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European Public Sector Accounting Standards (EPSAS)
The EU recently announced their intention to develop EPSAS using IPSAS as a significant reference point as part of their harmonized and strengthened transparency and accountability across the Union.
In May 2013 the European Commission and Eurostat hosted a first conference to bring together stakeholders, policy makers and decision makers from public sector accounting, auditing and statistics to deliberate on the future development of harmonized government accounting standards for application within the European Union*.
The two-day event included an opening keynote address by the President of the European Council, Mr. Herman Van Rompuy. This signaled the support of the Council for moving forward with the development of a harmonized set of European public sector accounting standards, that are to be closely interlinked with International Public Sector Accounting Standards (IPSAS). The conference covered the following themes:
- The political context, sovereign debt crisis, economic governance, transparency and trust in fiscal data.
- Fiscal transparency and public accounting.
- Suitability of International Public Sector Accounting Standards (IPSAS) and national experiences of reforms.
- Accounting standards, governance, the way forward.
The event was arranged as a follow-up to the Eurostat consultation on the aptness of IPSAS for European Union Member States that ran in 2012. The outcome of the consultation was published on March 6, 2013 in a report titled The suitability of IPSAS for the Member States. The result of the consultation was that IPSAS, as they stand today, cannot be implemented in EU Member States. Instead European Public Sector Accounting Standards (EPSAS) are to be developed, with IPSAS serving as a significant reference point.
It is clear that for all EU Member States, and in particular those who are applying cash accounting today, will be a major reform. The European Commission has identified some of the issues that would arise to include:
- Conceptual and technical accounting issues;
- Staff expertise and training;
- Communicating with and educating managers and decision-makers;
- Liaison with and training of auditors;
- Adjustments or updates of IT-system;
- Adapting the existing national regulatory frameworks.
The development and implementation of EPSAS would call for a strong governance structures. It is clear that the European Commission is already considering how it would move ahead to establish such governance systems, including clear endorsement processes of the EPSAS to be developed. It was emphasized that throughout any such process a close link would be maintained to the IPSASB and the underlying IPSAS. The vision is to develop and endorse EPSAS through a gradual process. The Commission considers that before deciding on the actual project of creating EPSAS, and the subsequent implementation of these within the EU, numerous preparatory steps will be required. The Commission is emphasizing that the way forward is likely to be a selective approach taking into account in particular the perspective of small and medium-sized public sector entities and the issue of materiality.
What are IPSAS?
IPSAS are developed by the International Public Sector Accounting Standards Board (IPSASB), which serves as an independent standard-setting body under the International Federation of Accountants (IFAC). The IPSASB objectives are to enhance the quality and transparency of public sector financial reporting. A strategic basis for the work of the IPSASB is that of developing accounting standards that meet the needs of public sector accounting and financial reporting. In addition, the IPSASB maintains a focus of convergence with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) while developing its IPSAS. As things stand today, there are 32 IPSAS** for the accrual basis of accounting and one IPSAS for financial reporting under the cash basis of accounting. The cash basis standard encourages public sector entities that chose to apply this standard to voluntarily disclose accrual-based information. An entity in the process of moving from cash accounting to accrual accounting may wish to include particular accrual-based disclosures in the process of transition.
To further the agenda of good governance and to stimulate good governance codes in the public sector the IFAC and CIPFA issued (17 June 2013) Consultation Draft for an International Framework on governance in the public sector. The Framework that is now issued for public comment is intended as a reference document for those who develop and set national governance codes for the public sector when updating and reviewing their own codes.
* A list of the European Union’s 27 Member States is available here. (last accessed 31 May 2013).
** It should, however, be noted that IPSAS 15, Financial Instruments: Presentation and Disclosure, has been superseded by IPSAS 28, Financial Instruments: Presentation; IPSAS 29, Financial Instruments: Recognition and Measurement; and IPSAS 30, Financial Instruments: Disclosures. These Standards apply for annual financial statements covering periods beginning on or after January 1, 2013.