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  
COM(2013) 114 final 

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 
{SWD(2013) 57 final} 

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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 

1. 

LEGAL BACKGROUND AND CONTEXT 

This  report  fulfils 
the  Commission’s  obligation,  under  Article  16(3)  of  Council 
Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the 
Member  States1,  to  assess  the  suitability  of  the  International  Public  Sector  Accounting 
Standards (IPSAS) for the Member States by 31 December 2012. It is based on information 
received through consultation with Commission services, international organisations such as 
the  IMF,  expert  practitioners  and  other  interested  parties  within  the  Member  States  and 
beyond, as well as the IPSAS Board, the standard-setter for these standards. 

The sovereign debt crisis has underlined the need for governments to clearly demonstrate their 
financial stability and for more rigorous and more transparent reporting of fiscal data. Council 
Directive  2011/85/EU  (the  Budgetary  Frameworks  Directive)  recognises  the  crucial  role  in 
EU  budgetary  surveillance  of  complete  and  reliable  fiscal  data,  comparable  across  Member 
States.  It  therefore  sets  out  the  rules  on  Member  State  budgetary  frameworks  that  are 
necessary  to  ensure  compliance  with  the  obligation  under  Article  126  of  the  Treaty  on  the 
Functioning of the European  Union (TFEU) to avoid excessive government deficits. On the 
one  hand,  fiscal  discipline  plays  an  essential  role  in  safeguarding  Economic  and  Monetary 
Union, and on the other hand, financial stability is based on trust. This report discusses one of 
the tools for building this trust and for better measuring and forecasting the fiscal situation: 
harmonised public sector accruals-based accounting standards. 

Article 3 of Directive 2011/85/EU requires Member States to ‘have in place public accounting 
systems comprehensively and consistently covering all sub-sectors of general government and 
containing  the  information  needed  to  generate  accrual  data  with  a  view  to  preparing  data 
based on the ESA 95 standard’2. It thereby acknowledges the essential incoherence between 
public  sector  accounts,  which  only  record  cash  flows,  and  the  fact  that  EU  budgetary 
surveillance is based on ESA 95 accruals data. This means that cash data have to be converted 
into  accruals  through  approximations  and  adjustments  involving  macro-based  estimates. 
Moreover, where accruals accounts do not exist at the micro level, financial transactions and 
balance sheets have to be derived from a variety of different sources, leading to a ‘statistical 
discrepancy’  between  the  deficit  compiled  via  non-financial  accounts  and  that  compiled  via 
financial accounts. 

The lack of coherence between primary public-sector accounts and ESA  95 accruals  data is 
also  acknowledged  in  the  Commission  communication  of  15  April  2011  to  the  European 
Parliament  and  the  Council  Towards  robust  quality  management  for  European  Statistics3. 
This communication draws attention to the high dependence of the quality of European-level 

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OJ L 306, 23.11.2011, p. 41. 
Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional 
accounts in the Community, OJ L 310, 30.11.1996, p. 1. 
COM(2011) 211 final. 

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statistical  information  on  the  appropriateness  of  the  entire  production  process.  Eurostat 
therefore  promotes  a  system  of  harmonised  accruals-based  accounting  standards,  consistent 
with the ESA, for all entities of the government sector. 

IPSAS  is  currently  the  only  internationally  recognised  set  of  public-sector  accounting 
standards.  It  is  founded  on  the  international  financial  reporting  standards  (IFRS)  widely 
applied  by  the  private  sector  and  at  this  point  consists  of  a  set  of  32  accruals  accounting 
standards, plus one cash-based standard. 

It  is  in  this  light  that  Article  16(3)  of  Directive  2011/85/EU  requires  an  assessment  of  the 
suitability of IPSAS for the Member States. 

2. 

INTRODUCTION 

Government  activity  accounts  for  a  major  part  of  gross  domestic  product  (GDP)  in  all  EU 
economies,  and  government  assets  and  liabilities  are  substantial  in  all  EU  countries.  It  is 
therefore important that they are effectively  managed  and that  governments  are  accountable 
for this management to their citizens, their representatives, investors and other stakeholders. 

Government finance statistics provide information on the accounts of the different sub-sectors 
of  general  government  so  that  policy  makers  and  other  stakeholders  are  able  to  analyse  the 
financial position and performance of government and the long-term sustainability of public 
finances.  The  main  sources  of  these  statistics  are  the  accounting  records  and  reports  of  the 
various  government  entities,  supplemented  with  financial  information.  Reliable  government 
financial  accounts  are  essential  for  the  preparation  of  national  accounts  and  of  course  for 
fiscal planning, coordination and supervision. 

Two  of  the  most  important  indicators  of  fiscal  sustainability  are  debt and  deficit,  which  are 
used  within  the  EU  for  monitoring  compliance  with  the  terms  of  the  Stability  and  Growth 
Pact.  Article  126  TFEU  and  Protocol  No  12  on  the  Excessive  Deficit  Procedure  (EDP), 
annexed to the Treaties, specify that the ratio of planned or actual government deficit to GDP 
shall in principle not exceed 3 % and the ratio of government debt to GDP shall in principle 
not exceed 60 %. The Commission closely monitors these constraints on national fiscal policy 
in  order  to  ensure  the  efficient  functioning  of  Economic  and  Monetary  Union.  When  a 
Member State fails to keep within the limits and this situation is considered to be more than 
just  exceptional  and  temporary,  an  EDP  could  be  launched.  After  the  Commission  has 
expressed an opinion, the Council then decides, on a proposal by the Commission, whether an 
excessive  deficit  exists  and,  if  so,  address  the  Member  State  with  recommendations  and  a 
timetable for corrective action. 

3. 

WHY  HARMONISED  ACCRUALS-BASED  PUBLIC-SECTOR  ACCOUNTING  STANDARDS 
ARE NEEDED 

Accruals  accounting  is  the  only  generally  accepted  information  system  that  provides  a 
complete  and  reliable  picture  of  the  financial  and  economic  position  and  performance  of  a 
government, by capturing in full the assets and liabilities as well as revenue and expenses of 
an  entity,  over  the  period  covered  by  the  accounts  and  at  the  moment  they  are  closed. 
Accruals accounting entails the recording of entries, not when cash payments are made, but 
when economic value is created, transformed or extinguished, or when claims and obligations 
arise, are transformed or extinguished. Cash accounting records transactions when the amount 
is received or paid. Accruals accounting is economically sounder than cash accounting, which 
is  why  the  current  accounting  framework  for  fiscal  monitoring  in  the  EU,  the  ESA  95,  is 
accruals based. Moreover, the use of accruals accounting in the public sector is necessary to 

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avoid some of the window-dressing that is allowed by cash accounting, where a payment can 
be  brought  forward  or  postponed  so  as  to  be  recorded  in  the  period  that  the  government 
chooses. However, accruals accounting is not meant to abolish or replace cash accounting, in 
particular where the latter is used for the purposes of budgeting and budget control. In fact, 
accruals  accounting  should  be  seen  as  complementary,  rather  than  as  an  alternative,  to  pure 
‘cash  accounting’.  In  providing  the  full  picture  of  the  economic  and  financial  position  and 
performance of the entities, it puts cash accounting in its overall context. 

There would be distinct benefits for public-sector management and governance in adopting a 
single set of accruals-based accounting standards at all levels of government throughout the 
EU. Accruals micro accounting in the public sector is expected to improve the effectiveness 
and  efficiency  of  public  administration  and  to  facilitate  the  securing  of  liquidity  that  is  a 
necessary condition for maintaining a functioning public service. As with any other economic 
activity, the management and control of public sector effectiveness and efficiency hinges on 
that  of  its  economic  and  financial  position  and  its  performance.  Double-entry  accruals 
accounting is the only generally accepted system that provides the necessary information in a 
reliable and timely manner. Furthermore, harmonised accruals-based government accounting 
improves  transparency,  accountability  and  the  comparability  of  financial  reporting  in  the 
public sector, and may serve to improve the efficiency and effectiveness of public audit. 

3.1. 

Current situation with regard to accruals accounting in EU Member States 

The majority of Member States have already implemented accruals accounting according to 
national  standards  across  the  government  sector,  or  are  in  the  process  of  doing  so.  Eleven 
have mixed systems, in that they have implemented different accounting practices at different 
levels  of  government4.  The  accounting  framework  and  accounting  systems  of  the  European 
Commission  and  the  other  EU  institutions  and  bodies  are  accruals  based  and  inspired  by 
IPSAS. This is also the case for several other international organisations. 

While  there  is,  therefore,  a  growing  (but  not  unanimous)  acknowledgment  of  the  need  for 
accruals  accounting  for  government  within  the  EU  and  its  Member  States,  a  harmonised 
approach is currently lacking. 

3.2.  Macro-accounting framework 

The ESA provides the macro-level statistical accounting framework for the government and 
non-government  sectors  in  the  EU  and  is  accruals  based.  ESA-based  government  debt  and 
deficit data for EDP purposes are the result of consolidating the individual accounts of general 
government entities in the Member States and are defined by EU legislation. 

In  the  context  of  EU  fiscal  surveillance  and  the  EDP,  the  Commission,  in  accordance  with 
Article 126 TFEU, has the task of regularly assessing the quality both of actual data reported 
by Member States and of the underlying government sector accounts compiled according to 
the  ESA.  Recent  developments,  in  particular  incidences  of  inappropriate  financial  reporting 
by  some  Member  States,  have  demonstrated  that  the  system  for  fiscal  statistics  has  not 
sufficiently  mitigated  the  risk  of  substandard  quality  data  being  notified  to  Eurostat. 
Furthermore,  the  impact  of  the  economic  and  financial  crisis  has  highlighted  the  need  to 
strengthen the economic governance structure for the euro area and the European Union as a 
whole.  The  Commission  responded  on  29  September  2010  by  adopting  a  package  of 
legislative  proposals,  the  ‘European  economic  governance  package’  (referred  to  as  the  ‘six-
the  Council  on 
pack’),  which  was  adopted  by 

the  European  Parliament  and 

4 

‘Overview and comparison of public accounting and auditing in the 27 Member States’  

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16 November 20115.  This  seeks  to  extend  and  improve  the  surveillance  of  fiscal  policies, 
macroeconomic policies and structural reforms to remedy the shortcomings found in existing 
legislation.  New  enforcement  mechanisms  are  planned  in  the  event  of  non-compliance  by 
Member  States.  It  is  clear  that  these  mechanisms  must  rely  on  high  quality  statistical 
information, produced on the basis of robust and harmonised accounting standards adapted to 
the European public sector. 

The existence and quality of comparable and coherent upstream accruals data (i.e. the primary 
accounting data for government entities) at micro-accounting level are preconditions for the 
high  quality  of  debt  and  deficit  data  at  accruals-based  macro-accounting  level.  Micro 
public-sector  accounting  in  the  Member  States  has  many  variants,  making  comparisons 
difficult  both  within  and  between  Member  States.  The  current  approach  of  reconciling 
non-harmonised  micro-level  public-sector  accounting  data  for  EDP  purposes  is  reaching  its 
limits. 

Harmonised micro-accounting systems for all public-sector entities (i.e. general government) 
in all EU Member States, combined with internal control and external audit, seems the only 
effective way forward to compile accruals-based debt and deficit data of the highest quality 
standards  in  accordance  with  existing  legal  requirements.  This  is  also  one  of  the  key  ideas 
behind Directive 2011/85/EU. 

3.3. 

Need for harmonisation 

For  the  compilation  of  macroeconomic  statistics  on  government  and  with  reference  to 
Article 338  TFEU,  the  requisite  statistical  data  would  be  considerably  improved  if  all 
government entities  used harmonised accounting standards. This would allow  for the use of 
common  bridge  tables  to  compile  the  entity  accounts  into  ESA  accounts,  thus  greatly 
facilitating the statistical verification processes. 

Fiscal transparency is necessary for macroeconomic stability and for surveillance and policy 
advice.  Harmonised  standards  for  public  sector  accounting  would  enhance  transparency, 
comparability  and  cost  efficiency,  and  provide  the  basis  for  improved  governance  in  the 
public sector. At the macro level, the financial crisis underlines the importance of timely and 
reliable financial and fiscal data, and evidences the consequences of insufficiently complete 
and comparable financial reporting in the public sector. 

In  the  longer  term,  one  might  envisage  a  move  towards  a  refinement  of  the  main  EDP 
indicators by deriving macro public accounting (deficit/debt) results based on the 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 data directly from those systems. They 
could  be  based  on  genuine  and  harmonised  public-sector  accounting  data,  which  had  been 

5 

Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 
on the effective enforcement of budgetary surveillance in the euro area, OJ L 306, p. 1; Regulation (EU) 
No 1174/2011  of  the  European  Parliament  and  of  the  Council  of  16 November  2011  on  enforcement 
measures to correct excessive macroeconomic imbalances in the euro area, OJ L 306, p. 8; Regulation 
(EU)  No 1175/2011  of  the  European  Parliament  and  of  the  Council  of  16 November  2011  amending 
Council  Regulation  (EC)  No 1466/97  on  the  strengthening  of  the  surveillance  of  budgetary  positions 
and  the  surveillance  and  coordination  of  economic  policies,  OJ  L  306,  p.  12;  Regulation  (EU) 
No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention 
and correction of macroeconomic imbalances, OJ L 306, p. 25; Council Regulation (EU) No 1177/2011 
of  8 November  2011  amending  Regulation  (EC)  No 1467/97  on  speeding  up  and  clarifying  the 
implementation of the excessive deficit procedure, OJ L 306, p. 33; Council Directive 2011/85/EU of 
8 November 2011 on requirements for budgetary frameworks of the Member States, OJ L 306, p. 41. 

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subject  to  control  and  audit,  be  it  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. 

Governments  have  a  public  interest  obligation  to  market  participants  —  owners  of 
government  debt  securities  and  potential  investors  —  to  provide  timely,  reliable  and 
comparable  information  on  their  financial  performance  and  position,  in  the  same  way  that 
listed companies have obligations to equity market participants. Also, there is a need to ensure 
a minimum level of international comparability, especially as government securities compete 
against  each  other  in  a  global  financial  market,  which  calls  for  a  system  based  on  general 
public-sector standards accepted worldwide. With reference to Article 114 TFEU, harmonised 
accruals  accounting  would  provide  greater  transparency  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.  This  in  turn  could  create  a  contagion  risk,  which  can  be  a 
significant impediment to financial stability. 

is  also 

What is true for private-sector accounting standards, which are harmonised within the EU for 
true  for  government  entities.  Harmonised  accruals-based 
listed  companies, 
public-sector  accounting  would  provide  a  firmer  basis  for  understanding  the  economic 
position  and  performance  of  governments  and  government  entities  at  all  levels.  The 
superiority  of  the  accruals  principle,  whether  for  macro  or  micro  fiscal  monitoring,  is 
indisputable.  The  macro  level  is  already  accruals  based;  harmonised  accruals  accounting  is 
also essential at micro level. 

At the entity level, there would be benefits in terms of transparency and accountability, and 
for the quality of decision-making because the information available would reflect all relevant 
costs  and  benefits  in  a  comparable  manner.  Moreover,  the  prospect  of  further  fiscal  and 
budgetary integration in the EU highlights the need for harmonised public-sector accounting 
standards in order that budgetary decisions at national level can be assessed at EU level. For 
the sake of accountability and transparency, government entities should report in a complete 
and comparable manner on their use of public resources and their performance. 

3.4. 

Future EU governance of budgetary policies 

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 at the 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.  

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This report is fully supportive of the Communication from the Commission A blueprint for a 
deep and genuine economic and monetary union — Launching a European Debate6. 

3.5. 

Potential costs of harmonisation 

Against  the  potential  benefits  must  be  set  the  costs  of  implementing  a  harmonised 
accruals-based  government  accounting  standard  in  the  EU  Member  States.  The  information 
made available by countries which have moved to accruals accounting allows us to estimate 
only  in  very  broad  terms  what  the  costs  for  the  Member  States  might  be,  although  they  are 
likely  to  be  significant.  Costs  are  strongly  influenced  by  the  scale  and  pace  of  accruals 
implementation, the size and complexity of the government sector, and the completeness and 
reliability of existing systems. In addition, experience suggests that Member States might find 
it  appropriate  to  modernise  their  public  financial  management  systems  when  implementing 
the new accounting standards. 

As an order of magnitude, and based on the experience of those countries for which cost data 
are available, the possible cost for a medium-sized EU country of moving from a cash-based 
accounting  system  to  an  accruals-based  accounting  system,  for  central  government  but  no 
other layers of government, could be up to EUR 50 million. This amount would include, for 
example,  the  expense  of  putting  in  place  the  new  standards  and  the  associated  central  IT 
accounting  tools,  but  not  the  costs  associated  with  a  complete  reform  of  the  system  of 
financial  reporting.  For  larger  Member  States  and,  for  example,  those  with  systems  of 
autonomous  regional  government  or  more  complex  government  systems,  and  those  which 
have not made 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 over the last decade was put at EUR 1 500 million. For a smaller Member State with 
national  systems  of  accruals  accounting  already  in  place,  the  costs  might  be  less  than 
EUR 50 million.  All  of  the  cost  estimates  collected  fall  within  the  range  of  0.02-0.1 %  of 
GDP.  In  addition,  the  implementation  of  harmonised  accruals  accounting  for  the  Member 
States  would  also  require  significant  investment  in  terms  of  leadership,  expertise  and 
resources for the European Commission. 

It  should  also  be  borne  in  mind  that,  despite  the  fact  that  accruals  accounting  is  a  more 
elaborate 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  in  a  single 
Member  State,  suggests  that  harmonisation  will  bring  about  a  reduction  in  bureaucracy  and 
costs  which  in  the  medium  to  longer  term  would  far  outweigh  the  expected  investment. 
Furthermore,  the  real  and  significant  expected  financial  costs  can  be  weighed  against  the 
potential  benefits,  not  least  those  of  better  governance,  accountability,  better  public  sector 
management and the transparency needed for the proper functioning of markets, thus probably 
reducing  the  yields  required  by  owners  of  government  securities  (although  this  is  not 
measurable). 

4. 

INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS) 

As  noted  above,  IPSAS  is  currently  the  only  internationally  recognised  set  of  public  sector 
accounting  standards.  It  stems  from  the  idea  that  modern  public  sector  management,  in  line 
with  the  principles  of  economy,  effectiveness  and  efficiency,  depends  on  management 

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information  systems  that  provide  timely,  accurate  and  reliable  information  on  the  financial 
and economic position and performance of a government, as would be the case with any other 
type of economic entity. 

At  present,  the  national  government  accounting  standards  of  15  EU  Member  States  make 
some link to IPSAS. Of these, nine have national standards based on or in line with IPSAS, 
five make some references to it and one uses it for some parts of local government. However, 
despite recognition of the high value of IPSAS, no Member State has implemented it in full. 

This  report  is  accompanied  by  a  Staff  Working  Document  which  summarises  the  IPSAS 
system  and  Member  States’  current  arrangements  for  public  sector  accounting7. In addition, 
Eurostat carried out a public consultation between February and May 2012 to collect views on 
the suitability of IPSAS and a summary of the replies received is also available8. 

Taking  into  account  the  views  that  Member  State  authorities  and  others  put  forward  in  the 
public  consultation,  the  overall  conclusion  is  twofold.  On  the  one  hand,  it  seems  clear  that 
IPSAS cannot easily be implemented in EU Member States as it stands currently. On the other 
hand,  the  IPSAS  standards  represent  an  indisputable  reference  for  potential  EU  harmonised 
public sector accounts. On the one hand, the following concerns will need to be addressed: 

• 

• 

• 

• 

Currently, the IPSAS standards do not describe sufficiently precisely the accounting 
practices to be followed, taking into account that some of them offer the possibility 
of  choosing  between  alternative  accounting 
limit 
harmonisation in practice; 

treatments,  which  would 

At its current state of development, the suite of standards is not complete in terms of 
coverage or its practical applicability to some important types of government flows, 
such as taxes and social benefits, and does not take sufficient account of the specific 
needs,  characteristics  and  interests  of  public-sector  reporting.  A  major  issue  is  the 
capacity of IPSAS to resolve the problem of consolidating accounts on the basis of 
the  definition  used  for  general  government,  which  is  now  a  core  concept  of  fiscal 
monitoring in the EU; 

At present, IPSAS can also be regarded as insufficiently stable, since it is expected 
that some standards will need to be updated once work is completed on the current 
project of completing the IPSAS conceptual framework, expected in 2014; and 

At present, the governance of IPSAS suffers from insufficient participation from EU 
public-sector  accounting  authorities.  During  2012,  the  governance  framework  of 
IPSAS was being reviewed to address issues of concern to stakeholders. Any reform 
should ensure that the independence of the standard-setting process is strengthened, 
while public-sector-specific needs are effectively addressed. In addition, the IPSAS 
Board currently seems to have insufficient resources to ensure that it can meet with 
the  necessary  speed  and  flexibility  the  demand  for  new  standards  and  guidance  on 
emerging issues in the evolving fiscal climate, particularly in the wake of the crisis. 

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 below as ‘EPSAS’. 

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8 

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. 
Public  consultation  —  Assessment  of  the  suitability  of  the  International  Public  Sector  Accounting 
Standards for the Member States: Summary of responses. 

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5. 

HOW  TO  MOVE  TOWARDS  HARMONISED  EUROPEAN  PUBLIC  SECTOR  ACCOUNTING 
STANDARDS (EPSAS) 

The  final  decision  as  to  whether  to  move  to  EPSAS  requires  further  important  steps  to  be 
taken which do not fall within the scope of this report and hence cannot be anticipated here. 
However, the following sections illustrate how EPSAS could be implemented if the effective 
decision was taken. 

EPSAS  would  give  the  EU  the  capacity  to  develop  its  own  standards  to  meet  its  own 
requirements  with  the  requisite  rapidity.  It  would  offer  a  set  of  harmonised  accruals-based 
public-sector  accounting  standards,  adapted  to  the  specific  requirements  of  EU  Member 
States, that could be implemented in practice. The EU-wide implementation of EPSAS would 
dramatically reduce the complexity of methods and compilation processes used to transform 
these  data  onto  a  quasi-harmonised  basis  and  minimise  risk  as  regards  the  reliability  of  the 
data notified by Member States and published by Eurostat. 

It  can  be  envisaged  that  the  first  step  would  be  to  establish  EU  governance  for  this  project 
with the objective of clarifying the conceptual framework and the aim of common EU public 
sector  accounting.  EPSAS  could  initially  be  based  on  the  adoption  of  a  set  of  key  IPSAS 
principles. EPSAS could also  use IPSAS standards that were commonly agreed by Member 
States. EPSAS should, however, not regard IPSAS as a constraint for the development of its 
own standards. 

However,  it  should  be  noted  that  drawing  up  a  set  of  harmonised  European  public  sector 
accounting standards would not in itself guarantee timely and high quality public accounting 
data. Additional conditions would have to be met, including: 

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Strong political support and joint ownership of the project; 

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 
book-keeping, invoice management and statistical reporting; 

Timely  reporting  (e.g.  monthly)  of  all  economic  events  in  the  integrated 
accounting system of the public entities; 

Availability of resources, human and modern IT; and 

Effective internal control and external financial audit of public accounting. 

For  all  Member  States,  but  in  particular  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: 

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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; and 

Adapting the existing national regulatory frameworks. 

If the principle of EPSAS were adopted, the Commission could envisage providing assistance 
in some of these areas, for instance by playing a role in organising the sharing of training and 

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expertise,  assisting  Member  State  governments  on  conceptual  and  technical  matters,  or 
coordinating and sharing the planning of Member States’ public accounting reforms. 

If  a  Member  State  had  significant  and  evident  gaps,  weaknesses  and  inconsistencies  in  its 
public financial management information systems, it would be appropriate to consider these in 
plans  to  implement  EPSAS  and  this  would  have  to  be  reflected  in  the  implementation 
timetable. 

5.1. 

EPSAS structures 

The development and adoption of the EPSAS standards would call for strong EU governance. 
The  system  to  develop  and  govern EPSAS would define the agenda for the development of 
each  standard  and  there  would  need  to  be  clear  endorsement  procedures.  The  EPSAS 
governance  structure  would  need  to  encompass  the  necessary  tasks  as  regards  legislation, 
standard setting, and provision of technical and accounting advice. 

The  establishment  of  the  EPSAS  governance  structure  would  be  guided  by,  but  not  follow 
exactly, the model used by the Commission in establishing the governance of IFRS in the EU 
context,  because  of  the  specificity  of  the  public  sector  and  the  focus  on  intra-EU 
comparability. It should seek to use, where possible, the experience and expertise of national 
public-sector accounting governance structures in the Member States. 

Nevertheless, 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. It would be important not to create unnecessary 
divergence  between  EPSAS  and  IPSAS,  and  between  EPSAS  and  IFRS,  given  that 
government-controlled  entities  may  already  be  required  to  report  on  an  IFRS  basis  or 
according to national commercial accounting standards. 

EPSAS  should  also  be  developed  with  a  view  to  minimising  differences  with  the  ESA,  in 
order to give the perspective, ultimately, of complete integrated systems applicable at micro 
and macro levels. 

5.2. 

Adoption of EPSAS 

The  development,  endorsement  and  implementation  of  EPSAS  would  have  to  be  a  gradual 
process, which would take place over a period of time. Implementation would be in steps over 
the  medium  term,  focusing  at  first  on  the  accounting  issues  where  harmonisation  is  most 
important, such as revenue and expenditure (taxes and social benefits, liabilities and financial 
assets) and at a later stage considering non-financial assets, etc. 

The way forward should be selective and take particular account of the perspective of small 
and  medium-sized  entities  and  the  aspect  of  materiality.  The  strategy  would  need  to  define 
priorities,  set  key  deadlines  and  thus  put  forward  a  concrete  road  map.  In  order  to  take 
forward the EPSAS project, the Commission, in cooperation with the Member States, would 
draft  an  agreed  core  of  basic  European  Public  Sector  Accounting  Principles  with  a  view  to 
incorporating  them  in  a  proposal  for  a  Framework  Regulation.  The  Framework  Regulation 
should also lay down the system of governance for EPSAS and the procedure for developing 
specific EPSAS standards. 

In  order  to  ensure  suitable  implementation  at  national  level,  the  detailed  contents  of  each 
standard would be elaborated with the assistance of the Member States so as to take account 
of the following requirements: 

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Accruals-based accounting; 

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• 

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Double entry book-keeping; 

Internationally harmonised financial reporting; and 

Taking into account the consistency with ESA principles. 

5.3.  What could be a first set of EPSASs? 

The first element could be a proposal for a Framework Regulation requiring the application of 
the accruals principle. 

The  EPSAS  standard-setting  body  could  then  classify  the  32  accruals  IPSAS  standards  into 
three categories: 

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Standards that might be implemented with minor or no adaptation; 

Standards  that  need  adaptation,  or  for  which  a  selective  approach  would  be 
needed; and 

Standards that are seen as needing to be amended for implementation. 

Member States would be invited to put in place an implementation plan for all sub-sectors of 
general government.  For example, the core  set of EPSAS should be  applicable  to all  public 
entities and, taking into account materiality, should cover the major part of government-sector 
expenditure in the Member States. 

6. 

A way forward 

The Commission considers that, before deciding on the actual project of creating EPSAS and 
implementing  it  in  the  Member  States,  some  further  preparatory  steps  are  necessary.  There 
remain several important questions concerning issues outside the scope of this report, such as 
establishing the EPSAS framework and specifying a first set of core EPSAS standards, as well 
as the planning of the implementation. The Commission would need moreover to describe the 
necessary  milestones  for  the  future  project,  and  take  into  account  impact  assessment 
considerations.  A  decision  can  be  made  only  on  the  basis  of  an  ex-ante  review  of  pros  and 
cons, and likely costs and benefits. 

Once  such  a  decision  has  been  taken:  based  on  the  experience  of  countries  which  have 
implemented accruals-based public-sector accounting systems over recent years, the process 
of implementation would be sequential. It should be determined by carefully considering the 
starting position of each Member State as regards, for example, the state of development of 
the existing national accounting standards and the availability of balance sheet data. In some 
Member States, it might be appropriate to begin implementation at national level and move on 
to regional and local levels later. It is also to be expected that the extent of implementation for 
smaller  entities  would  be  limited,  or  at  least  that  the  more  important  entities  would  be 
prioritised, taking into account their materiality. 

The process could take place in three stages: 

(1) 

(2) 

A preparatory stage to gather more information and points of view, and to develop a 
roadmap. This stage would begin in 2013 and would involve further consultations, a 
high-level conference and the preparation of further more 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 should culminate in the publication of a proposal for 
a Framework Regulation. The Framework Regulation would require the application 

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of  the  accruals  principle  and  set  out  plans  to  develop  further  specific  accounting 
standards over time; and 

(3) 

The  implementation  stage:  the  process  of  implementation  should  be  gradual,  and 
allow more time where a Member State’s existing accounting standards differ greatly 
from EPSAS, although it could be envisaged that implementation should be achieved 
in all Member States in the medium term. 

The proposed strategy consists of a balanced approach that builds on existing achievements 
and  ensures  that  the  European  Statistical  System  can  operate  independently  but  still  work 
closely  with  its  main  data  providers  and  institutional  users.  It  is  also  important  to  underline 
that  EPSAS  should  not  lead  to  further  bureaucratic  requirements,  increased  administrative 
burdens on respondents or delays in statistical production. 

The Commission will further develop the strategy outlined in this report, taking into account 
resource constraints, in line with its responsibilities under the Treaties. 

Given the different issues at stake, it is important to make swift progress while consulting key 
stakeholders, including where legislative initiatives are needed. The next steps, to be started in 
2013, will take into account impact considerations and include a road map setting out in more 
detail  the  steps  to  be  taken,  including  legislative  initiatives,  to  achieve  harmonised 
public-sector accounting standards across the Union. 

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