Towards transparency: a comparative study of governmental accounting in Europe

Ernst & Young

Description

Cette étude examine la façon dont évolue le débat autour de la comptabilité d'exercice dans 19 juridictions européennes. Les IPSAS (normes comptables internationales pour le secteur public) sont-elles un outil performant pour simplifier l’adoption de systèmes comptables? LQuels ont été les efforts des gouvernements européens pour réformer les systèmes comptables de leur secteur public respectifs ?
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Sujets

• Étude
• Europe
• International Public Sector Accounting Standards
• Politique
• Réforme

Informations

• Publié par: Ernst-And-Young
• Publié le: 01 septembre 2010
• Nombre de lectures: 49
• Langue: English
• Poids de l'ouvrage: 5 Mo

Extrait

Toward transparency

A comparative study of governmental accounting in Europe

Methodology There is a lack of reliable data concerning the adoption of the accrual accounting in the public sector in Europe, Ernst & Young developed a survey to delve deeper in to adoption of accrual accounting, and the difference in adoption of IPSAS. Experts in public sector accounting were surveyed in 21 jurisdictions using the following questions as a basic for discussion:

Research question 1 To what extent is (IPSAS-inspired) accrual accounting adopted in different levels of government in European countries?

Research question 2 What is the difference in adoption of IPSAS at different levels of government in European countries? Countries surveyed include: Austria, Belgium (2 jurisdictions), Denmark, Finland, France, Germany (3 jurisdictions), Greece, Italy, Lithuania, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

  

Toward transparency A comparative study of governmental accounting in Europe

Introduction

In the aftermath of the global economic crisis, concerns about accountability, transparency and sustainability have surged back to the top of the political agenda. A new appreciation is emerging that the public sector needs a robust and uniform set of accounting standards to bring greater stability to the global economic system, and greater accountability and efficiency to government.

Before the global financial crisis engulfed economies, policy-makers in only a few countries across Europe had made serious efforts to reform their public sector accounting systems. Today, however, public accounting reform movements are under way in every continent. We are seeing major reform to modernize government accounting systems taking place across the globe including recently in Eastern Europe, Africa, South America and Asia. Public sector accounting is transitioning to a resource- oriented, accrual-based standard, guided by the International Public Sector Accounting Standards (IPSAS). This study looks at how the accrual revolution is progressing in 19 European jurisdictions and, in particular, whether IPSAS has proven to be a successful tool for simplifying and streamlining adoption.

Philippe Peuch-Lestrade Global Government & Pub

   leader

Felice Persico EMEIA Assurance leader

Toward transparency A comparative study of governmental accounting in Europe

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Executive summary

The long-running debate among European government entities over whether to move public sector accounting from a cash- to an accrual-based system is over. Our survey of 19 government entities across 17 European countries suggests that over half of local and national governments which have yet to transition have already converted to accrual accounting. For others, the key question seems to be when will we convert? rather than     will we convert? 

The progress toward accrual accounting is good news for Key findings financial reformers, who have long held the view that the accrual approach is better suited for financial management, • Ten of the 19 surveyed government entities have converted to accountability, risk management and decision-making. This is accrual accounting   d o u s e i   t t i o o th o e f     f g a o c v t e t r h n at m i e t n p t r a o l v b i o d d e i s e   s b , e l t i t a e b r i   l i i n ti s e ig s h a t n o d n t t h h e e f   u fi t n u a r n e c   ial • Many entities are unaware of IPSAS p benefit n s   of assets • A number of entities are unfamiliar with Ipsas . However, the entities polled in our survey suggest that adoption • IPSAS adoption remains a long way off of a sing accrual method is some way off. The findings suggest  Our survey delves deeper into these issues to discover why that most European entities consider the IPSAS as more of an  European public entities are turning toward accrual accounting aspiration than a feasible destination. The global financial crisis – but not adopting IPSAS. and in particular, the crucial role that sovereign debt recognition has played – would seem to be a “teachable moment” for focusing the attention of leadership on the advantages of accrual accounting. However, finance directors in the public sector do not seem to have fully considered the advantages of adopting a single set of accrual standards.  

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Toward transparency A comparative study of governmental accounting in Europe

In our survey, we found broad support for accrual-based accounting: • The majority of European entities favour accrual accounting. A large majority of both central and local governments are adopting accrual approach. They believe it improves cost and efficiency, and makes it easier to exercise external accountability and oversight control. Followers of accrual accounting also believe that it will lead to superior performance management as well as improved asset and cash management. • Cash accounting practitioners fear cost of conversion. For those who had not adopted accrual accounting and did not intend to do so seem to have mixed motivations for sticking with a traditional approach. The most frequently given reason was the cost of making an accounting reform. Others cited difficulties in implementing reforms in the past. A few remained convinced, too, that cash accounting is the superior approach to public finance, arguing that it better complements budgetary accounting than the accrual accounting process and that balance sheets and profit/loss calculations are less important in the public sector. • Many jurisdictions prefer local business rules to IPSAS. Despite the popularity of accrual accounting, no jurisdiction had entirely adopted IPSAS. There were several reasons for taking an eclectic approach: many had decided to use local accounting rules; and a number of finance departments feared considerable expense involved in conversion for what they perceived to be an uncertain return. • Many are unfamiliar with IPSAS. Its unclear how aware jurisdictions are of IPSAS as an alternative to cash accounting. Indeed, a number of both local and central governments cited the fact that IPSAS was unknown to them as a reason why they had not adopted the standards. • Some jurisdictions fear the complexity and expense of IPSAS implementation. A number of respondents cited lack of implementation experience, linked to associated concerns regarding the complexity and expense of IPSAS implementation, as an important reason why they had not adopted IPSAS.

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Governmental accounting reforms

From cash to accrual accounting It is essential for the public sector to have an efficient, reliable and user-friendly accounting system. Cameralistic/cash-based accounting has been the mainstream accounting and financial information system in the sector for many years, with some governments using and preferring this method. Although cash accounting has its merits, it gives no information concerning liabilities and the future benefits for assets, accountability and decision-making. Accrual accounting was introduced as an alternative to cash accounting to improve the financial management of public sector entities. Spectrum of accounting bases.

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Spectrum of accounting bases Between the opposite poles of cash and accrual accounting, two other bases of accounting were identified by the International Federation of Accountants (IFAC): modified cash accounting and modified accrual accounting.

Cameralistic/ Modified cash cash accounting accounting

Modified accrual accounting

Accrual accounting

Transactions and other Transactions and other Transactions and other Transactions and events are recognized events are recognized events are recognized other events are only when cash is on a cash basis during on an accrual basis, recognized when they received or paid. the year. Additionally, but certain classes occur, meaning they unpaid accounts and/ of assets or liabilities are recorded in the or receivables are also are not recognized. accounting records taken into account by A typical example is and recognized in the keeping the book open the expensing of all financial statements of for a month after the non-financial assets at the periods to which years end. the time of purchase. they relate.

Toward transparency A comparative study of governmental accounting in Europe

International Public Sector Accounting Standards (IPSAS) The IPSAS Board (IPBSASB) is an independent standard-setting body working under the auspices of the IFAC. The Board publishes IPSAS, which governs the recognition, measurement, presentation and disclosure requirements in relation to transactions and events in general purpose financial statements. When developing IPSAS, the IPSASB uses the International Financial Reporting Standards (IFRS), as developed by the International Accounting Standards Board (IASB), as a starting point. Each IFRS is reviewed with respect to its relevance for the public sector and adapted to the unique needs of the public sector, where necessary. To date the IPSASB has published 31 standards on the accrual basis and one on the cash basis. At the end of 2009, the IPSASB achieved substantial convergence of IPSAS with the IFRSs dated 31 December 2008. As the IPSASB has no formal power, the adoption of the IPSAS in local, state/regional and central governments is voluntary. The global drive to modernize government accounting looks set to continue in the coming years and is supported by international organizations such as the European Commission, Interpol, NATO, OECD and the United Nations. All these influential international organizations promote sound financial management and accountability, and choose to use IPSAS themselves.

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The transition from cash to accrual accounting continues

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Toward transparency A comparative study of governmental accounting in Europe

From local to central government, accrual accounting is the way forward Despite the best efforts of the IPSASB and other international organizations to encourage the use of IPSAS, at present it does not play a leading role in the majority of local or central governments accounting reforms, with only three local and four central governments reporting they had used the IPSAS as a starting point of new government accounting. Local governmental accounting Central governmental accounting legislation (jurisdiction) legislation (jurisdiction) 2

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1O 7 IPSAS/IPSAS-like IPSAS/IPSAS-like Planned IPSAS reform (0) Planned IPSAS reform Accrual accounting Accrual accounting Planned accrual reform Planned accrual reform Cash accounting Cash accounting The study found that where jurisdictions continue to account on a cash basis but are looking to transition to accrual accounting on national (business accounting) standards in the future, IPSAS is not frequently used. However, central governments in particular aspire to use IPSAS in the near future and see it as the gold standard, particularly at central government level.

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Overview of financial information systems in European governments Accounting IPSAS Planned IPSAS Accrual Planned accrual Cash accounting legislation reform accounting reform Jurisdiction Austria - -- - - - - - Baden-Württemberg - - - - - - - - (Ger) Bavaria (Ger) - - - - - - - - Denmark - - - - - - - - Finland -- - - - - - - Flanders (Bel)  - - - - - - - - France - - - - - - - -         Greece  - - - - - -- - Italy            - - - - - - - - Lithuania - - - - - - - -       Netherlands - - - - - - - - Norway - - - - - - - - Portugal - - - - - - - -    Saxony-Anhalt (Ger) - - -- - - - - Spain - - - - - - - - Sweden - - - - - - - -      Switzerland - - - - - -- - United Kingdom 9 - - - - - - - - Wallonia (Bel) - - - - -- - - Key  Local government =  = Central government The table above shows those jurisdictions that are generally compliant with the standards (IPSAS column). Typically, the governmental accounting systems in these jurisdictions are not fully compliant with IPSAS. The Planned IPSAS reform column shows the jurisdictions that currently account on a cash basis but are planning to introduce an IPSAS-compliant accrual accounting system in the near future. All jurisdictions that make use of a non IPSAS-compliant accrual accounting system are shown in the Accrual accounting column. The Planned accrual reform column lists the jurisdictions that still account on a cash basis, but are planning to transform their accounting system to a non IPSAS-compliant accrual system. Those jurisdictions that currently account on a cash basis and do not plan to introduce an accrual accounting system are shown in the column headed Cash accounting. Since the results of the survey were processed in early 2009, there have been some changes to the governmental accounting systems in Europe, including Austria which, as part of the second phase of its modernizing project starting in 2013, has decided to adopt an IPSAS-like approach.

9 The UK applies IFRS for its public sector.

Toward transparency A comparative study of governmental accounting in Europe

Incentives to adopt accrual accounting To improve cost awareness and efficiency The majority of local and central governments use an accrual- To improve external accountability based governmental accounting system, with another nine (local and oversight control and central) governments planning to introduce such a system in To support performance management the near future. To improve asset and cash managemen t Furthermore, due to the fact that all respondents gave multiple t a h n e sw d ers a   n to t   a t g h e is s     p of a   r a ti c c c u r l u a a r l     q a u c e c s o t u io n n ti ,  n it g     c a o re u   ld w   i b d e e   l c y o  u n n cl d u e d r e st d o  t o h d a   t b   y  To facilitate decision-making a v European governments, compared with the benefits of IPSAS. To support the calculation of governmental fees/charges To observe the effect on public organizations' financial position To facilitate the recognition of risk s and opportunities To measure intergenerational equity

Costs of accounting reforms Cash accounting complements budgetary accounting Past implementation problems of reforms Balance sheets and profit/loss calculations are less important in the public secto r 0 1 2 3 4 5 Central government respondents Local government respondents

0 5 10 15 Central government respondents Local government respondents

Reasons not to adopt accrual accounting The results of the survey identify the cost of accounting reforms as the most common reason governments cite for not adopting accrual accounting. This poses an interesting contrast to the most common justification given for choosing accrual accounting: to improve cost awareness and efficiency. The associated implication is that quality has high costs, but it also has the potential to provide greater efficiency gains overall.

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