International Financial Reporting Standards Der 16. IFRS ... · PDF filePage 2 Agenda uGlobal...

International Financial Reporting StandardsDer 16. IFRS Kongress 2017 in Berlin

Globally harmonized public sectoraccounting standards – also suitable forthe EU?

Thomas Müller-Marqués Bergeru Global Leader International Public Sector Accountingu Chair Consultative Advisory Group to the IPSASBu IPSASB Member 2009 – 2014

Agenda

u Global standard setting for the public sector

u The role of IFRS in the development of IPSAS

u IPSAS as a suitable reference framework for the developmentof EPSAS?

7. September 2017 Müller-Marqués Berger | 16. IFRS Kongress 2017

Global standard setting for the public sector

Global standard setting for the public sector


“IPSAS is currently the only internationally recognised set of public-sector accounting standards. It is founded on the internationalfinancial reporting standards (IFRS) widely applied by the privatesector […]”(European Commission, Towards implementing harmonised public sector accountingstandards in Member States, Brussels, 6 March 2013)

u Recent developments: Public Sector Standard Setters Forumheld its 2nd meeting in July 2017

The role of the IPSASB in internationalharmonization of accrual accounting standards

7. September 2017

u IPSASB is an independent board within IFAC

u IPSAS standards are not mandatory, but there is peerpressure created by developing best practice standards on thebasis of a global due process

u IPSASB‘s Forward Strategy (period 2014 – 2018):Strengthening public financial management and knowledge globallythrough increasing adoption of accrual-based IPSAS by:► Developing high-quality public financial reporting standards;► Developing other publications for the public sector; and► Raising awareness of the IPSAS and the benefits of their

adoption.

Müller-Marqués Berger | 16. IFRS Kongress 2017

Composition of the IPSAS-Board(since 1. Januar 2017)

u In total 18 members:

u Chair of the IPSAS-Board:Ian Carruthers/UK

* Representative of a Private Sector Audit firm

7. September 2017

► Australia► Austria► Brasil► China► Canada (2)► Germany*

► France► Italy► Japan*► New Zealand► Panama► Pakistan

► Romania► Switzerland► South Africa► United Kingdom► United States


New IPSASB governance


The evolution of the IPSASB


Global standard setting for the Pubic SectorBenefits of IPSAS in general

7. September 2017

► IPSAS is the basis for harmonizing public sector accounting globally– ensuring inter-country comparability

► IPSAS provides for intra-country consistent accounting across theentire Government sector allowing consolidated governmentalreporting

► Increases comparability between public and private sectororganizations where transactions are comparable

► IPSAS as a best practice guideline enables governments to keeppace with global accounting developments

► It enables governments to communicate transparently onachievements and decisions made


The role of IFRS in the development of IPSAS

The role of IFRS in the development of IPSAS

► IPSASs are largely based on the principles of IFRSà but: increasingfocus on public sector specific topics

► In principle IPSASB follows a “Transaction neutral approach”► Rationale: ensures greater comparability between private and public

sector reporting when accounting for similar types of transactions► IPSASB typically takes an IFRS as a starting basis and follows the

“rules of the road”-approach► But: significant gaps in IASB’s literature from a government point of

view, e.g.► Impairment of non-cash generating assets► Accounting for non-exchange transactions► Presentation of budget information

► “Alignment” with Government Finance Statistics (GFS) gained moreand more of importance in recent years


Relationship between IFRS and IPSASCurrent work plan - dominating role of public sector specific projects


Relationship between IFRS and IPSASRationale of IPSASB for deviating from IFRS


GAAP differences between IPSAS and IFRSReasons for the differences


Benefits of IPSAS vs IFRS

► Customization - IPSAS are customized for governments and uses terminology thatcorresponds to their activities

► Coverage - IFRSs are written for profit-oriented organisations and do not take intoaccount transactions which typically occurs in the public sector (such as donations,transfers from government, taxes, social benefits, non-exchange revenue and expenditure)

► Recognition - public sector definition of assets/liabilities leads to a more completepresentationà allows for a better view of the net financial position

► Measurement - rules within IPSAS are focussed on service providing as the mainobjective of the public sector:► IPSAS avoids lengthy impairment assessment and write-downs of not-for-profit assets such as

infrastructure - roads, highways, bridges, public parks etc

► Presentation – public sector specific statements (e.g. comparison of budgets vs.actual; IPSAS 24) and reports (Recommended Practice Guidelines)

► Comparability – not only between gov´s: donor bodies have also converted toIPSASà performance of governments will be better understood and assessed


IPSAS as a suitable reference framework forthe development of EPSAS?

Background and Objectives of EPSAS

u Objectives of EPSAS:► Fiscal transparency and► comparability► of public sector accounting and financial reporting► between and within MSs.

7. September 2017

Eurostat underlines that accrual accounting is needed to achieve highertransparency in the public sector and harmonized accrual accounting is needed forbetter comparability within the public sector. Taken together this would benefit the

EU as a whole.

The coexistence of cash-based budgetary frameworks and accrualaccounting/financial reporting systems is not questioned!


Why does Europe need the EPSAS reform?Accounting frameworks applied 2012

7. September 2017

EPSASWorkingGroup


Milestones of the EPSAS project (1)


Council Directive 2011/85/EU of 8 November 2011 on Requirements forbudgetary frameworks of the Member States

Public consultation on „Suitability of IPSAS for EU Member States“ andformation of Task Force “IPSAS Implementation”

Survey on “Overview and comparison of public accounting and auditingpractices in the 27 EU Member States” performed by EY

Report on „Towards implementing harmonized public sector accountingstandards in Member States” by the EC published in March 2013

Conference „Towards implementing European Public Sector AccountingStandards” in Brussels, May 29/30, 2013

Tender on “Collection of information related to the potential impact, includingcosts, of implementing accruals accounting in the public sector and technical

analysis of the suitability of individual IPSAS standards” in June/July 2013

Public consultation on „Public consultation on future EPSAS governanceprinciples and structures”

Study “Collection of information related to the potential impact, including costs,of implementing accruals accounting in the public sector and technical analysis

of the suitability of individual IPSAS” (30 September 2014, PwC)

Milestones of the EPSAS project (2)


15/16 September 2015, Malta: First meeting of Working Group EPSAS (i.a.determination of priorities 2015-2016, guidance for first-time adoption of

EPSAS/opening balance sheet, etc.)

October/November 2015: Public tender “Support for the development ofharmonised European public sector accounting standards and collection of furtherinformation related to the potential impacts of implementing accruals accounting in

the public sector “

May/June 2015: Constitutional meeting of “EPSAS Cell on First TimeImplementation”

7/8 July 2016: Paris: Second meeting of Working Group EPSAS

September 2016: Study “Support for the development of harmonised Europeanpublic sector accounting standards and collection of further information related to

the potential impacts of implementing accruals accounting in the public sector“commissioned to PwC

22/23 November 2016: Rome: Third meeting of Working Group EPSAS

May 2017: Lisboa: Fourth meeting of Working Group EPSAS

July 2017: Public tender “Support for the development of harmonised Europeanpublic sector accounting standards and analytical papers to support the

implementation of EPSAS “

Project plan for the EPSAS reform


The current approach (since mid of 2015)


Characteristics of EPSAS

► Cornerstones of EPSAS according to report ofthe Commission on Suitability of IPSAS (2013)

7. September 2017

Corner-stones ofEPSAS

Accrualaccounting

Double entrybook-keeping

Internationallyharmonized

financialreporting

Consistencywith ESA

Governance


The relationship between EPSAS and IPSAS

7. September 2017

“EPSAS will be the European interpretation of IPSAS”Alexandre Makaronids (2016)

Commission Report on IPSAS from 2013:“the IPSAS standards represent an indisputable reference for potential EUharmonised public sector accounts”

PwC study from 2014:“IPSAS appears to be the most common source of reference for the Member States,

at least at central government level.”“A number of MS believe that EPSAS should be based on IPSAS as it would be more

efficient not to re-invent the wheel and tocapitalise on accounting standards that are of an overall good quality and are

credible on international financial markets…”


Starting points for the EPSAS reformsIPSAS compliance 2012 (central government level)


Starting points for the EPSAS reformsIPSAS compliance – update 2014

7. September 2017

Source: PwC, Collection of information related to the potential impact, including costs, of implementing accrualaccounting in the public sector and technical analysis of the suitability of individual IPSAS standards, 1. Aug. 2014


IPSAS as a suitable reference framework forthe development of EPSAS? (1)

7. September 2017

IPSAS EPSAS§ Started from scratch; no international best

practice available§ No need to start from scratch; international

best practice available

§ Not binding – adoption or reference necessary § Standards will likely be binding

§ Are therefore not directly applied § Have to be directly applied as they are

§ No direct link between standard setting andimplementation

§ Linkage between standard setting andimplementation envisaged

MAIN DIFFERENCES:► EPSAS can make use of the full set of IPSAS and likely of the conceptual framework► In Member States there are already comprehensive experiences with accrual accounting conversions


IPSAS as a suitable reference framework forthe development of EPSAS? (2)

7. September 2017

The „I“ in EPSASu Europe is integrated into global markets and affected by polictical

developments. Within the debate around the design of EPSAS itneeds to be considered that no „island approach“ is developed.

u Setting EPSAS without considering IPSAS would:► disregard the current situation in Europe (heterogenity)► be a step back for the majority of Member States► require considerable intellectual resources► imply that national and international experiences with regards to IPSAS

implementation could hardly be used► most likely lead to a further extension of Eurostat‘s / the Commission‘s

implementation plan► definitely send a wrong signal to the rest of the world!


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