20 October 2014

FEE's Briefing Paper on European Public Sector Accounting Standards (EPSAS)

FEE has shared the latest developments following the publication of a study by the European Commission on the potential costs and benefits of implementing EPSAS in Member States, and on the suitability of IPSAS for developing EPSAS.

The Council Directive on requirements for budgetary frameworks of the Member States requires high quality government finance statistics data from EU Member States to ensure a proper functioning of EU fiscal surveillance. For that purpose, the implementation of uniform and comparable accruals-based accounting practices for all the sectors of General Government in EU Member States (Central Government, State Government, Local Government and Social Security) could help ensure quality data.

As an internationally recognised set of standards for public sector accounting is available in form of International Public Sector Accounting Standards (IPSAS), the European Commission chose to consult stakeholders about the suitability of IPSAS for EU Member States in 2012.

The European Commission received 68 responses to its consultation from a variety of stakeholder groups, including several types of public authorities, organisations, and associations, as well as private individuals.

FEE's response to the consultation: FEE supports high quality global accounting standards and accrual-based accounting. FEE believes that once IPSASs fully become a stable platform for public sector accounting, their implementation will certainly enhance transparency, comparability, accountability and provide a basis for improved governance in the public sector. In FEE´s view, the implementation may be costly depending on the circumstances but it is expected that the (partly intangible) benefits would still outweigh costs in medium and long term.

FEE has been a long standing supporter of accrual-based accounting in the public sector and welcomes the report, which is an important step forward – a single set of high-quality standards would greatly contribute to stability and sustainability of public finance. Nevertheless, before creating European Public Sector Accounting Standards (EPSAS) it is essential to gather more information and points of view, including comprehensive stakeholders’ consultations.

With its series of roundtables on public sector accounting, FEE has provided a forum to discuss and influence the harmonisation of European public sector accounting with European and national policymakers, representatives from the public sector, accountants and auditors.

In its issues paper on EPSAS, FEE points out that a global solution, i.e. international standards – which already exist in form of IPSAS – are the preferred solution. EPSAS – which would need to be developed – would give rise to a number of concerns, for example:

• An isolation of the EU on global financial markets if financial statements are not comparable on international level


• A duplication of work in an area where international standards are already available


• A lack of chances for a timely solution due to the EU legislative process where 28 Member States need to agree


• A risk of making the standard setting process vulnerable to political tinkering

However, taking into account that there is an urgent need for a reform of public sector accounting with the objective of greater transparency and accountability, and that mandatory accruals-based accounting and harmonised public sector accounting standards are one of the key instruments which can contribute to achieving it, EPSAS could be acceptable to encourage EU Member States to move towards accrual-based accounting and increase the quality of their reporting.

Nevertheless, a number of conditions would need to be met:

• The EPSAS governance structure and the standard-setting process would need to be fully transparent and include broad stakeholder participation as well as public consultations


• The governance and the standard-setting process should be independent, protected from any undue influence, should not fall hostage to national interest and should effectively prevent potential political tinkering


• The solutions that have been chosen should be transparent and sufficiently explained


• In order not to fall behind the level of transparency already reached in some Member States and the European Commission itself who are already using internationally accepted standards (IPSAS or IFRS conversion), EPSAS should be as close to IPSAS (IFRS) as possible, any divergences and reasons to diverge should be clearly disclosed, explained and justified


• Once approved, the standards should be consistently applied and all Member States should provide as a minimum the detail and quality of information required by the approved standards

Briefing Paper

© FEE