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Norwegian association for local government auditing Brussels, 15 January 2015 Towards European Public Sector Accounting Standards (EPSAS) Alexandre MAKARONIDIS Head of Unit Task Force EPSAS, European Commission - Eurostat eurostat Why harmonised accruals? From an EU perspective the wide range of public sector accounting standards result in a lack of: • transparency, and • comparability in the financial reporting due to non-comparable, incomplete and inconsistent primary accounting data. This impacts on both General Purpose Financial Statements and Government Finance Statistics. 2/14 eurostat PROBLEM CONSEQUENCES At EU level: At national / entity level: Lack of access to comprehensive information on financial position and performance Economic governance - Multilateral economic coordination, surveillance and policy advice in support of economic and financial stability in the EU are based on nontransparent and non-comparable financial reporting - Efficiency and effectiveness of decision making and public sector management may be hampered Internal market - Capital markets cannot be fully efficient when faced with lack of comparable and comprehensive information on financial position and performance on public entitites as compared to private entities - Accountability of policy makers and public sector managers is limited Statistics - Incoherence between MICRO level primary public-sector accounting and reporting framework and the ESA MACRO level statistical reporting framework - Challenges for public auditors who may deal with multiple accounting standards and IT systems and incomplete accounting data - Reduced access to financial markets NON-COMPARABLE public sector accounting and reporting practices ACROSS and WITHIN EU MSs NON-TRANSPARENT (incomplete, unreliable and untimely) accounting data and financial reporting 3/14 eurostat EY Study (2012) public sector accounting standards in the EU 4/14 eurostat Background: 2012 to mid-2013 Study on the suitability of IPSAS: Retrospective Budgetary Frameworks Directive "… the Commission shall assess the suitability of the International Public Sector Accounting Standards for the Member States" Public consultation on IPSAS Report on suitability of IPSAS IPSAS cannot easily be implemented in EU Member States as it stands currently Task Force IPSAS EPSAS Conference IPSAS would be a suitable starting point for the future development of a set of European Public Sector Accounting Standards E&Y study on public sector accounting and auditing practices 5/14 eurostat Public consultation – suitability of IPSAS Are IPSASs suitable for implementation in the EU Member States? Yes No Partly Uncertain Total Professional Association/Standard Setter 12 Ministry of Finance/Treasury 3 4 3 10 Private individual 3 1 6 10 8 1 9 2 3 6 Regional Audit Office National Audit Office 1 Firm of Auditors or Accountants 5 Statistical Office 2 3 1 16 5 1 1 4 Regional association or authority 2 1 3 Social security/Pension Fund 1 2 3 1 1 1 68 International Organisation National authority TOTAL % share 26 38 1 19 28 21 31 2 3 NB: "NO" replies were concentrated - from a small number of MSs (DE, FR, AT, NL, PL) 6/14 eurostat Taking forward EPSAS: mid-2013 - onwards Outputs from: TF EPSAS Governance Commission Communication TF EPSAS Standards Public consultation on EPSAS governance Impact Assessment Legislative proposal PwC study on behalf of Eurostat 7/14 eurostat Staged approach to EPSAS – outline (June 2014) 8/14 eurostat IPSAS study (2013) - Minor or no adaption IPSAS 1 – Presentation FS IPSAS 11 – Construction contracts IPSAS 2 – Cash flow IPSAS 12 – Inventories IPSAS 3 – Fundamental errors and IPSAS 14 – Events after the reporting date changes in policies IPSAS 16 – Investment property IPSAS 4 – Changes in foreign exchange IPSAS 19 – Provisions, contingent rates liabilities, contingent assets IPSAS 5 – Borrowing costs IPSAS 27 – Agriculture IPSAS 9 – Revenue from exchange IPSAS 32 – Service concessions transactions IPSAS 10 – Hyperinflationary economies 9/14 eurostat IPSAS study (2013) - Adaption or selective approach IPSAS 7 – Investments in associates IPSAS 8 – Interests in joint ventures IPSAS 13 – Leases IPSAS 15 – Financial instruments: Presentation IPSAS 17 – Property, plant and equipment IPSAS 18 – Segment reporting IPSAS 20 – Related party disclosures IPSAS 21 – Impairment of non-cashgenerating assets IPSAS 22 – Disclosure general government sector IPSAS 23 – Revenue from non-exchange transactions IPSAS 24 – Presentation of budget information IPSAS 25 – Employee benefits IPSAS 26 – Impairment of cash-generating assets IPSAS 31 – Intangible assets 10/14 eurostat IPSAS study (2013) - Needing amendment IPSAS 6 – Consolidated financial statements IPSAS 28 – Financial instruments: Presentation IPSAS 29 – Financial instruments: Recognition and measurement IPSAS 30 – Financial instruments: Disclosure 11/14 eurostat PwC Study on behalf of Eurostat (2014) Technical analysis of IPSAS confirms: • The general technical suitability of existing IPSAS • Classification of IPSASs in 3 categories for the future effective and efficient work on EPSAS High level cost estimate of EPSAS implementation • Potential costs between 0.01% and 0.05 % of GDP • Benefits would outweigh costs 12/14 eurostat PwC Study on behalf of Eurostat (2014) Extrapolated costs at EU level spread over the reform period • Scenario 1 – Adaptation of all existing IT systems between 1.2 billion and 2.1 billion EUR • Scenario 2 – New IT systems for all entities with low IT maturity between 1.8 billion and 6.9 billion EUR IPSAS report (2013): costs of 0.02-0.1% of GDP PwC Study (2014): costs of 0.01-0.05% of GDP NB: To interpret with due care, taking into account the inherent limitations of such extrapolations. 13/14 eurostat European Commission (Eurostat) Task Force EPSAS: http://ec.europa.eu/eurostat/web/government-financestatistics/government-accounting eurostat