27 March 2014

FEE publishes paper on European Public Sector Accounting Standards

Greater transparency and accountability of the public sector is indispensable to restore public finance and ensure more effective delivery of public services and better stewardship of taxpayers’ money. More reliable, timely and comprehensive financial information, including comparable statistical accounting and financial accounting, necessitates a common, robust and accruals-based accounting and reporting framework.

FEE has always supported accruals-based accounting in the public sector and fully supports its implementation at all levels of government. The majority of EU Member States has already implemented accruals accounting or are at least in the process of doing so.

A single set of high quality principle-based standards could greatly contribute to stability and sustainability of public finance – accruals-based accounting standards would ensure completeness and reliability of information; harmonised public sector accounting standards would enhance comparability.

In a situation where Europe needs foreign investors and sovereign debt is traded on global markets, these standards should ideally be international. Investors operate globally and need comparability of financial information across the world.

Making European public sector information more accessible and understandable should facilitate investment and benefit Europe. Sound public sector financial information will also better contribute to effective and robust public sector financial management.

Developing EPSAS for the EU within the European Union’s legislative process has limited chances to produce a timely solution, as 28 Member States would need to agree. This problem occurs in any area of EU legislation; a recent example is the EU Accounting Directive, which has cast light on the difficulties in brokering a consensual, European common approach. The number of Member State options left in this directive can only prove the challenges incumbent to harmonising financial information at a European level. The problem is even more likely to occur when EU legislation has an impact on Member States’ financial statements and the related transparency.

Developing EPSAS for the EU within the European Union’s legislative process also makes the standard setting process vulnerable to political tinkering. When developing the standards as implementing acts, decisions in the EPSAS Committee would be made by representatives from Member States, who may want to push forward their domestic agenda regarding public sector accounting. The standards produced in such process and the financial statements produced on the basis of such standards might trigger less investor confidence than those produced on the basis of independent international standard setting.

In order to address the need for better public sector financial information, the European Commission should promote the development of transparent and comparable financial information across the EU and establish a roadmap for all Member States to undertake the implementation of accruals accounting. The public sector in the EU should take a leading role in initiatives to improve reporting in the future.

Although public sector accounting standards should preferably be international to ensure that the EU remains competitive on global markets, European standards could be acceptable as a vehicle to encourage Member States to move towards accruals accounting.

The accountancy profession and FEE remain committed to contributing to this important public interest debate and to advancing public sector accounting standards.

Paper on EPSAS

© FEE