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Accounting, Economics, and Law: A Convivium

Ed. by Avi-Yonah, Reuven S. / Biondi, Yuri / Sunder, Shyam

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European Public Sector Accounting Standards (EPSAS)

Alexandre Makaronidis
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  • Head of Unit Task Force EPSAS – European Public Sector Accounting Standards, European Commission – Eurostat, BECH B4/405, 5, rue Alphonse Weicker, L – 2721 Luxembourg, Luxembourg
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Published Online: 2017-06-23 | DOI: https://doi.org/10.1515/ael-2017-0008


This article represents solely the views of its author. It is based on a transcript of a speech delivered at the international workshop on “Which accounting regulation for Europe’s economy and society?” organised under the auspices of the European Parliament in Strasbourg, on 20 May 2015, in tribute to Mr Jérôme Haas (1963–2014), first chairman of the Accounting Standards Authority of France (ANC).

Keywords: harmonised accruals; cash data; financial crisis

Accounting for the European Public Sector: Roundtable on the Ongoing Reform of European Public Sector Accounting Standards (EPSAS)

  1. “Harmonising European Public Sector Accounting Standards (EPSAS): Issues and Perspectives” by Yuri Biondi, https://doi.org/10.1515/ael-2017-0014

  2. “France Supports Accrual Accounting For The Public Sector” by Marie-Pierre Calmel, https://doi.org/10.1515/ael-2017-0019

  3. “Challenges for European Public Sector Accounting” by David Heald, https://doi.org/10.1515/ael-2017-0021

  4. “Italian Public Sector Accounting Reform: A Step Towards European Public Sector Accounting Harmonisation” by Riccardo Mussari and Daniela Sorrentino, https://doi.org/10.1515/ael-2017-0006

  5. “European Public Sector Accounting Standards (EPSAS)” by Alexandre Makaronidis, https://doi.org/10.1515/ael-2017-0008

  6. “Open Debate on Accounting for the European Public Sector” by Imke Graeff, https://doi.org/10.1515/ael-2017-0025

Good evening ladies and gentlemen. I would like to thank the chair and also the organisers for inviting us to this meeting.

I am not ssupposed to give a presentation, I would rather like to put in context a few statements made by earlier speakers and, if I may briefly explain the approach we have taken and choices we have made, by putting forward some standard questions. Why do we need accruals and harmonised accruals if we have perfect cash data? Why do we need accruals if in some case it did not prevent the financial crisis? Why do we need to change anything if actually it was just about Greece?

The Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States was an EU response to the crisis. The Budgetary Frameworks Directive put forward some very interesting requirements. First of all, Member States shall put in place public sector accounting systems that are comprehensive and consistent with respect to fiscal data, events and transactions, covering all sub-sectors of general government: Central government, state government, local governments and social security funds. The public sector accounting system should contain all information that is needed with a view to generate the accrual-based information that is necessary for national accounting purposes – debt and deficit reporting in particular. Finally, this system should be subject to internal control and independent audit. This is the answer to the above questions, because the requirements of the Budgetary Frameworks Directive presupposed the condition that the public sector accounting systems available in the Member States are not comprehensive, are not consistent, are fragmented and there is no assurance about the primary input data they supply. This applies to both input data for the purposes of financial accounting and reporting as well as for the purposes of statistics – not only about government finance statistics or EDP statistics, but national accounts more generally, e. g. GDP, GNI, as well as GFS.

Furthermore, the Council Directive invited the Commission, not Eurostat necessarily, to assess the suitability of the International Public Sector Accounting Standards (IPSAS) for the purposes of the EU Member States. Eurostat took the lead on the assessment on behalf of the European Commission. Eurostat has a very specific status within the Commission as a Commission service with certain independence with respect to statistics and also statistical standard setting. Of course also Eurostat’s involvement in government finance statistics and debt and deficit compilation played an important role in the decision, because one of the aims of the exercise was to achieve some consistency between national accounting and public sector financial accounting. Sometimes the question is raised: Why we have not involved academia in the process? We have run two public consultations where all European citizens were welcome to contribute: The contribution from the academics was unfortunately rather limited. The Commission is open to all considerations and all possible approaches to the problem we are about to tackle. If there is a better way or approach to addressing the problem then we are open to listen and discuss with those who will put forward any such proposals.

To answer the request on the assessment of the suitability of IPSAS for EU Member States, the Commission issued a report in 2013, which concluded that there was a very strong case for harmonising public sector accounting systems across Europe. It also stated that IPSAS could not be implemented in the EU Member States as they currently stood, not in full and not directly, because there were technical, conceptual, and in particular governance issues to be resolved. Meanwhile the IPSAS Board has made considerable progress: They are about to implement a new governance structure, which addresses a number of the criticisms against the previous governance structure around IPSAS. They have endorsed and put in place a conceptual framework – which we consider as a huge step forward – that has even inspired the French work towards the French Conceptual Framework for the public sector. Of course there are technical issues that remain so that the IPSASB has a quite demanding agenda in front of them. Finally, there was also another conclusion in the Commission Report, that IPSAS should be the reference for developing European standards. This proposal is certainly a pragmatic one. The alternative would be making reference to all the existing national standards in the EU. However, there are hundreds of those so that there is no point in taking one or all of those national standards as basis for developing European standards. IPSAS furthermore is the only globally accepted standard and there is a global reform trend towards IPSAS.

Europe is not an island, we are part of a globalised world; we cannot go for a self-standing solution without looking around us and see what others do. The second public consultation presented some ideas about the possible governance structure needed to endorse the European public sector accounting standards. In this context, I just refer to the endorsement process of EU-IFRS for the private sector. If there are to be European standards we need an endorsement process in place, as there is for IFRS endorsement. For IFRS, there is a process which may be thought of as a ‘take it or leave it approach’ while for EPSAS we have proposed a more flexible approach and there are good reasons for that.

Some stakeholders raise the issue of fair value measurement with respect to the very question of what was the role of fair value in the context of the financial crisis. Currently the Commission is evaluating the EU IAS regulation and I think it would be interesting to know what the answer to the question will be. However, I would like to point out that the ESA, the European System of National and Regional Accounts, is to a very large extent based on market prices and hence it is a fair value approach.

One big question: Why all this? And it seems that not everybody is fully convinced that this is what we need to go for, but again we are open and welcome any further suggestions. For those who have not looked into the Commission report on the suitability of IPSAS (European Commission, 2013) and into the second study that Eurostat contracted out to PwC (PwC, 2013), I would like to refer to a table presenting the accounting maturity of each Member State measured as a distance by reference to IPSAS – taken as a proxy for the future EPSAS. It gives us at the same time an impression of what is the relative distance between Member States themselves – so this is for governments starting with 12 % compatibility in public sector accounting such as Greece, Cyprus, Malta, Germany and so on, up to what is 96 % for the UK despite the fact that the UK follows IFRS rather than IPSAS and also France is pretty high in this compliance ranking – this is a very interesting result: It does not matter what we call it, the question is what it does in practice. Again all this information and many more details are available in the PwC study, for example the accounting maturity of the different sub-sectors of general government such as central government, state government where exists, local government and social security funds. For instance, the accounting of the social security funds shows the social contributions of European citizens to their social security systems and the use made out of these social contributions, and this picture illustrates the way that Member States account for it.

Against this background I would also like to say – with reference to the Budgetary Frameworks Directive – is it really just about Greece or do we have a more substantial problem here? Indeed we have a more substantial problem. Finally I would like to provide another reference for the academic research, a decision of the German constitutional court concerning the German system of fiscal transfers. I understand that the German Federal Constitutional Court (BVerfG) in its ruling of 2006 on the ‘Berlin budget’ (Az. 2 BvF 3/03) suggested that fiscal data reported by the Bund and Länder were in fact non-transparent and non-comparable. According to BVerfG, this also applied to the public sector budgeting and accounting systems generated cash data, which could not be compared without the necessary statistical adjustments. This ruling seems to indicate that the BVerfG agreed that public accounting systems need to provide timely, reliable, transparent and comparable data for the calculation of indicators and the comparison of budgets for national purposes in Germany. This brings us back to the approach propagated by a few that we should go for high level accounting principles without concrete standards.

We think there are two interesting examples in Europe where this approach did not work: Germany has one of the most complex accounting systems in Europe with three levels of standard setting: Central level, state level and the local level and they are all not comparable with one another within that one member state. Presumably because of the way they went about their reforms – I think in early 2000’s. They offered general principles on a voluntary basis. It was left to the discretionary power of the various public sector standard setters whether to stay on cash, or to move to accruals, or both cash and accruals accounting and so forth. The result of this approach is very clear. In the Netherlands they have put local governments on accruals basis, central government remains on a cash basis but all this accrual standards for local government on a relatively voluntary basis are not controlled at all, and this brings us back to the question of what is a possible and an effective way to solve this problem.

The key question at my opening was why do we need accruals and why do we need harmonised accruals? Accruals contribute to fiscal transparency, and fiscal transparency is a very substantial issue. There are questions whether this regulatory approach is the right way forward and whether the capital markets are relevant users of public financial information or not. But here I think it was first of all the financial crisis that has taught the capital markets some lessons, because most of us thought that sovereign debt was nearly risk-free. After the crisis, however we know that it was not and that it could be potentially toxic; and there is quite a number of investors and not only institutional ones, but also citizens and households who lost money in investing in ‘nearly risk-free’’ sovereign debt. Taking a closer look at the market, the largest issue of debt securities is the public sector at least in the Eurozone; nearly 50 % of the debt securities are issued by the public sector in the widest sense. I think it is only fair to gather information about the financial position and performance of government entities and also governments themselves. This is not just a question about debt and deficit like in GFS, but because we really want to know where the citizens’ money is actually invested. What are the policies in which governments are investing?

Fiscal transparency is quite an issue, but comparability is equally an issue. It is not enough to say that we need accruals, because at the moment when we have two different sets of accruals we have a credibility issue and we have an issue of trust. We do not know what is really trustworthy, and which of those two systems reliably discloses the information we need to know. So, comparability is really of capital importance in the basic approach. In the very end, I have explained our problem: Our European view is that there is an issue with the primary public sector accounting data, which creates risks for both financial accounting and statistics. And if we do not manage to get this under control, we may get all sorts of problems, both in financial reporting as well as in statistical reporting.

I think for the time being that is enough. I do not want to take more of your time and it is pretty late, so thanks again for your invitation and I hope this has contributed to a better understanding of the approach.

So thank you very much.


This article represents solely the views of its author. It is based on a transcript of a speech delivered at the international workshop on “Which accounting regulation for Europe’s economy and society?” organised under the auspices of the European Parliament in Strasbourg, on 20 May 2015, in tribute to Mr Jérôme Haas (1963–2014), first chairman of the Accounting Standards Authority of France (ANC).


About the article

Published Online: 2017-06-23

Published in Print: 2017-10-26

It was organised by the Laboratory of Excellence on Financial Regulation (Labex ReFi), which is supported by PRES heSam under the reference ANR-10-LABX-0095. It benefitted from a French government grant by the National Research Agency (ANR) under the funding program ‘Investissements d’Avenir Paris Nouveaux Mondes (Investments for the future Paris – New Worlds) reference ANR-11-IDEX-0006-02.

Citation Information: Accounting, Economics, and Law: A Convivium, Volume 7, Issue 2, Pages 155–160, ISSN (Online) 2152-2820, DOI: https://doi.org/10.1515/ael-2017-0008.

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