (Q3 2003) 

Adaptation  of  the  information  system;  Presentation  of  appropriations  in 
indicators; 
LOLF  format;  Definition  of  performance  goals  and 
Assessment  and  development  of 
the  experiments;  Definition  of 
accounting procedures; Planning of training programmes; 

– 

Stage 3 — Implementation (Q3 2004) 

Organisational  changes  and  development  of  internal  control;  Training; 
Preparation of the opening balance. 

The challenge was overcome in less than five years. 

By  the  end  of  2002  the  ‘Accounting  Normalisation  Committee’  was  put  in  place  to 
organise the continuous building of public accounting standards and a public accounting 
reference  framework.  A  conceptual  public  accounting  framework  and  13  state 
accounting standards were published in 2004. 

The framework and standards are based on private accounting practices — French chart 
of accounts and accounting rules as primary reference, and IFRS to a lesser extent — 
but  reflect  public  sector  specificities.  The  framework  also  refers  to  IPSAS  and  entails 
the  development  of  specific  standards  and  accounting  treatments  where  necessary,  for 
example for taxes and social benefits and recognition, issues that are not addressed by 
IPSAS. 

As  a  result  of  the  successful  implementation  plan,  the  new  accounting  system  was 
introduced  on  1  January  2006  and  the  accounts  for  2006  were  provided  to  the 
Parliament and certified by the Supreme Court of Audit (Cour des Comptes) with some 
qualifications. 

Since 2004 three additional standards have been published and several modifications or 
additions to the standards (opinions issued by the CNoCP since 2009) have been issued. 

Public sector accounting standards 

Public  sector  accounting  standards  are  enacted  by  the  ministry  in  charge  of  public 
accounts (Ministère de l’économie et des finances) and other ministries if relevant after 
receiving an opinion from the Public Sector Accounting Standards Council (Conseil de 
normalisation des comptes publics — CNoCP). 

The CNoCP was created in 2008 with the responsibility for expressing an opinion prior 
to the legal adoption of general accounting rules applicable to central government, local 
government,  social  security  agencies  and  private  entities  financed  mainly  by  public 

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Central government accounts do not currently include government-owned public agencies. 

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funds  and  in  particular  by  compulsory  levies.  The  CNOCP  is  composed  of  a  board, 
three permanent commissions and an advisory committee for general guidance. 

The  board  is  made  up  of  the  president  of  the  Council  and  18  members  (9  ex  officio 
members and 9 technical experts), with representatives from both the public and private 
sector.  The  board  adopts  opinions  and  recommendations  by  a  majority  of  members 
present  (providing  at  least  10  members  are  present),  based  on  the  proposals  made  by 
permanent commissions. The three permanent commissions cover: central government 
and  government-controlled  organisations;  local  government  and  local  public  agencies, 
and social security agencies and similar organisations. The permanent commissions are 
provided  with  proposals  for  opinions  and  recommendations  prepared  by  working 
groups. 

Working  groups  are  set  up  on  each  topic  to  be  examined  by  the  board,  based  on  its 
annual  work  plan.  Each  working  group  is  presided  over  by  a  technical  expert  from 
public or private background and open to all participants. The activity reports and work 
plan of the CNoCP are available to the public on its internet site83. 

5.5.3.  Country experience — Accounting reform in Switzerland 

The Swiss Confederation is a federal republic consisting of 26 cantons and some 2 500 
municipalities in addition to the federal authorities. Switzerland has a strong tradition of 
decentralised government and autonomy. 

In Switzerland, the cantons and local governments have been using a modified accruals 
accounting model for more than 20 years. The first reforms in the 1970s introduced the 
Harmonised  Accounting  Model  (HAM),  but  the  first  version  from  1977  was  used  by 
only a few pilot cantons. 

The  implementation  of  accruals  accounting  across  all  cantons  occurred  in  the  1980s 
with  the  Harmonised  Accounting  Model  1981,  following  a  recommendation  by  the 
Cantonal Ministers of Finance. The municipalities followed the cantons, usually with a 
delay of a few years. The Federal Government considered the Harmonised Accounting 
Model but, in the 1980s, rejected reforms and stayed on modified cash accounting, with 
a  balance  sheet  compiled  for  statistical  purposes.  HAM  1981  covered  both  accruals 
accounting and accruals budgeting. Its key feature was to bring a fully harmonised chart 
of  accounts,  but  its  weakness  was  that  detailed  accounting  practices  were  not 
harmonised.  For  example,  some  issues  like  recognition,  measurement  and  disclosure 
were not treated. 

In the early 2000s, in the light of  the growing demands on financial management, the 
federal  level  and  the  cantons  of  Geneva  and  Zurich  decided  to  overhaul  the  Swiss 
Confederation’s  accounting  system  and  to  introduce  the  New  Accounting  Model 
(NAM)  at  federal  level  and  HAM2  for  the  states/cantons.  In  this  new  model,  the 
accounting  is  based  on  IPSAS  and  there  is  an  alignment  with  IPSAS  wherever  it  is 
considered feasible. 

At federal level IPSAS has been directly adopted through references in legislation and 
the  accounting  policy  and  manual  are  defined  by  the  Federal  Finance  Administration 
(FFA).  The  aim  is  to  eliminate  departures  from  IPSAS  over  time.  The  Swiss  Federal 
Finance  Administration  considers  that  while  some  IPSAS  standards  are  more 
challenging  to  implement,  none  is  impossible  and  issues  often  prove  to  be  non-

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permanent  or  organisation-specific.  Reasons  for  departures  from  IPSAS  must  be 
disclosed  in  financial  statements.  The  new  federal  accounting  model  —  NAM84  was 
used for the first time for the 2007 budget and the 2008–2010 financial plan. 

At cantonal level, projects are most advanced in the cantons of Zurich, Geneva, Basel 
Stadt,  Luzern,  Solothurn  and  Bern.  Although  these  cantons  are  very  much  geared  to 
IPSAS they have opted for differing approaches in the development of accounting and 
statistical  systems.  At  canton  and  municipality  level,  HAM2  was  drawn  up  on  the 
instructions  of  the  Conference  of  the  Cantonal  Directors  of  Finance  by  the  Technical 
Committee for Cantonal Financial Questions (FkF), as a further development of HAM1. 
Based  on  IPSAS,  and  in  coordination  with  the  new  accounting  model  of  the 
Confederation, the FkF drew up 20 HAM2 standards, which were approved in January 
2008, and the related manual was published with a recommendation to the cantons and 
municipalities to implement the standards as quickly as possible, i.e. within the next 10 
years.  Although  Swiss  cantons  and  local  governments  have  been  using  accruals 
accounting for many years, IPSAS still brings some innovations and is challenging for 
their  accounting  systems.  The  main  differences  lie  in  the  valuation  of  assets  and 
liabilities, the consolidation of controlled entities, and disclosures. 

The  new  accounting  model  is  viewed  as  bringing  transparency  and  comparability, 
facilitating the job of financial management and helping to generate public confidence. 
It also brings the accounting standards of public authorities and the private sector closer 
together, thereby improving comparability. The accounting structure is very close to the 
model used in the private sector, comprising the Profit and Loss Statement, the Balance 
Sheet, and the Statement of Investments or Capital Expenditure. 

Switzerland’s  financial  statistics  system  is  designed  to  ensure  that  government  units’ 
data are comparable at national level. One of the main tasks of financial statistics is to 
disclose  the  revenue,  finance  and  asset  situation  of  the  government  units  and  the 
structure  of  their  expenditure  on  a  comparable  basis.  Only  by  ensuring  national 
comparability  is  it  possible  to  aggregate  the  individual  federal  levels  into  the  general 
government sector. And only after such aggregation into the general government sector 
is  it  possible  to  view  the  financial  situation  of  the  government  units  from  a 
macroeconomic perspective. In  essence, the statistical  system is  based  on  HAM2,  and 
allows  analysis  of  remaining  differing  accounting  practices  at  the  level  of  individual 
government units. The resulting statistics are compiled according to the IMF model and 
then adapted to the European System of Accounts (ESA 95). 

In terms of the basis of consolidation of the federal accounts, the consolidated financial 
statements  include  all  entities  within  the  group  (excluding  significant  interests85)  on  a 
full  consolidation  basis.  Assets  and  liabilities,  as  well  as  expenses  and  revenue  are 
therefore recognised in full. 

In  the  view  of  the  Federal  Ministry  of  Finance,  the  potential  benefit  foreseen  for 
Switzerland of implementing a set of harmonised accruals accounting standards in the 
EU would be to reduce uncertainty, particularly in the financial markets, by means of 
improved  transparency,  reliability  and  comparability  of  the  financial  reporting  of 
general government units. 

84 
85 

http://www.efv.admin.ch/e/downloads/finanzpolitik_grundlagen/rechnungsmodell/NAM_brochure_e.pdf. 
An extension of the scope for consolidation, including all significant interests, is currently being 
considered. 

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5.5.4.  Country experience — Accounting reform in United Kingdom86 

The United Kingdom of Great Britain and Northern Ireland is a unitary state made up of 
four countries: England, Wales, Scotland and Northern Ireland. The United Kingdom is 
governed  by  the  UK  Parliament  and  Wales,  Scotland  and  Northern  Ireland  each  have 
devolved autonomous powers. 

Accruals accounting has a long history in some parts of general government in the UK, 
with  the  notable  exception  of  central  government.  Major  city  councils  (e.g. 
Birmingham,  Manchester,  Bradford,  Cardiff,  and  Bristol)  started  to  adopt  accruals-
based accounting from the mid-19th century onwards. Moreover, many of the industries 
nationalised  in  the  period  between  1946  and  the  early  1950s  used  accruals  and  this 
practice was continued after nationalisation. Accruals became compulsory for all but the 
smallest local entities under the reorganisation of local government in 1974. In the early 
1990s the introduction of an internal market in health led to accruals being adopted by 
hospitals. 

The  Public  Accounts  Committee  of  the  UK  Parliament  first  proposed  a  system  of 
consolidated  accounts  for  central  government  in  1990,  with  the  aim  of  improving 
accountability and simplifying the government accounts. In 1993 it was announced that 
resource  accounting  would  be  introduced  across  central  government,  and  a  Treasury 
Green  Paper  of  1994  on  resource  accounting  proposed  moving  from  cash-based 
accounts and adopting output and performance indicators. This was followed, in 1995, 
by a White Paper ‘Better Accounting for the Taxpayers’ Money’. The White Paper also 
proposed  the  establishment  of  a  Financial  Reporting  Advisory  Board  to  ensure  a  high 
standard  of  government  financial  reporting  and  close  compliance  with  Generally 
Accepted  Accounting  Practice  (GAAP).  Reform  was  considered  necessary  in  order  to 
achieve  comparability  across  the  government  sector  and  with  the  private  sector,  and 
increased transparency and accountability. 

The government’s 1998 Economic and Fiscal Strategy Report also proposed replacing 
cash-based  accounts  with  accruals  for  the  whole  of  government.  It  argued  that  this 
would provide better information, consistent across government departments, and would 
assist macro decision-making and capital planning, as well as providing Parliament with 
an audited picture of performance and of the financial position. 

Legal effect was given to the proposals by the Government Resources and Accounts Act 
2000.  The 
introduction  of  Resource  Accounting  and  Budgeting  (RAB)  was 
accomplished in a number of stages, beginning with implementation in all departments 
in  April  1998.  Audited  resource  accounts  were  published  for  the  financial  year 
1999/2000, and a public spending review conducted on a resource basis was carried out 
in 2000. The first full set of resource-based budgets was presented to Parliament for the 
financial year 2001/02. RAB is an accruals-based accounting framework which aims to 
convert the Government’s policy priorities into departmental strategies and budgets, so 
that the efficiency and effectiveness of services provided can be reported to Parliament. 

A  scoping  study,  ‘Whole  of  Government  Accounts’,  was  published  in  1998  and 
examined the feasibility of developing a full set of audited accounts covering the whole 
public  sector  based  on  UK  GAAP.  The  study  proposed  an  incremental  approach, 
beginning  with  a  set  of  consolidated  financial  statements  for  central  government,  and 

86 

The case of the UK is all the more interesting as it is the only Member State having developed 
the consolidation of accruals accounts to the level of the whole of government. 

EN 

92 

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then  consolidating  other  parts  of  the  public  sector  before  deciding  whether  to  move 
immediately to a consolidation of the whole of the public sector. After several dry run 
sets  of  accounts,  the  first  Whole  of  Government  Accounts  were  published  for  2009-
2010  in  2011,  covering  the  whole  of  the  UK  public  sector.  WGA  consolidate  the 
financial  statements  of  about  1 500  entities  from  central  government  (including  the 
devolved  governments  of  Wales,  Scotland  and  Northern  Ireland),  local  government, 
public health services and public corporations. 

The National Audit Office, together with the Audit Commission, Audit Scotland, Wales 
Audit Office, Northern Ireland Audit Office, and private sector firms, have established 
audit programmes for WGA, covering the consolidation submitted by each entity. The 
audit  opinion  on  the  first  2009/10  WGA  was  qualified  and  the  auditor’s  report 
highlighted several limitations of the published accounts. These included the lateness of 
publication  and  the  understatement  of  public  assets  and  liabilities  because  publicly 
owned banks, the Bank of England and Network Rail were excluded, and because local 
government  was  still  on  a  UK  GAAP  basis.  The  Comptroller  and  Auditor  General 
therefore qualified the audit opinion. 

5.6. 

Cost  of  adopting  accruals  accounting  as  experienced  or  estimated  by 
countries  

One of the main obstacles to the future implementation of IPSASs or other harmonised 
accruals accounting standards is the high expected cost of implementation. Moreover it 
can  be  argued  that  the  ongoing  cost  of  running  an  accruals-based  accounting  system 
would be higher than that of maintaining only a cash-based accounting system. 

Costs are strongly influenced by the scale and pace of accruals implementation, the size 
and  complexity  of  the  government  sector,  and  the  sophistication  of  existing  systems. 
Costs will be lower where the extent of the changes required is smaller, and they can be 
integrated with systems replacement cycles. In practice, the implementation of accruals 
accounting is often only part of a wider project to modernise government financial and 
management information systems, making the separation of costs directly linked only to 
accruals accounting difficult or impossible. 

Eurostat  has  nevertheless  collected  information  on  actual  and  estimated  costs 
international 
experienced  by  Member  States  and  some  other  countries  and 
organisations, which is annexed to this chapter. 

In  the  Czech  Republic,  the  cost  of  CZK  2 558.4  million  (around  EUR  100  million) 
covers  the  implementation  of  the  four  functional  phases  of  the  Integrated  Information 
System.  The  yearly  licence  fee  for  the  accountancy  IT  system  is  CZK  60  million 
(around EUR 2.5 million). 

In France, the Court of Auditors has estimated the direct and indirect costs of transition 
the  French  State  (not  all  French  public 
to  accruals  accounting  ‘solely’  for 
administrations)  to  be  around  EUR  1 500  million  over  10  years.  This  cost  covers 
expenses  incurred  by  the  producer  of  the  accounts  (in  this  case  the  Ministry  for  the 
Budget  and  Public  Accounts),  information  systems  (investment  and  maintenance), 
training, etc. 

In Slovakia, the cost of EUR 21.6 million includes the software, hardware and training 
of the public employees. 

In  Denmark,  a  new  ERP  system  and  a  reconciliation  system  were  introduced  shortly 
before  the  decision  to  move  central  government  accounting  to  accruals.  A  few  large 

EN 

93 

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central government agencies had already moved their accounting to a SAP system. For 
this reason the move to accruals did not include IT costs. The table below shows both 
system implementation costs (implementation of the ERP system and the reconciliation 
system,  but  not  of  the  SAP  implementation)  and  the  costs  of  introducing  accruals 
accounting. The total cost came to DKK 455 million (around EUR 60 million). 

Table 5.1: Breakdown of implementation costs for Danish Central Government 
(provided by Danish participant of the IPSAS Task Force)87 

Million DKK 

ERP-system (Navision Stat) 

Preparation in Ministry of Finance (including software license) 

Implementation costs within Ministry of Finance 

Implementation costs in Line Ministries 

Implementation costs within Ministry of Finance (Upgrade 2004) 

Implementation costs in Line Ministries (Upgrade 2004) 

Central reconciliation system (SKS) 

Implementation of Accruals Accounting 

Preparation and project management within Ministry of Finance 

Implementation in Line Ministries 

Total 

Costs 

Total

245

25 

110 

60 

10 

40 

30 

140 

40

170

455

The cost of EUR 240 million indicated for Hessen in the annex below only relates to the 
set-up  of  the  IT  system.  Other  costs,  such  as  training,  external  consultation  fees,  the 
valuation of assets and labour costs are not included. 

Box: Overview of the Cost of Government-Wide (state and ministries) Implementation 
of Accrual Basis Accounting in the Netherlands 

Incidental (one-off) costs 
IT systems 
Personnel 
Valuation of assets 
Change process 
Total implementation 

Lower Threshold 
€ 30 million 
€ 16 million 
€ 11 million 
€ 72 million 
€ 129 million 

Upper Threshold 
€ 71 million 
€ 25 million 
€ 22 million 
€ 143 million 
€ 261 million 

Structural costs 
Personnel                           
Maintenance of IT systems 
Valuation of assets 
Total structural costs per year 

€ 6 million 
€ 2 million 
€ 5 million 
€ 13 million 

€ 14 million 
€ 4 million 
€ 11 million 
€ 28 million 

In  2010,  in  the  Netherlands  following  a  request  made  in  Parliament,  the  government 

87 

During 2000-2002 and with a major upgrade in 2004 a new ERP-system was introduced. This was in place before the 
introduction  of  accruals  accounting.  Also  in  2004  a  new  reconciliation  system  was  introduced  collecting  accounting 
information  from  all  central  government  entities.  The  implementation  of  accruals  accounting  was  carried  out  during 
2003-2005. The table does not include the costs of implementing a SAP based system in five large central government 
entities. 

EN 

94 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
produced  an  analysis  which  includes  an  estimation  of  the  cost  of  introducing  accruals 
accounting across the government. 

In  Switzerland,  for  the  Federal  Government,  the  cost  of  implementing  the  accruals 
IPSASs was estimated at CHF 65 million (around EUR 38 million) which included the 
replacement  of  the  Enterprise  Resource  Planning  (ERP)  IT  system.  For  larger 
states/cantons,  e.g.  Zurich,  the  cost  was  approximately  CHF  3  million  (around  EUR 
1.75  million)  excluding  the  IT  system,  which  did  not  need  to  be  replaced.  Smaller 
states/cantons  actually  made  savings  as  the  State  of  Zurich  made  its  documents 
available to them. 

In conclusion therefore, and as an order of magnitude, and based on the experience of 
those  countries  for  which  data  is  available,  the  possible  cost  for  a  medium-sized  EU 
country  of  moving  from  a  cash-based  accounting  system  to  an  accruals-based 
accounting system could be up to EUR 50 million, for central government but no other 
layers  of  government.  This  amount  would  include  for  example  the  cost  of  putting  in 
place  new  standards  and  the  associated  central  IT  accounting  tools,  but  not  costs 
entailed in a complete reform of the system of financial reporting. For larger Member 
States,  and,  for  example,  for  those  with  autonomous  systems  of  regional  government, 
those  with  more  complex  government  systems,  and  those  which  have  made  least 
progress  on  accruals  accounting,  the  costs  could  be  much  higher,  especially  if  the 
transition  to  a  harmonised  accruals  system  is  combined  with  wider  reforms  of 
accounting and financial reporting practices. For example, the cost of the accruals and 
budgeting reforms in France was very much higher. For a smaller Member State, which 
already has national systems of accruals accounting in place, the costs might be lower 
than EUR 50 million. Taking the estimated costs as a percentage of GDP, all of the cost 
estimates collected and summarised here fall within the range of 0.02 to 0.1 % of GDP. 

EN 

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ANNEX 5.1: COST OF ACCRUALS IMPLEMENTATION 

Body 

Year 

Costs 

Information source 

Comments 

Czech Republic  2009 

CZK 2 558.4 
million 

http://www.mfcr.cz/cps/rde/xchg/mfcr/xsl/tiskove_zpravy_49192.html?ye
ar=2009 

CZK 60 million 
yearly IT licence 

Denmark 

France 

Slovakia 

Hessen 

2003-
2005 

2006-
2015 

2005-
2008 

2000-
2004 

DKK 455 million  Document provided for IPSAS TF meeting 5/6.07.2012 by the 

representative from the Danish Agency for Modernisation of Public 
Administration 

EUR 1 500 
million 

http://www.ccomptes.fr/fr/content/download/1548/15346/version/2/file/P
_chorus.pdf 

SKK 651.6 
million (EUR 
21.6 million) 

http://www.nku.gov.sk/documents/10157/22308/456-
Sprava+o+vysledku+kontroly+postupov+a+financneho+plnenia+Minister
stva+financii+SR+pri+realizacii+projektu+zavedenia+jednotneho+statne
ho+uctovnictva+a+vykaznictva+.html.pdf 

EUR 240 million 

http://www.hessen.de/irj/hessen_Internet?rid=HStK_15/hessen_Internet/n
av/dea/dea5072f-a961-6401-e76c-d1505eb31b65,e9d70a4e-3db0-4ef0-
b529-618fc951cbc4,,,11111111-2222-3333-4444-
100000005004%26_ic_uCon_zentral=e9d70a4e-3db0-4ef0-b529-
618fc951cbc4%26overview=true.htm&uid=dea5072f-a961-6401-e76c-
d1505eb31b65 

Hamburg 

2003-
2007 

EUR 4.6 million 

http://www.haushaltssteuerung.de/interview-modernisierung-des-
haushalts-und-rechnungswesens-in-hamburg-michael-freytag.html 

Costs only for the 
French State 
budgeting and 
accruals reform 

Set-up of IT system 

EN 

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Body 

Year 

Costs 

Information source 

Netherlands 

Analysis 
2010 

EUR 129-261 
million 

http://blog-pfm.imf.org/files/netherlands.pdf 

EUR 71 million 

Visit of Eurostat delegation to Switzerland (9 July 2012) 

NZD 170 million  New Zealand Audit Office report, ‘Central government management: A 

new approach’, 1989 

CAD 635 million 

http://www.oag-bvg.gc.ca/internet/docs/0101ce.pdf 

USD 3.98 million  http://www.paho.org/english/gov/csp/csp27-17-e.pdf 

Comments 

Yearly EUR 13-28 
million 

Only federal 
government 

All public sector 
entities, including 
whole of Government. 

Move from UNSAS 
to IPSAS 

SWF 2.02 million  www.wipo.int/edocs/mdocs/govbody/en/a_43/a_43_5.doc 

USD 10.8 million 
+ amount XXX 
for 2012/2013 

http://www.unicef.org/about/execboard/files/IPSAS_for_internet-
3Sept.pdf 

IPSAS, High Level 
Project approach 

USD 7 million 

http://www.unicef.org/about/execboard/files/IPSAS_for_internet-
3Sept.pdf 

Switzerland 

New Zealand 

Canada 

Pan American 
Health 
Organisation 

WIPO 

UNICEF 

UNFPA 

2001-
2008 

1987-
1992 

1997-
2001 

2006-
2010 

2007-
2010 

2008-
2013 

2006-
2012 

EN 

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EN 

 
  
 
 
 
CHAPTER 6 

6. 

THE NEED FOR HARMONISED STANDARDS AND SUITABILITY OF IPSAS 

As explained in Chapter 1, the present staff working document’s starting assumption is that 
the  principle  of  accruals  accounting  is  an  indisputable  objective  for  EU  public  finance 
accounts. The principle of accruals is already implemented at macro level (ESA 95 is accruals 
based),  and  increasingly  so  at  micro  level.  Chapter  1  extended  this  objective  to  harmonised 
accruals-based  public  finance  standards.  This  chapter  confirms  the  appropriateness  of 
harmonised accruals-based accounts in the EU and discusses whether IPSASs are suitable to 
be applied directly as these standards. 

6.1. 

Advantages of harmonised accruals-based public accounting standards 

As  stated  in  Chapter  1,  what  is  true  for  private  sector  accounting  standards,  which  are 
harmonised  within  the  EU  for  listed  companies,  should  be  true  for  government  entities. 
Harmonised  accruals-based  public  sector  accounting  would  provide  a  firmer  basis  for 
understanding  the  economic  position  and  performance  of  governments  and  government 
entities  at  all  levels.  Harmonised  standards  for  public  sector  accounting  would  enhance 
transparency,  comparability  and  cost  efficiency  and  provide  the  basis  for  improved 
governance in the public sector of the EU. It would boost the quality of the macro-accounts. 
With reference to Article 114 of the Treaty, it would provide the transparency needed for the 
proper functioning of the internal market in financial services, without which there is a danger 
that  owners  of  government  securities  would  be  entering  into  transactions  without  a  proper 
understanding of the level of associated risk. 

6.1.1.  Policy coordination, advice and surveillance in the EU 

The  Van  Rompuy/Barroso/Juncker/Draghi  report  Towards  a  Genuine  Economic  and 
Monetary Union stresses the need for integrated budgetary and economic policy frameworks 
and for example states that: 

‘Sound national budgetary policies are the EMU's cornerstone 

The  near  term  priority  is  to  complete  and  implement  the  new  steps  for  stronger  economic 
governance. In the past few years, significant improvements to the rules-based framework for 
fiscal  policies  in  the  EMU  have  been  enacted  ('Six-Pack')  or  agreed  (Treaty  on  Stability, 
Coordination and Governance), with greater focus on prevention of budgetary imbalances, on 
debt  developments,  on  better  enforcement  mechanisms,  and  on  national  ownership  of  EU 
rules.  The  other  elements  related  to  strengthening  fiscal  governance  in  the  euro  area  ('Two-
Pack'),  which  are  still  in  the  legislative  process,  should  be  finalised  urgently  and  be 
implemented  thoroughly.  This  new  governance  framework  will  provide  for  ample  ex  ante 
coordination of annual budgets of euro area Member States and enhance the surveillance of 
those experiencing financial difficulties. ’. 

Many  of  the  principle  objectives  advocated  in  Council  Directive  2011/85/EU,  such  as  the 
greater transparency and accountability of the public sector, as well as more reliable, timely 
and  more  comparable  fiscal  statistics,  necessitate  a  common,  harmonised  and  detailed 
accounting and reporting tool. 

It is moreover fully supportive of the Communication from the Commission A blueprint for a 
deep and genuine economic and monetary union — Launching a European Debate88. Using a 
common  accounting  tool,  the  European  Parliament  and  the  Council  would  be  in  a  better 

88 

COM(2012) 777 final. 

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position to assess the relationship between the outcome of national budgets and of the budget 
of the EU. 

As  seen  in  Chapter  3,  in  some  Member  States,  ESA  reporting  for  the  government  sector 
depends on basic data taken from cash-based accounts,  but, whether  the basic data  are cash 
based or accruals based, the accounting standards used are neither harmonised nor comparable 
across,  or  within,  Member  States.  For  the  compilation  of  macroeconomic  statistics  on 
government and with reference to Article 338 of the Treaty, ESA 95 accounts must use sets of 
estimates  and  adjustments  to  approximate  accruals,  for  example  for  EDP  and  for  the 
macroeconomic imbalances procedure scoreboard and where entity-level accruals data are not 
available.  The  availability  of  harmonised  entity-level  audited  financial  reporting  data  on  an 
accruals basis would substantially reduce the risk of systematic errors in the data used for the 
preparation of government finance statistics and therefore in the data used for policymaking. 
The  statistical  data  needed  would  be  considerably  improved  if  all  government  entities  used 
harmonised accounting standards. It would allow the use of common bridge tables to compile 
the  entity  accounts  to  produce  ESA  accounts,  which  would  greatly  facilitate  the  statistical 
verification processes. 

In the longer term, harmonised standards might enable the main EDP indicators to be refined 
because  macro  public  accounting  (deficit/debt)  results  could  be  derived  from  much  more 
direct  consolidation  of  consistent  and  exhaustive  micro  accounts.  The  adoption  of  an 
integrated  accounting  and  reporting  framework  with  some  adaptations  to  ESA  95  concepts 
would make it possible to derive the debt and deficit directly from those systems. They could 
be based on genuine and harmonised public sector accounting data, which had been subject to 
control  and  audit,  either  directly  on  the  key  indicators  or  indirectly  through  the  financial 
statements. This could also help reduce the time taken to report the deficit and debt. 

At  entity  level,  there  would  be  benefits  in  terms  of  transparency  and  accountability  from 
harmonised accruals accounts, and for the quality of decision-making, which should take into 
account  the  full  future  costs  and  benefits  of  decisions  on  a  comparable  basis.  Moreover, 
further  EU  fiscal  and  budgetary  integration  highlights  the  need  for  harmonised  public 
accounting  standards  to  enable  real  budgetary  decisions  applicable  at  national  level  to  be 
assessed at EU level. For the purposes of accountability, government entities should report in 
a complete and comparable manner on their use of public resources and their performance. 

There are common benefits 

The  benefits  of  having  strong  and  reliable  harmonised  accruals  accounting  systems 
implemented in fellow Member States — for the transparency and functioning of the markets, 
and for surveillance and policy advice — would therefore be shared by all EU countries. The 
adoption  of  harmonised  accruals  accounting  systems  in  any  Member  State  should  be  of 
indirect value to its fellow Member States. 

The  present  financial  crisis  has  demonstrated  that  the  need  to  assure  financial  stability  is 
common to all EU countries. Government intervention in response to the crisis places a new 
importance  on  assessing  long-term  effects,  including  the  effects  on  financial  stability,  and 
requires more transparency, improved reporting and stronger accountability. 

Introducing  common  accounting  standards,  and  high-quality  financial  reporting  and 
transparency,  would  contribute  to  ensuring  the  financial  stability  of  the  Member  States  by 
providing  assurance  that  the  accounts  present  a  complete  and  comparable  view  of  the 
financial  position  and  performance  of  national  governments  —  improving  international 
acceptance  and  legitimacy.  Harmonised  and  widely  used  international  accounting  standards 
can reinforce confidence. 

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The need for harmonisation is supported by many stakeholders. 

6.1.2.  Views on harmonised public accounting standards 

International Monetary Fund (IMF) 
The  IMF  is  of  the  opinion  that  fiscal  transparency89  is  instrumental  for  the  achievement  of 
macroeconomic stability, and it encourages countries to adhere to high standards90. The IMF 
supports developments that may lead to improvements in the accuracy of timely fiscal reports 
prepared in accordance with internationally accepted standards. Such improvements facilitate 
work  on  surveillance  and  policy  advice.  Once  IPSASs  fully  become  a  stable  platform  for 
public  sector  accounting,  the  implementation  of  their  principles  will  enhance  transparency, 
comparability,  cost  efficiency  and  provide  a  basis  for  improved  governance  in  the  public 
sector. 

Directorate-General for Economic and Financial Affairs of the European Commission  

The  Economic  and  Financial  Affairs  DG  fully  shares  the  views  of  the  IMF  that  an 
internationally accepted accruals-based accounting standard would significantly improve the 
transparency  of fiscal  policy,  whether  this was IPSAS  or any other ‘emerging’ international 
standard such as EPSAS. 

European Central Bank (ECB) 

The  ECB  fully  agrees  with  the  IMF  on  the  importance  of  implementing  internationally 
accepted  public  accounting  standards  with  a  view  to  increased  fiscal  transparency.  In  this 
respect the ECB has stated that: 

‘The  Directive  [2011/85/EU]  may  contribute to simultaneous enhancement of 
the timeliness and reliability of general government accounts by supporting the 
implementation  of  public  accounting  systems  on  an  accruals  basis  that  are 
interconnected with ESA 95 based national accounts. The accounting systems 
should be based on internationally accepted public sector accounting standards 
to  ensure  the  harmonised  recognition  and  measurement  of  government 
transactions.’91 

European Security and Markets Authority (ESMA)92 

The financial crisis underlines the importance of timely and reliable financial and fiscal data 
and evidences the consequences of insufficient financial reporting in the public sector. Some 
governments were forced over the last years to play an important role in the efforts to restore 
stability in the financial sector through bailouts, takeovers and guarantees which are likely to 
result  in  new  liabilities  and  other  obligations.  To  allow  investors  in  sovereign  debt  to 
understand  these  new  liabilities  and  obligations,  they  need  to  be  properly  reflected  in 
governments' financial reports. 

89 

90 
91 

92 

IMF Policy Paper — ‘Fiscal Transparency, Accountability, and Risk’, 7 August 2012. It is argued that 
fiscal transparency is a critical element of effective fiscal policymaking and the management of fiscal 
risks. The authors observe that understanding of the underlying fiscal position of a government and the 
risks to that position remains inadequate. Fiscal transparency is needed to address the shortcomings in 
standards and practices revealed by the crisis and to guard against a resurgence of fiscal opacity in the 
face of growing pressures on government finances. 
Code of Good Practices on Fiscal Transparency (2007). 
Opinion  of  the  European  Central  Bank  of  16  February  2011  on  economic  governance  reform  in  the 
European Union (CON/2011/13). 
Reply by ESMA to the public consultation on the suitability of IPSAS. 

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100 

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ESMA supports a single set of high-quality and up-to-date public sector accounting standards 
for EU Member States and the European Institutions. In particular, it believes that accruals-
based public accounting would provide a firmer base to understand the economic position and 
performance of governments at all levels. There is an increasing demand and need for public 
accountability  and  transparency  on  the  financial  position  and  performance  of  governments 
and ESMA considers that introducing a single set of public sector accounting standards would 
contribute  to  a  better  functioning  of  the  internal  market  by  ensuring  a  high  level  of 
transparency  and  comparability  of  government  financial  reporting  which  is  a  necessary 
condition for building an integrated capital market which operates effectively, smoothly and 
efficiently. Investors in government securities can currently not rely on a comparable level of 
transparency  as  provided  by  IFRS  for  listed  companies.  Introducing  a  single  set  of  public 
accounting  standards  would  reinforce  the  freedom  of  movement  of  capital  in  the  internal 
market  and  help  investors  to  compare  the  financial  activities  of  governments  and  by 
consequence  permit  Member  States  to  compete  on  an  equal  footing  for  financial  resources 
available in the Union markets, as well as in the world capital markets. 
European Court of Auditors (ECA)93 

As  a  matter  of  principle,  the  Court  is  in  favour  of  the  preparation  of  public  accounts  (of 
government  and  other  public  entities)  according  to  commonly  acceptable  and  harmonised 
accrual-based  accounting  standards  throughout  the  EU,  including  the  EU  accounts,  as  this 
provides much needed comparability of public accounts within the EU. 

IPSAS provide that financial reporting is primarily based on accrual-based accounting1. In its 
Annual  Report  2005  the  Court  mentioned  that  the  principal  significance  of  accrual  based 
accounting is that it shifts the focus of the accounts from the recording of cash transactions to 
the recognition of the 'rights and obligations' as soon as these are acknowledged. 

The principal benefit of harmonised accrual-based accounting is that it provides a fuller and 
more  accurate  reflection  of  the  financial  status  and  performance  of  the  entity.  Cash  based 
accounting systems in the public sector do not give an insight into the current state of assets, 
finances  and  revenue  (true  and  fair  view).  This  makes  it  difficult  for  the  users  of  the 
information to assess the financial position. 

The auditing perspective 

Article 3 of Council Directive 2011/85/EU states that: 

‘As concerns national systems of public accounting, Member States shall have 
in place public accounting systems comprehensively and consistently covering 
all sub-sectors of general government and containing the information needed to 
generate  accruals  data  with  a  view  to  preparing  data  based  on  the  ESA  95 
standard. Those public accounting systems shall be subject to internal control 
and independent audits.’ 

The use of a harmonised accruals accounting system across all Member States would offer the 
potential  for  more  efficient  and  effective  auditing.  For  example,  shared  audit  strategies, 
procedures and techniques could be developed, and knowledge and experience shared. 

93 

It  is  important  to  recall  that  the  Court  is  charged  with  examining  the  accounts  of  all  revenue  and 
expenditure of the Union's budget. While the Court has an interest in the accounting standards that will 
apply to the financial statements of EU Member States and the policy governing the public finances of 
the EU, the audit of the accounts of Member States is, outside the field of competence of the Court and, 
as such, it would be inappropriate for the Court to comment with authority on these issues. 

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The  value  gained  from  harmonised  accruals-based  financial  statements  is  increased  when 
these  are  subject  to  independent  audit,  which  adds  to  transparency  and  public  trust  in 
government.  Independent  audits  help  identify  instances  of  poor  financial  reporting,  and 
thereby contribute to increasing the quality of publicly available information. 

From  the  perspective  of  government  finance  statistics  and  EDP,  the  knowledge  that  the 
accounting systems for all public sector entities in all EU Member States have been subject to 
external audit, based on common audit strategies, procedures and techniques, would go far to 
provide the necessary assurance that these data were of the required quality. 

6.2. 

Advantages and disadvantages of IPSASs as the harmonised standards 

In  order  to  gather  information  for  this  staff  working  document,  Eurostat  launched  a  public 
consultation in the first half of 2012 to seek the opinion of the widest range of stakeholders, 
and established a Task Force comprising experts and practitioners from the Member States to 
share their views and experience. 

The following provides a non-exhaustive summary of many of the views provided within the 
public  consultation  as  regards  the  appropriateness  of  harmonised  public  sector  accounting 
standards  such  as  IPSASs94.  All  of  the  replies  to  the  public  consultation,  and  a  summary 
report, 
at: 
be 
http://epp.eurostat.ec.europa.eu/portal/page/portal/public_consultations/consultations/ipsas. 

found 

can 

6.2.1.  Advantages of harmonised standards such as IPSAS 

• 

• 

• 

94 

The evolving sovereign debt crisis has demonstrated that there is an urgent need for 
change  in  the  way  public  sector  financial  information  is  collected  and  presented  in 
Europe.  For  the  monetary  union  to  function  properly  it  is  necessary  to  have  high 
quality and comparable information about balance sheet items (especially liabilities) 
and the true annual costs for items that do not currently require cash resources (such 
as public sector pension obligations) for all Member States. The costs of not acting 
and  thus  not  having  reliable  financial  information  available  for  internal  decision-
making  and  the  potentially  protracted  loss  of  the  markets’  and  investors’  trust  as  a 
result could be very large. The benefits would still outweigh costs in the medium and 
long term. 

Implementation of IPSAS in EU Member States would provide a uniform accounting 
framework  and  accounting  standards  for  determining  deficit  and  debt  levels  that 
would  enhance  the  consistency,  transparency  and  comparability  of  public  sector 
financial  statements.  This  would  help  to  prevent  a  situation  where  negative 
performance, in breach of the Stability and Growth Pact, was concealed in order to 
avoid  an  excessive  deficit  procedure.  Whether  full  implementation  of  IPSAS  is 
necessary to achieve this remains unclear. 

An accruals basis such as that of IPSAS would provide a more meaningful picture of 
a  government’s  financial  position  and  performance,  thus  reducing  uncertainty  for 
ratings  agencies  and  other  users  of  financial  statements.  The  room  for 
misrepresentation of financial positions and performance (i.e. by making payments in 
subsequent  years)  becomes  narrower.  It  would  enhance  stewardship  and  financial 
management  by  identifying  entities’  assets  and  liabilities,  facilitating  a  long-term 
perspective in financial management by identifying current liabilities that will need 

The views of those who remain unpersuaded by the case for the principle of accruals accounting in the 
public sector, whether harmonised or not, have already been covered in Chapter 1, and are not repeated 
here. 

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to  be  met  in  future  (e.g.  borrowings,  guarantees,  pension  liabilities,  social 
contribution,  etc.),  and  better  facilitate  inter-generational  fairness  by  identifying 
assets  and  liabilities.  The  recognition,  measurement  and  reporting  of  liabilities, 
especially those of a long-term and uncertain nature, would be the main advantage of 
any future implementation of IPSAS in the EU Member States. 

Financial accounting and statistical accounting should be aligned (common chart of 
accounts, elimination of differences in terms of recognition, valuation, presentation, 
consolidation, etc.). Data generated by government accruals accounting systems such 
as  IPSAS  can  be  used  as  a  basis  for  the  preparation  of  GFS,  which  are  crucial  to 
fiscal  and  spending  decisions  in  most  jurisdictions.  The  European  System  of 
Accounts (ESA 95), as a statistical framework using the accruals basis, requires the 
systematic  gathering  and  processing  of  accruals-based  data.  The  availability  of 
audited financial reporting data on an accruals basis would substantially reduce the 
risk of systematic errors in the data used for the preparation of GFS and therefore in 
data used for policy making. 

The  transparency  provided  by  high-quality  accruals  standards  such  as  IPSASs  also 
provides for better-informed capital markets, in which government financial activity 
plays a  much  greater  role  than  is often acknowledged. Better-informed markets are 
less  likely  to  experience  major  fluctuations  because  more  reliable  information  is 
available. 

Experience  with  IPSAS  would  increase  know-how  and  provide  the  incentive  to 
modernise internal control systems and external audits. Accounting officers will have 
a  source  to  which  they  can  refer  for  detailed  information  on  correct  accounting 
treatment. The use of IPSAS would provide a solid foundation and suitable criteria 
upon which auditors could base their work. 

Although  the  adoption  of  IPSAS  should  not  drive  the  implementation  of  better 
financial  management,  it  is  a  necessary  condition  for  it.  This  would  be  an  indirect, 
but important, benefit of the adoption of IPSAS. 

The  EU-wide  application  of  IPSAS  would  foster  mobility  of  accounting  expertise 
and resources across the EU, since, over time, the transfer of personnel and expertise 
between  Member  States  for  both  public  sector  accounting  and  auditing  would  be 
enhanced if common standards were applicable throughout the EU. 

A single set of public accounting standards such as IPSAS would reinforce the free 
movement  of  capital  in  the  internal  market  and  help  investors  to  compare  the 
financial  activities  of  governments  and  consequently  permit  Member  States  to 
compete on an equal footing for financial resources available both in EU markets and 
in world capital markets. 

• 

• 

• 

• 

• 

• 

6.2.2. 

Specificities of IPSAS 

While  these  points  show  the  importance  of  harmonised  accruals-based  standards  in  the  EU, 
the question is then: which harmonised standards? 

IPSAS  is  currently  the  only  internationally  recognised  set  of  public  sector  accounting 
standards.  The  standards  are  founded  on  the  international  financial  reporting  standards 
(IFRS), which are widely applied by the private sector. The main advantage of the current set 
of  IPSASs,  as  described  in  Chapter  2,  is  that  it  constitutes  a  formidable  body  of  existing, 
harmonised, accruals-based standards for implementation by the public sector. 

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The 32 existing accruals IPSASs represent more than 15 years’ collective work. Each one of 
them  has  been  drafted  and  adopted  through  a  well-established  process,  by  a  board  of  well-
qualified  and  independent  experts  with  a  wide  range  of  expertise  from  a  variety  of 
institutional  and  geographical  backgrounds.  An  important  advantage  is  that  IPSAS  is 
conceived as a world standard, and not limited to one specific geographic zone. 

Indeed,  a  significant  number  of  responses  and  exchanges  showed  support  for  IPSAS  as  the 
candidate  for  harmonised  standards  in  the  EU.  However,  some  difficulties  with  the  current 
state  of  IPSAS  development  and  with  specific  IPSASs  emerged  during  both  the  public 
consultation  and  the  meetings  of  the  Eurostat  Task  Force.  Overall,  one  can  conclude  that, 
although  there  is  general  support  for  the  use  of  IPSAS  as  a  reference  for  EU  harmonised 
public sector accounting standards, there is a need to adapt them if they are to be used on a 
compulsory basis in the EU. 

The following section summarises the issues seen as difficult or problematic with IPSAS. It is 
based  on  the  Commission  interpretation  of  the  contributions  of  a  group  of  experts  and 
practitioners from the Member States in a dedicated Eurostat Task Force. 

The  Task  Force  was  set  up  to  share  experiences  and  analyses  and  discuss  perspectives 
regarding  the  current  state  of  play  of  public  sector  accounting  and  auditing  practices  in 
Member  States,  and  the  adoption  and  implementation  of  IPSAS  or  accruals-based  public 
sector  accounting  standards.  The  Task  Force  comprised  experts  from  more  than  half  of  the 
Member States, from national statistical institutes, ministries of finance, national accountancy 
bodies, and courts of audit, and from several Commission DGs (the Economic and Financial 
Affairs, Internal Market and Services, and Budget DGs), and observers from the IPSAS Board 
and IMF. 

The  main  issues  which  emerged  from  the  discussions  in  the  Task  Force  are  listed  below. 
Participants  expressed  their  views  in  the  Task  Force  as  independent  experts,  rather  than  as 
representatives  of  their  governments95.  It  should  also  be  noted  that  an  issue  may  have  been 
included in this list because one or more experts expressed a concern about a particular aspect 
of  the  standard,  and  it  does  not  necessarily  mean  that  other  experts  agreed.  The  concerns 
presented below should therefore not lead one to conclude that there was a general rejection 
of IPSAS. On the contrary, during the discussions in the Task Force, many experts expressed 
the  view  that  the  current  IPSAS  set  of  standards  remains  an  irreplaceable  reference  for 
harmonised  public  sector  accounting  in  the  Member  States  (see  box).  The  key  word  is 
therefore  ‘adaptation’  and  not  ‘rejection’.  It  should  also  be  noted  that  some  concerns  are 
already being addressed by the IPSAS Board and therefore what is the case now may not be 
so in a few years’ time. 

95 

Meetings were held on: 27 February, 26 April, 5-6 July and 7 November 2012. 

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Alternatives to IPSAS? 

Since  the  process  of  setting  IPSAS  is  anyway  designed  to  adapt  IFRS  for  public  sector 
specific issues, it would not seem appropriate to use IFRS, but not IPSAS, as a source for 
harmonised public sector accounting standards. 

As  shown  in  Chapter  3,  many  EU  countries,  when  they  decided  to  implement  accruals 
accounting  for  government,  decided  to  establish  their  own  specific  national  standards  for 
government  accounting.  In  part  this  reflects  the  fact  that  the  IPSASs  either  did  not  exist 
some years ago or were far less complete than they are today. However, there can also be 
other  reasons.  For  example  they  built  their  own  public  standards  based  on  their  own 
specific  private  sector  accounting  standards  –  national  GAAPs.  In  doing  so,  they 
effectively give priority to the consistency of the national public and private standards.  

It would not be possible to use the ESA itself as the basis for micro accrual accounts. The 
ESA may use accrual principles, but it is not sufficiently detailed, so for example the rules 
for valuation are not sufficiently developed and there is no guidance useful for day-to-day 
accounting. 

Concerns can be classified into: (a) concerns regarding the standard themselves, (b) concerns 
regarding the governance of the standards. 

(a) 

Concerns regarding the standard themselves, as discussed in the Task Force: 

• 

• 

• 

There is a need for an agreed and complete conceptual framework for IPSAS. 
Such a conceptual framework, setting out the core principles for the accounting 
system,  is  needed  to  underpin  the  design  of  standards  reflecting  the  specific 
characteristics  of  the  public  sector,  including  the  volume  and  financial 
significance  of  non-exchange  transactions,  the  importance  of  the  budget,  the 
nature of plant, property and equipment, and the longevity and regulatory role 
of  governments.  The  IPSAS  Board  began  a  project  to  develop  such  a 
framework in 2008, and the project is due for completion in 2014. 

At  the  time  of  writing,  it  can  be  argued  that  the  process  of  translating  IFRS 
principles  into  IPSASs,  and  the  reference  to  the  IASB  framework  in  the 
absence of a complete and specific IPSAS conceptual framework, does not take 
sufficient account of the specific needs and interests of public sector reporting, 
such  as  those  related  to  the  specific  characteristics  underlined  in  the  above 
point. IPSAS is a principles-based set of standards. To apply the standards in 
practice, more detailed and specific harmonised interpretations are needed, as 
is  the  case  for  IFRSs,  for  which  IFRIC  is  the  system  established  to  provide 
‘Interpretations’  and  implementation  guidance.  Presently,  in  IPSAS,  although 
‘Application Guidance’ is normally included in the standard to show how the 
core  principles  of  a  standard  are  to  be  applied  in  dealing  with  specific  items 
and  transactions,  this  may  not  always  be  sufficiently  detailed.  There  is 
currently no interpretation function for IPSAS. 

The set of IPSASs could be regarded as incomplete, in that for some standards 
that have been adopted for private sector accounting (e.g. exploration for and 
evaluation of mineral resources, accounting and reporting by retirement benefit 
plans) no counterpart IPSAS has been developed. Furthermore, in the case of 
financial  instruments  it  may  be  argued  that  the  IPSAS  standard  due  to  enter 
into  force  in  2013  is  in  practice  already  obsolete,  in  that  the  equivalent  IFRS 

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• 

• 

• 

• 

• 

rules  applicable  in  the  EU  have  been  adapted  since  the  standards  were  first 
formulated but the IPSAS standards have not. 

Some  existing  IPSAS  standards,  at  their  current  stage  of  development,  are 
viewed  as  incomplete,  in  particular  concerning  the  recognition,  measurement 
and disclosure of specific transactions such as social benefits and taxes and the 
accounting and measurement of specific items such as public debt (obligations) 
and  heritage  assets.  For  example,  under  IPSAS  the  notion  of  accruals  is 
perceived  as  insufficiently  developed  for  taxation,  which  is  a  key  obstacle  to 
the comparable application of IPSAS. For social benefits there is a need for a 
specific  IPSAS  standard,  for  which  there  would  be  no  IFRS  equivalent,  and 
this has not been developed. 

The scope of consolidation and the criteria for control under IPSAS lead to the 
inclusion  of  the  results  of  all  the  controlled  entities  in  reporting  entity 
statements,  which  would  imply  the  consolidation  of  public  corporations.  This 
would require  a  potentially large number  of government-controlled entities to 
in  a  suitable  format  for 
provide 
consolidation,  when  they  may  use  IFRS  as  in  the  case  of  some  government 
business enterprises (GBEs). GBEs’ financial statements prepared under IFRS 
might  use,  for  example,  accounting  policies  that  differ  from  those  applied  by 
the controlling government and that do not include the necessary disclosures. 

timely  and  accurate  financial  data 

IPSAS  standards  are  applicable  to  all  types  and  sizes  of  government  entities, 
and this may be excessively burdensome for small and less complex entities. If 
the  costs  of  applying  IPSAS  for  small  government  entities  are  too  high  in 
relation to the expected benefits it could lead to unharmonised or lower quality 
compilation approaches, and at this stage there is no relief for those entities in 
IPSAS from the application of certain or all the requirements envisaged. 

Some  IPSAS  standards  offer  options,  which  may  lead  to  a  lack  of 
comparability. In such cases it would be necessary to remove these options (i.e. 
for the valuation of assets, the recognition of interests, and the presentation of 
income statement96). 

In some circumstances, IPSASs allow entities to choose between fair value and 
historic cost as the measurement basis for non-financial assets, notably for the 
valuation  of  property,  plant  and  equipment97.  As  already  mentioned,  offering 
options  reduces  comparability  between  entities;  although  preparers  of  GPFS 
may voluntarily achieve the necessary harmonisation by consistently choosing 
the  same  accounting  policy.  On  the  other  hand,  where  the  ‘fair  value’ 
measurement  basis  forms  part  of  the  IPSAS  standards,  this  is  considered  less 
suitable  for  public  sector  financial  statements  by  some  experts;  particularly 
regarding  the  annual  impairment  of  non-financial  assets.  Moreover,  it  can  be 
argued  that  the  fair  value  basis  is  not  applicable  for  those  government  assets 
that  are  not  marketable.  The  initial  recognition  at  fair  value  of  financial 
instruments  acquired  by  government  requires  comparable  judgments  in 

96 

97 

For  example,  for  the  valuation  of  assets  both  historical  cost  and  fair  value  are  allowed;  for  income 
statement presentation a choice is allowed between two forms of analysis: nature of expense or function 
of expense; for borrowing costs two methods are also allowed: recognition as expense in the period in 
which they are incurred, or capitalisation as part of the cost of the asset (if eligible under the standard 
conditions). 
For statistical reporting, note that the value of an asset is its current market value. See Chapter 4. 

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• 

• 

• 

practice,  to  ensure  comparability  and  avoid  any  scope  for  accounting 
misstatements or manipulation. 

The  rules  on  disclosure  required  under  several  IPSASs  are  perceived  as  too 
demanding  (such  as  for  financial  instruments),  although  the  concept  of 
materiality also applies to specific disclosure requirements in an IPSAS98. 

Although  IPSAS  has  a  specific  standard  on  the  presentation  of  budgetary 
comparisons,  for  entities  which  make  public  their  budget,  some  experts 
nevertheless consider that IPSAS is not sufficiently developed concerning the 
specific  presentation  requirements  of  the  relationships  between  budget  and 
financial reporting. This is especially the case where the budget and financial 
statement  are  not  prepared  on  a  comparable  basis  and  the  entity  elects  to 
include a comparison of actual and budget amount in its financial statement. 

There is a risk of producing too much information which could make it harder 
for users to locate relevant information. There should be better linkage between 
IPSAS and the production of statistical (ESA) data. Requiring governments to 
prepare  both  statistical  information  in  accordance  with  ESA  and  financial 
statements in accordance with IPSAS potentially involves duplication. Despite 
attempts at convergence some differences remain. It is therefore important that 
any unnecessary differences between IPSAS and ESA be eliminated. 

(b) 

Concerns regarding the governance of the standards 

• 

• 

• 

• 

IPSAS  standards  are  issued  by  a  private  sector  entity.  For  the  most  part,  EU 
government  organisations  are  engaged  neither  in  the  standard-setting  process 
nor in the oversight of the IPSAS Board. By making IPSAS mandatory for all 
EU Member States, standard-setting powers would be delegated from Member 
States  to  the  IPSAS  Board.  It  would  be  essential  for  public  authorities  to  be 
involved  in  the  process  of  drafting  and  issuing  such  standards  and  the 
governance structure of the IPSAS Board would therefore need to be adapted 
and/or a specific new structure be created. 

There would need to be a thorough assessment of the quality and applicability 
of the standards. Such assessment requires experts in the field of public sector 
accounting. Consequently there would be a need to set up a separate institution 
whose  primary  tasks  would  be  to  carry  out  such  technical  assessment  and 
advice on the possible adoption of particular IPSASs. It would be necessary to 
provide sufficient financial support for such an institution to carry out its tasks 
properly. 

It  would  not  be  advisable  to  decide  on  IPSAS  implementation  before  the 
process of developing a full set of consistent standards based on the conceptual 
framework  is  finalised.  The  conceptual  framework  is  due  for  completion  in 
2014  and  there  is  a  high  probability  that,  following  its  completion,  existing 
standards will need to be modified. 

The IPSAS Board has relatively limited resources which may limit its capacity 
for dealing with multiple developments simultaneously. This could be a risk to 
the  implementation  of  IPSAS  should  gaps  in  the  IPSAS  framework  be 
identified which cannot be quickly dealt with. 

98 

See IPSAS 1.47. 

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Many of these concerns about the suitability of IPSAS for implementation in the EU Member 
States were also echoed within individual contributions provided to the public consultation. 

Annex 6.1 summarises the detailed specific issues mentioned by some Member States, IPSAS 
by  IPSAS.  Furthermore,  Annex  7.1  classifies  IPSASs  into  three  categories,  taking  into 
account the views of Member State experts: (1) standards that could be adapted with minor or 
no adaptation; (2) standards that need adaptation or for which a selective approach would be 
needed; (3) standards seen as needing to be amended for implementation. 

6.2.3. 

IPSAS governance and resources 

It is clear from the public consultation and the discussions held with the Task Force that the 
expertise and skills of the IPSAS Board and staff are widely respected. There are, however, 
concerns  that  IPSAS  governance  arrangements  are  not  currently  adequate  and  that  the 
resources  available  for  developing  IPSASs  are  not  sufficient.  Chapter  2  described  IPSAS 
Board processes, membership, staffing and funding levels, and the EU governance process for 
adopting IFRS standards are described in the annex to this chapter. As described above some 
contributors express strong concerns with IPSAS governance. 

The IPSAS governance arrangements are under the authority of the International Federation 
of Accountants (IFAC). IFAC appoints the members of the IPSAS Board. IPSAS is therefore 
not fully within the institutional control of government authorities; in 2013 half of the board 
members  will  be  from  government  authorities  and  the  remainder  from  other  institutions99. 
Moreover in practice the IPSAS Board can be seen as operating without sufficient organised 
involvement  from  EU  public  authorities.  For  example,  responses  to  IPSAS  Board 
consultations from EU public authorities are in practice infrequent, with a few exceptions, and 
most  Member  States  do  not  contribute.  In  contrast  to  the  position  with  respect  to  private 
sector accounting standards, there is at present no IPSAS oversight body. 

During 2012 the governance framework of IPSAS was placed under review, with a view to 
ensuring that the independence of the standard-setting process is strengthened, while public-
sector-specific needs are effectively addressed. The IFAC Monitoring Group has launched a 
public consultation on whether the existing Public Interest Oversight Board should act as the 
supervisory  body.  However,  this,  if  implemented,  is  not  seen  as  sufficient  in  itself  to 
overcome the concerns expressed by Member States. 

IPSAS  does  not  have  sufficient  resources  at  present  to  ensure  that  it  can  meet  with  the 
necessary  speed  and  flexibility  the  demand  for  new  standards  and  guidance  on  issues 
emerging in response to the evolving fiscal climate, particularly in the wake of the crisis. For 
example, the staffing level available for developing IPSASs is around 10 % of that in place for 
work  on  developing  and  maintaining  IFRS  standards.  The  IPSAS  Board  recognises  the 
resource issue and has been actively seeking additional sources of funding. It also recognises 
the constraints on its activities, as explained in its recent Consultation Paper on the Board’s 
2013/14 work programme. 

This situation highlights the need for the creation of an EU governance structure, with strong 
representation of EU public accounting authorities. 

99 

Note, however, that from 2014 the nomination process for the IPSAS Board will be more open, so that 
members  may  be  nominated  by  a  wider  range  of  bodies,  for  example  governments  and  international 
organisations. 

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6.3. 

Benefits  and  costs  of  implementing  IPSAS  or  other  harmonised  accruals 
accounting standards 

6.3.1.  Benefits of modernising financial information and accounting systems 

It should be borne in mind that, despite the fact that accruals accounting is a more elaborated 
system than pure cash accounting, the multitude of different accounting standards, charts of 
accounts, booking processes, and IT systems, as well as auditing standards and practices that 
often co-exist, even within one sub-sector of general government of a single Member State, 
suggests that harmonisation will achieve a degree of reduction in bureaucracy and costs which 
in the medium to long term may offset or outweigh the expected investment. Furthermore, the 
real and important expected financial costs may be balanced against the potential benefits. 

In  practice,  quantifying  and  valuing  the  potential  benefits  from  future  implementation  of 
IPSAS  seems  to  be  impossible.  The  implementation  of  harmonised  accruals  accounting 
standards  by  entities  at  present  accounting  on  a  cash  basis,  or  the  transition  from  national 
accruals standards to harmonised standards, may often require the modernisation of financial 
information  and  accounting  systems  across  large  parts  of  government,  providing  an 
opportunity to build a more effective administration and reduce ongoing costs. 
The occasional paper100 of the Public Sector Committee of IFAC relating to the New Zealand 
experience on accruals accounting implementation confirms that: 

‘Indeed, one of the advantages of accruals accounting systems is that activities 
such as commitments or purchase order systems, payroll, fixed assets, creditors 
and debtors are able to be integrated into one system, thereby reducing double 
processing and reconciliation problems associated with disparate systems. The 
time savings this brings about can be major. 

Despite  these  changes  few  government  department  finance  functions  grew  in 
terms of total staff complements. There was, however, a significant upgrading 
in  financial  expertise  as  compliance  officers  were  replaced  with  professional 
staff capable of negotiating budgets and marketing financial information. The 
Treasury  was  able  to  make  reductions  in  staff  responsible  for  routine 
accounting functions, from six large regional Treasury offices to a complement 
of just six staff. 

An  implication  of  the  new  environment  has  been  that  the  central  accounting 
system  was  modularised  into  individual  accounting  systems.  This  has  greatly 
assisted departmental flexibility as it ensures not only that accounting systems 
do  not  fall  behind  leading  technology  but  that  they  can  continue  to  meet 
changing  needs  as  departmental  activities  change.  One  department  can  now 
take  advantage  of  new  system  features  of  particular  value  to  its  organisation 
without reference to the rest of the bureaucracy. Where a new system requires a 
capital  injection  by  the  owner  (most  in  fact  are  funded  from  within  the 
departments’  own  balance  sheets)  then  the  owner  will  seek  to  ensure  that  the 
development  aligns  with  its  and  the  department’s  objectives,  and  that  the 
investment  is  appropriately  managed  to  ensure  cost  effectiveness  in  the  long 
run.’ 

One of the expected benefits might also be felt in financial (value) terms — that of providing 
the transparency needed for the proper functioning of markets. It might be expected that there 
would  be  a  lower  yield  (risk  premium)  on  Member  States’  government  securities  if 

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internationally  harmonised  accruals  accounting  standards  were  applied.  The  savings  in 
interest  payable  could  then  be  considered  against  the  costs  of  implementation.  In  practice, 
however,  it  does  not  seem  possible  to  measure  the  effect  separately  from  the  many  other 
factors which may influence interest rates. 

6.3.2.  Costs of modernising financial information and accounting systems 

Against  the  potential  benefits  must  be  set  the  expected  costs  of  implementing  IPSAS  or 
EPSAS in the EU Member States. As shown in Chapter 5, the costs of implementing accruals-
based accounting standards are very significant, based on the information made available by 
countries  which  have  moved  to  accruals  accounting.  Taking  the  estimated  costs  as  a 
percentage of GDP, all of the cost estimates collected fall within the range of 0.02 %-0.1 % of 
GDP.  Ongoing  costs  of  running  an  IPSAS  accounting  system  could  also  be  significant. 
Moreover,  the  implementation  of  harmonised  accruals  accounting  for  the  Member  States 
would also have significant resource implications for the European Commission. 

6.4. 

Conclusions concerning the IPSAS standards, governance and resources 

6.4.1.  The IPSAS standards 

IPSAS  is  currently  the  only  internationally  recognised  set  of  public  sector  accounting 
standards. IPSAS stems from the idea that modern public sector management, in line with the 
principles  of  economy,  effectiveness  and  efficiency,  depends  on  management  information 
systems that provide timely, accurate and reliable information of the financial and economic 
position  and  performance  of  a  government,  as  would  be  the  case  with  any  other  type  of 
economic  entity.  At  present,  15  Member  States  have  some  links  to  IPSAS  in  their  national 
government  accounting  standards.  Of  these,  nine  have  national  standards  based  on  or 
orientated  by  IPSAS,  and  five  make  some  reference  to  IPSAS.  However,  even  when 
recognising the value of the IPSAS standards, no EU Member State has implemented them in 
full. 

Taking  into  account  the  views  of  Member  States’  authorities,  and  others  put  forward  in  the 
IPSAS public consultation and the Eurostat Task Force, the global conclusion is twofold. 

On the one hand, it seems that, at its current stage of development, IPSAS could not be simply 
and directly implemented in all Member States. More specifically, from the perspective of the 
Member  States,  there  are  concerns  that  currently  the  IPSAS  standards  do  not  describe  the 
accounting  practices  to  be  followed  with  sufficient  precision;  the  suite  of  standards  is  not 
complete — either in terms of coverage or practical applicability to some types of government 
flows,  such  as  taxes  and  social  benefits  —  even  if  ongoing  work  should  lead  to  significant 
improvements. Furthermore, some IPSAS standards offer the possibility of choosing between 
a set of alternative accounting treatments, which would limit harmonisation in practice. Some 
standards  are  either  considered  to  be  unnecessary  or  not  applicable  for  EU  purposes,  and 
IPSAS is viewed as unstable, in the sense that once ongoing work on the IPSAS conceptual 
framework is completed it can be expected that some standards will need to be revised. 

On  the  other  hand,  most  stakeholders  agree  that  IPSAS  would  be  suitable  as  a  reference 
framework  for  the  future  development  of  a  set  of  European  public  sector  accounting 
standards, referred to in the following discussion as ‘EPSAS’. 

6.4.2. 

IPSAS governance and resources 

Even if there is an undeniable need for harmonised public accounting standards, IPSAS is, at 
its present state of development, not governed in an appropriate manner to make it suitable for 
direct  adoption  throughout  the  EU.  IPSAS  should  therefore  be  a  strong  support,  but  not  a 
constraint, for future European public sector accounting standards. 

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The reference framework for EPSAS should also seek to use the experience and expertise of 
national public sector accounting governance structures where possible. 

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ANNEX 6.1: DETAILED COMMENTS ON THE SUBSTANCE OF CERTAIN IPSASS 

The  main  issues  which  emerged  from  the  discussions  in  the  Eurostat  Task  Force  are  listed 
below.  Task  Force  participants  expressed  their  views  as  independent  experts,  rather  than  as 
representatives  of  their  governments.  Note,  too,  an  issue  may  be  included  in  this  list  only 
because  one  expert  expressed  a  concern  about  some  aspect  of  the  standard.  This  does  not 
necessarily mean that other experts agreed with that concern. 

IPSAS  1  (Presentation  of  financial  statements)  —  Issues  are  associated  with  the 
requirement  for  the  comparison  of  budget  and  actual  amounts  the  entity  makes 
publicly  available  its  approved  budget.  A  disclosure  issue  is  associated  with  the 
inclusion in minimum line items of information on minority and residual interests. 

IPSAS  2  (Cash  flow  statement)  —  The  issue  relates  to  the  options  offered  by  this 
standard: it allows entities to use either a direct or an indirect method of determining 
cash flow from operating activities, although it encourages use of the direct method; 
this may result in variations in reporting by entities. 

IPSAS  3  (Accounting  policies,  changes  in  accounting  estimates  and  errors)  —  The 
date  of  reporting  and  retrospective  correction  for  fundamental  errors  could  be 
unsuitable  for some countries/entities. IPSAS  3  requires  judgment  to  be  used  when 
determining  an  accounting  policy  for  a  transaction  to  which  no  specific  IPSAS 
applies.  There  is  as  yet  no  public  sector  conceptual  framework  to  guide  this 
judgment. 

IPSAS 5 (Borrowing costs) — A transitional issue for cash-based systems occurs if 
the option to capitalise the cost of borrowing as part of the cost of qualifying assets is 
taken and retrospective application is required in First Time Adoption. 

IPSAS  6  (Consolidated  and  separate  financial  statements)  —  The  scope  of 
consolidation and the control criteria under IPSAS lead to the inclusion of the results 
of  all  controlled  entities  in  reporting  entity  statements,  which  would  entail  the 
consolidation of public corporations. This would require a potentially large number 
of government-controlled entities to provide timely and accurate financial data in a 
suitable format for consolidation, when they may use IFRS (as GBEs do). 

IPSAS  8  (Interests  in  joint  ventures)  —  Some  experts  considered  that  it  would  be 
appropriate to modify the equity approach to use the book value of equity/net assets 
rather  than  applying  the  fair  value  model.  In  addition,  an  option  issue  was 
highlighted  for  this  standard:  it  allows  both  proportional  and  equity  consolidation 
methods,  although  IPSAS  8  does  not  recommend  using  equity  accounting  for  joint 
ventures. 

IPSAS  11  (Construction  contracts)  —  This  standard  refers  to  the  case  of  a  public 
sector  entity  performing  construction  work  under  a  binding  arrangement;  for  that 
reason  the  standard  was  considered  not  material  for  some  countries.  Under  the 
standard  construction  contract,  work  in  progress  is  accounted  for  using  the 
‘percentage  of  completion’  method.  The  method  is  seen  as  problematic  because  it 
involves: 

(a)  Estimating the outcome of the contract reliably; 

(b)  Determining the revenue and costs attributable to the stage of completion of the 

contract; and 

(c)  Determining the profit attributable to the stage of completion. 

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These estimates involve a high degree of judgment and in most cases require a cost 
analysis which may need a dedicated system to track costs. 

IPSAS 12 (Inventories) — The application of the standard requiring inventories to be 
measured at the lower of cost and net realisable value on an item-by-item or group 
basis,  and  the  recognition  of  any  losses  incurred,  could  be  problematic  for  some 
items, for example in accounting for strategic stockpiles. 

IPSAS  13  (Leases)  —  Leases  are  classified  as  either  finance  leases  or  operating 
leases.  Some  participants  believe  that  this  assessment  is  difficult  to  undertake. 
Transitional issues for cash-based systems arise for financial leases where the lessee 
is required to recognise a liability (and an asset) in respect of the leased asset. The 
IASB  currently  proposes  to  revise  the  treatment  of  leasing  in  IFRS,  with  potential 
consequences for the standard. 

IPSAS  16  (Investment  property)  —  The  standard  is  seen  as  not  material  for  some 
countries.  Separation  of  investment  properties  from  other  long-term  assets  is 
perceived as subjective. Transitional issues arise for cash-based systems. 

IPSAS 17 (Property, plant and equipment) — The recognition and measurement of 
assets  (notably  for  military  or  heritage  assets)  may  require  a  substantial  amount  of 
work, depending on the extent to which an entity already has information available 
on  them.  This  standard  allows  two  methods:  the  cost  method  or  the  revaluation 
method; irrespective of the method, the asset should be depreciated. Recognition and 
accounting  of  heritage  assets  is  only  optional.  The  recognition  and  valuation  of 
immovable property would be a long and difficult process. It requires consumption 
of economic benefit to be estimated against impairment loss. On that basis IPSAS 17 
is seen as problematic for the accounting and measurement of public infrastructure. 
Specific  issues  arise  for  accounting  of  impairment  and  for  use  of  the  component 
method for measurement. 

IPSAS  18  (Segment  reporting)  —  Geographical  segment  reporting  could  be 
problematic for some countries, if the standard is interpreted in this way. Allocating 
assets  and  liabilities  to  various  segments  is  seen  as  too  complicated.  Segment 
reporting  is  not  based  on  market/non-market  activities.  The  standard  does  not 
mention the segmentation of government revenue or central government debt. 

IPSAS 19 (Provisions, contingent liabilities and contingent assets) — For provisions 
which do not become payable for a significant length of time, the effect of the time 
value of money may be material. In that case, the amount of the provision recorded 
in the statement of financial position should be the present value of the expenditure 
expected to be required to settle the obligation. A discount (market) rate will need to 
be determined, which may be difficult in particular for long-lived provisions such as 
nuclear  decommissioning.  The  choice  of  the  discount  rate  can  have  a  significant 
impact on the amount of the reported provision. The standard’s requirement to also 
include provisions (net of recoveries) for onerous contracts is seen as problematic. 

IPSAS  20  (Related  party  disclosures)  —  The  required  disclosures  are  perceived  as 
too  demanding:  for  some  countries,  implementation  of  this  standard  would  require 
reporting tools and a time-consuming detailed analysis of the disclosures involved. 

IPSAS  21  (Impairment  of  non-cash-generating  assets)  —  The  systematic 
classification  of  cash/non-cash  generating  assets  required  by  the  standard  is 
perceived  as  subjective;  in  addition,  the  related  assets  could  be  used  by  public 
entities  for  both  market  and  non-market  activities,  and  the  standard  is  therefore 

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difficult  to  implement.  The  standard  requires  impairment  to  be  determined  on  an 
annual  basis,  which  is  seen  as  problematic.  There  is  a  transitional  issue  for  cash-
based systems. 

IPSAS 22 (Disclosure of financial information about the general government sector) 
— The disclosure requirement is perceived as too demanding. The standard applies 
only if a General Government entity elects to provide information at a consolidated 
level. The standard provides an exception to IPSAS 6: the requirements of IPSAS 6 
are  not  applied  in  respect  of  the  relationships  of  GGS  with  entities  in  the  public 
corporation sectors. The standard is currently not applied in any jurisdiction. 

revenues 

for  non-exchange 

IPSAS  23  (Revenue  from  non-exchange  transactions)  —  Issues  relating  to 
accounting 
include  classification,  determining 
recognition  points,  measurement  at  initial  recognition,  and  determining  the 
appropriate  treatment  of  conditions  attached  to  grants.  This  standard  is  seen  as 
problematic  with  regard  to  the  definition  of  the  accruals  basis  for  initial  points  of 
recognition  of  revenue  related  to  taxes.  In  particular,  the  definition  of  the  accruals 
criteria as proposed (when the taxable event occurs and the asset recognition criteria 
are met) is seen as problematic with regard in particular those entities using the time-
adjusted  cash  method  for  taxes  in  government  finance  statistics.  Additional 
difficulties  to  those  highlighted  in  the  discussion  above  arise  for  some  countries 
because the criteria for recognition of taxes are defined for the statement of financial 
position  and  not  the  statement  of  financial  performance.  Furthermore,  the  term 
‘asset’  is  used  instead  of  ‘tax  revenues’  when  discussing  the  recognition  of  non-
exchange  transactions  involving  taxes.  IT  implementation  issues  are  perceived  as 
relevant due to the greater complexity of record keeping. The distinction criteria for 
conditions and restrictions for accounting of grants are also perceived as difficult. 

IPSAS  24  (Presentation  of  budget  information  in  financial  statements)  —  The 
standard  requires  comparison  with  the  approved  budget  and  with  actual  amounts. 
However, 
this  may  pose 
implementation  difficulties.  In  particular,  some  entities  adopt  the  accruals  basis  of 
accounting for financial statements but draft the budget under a cash basis. 

is  usually  different  and 

the  budget  framework 

IPSAS  25  (Employee  benefits)  —  The  difficult  areas  are  pensions  and,  to  a  lesser 
extent,  other  long-term  benefits  such  as  long-service  leave.  Accounting  for  short-
term  employee  benefits  is  not  generally  problematic.  This  standard  is  seen  as 
incomplete  because  it  does  not  cover  the  accounting  and  recognition  of  employee 
retirement benefit plans. Moreover, the standard does not  deal with accounting and 
recognition  of  private  sector  post-employment  benefits  managed  by  the  general 
social security system. The standard requires calculation of the amount of long-term 
post-employment benefits (unfunded liability for defined contribution plans and the 
total liability for defined benefit plans). In that case, the entity should use an actuarial 
assessment  to  discount  the  value  of  the  future  amount.  In  particular,  actuarial 
assumptions to determine the cost of providing post-employment benefits include an 
assumption on the discount rate that is seen as a difficult issue. However, although 
IPSAS  25  requires  the  use  of  (complicated)  actuarial  techniques  (and  data 
collection),  it  does  not  require  that  a  qualified  actuary  be  used.  It  also  requires 
accounting  for  any  constructive  obligation  that  arises  from  the  entity’s  informal 
practices of paying employee benefits, and that is seen difficult. The standard is seen 
as  problematic  to  apply,  in  view  of  the  current  common  country  practice  of 
accounting for such commitments as off-balance sheet liabilities (at best, disclosed in 
the notes to the financial statements). 

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IPSAS 26 (Impairment of cash-generating assets) — The standard is seen as difficult 
because  it  requires  calculation  of  impairment  on  an  annual  basis.  There  is  a 
transitional issue for cash-based systems. 

IPSAS 27 (Agriculture) — This standard is seen as difficult to implement because of 
a lack of systems to record this activity. The standard is not seen as material for some 
countries. It does not deal with the accounting treatment of land or intangible assets 
related to agricultural activity. 

IPSAS  28  to  30  (Financial  instruments)  —  These  standards  are  seen  as  not 
sufficiently adapted to public sector characteristics. In particular, the classification of 
financial assets required by this standard is seen as not suitable for some countries. 
The  standard  is  seen  as  problematic  for  some  countries  which  currently  use  a 
nominal  value  basis,  whereas  the  standard  calls  for  measurement  after  initial 
recognition  at  amortised  cost  using  the  effective  interest  method  for  loans  and 
receivables  and  held-to-maturity  investments.  Accounting  for  financial  instruments 
on a fair value basis on initial recognition is also considered complex because entities 
need to apply judgment in determining the market value of similar instruments with 
the  same  term,  currency  and  risk  profile,  on  the  transaction  date.  Accounting  for 
financial  derivatives  is  also  seen  problematic  because  IPSASs  28  to  30  call  for 
recognition  at  fair  value.  Hedge  accounting  as  proposed  by  the  standard  is  seen  as 
problematic not only in terms of the complexity of accounting treatment, but also in 
terms  of  its  impact  on  the  statement  of  financial  position  and  the  statement  of 
financial performance. In addition, macro hedging is not recognised by the standard. 
Transitional  issues  are  highlighted  for  cash-based  systems.  Accounting  treatment  is 
seen as relying too much on management intention. 

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ANNEX 6.2: EXPERIENCE OF ADOPTING IFRS IN THE EU 

Where  governments  decide  to  adopt  accruals  accounting,  a  crucial  decision  has  to  be  made 
about how the accounting standards should be developed and their application monitored. In 
addition to Member States’ governments, there would be value in giving a significant role to 
the accounting profession as ‘independent experts’ on accounting standards. 

The Commission already has experience with governance structures linked to the adoption of 
International  Financial  Reporting  Standards  (IFRSs)  in  the  EU.  Regulation  (EC)  No 
1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application 
of  international  accounting  standards  (the  ‘IAS  Regulation’)  requires  publicly  traded 
companies to present their consolidated accounts in conformity with international accounting 
standards. 

The history of IFRS in the EU 

Prior to the adoption of the IAS Regulation, the EU examined the possibilities of improving 
the  financial  reporting  framework  for  EU  companies  for  several  years.  In  1995,  the 
Commission adopted a new strategy: in a communication on accounting harmonisation,101 it 
proposed  to  associate  the  EU  with  the  efforts  made  by  the  IASC  (International  Accounting 
Standards  Committee)  and  IOSCO  (International  Organisation  of  Securities  Commissions) 
towards a broader international harmonisation of accounting standards. 
Based  on  that  strategy,  seven  Member  States  (Austria,  Belgium,  Germany,  France,  Finland, 
Italy,  and  Luxembourg)  allowed  listed  companies  to  prepare  their  consolidated  financial 
statements in accordance with either IAS (International Accounting Standards) or US GAAP 
(Generally  Agreed  Accounting  Principles).  The  strategy  was  updated  in  2000:  it  was 
necessary  to  move  towards  a  single  set  of  accounting  standards  in  order  to  build  a  unified 
capital and financial services market by 2005. 
Subsequently  in  2000,  the  Commission  introduced  a  legislative  proposal  requiring  all  listed 
EU  companies  to  prepare  their  consolidated  financial  statements  in  accordance  with  IAS  at 
the latest in 2005. This resulted in the adoption of the IAS Regulation in 2002. 
Ten years have passed since then. Considering the time elapsed and the international context 
of accounting convergence, it is time to assess the functioning of the current system of IFRS 
in the EU. Therefore, in 2012 a debate was initiated at political level (ECOFIN) in order to 
identify  potential  improvements  to  the  current  system  and  the  related  governance 
arrangements. An evaluation of the IAS Regulation is to be launched in 2013. 

The current governance related to the adoption of IFRSs 

The objective is to adopt and use international accounting standards in the EU with a view to 
harmonising the financial information presented by companies so as to ensure a high degree 
of  transparency  and  comparability  of  financial  statements  and  hence  ensure  that  the  EU’s 
capital market and the single market work efficiently. This entails greater convergence of the 
accounting standards currently used internationally, with the ultimate objective of achieving a 
single set of global accounting standards. 
Any IFRS to be adopted in the EU must be consistent with the true and fair view set out in the 
Accounting Directive, be conducive to the European public good and meet basic criteria as to 
the quality of information required for financial statements to serve users. 

101 

Communication  from  the  Commission,  Accounting  harmonisation:  A  new  strategy  vis-à-vis 
international harmonisation, COM(95) 508 final. 

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IASB 

EFRAG 

Interest groups 

The EU’s IFRS endorsement process  

European 

Commission

European 

Parliament

ARC 

Accounting 

Regulatory

Council 

In brief, the procedure for adopting EU standards is the following: 

(10) 

(11) 

(12) 

(13) 

(14) 

(15) 

(16) 

International Accounting Standards Board (IASB) issues a standard 

European Financial Reporting Advisory Group (EFRAG) holds consultations 

EFRAG gives endorsement advice and an effects study  

Commission drafts endorsement regulation 

Accounting Regulatory Committee (ARC) votes and gives an opinion 

European Parliament and Council scrutiny period 

Commission adopts and publishes the standard in the Official Journal 

This process typically takes approximately eight months. 

The  International  Financial  Reporting  Standards  (IFRS)  are  developed  by  the  International 
Accounting Standards Board (IASB). The IASB  is more and more regularly conducting ex-
ante field-testing and post-implementation reviews. Interpretations of IFRSs are issued by the 
IFRS  Interpretations  Committee  (IFRIC),  another  body  under  the  IFRS  Foundation’s 
umbrella. The Commission participates in the IASB agenda consultation and provides funding 
(an  operating  grant)  to  the  International  Financial  Reporting  Standards  Foundation  (IFRS 
Foundation)  to  guarantee  stable  funding  and  to  increase  its  actual  and  perceived 
independence. 

The  Commission  also  supported  the  establishment  of  the  Monitoring  Board  to  enhance  the 
accountability  of  the  IFRS  Foundation  and  one  of  the  Commissioners  is  a  member  of  this 
Board102. The Monitoring Board is an independent body, with no legal personality, separate 
from  the  IFRS  Foundation  and  governed  by  its  own  Charter.  Its  relationship  with  the  IFRS 
Foundation is set out in a bilateral Memorandum of Understanding. The Monitoring Board’s 

102 

Currently represented on the Monitoring Board are the Emerging Markets and Technical Committees of 
the  International  Organisation  of  Securities  Commissions  (IOSCO),  the  European  Commission,  the 
Financial Services Agency of Japan (JFSA), and US Securities and Exchange Commission (SEC). The 
Basel  Committee  on  Banking  Supervision  attends  Monitoring  Board  meetings  as  an  observer.  The 
membership is under review with a view to expanding it. 

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aim is to ensure that the IFRS Foundation is accountable to public authorities responsible for 
setting statutory accounting standards. Its principal powers and responsibilities are: 

• 

• 

• 

to participate in the nomination of Trustees and to approve their appointment; 

to review the Trustees’ oversight of the IASB’s work; and 

to assess the adequacy of the IFRS Foundation’s funding arrangements with a 
view to promoting a non-voluntary, transparent and stable funding platform. 

The  Monitoring  Board  may  also  refer  matters  of  broad  public  interest  to  the  IASB  for 
consideration on a ‘comply or explain’ basis. 

The Monitoring Board meets two or three times a year. 

The  European  Financial  Reporting  Advisory  Group  (EFRAG)  is  a  private  sector  body.  Its 
core decision-making body on technical matters (the Technical Expert Group, TEG) consists 
of  experts  from  issuers,  accounting  professionals,  academics  and  investors.  It  assists  the 
European Commission with the endorsement of IFRSs and IFRS interpretations by providing 
endorsement advice and effects studies on technical quality. National standard setting bodies 
contribute  to  EFRAG’s  work  and  resources.  EFRAG  attends  various  IASB  Working  Group 
meetings  as  an  observer.  EFRAG  delivers  the  input  on  behalf  of  the  EU  to  the  IASB.  The 
European Commission also supports EFRAG financially and is represented as an observer in 
EFRAG TEG meetings. 

The  Accounting  Regulatory  Committee  (ARC)  is  composed  of  representatives  from  each 
Member State and chaired by the European Commission. The Committee was set up by the 
Commission  as  a  regulatory  comitology  committee  providing  opinions  on  Commission 
proposals  to  adopt  an  international  accounting  standard.  EFRAG  is  usually  invited  as  an 
observer to the Committee’s meetings. 

There  is  also  a  role  in  this  process  for  the  European  Securities  and  Markets  Authority 
(ESMA). ESMA is an independent EU authority that contributes to safeguarding the stability 
of the European Union’s financial system by ensuring the integrity, transparency, efficiency 
and  orderly  functioning  of  securities  markets,  and  enhancing  investor  protection.  In  this 
context ESMA — together with the national supervisory authorities — is responsible for the 
enforcement of IFRSs. 

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ANNEX 6.3: ADOPTION PROCESS FOR ACCOUNTING RULES APPLICABLE TO EU 
INSTITUTIONS AND BODIES 

The accounting  rules applicable to the EU Institutions and bodies  are based on IPSAS.  The 
legal basis is Article 143 of EU Financial Regulation stipulating that the accounting officer of 
the Commission shall adopt rules based on internationally accepted accounting standards for 
the public sector. The adoption process is as follows: 

Elaboration of the draft accounting rules 

The draft accounting rules are elaborated by the Commission's accounting officer's services, 
considering the existing accounting transactions of the Commission, institutions or agencies. 
The  accounting  rules  applicable  to  the  EU  institutions  and  bodies  are  drafted  based  on 
existing IPSAS and where necessary adjusted to the specific environment of the EU. 

In  case  there  are  no  existing  IPSAS  standards  for  specific  and  important  accounting 
transactions,  the  Commission  may  develop  its  own  accounting  rules.  This  is  the  case  for 
example for the accounting rule for pre-financing without having a counterpart in the IPSAS 
standards. 

Advisory group on accounting rules 

Article  152  of  the  EU  Financial  Regulation  states  that  the Commission’s  accounting  officer 
adopts  the  accounting  rules  to  be  applied  by  all  the  institutions  and  EU  bodies.  The 
Commission's accounting officer should have a major role in the development of accounting 
rules.  However,  other  users  of  the  accounts  should  also  play  a  part  in  the  setting  of  these 
requirements. 

To this end, an advisory group on accounting rules has been set up. Its role is to: 

deliver  an  independent  professional  judgement  on  the  accounting  standards  and  rules 
proposed by the Commission’s accounting officer; and 

advise  the  accounting  officer  on  the  application  of  financial  reporting  principles  and 
standards. 

Inter-service consultation of the other EU institutions and bodies 

They  may  give  comments  on  the  proposed  rules,  eventually  also  highlighting  specificities 
relevant for their accounting environment. 

Adoption of the accounting rules applicable for the EU Institutions and bodies, 

The adoption of accounting rules applicable for the EU Institutions and bodies is stipulated in 
Article 152 of the EU Financial Regulation: The accounting officer shall, after consulting the 
accounting  officers  of  the  other  institutions  and  bodies,  adopt  the  accounting  rules.  When 
adopting  these  rules  the  Commission's  accounting  officer  shall  be  guided  by  the 
internationally accepted accounting standards for the public sector but may diverge from them 
in  order  to  give  a  true  and  fair  view  of  the  assets  and  liabilities,  charges,  income  and  cash 
flow. 

The current set of accounting rules applicable for the EU Institutions and bodies with links to 
IPSAS standards, as at August 2012, is annexed to this chapter. Beside these rules there are 
two additional accounting rules which do not have an IPSAS counterpart: 

accounting rule 3: Expenses and payables  

accounting rule 5: Pre-financing 

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ANNEX 6.4: LIST OF IPSASS AND RELATED ACCOUNTING RULES APPLICABLE 
TO EU INSTITUTIONS AND BODIES 

IPSAS No 

Title 

EU equivalent rule 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

16 

17 

18 

19 

20 

21 

22 

Presentation of Financial Statements 

Cash Flow Statements 

Accounting Policies, Changes in Accounting Estimates 
and Errors 

The Effects of Changes in Foreign Exchange Rates 

Borrowing Costs 

Consolidated Financial Statements and Accounting for 
Controlled Entities 

Accounting for Investments in Associates 

Financial Reporting of Interests in Joint Ventures 

Revenue from Exchange Transactions 

Financial Reporting in Hyperinflationary Economies 

Construction Contracts 

Inventories 

Leases 

2 

2 

14 

13 

N/A 

1 

1 

1 

4 

N/A 

N/A 

9 

8 

Events After the Reporting Date 

Not yet developed 

Investment Property 

Property, Plant and Equipment 

Segment Reporting 

Provisions, Contingent Liabilities and Contingent Assets

Related Party Disclosures 

Impairment of Non-Cash generating Assets 

N/A 

7 

2 

10 

15 

18 

Disclosure of Financial Information About the General 
Government Sector 

Not yet developed 

23 

Revenue from Non-Exchange Transactions (Taxes and 

17 

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IPSAS No 

Title 

EU equivalent rule 

Transfers) 

Presentation of Budget Information in Financial 
Statements 

Employee Benefits 

Impairment of Cash-Generating Assets 

Agriculture 

Financial Instruments: Presentation 

Financial Instruments: Recognition and Measurement 

Financial Instruments: Disclosures 

Intangible Assets 

Service concession arrangements: Grantor 

24 

25 

26 

27 

28 

29 

30 

31 

32 

16 

12 

18 

N/A 

11 

11 

11 

6 

N/A 

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CHAPTER 7 

7. 

HOW TO MOVE TOWARDS IMPLEMENTING EPSAS? 

7.1. 

European Public Sector Accounting Standards — EPSAS 

If IPSAS, as it currently stands, is not considered suitable for full and direct adoption 
throughout the EU, the need to harmonise government accounting standards in the EU 
calls for the development of a set of European Public Sector Accounting Standards — 
EPSAS. 

EPSAS  would  give  the  EU  the  capacity  to  develop  its  own  standards  to  meet  its  own 
requirements  and  with  the  rapidity  required.  It  would  consist  of  a  set  of  harmonised 
accruals-based public sector accounting standards adapted to the specific requirements 
of  EU  Member  States.  Standards  that  could  be  implemented  in  practice,  and  should 
focus on where they are most needed. The implementation of EU-wide EPSAS would 
also  dramatically  reduce  the  complexity  of  statistical  compilation  processes  used  to 
transform  these  data  onto  a  quasi-harmonised  basis  and  minimise  risks  with  regard  to 
the reliability of the data notified by Member States. 

As  seen  with  the  example  of  New  Zealand’s  experience  described  in  Chapter  6,  the 
harmonisation of diverse accounting practices which currently co-exist within many of 
the  Member  States  may  even  produce  cost  reductions  deriving  from  the  reduced 
bureaucracy to offset or outweigh the cost of the investment. 

7.2. 

Governance of a future EPSAS 

There would need to be strong EU governance for the development and adoption of the 
EPSAS standards. The system to develop and govern EPSAS would define the agenda 
for  the  development  of  each  standard  and  there  would  need  to  be  well-defined 
endorsement  procedures.  The  EPSAS  governance  structure  would  need  to  cover  the 
necessary  tasks:  legislation,  standard  setting,  and  providing  technical  and  accounting 
advice. 

The  EPSAS  governance  structure  would  not  follow  the  same  model  used  by  the 
Commission  for  EU  governance  of  IFRS  because  of  the  particularities  of  the  public 
sector and the emphasis on intra-EU comparability. Wherever possible, it should seek to 
use  the  experience  and  expertise  of  national  public  sector  accounting  governance 
structures in the Member States. 

EPSAS would need to establish and maintain close links to the IPSAS Board in order to 
inform  its  agenda  and  decision-making  and  because  EPSAS  standards  may  need  to 
differ in some cases from IPSAS standards. 

7.3. 

A process and a timetable towards EPSAS 

The  first  version  of  EPSAS  could  be  based  on  the  adoption  of  a  subset  of  IPSASs 
consisting  of  those  standards  commonly  agreed  by  EU  Member  States,  subject  to  any 
necessary adaptations. 

However, it should be noted that the definition of a set of EPSASs would not in itself 
guarantee  timely  and  high  quality  public  accounting  data.  The  benefits  require 
additional conditions to be met, such as: 

• 

Strong political support and joint ownership of the project; 

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• 

• 

• 

• 

• 

Public  administrations  capable  of  running  a  more  complex  accounting 
system in each individual public entity; 

Integrated  IT  systems  for  budget,  payment,  contract  management, 
double-entry bookkeeping, invoice management, and statistical reporting; 

Timely  reporting  of  all  economic  events  in  the  integrated  accounting 
system of the public entities (e.g. monthly); 

Availability of human resources and modern IT; 

Effective 
accounting. 

internal  control  and  external  financial  audit  of  public 

For all Member States, but especially for those that currently use only cash accounting, 
the implementation of EPSAS accruals accounting would be a major reform. Some of 
the issues that would arise are: 

• 

• 

• 

• 

• 

• 

Conceptual and technical accounting issues; 

Staff and consultant expertise, training skills; 

Communicating with and educating managers and decision-makers; 

Liaison with, and training of, auditors; 

Adjustment or modernisation of IT systems; 

Adapting the existing national regulatory frameworks. 

The  development,  endorsement  and  implementation  of  EPSAS  would  have  to  be  a 
gradual  process,  which  would  take  place  over  a  medium-term  perspective,  by  first 
focusing on the accounting issues which are most important for harmonisation, such as 
revenue and expenditure — taxes and social benefits — , liabilities and financial assets, 
and  at  a  later  stage  considering  non-financial  assets,  etc.  For  example,  as  long  as 
cultural  heritage  assets  are  not  used  in  production  processes,  or  are  not  purchased  for 
resale, it may be considered that they do not need to be recognised and valued. 

The way forward should take a selective approach, taking into account in particular the 
perspective of small and medium-sized entities and the issue of materiality. The strategy 
would need to define priorities, set key deadlines and thus put forward a concrete road 
map  and  describe  milestones  for  the  EPSAS  project,  taking  into  account  impact 
assessment considerations. 

The  Commission,  in  cooperation  with  Member  States,  would  draft  an  agreed  core  of 
basic European Public Sector Accounting Principles and specify the EPSAS governance 
system and the procedure for developing specific standards. 

The first step could be a proposal for a Framework Regulation, requiring the application 
of the accruals principle in public accounting. 

The EPSAS standard setting body could then classify the 32 accruals IPSAS standards 
into three categories: 

• 

• 

• 

standards that might be implemented with minor or no adaptation; 

standards that need adaptation, or for which a selective approach is needed; 

standards that are seen as needing to be amended for implementation. 

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This  categorisation  is  further  elaborated  in  the  Annex  to  this  Chapter,  ‘Possible 
classification of the IPSAS standards’. 

Based  on  the  experience  of  countries  which  have  implemented  accruals-based  public 
sector  accounting  systems  in  recent  years,  the  process  of  implementation  should  be 
sequenced.  The  process  should  be  determined  by  carefully  considering  the  starting 
position of each Member State, for example the state of development of their existing 
national  accounting  standards  and  the  availability  of  balance  sheet  data.  In  some 
Member States it might be most appropriate to begin implementation at national level 
and then follow this at regional and local levels. It should also be envisaged to limit the 
extent  of  implementation  for  smaller  entities,  or  at  least  prioritise  the  more  important 
entities, taking into account their materiality. 

The process could take place in three distinct stages: 

(17) 

(18) 

A  preparatory  stage  to  gather  further  information  and  to  develop  a  roadmap 
based on further consultations, and to prepare detailed proposals. 

A  stage  to  develop  and  put  in  place  the  practical  arrangements,  addressing 
issues  such  as  finance,  governance,  possible  synergies,  and  the  concerns  of 
smaller government entities. This stage would include the development of the 
Framework Regulation. 

(19) 

The implementation stage. 

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ANNEX 7.1: A POSSIBLE CLASSIFICATION OF THE IPSAS STANDARDS 

Taking  into  account  that  a  number  of  accounting-related  technical  issues  are  seen  as 
problematic  in  the  IPSAS  standards,  as  described  in  Chapter  6,  the  IPSAS  standards 
might be grouped as follows: 

Standards that might be implemented with minor or no adaptation; 

Standards that need adaptation, or for which a selective approach is needed; 

Standards that are seen as needing to be amended for implementation. 

Eurostat  drafted  the  proposed  groups  taking  into  account  the  views  of  Member  State 
experts in the Task Force on IPSAS. Note that experts’ views on the suitability of some 
IPSAS  standards  may  differ  and  therefore  this  proposal  is  preliminary  and  that  needs 
further  technical  discussion  with  accounting  experts.  Note,  too,  that  these  proposals 
refer  to  the  applicability  of  the  standards  themselves,  and  not  their  consistency  with 
ESA. 

Standards that might be 
implemented with minor or 
no adaptation 

Standards that need 
adaptation, or for which a 
selective approach is needed 

Standards that are seen as 
needing to be amended for 
implementation 

IPSAS  1  —  Presentation 
FS103 

IPSAS  7  —  Investments  in 
associates 

IPSAS  6  —  Consolidated 
financial statements 

IPSAS 2 — Cash flow 

IPSAS  3  —  Fundamental 
in 
and 
errors 
accounting policies104 

changes 

IPSAS  4  —  Changes 
foreign exchange rates 

in 

IPSAS 5 — Borrowing costs 

IPSAS  8  —  Interests  in  joint 
ventures 

IPSAS  28  —  Financial 
instruments: Presentation111 

IPSAS 13 — Leases 

IPSAS  15  —  Financial 
instruments: Presentation108 

IPSAS  17  —  Property,  plant 
and equipment 

IPSAS  29  —  Financial 
instruments:  Recognition  and 
measurement112 

IPSAS  30  —  Financial 
instruments: Disclosure113 

IPSAS  9  —  Revenue  from 
exchange transactions 

IPSAS 18 — Segment report-
ing 

IPSAS  10  —  Hyperinflation-
ary economies105 

IPSAS  20  —  Related  party 
disclosures 

IPSAS  11  —  Construction 
contracts 

IPSAS  21  —  Impairment  of 
non-cash-generating assets 

IPSAS 12 — Inventories 

IPSAS 14 — Events after the 
reporting date 

IPSAS  16  — 

Investment 

IPSAS  22  —  Disclosure 
general government sector 

IPSAS  23  —  Revenue  from 
non-exchange transactions109 

IPSAS  24  —  Presentation  of 

103 
104 

105 

Although experts perceive some disclosure issues as relevant. 
Experts point to a lack of guidance on determining accounting policy in the absence of a specific 
IPSAS. 
Not relevant in the EU context. 

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Standards that might be 
implemented with minor or 
no adaptation 

Standards that need 
adaptation, or for which a 
selective approach is needed 

Standards that are seen as 
needing to be amended for 
implementation 

property 

budget information 

IPSAS 19 — Provisions, con-
tingent  liabilities,  contingent 
assets106 
IPSAS 27 — Agriculture107 

IPSAS  25  —  Employee 
benefits110 

IPSAS  26  —  Impairment  of 
cash-generating assets 

IPSAS 
concessions 

32  — 

Service 

IPSAS  31  — 
assets 

Intangible 

106 

107 

108 
109 

110 

111 

112 

113 

to 

long-lived  provisions 

Determining a discount (market) rate to apply in calculating the present value of the provision is 
(e.g.  nuclear 
regard 
perceived  as  difficult,  notably  with 
decommissioning). 
Not seen as material for some countries. There is a lack of guidance on the accounting treatment 
of land or other intangible assets related to the activity. 
To be withdrawn — see Chapter 2. 
Recognition of revenue related to taxes, accounting for grants according to distinction criteria for 
conditions and restrictions and IT issues are all perceived as relevant by some countries. 
The  difficult  areas  are  pensions,  and  to  a  lesser  extent,  other  long-term  benefits  such  as  long-
service leave, which represent a large problematic part of the standard. 
However,  since  IPSAS  28  deals  with  presentation  it  may  be  seen  as  less  problematic  than 
IPSASs 29 and 30. 
Accounting for financial instruments on a fair value basis on initial recognition is considered to 
be complex and problematic for some countries which currently use a nominal value basis even 
for  measurement  after  initial  recognition;  specific  areas  considered  problematic  are  hedge 
accounting, macro hedging and recognition at fair value for financial derivatives. 
Disclosure issue is considered relevant by some countries. 

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