"Towards implementing European Public Sector Accounting Standards" conference: opening speech by Algirdas Šemeta
Type: Complete speech
Brussels - EC/Charlemagne
The sovereign debt crisis has underlined the need for governments to clearly demonstrate their financial stability and the necessity of rigorous and transparent reporting of fiscal data. On this occasion a conference was organised on 29 May 2013 in Brussels at which Algirdas Šemeta, Member of the EC in charge of Taxation, Customs, Statistics, Audit and Anti-Fraud brought together high-level stakeholders and decision makers from public sector accounting, auditing and statistics to discuss the future development of harmonised government accounting standards in Europe.
Only the original language version is authentic and it prevails in the event of its differing from the translated versions.
||Soundbite by Algirdas Šemeta, Member of the EC in charge of Taxation, Customs, Statistics, Audit and Anti-Fraud (in ENGLISH): It is my pleasure to be here today and have a possibility to share the views on a new initiative towards implementation of European Public Sector Accounting standards.The sovereign debt crisis has shown that any idea that the debt of Member States is effectively risk-free debt is unfounded, even if we can regret this situation. Markets, rating agencies are now comparing the risks on countries’ debts as they compare those of companies. From this perspective, it is not a coincidence that we are gathered today to improve the basis of these comparisons.This conference must be seen in the context of charting the way out of the crisis and building together a stronger and more integrated Europe. The need for enhanced financial statement comparability and transparency among all public sector entities of the Union is part of this way out. It should pave the way to better management of our public responsibilities. It will also foster economic coordination and fiscal surveillance. More concretely, it will enhance the statistical information basis used for this purpose and further improve its quality. These are the two primary reasons, at micro and macro levels, for our initiative concerning harmonisation of public sector accounting standards.Let me stress that the case for developing and implementing accruals-based accounting standards for the public sector in the EU is very clear. I would wish to highlight two major aspects. First, accruals accounting is indispensable for macro-economic analysis. The European System of Accounts (ESA) is accruals based. This is one of the reasons why ESA was selected as the framework for the Excessive Deficit Procedure. Thus, the monitoring of deficit and debt at macro level is based on accruals principles. GDP itself is also based on accruals accounting principles. Government revenues and expenditures need to be recorded when the economic event occurs and not when the cash is moved, as the behaviour of economic actors reflects this timing.But accruals accounting is also essential for “micro” monitoring of each government entity. In particular it is true for large entities such as central governments and state governments. Accruals micro accounting in the public sector is expected to improve the effectiveness of public administration. As the Commission's study shows, most Member States are heading in this direction.Indeed, while the objectives and procedures of government entities are often different from private companies, accruals accounting would provide information which is as important to them as it is to private companies. Governments need to develop balance sheets and economic outturn accounts to analyse the position; and the change in their assets and liabilities as well as in their expenses and income. Accruals accounting does not preclude but complements cash accounting or budgeting.
||Soundbite by Algirdas Šemeta (in ENGLISH): Second, fiscal transparency is necessary for macroeconomic stability and for surveillance and policy advice. Harmonised standards for public sector accounting would enhance transparency, comparability and cost efficiency. It will also provide the basis for improved governance in the public sector. For example, harmonisation would bring greater transparency to the accounting of regions and municipalities. At the macro level, the financial crisis underlines the importance of timely and reliable financial and fiscal data. It also reveals the consequences of insufficiently complete and comparable financial reporting in the public sector. Therefore, harmonisation of public accounting will improve financial management, transparency and accountability of MSs Governments.The Commission achieved the adoption of harmonised private sector accounting standards for EU listed companies. This has enhanced significantly transparency and comparability in the private sector. There is no reason why this could not be achieved for the public sector.Harmonisation of accounting at government entity level will allow policy makers, managers and citizens to better compare the accounts of large similar entities inside their country [for example, at state level or for large municipalities]. At the same, it will also help to compare them across countries. Harmonised accruals-based public-sector accounting would, therefore, provide a firmer basis for understanding the financial position and performance of governments and government entities at all levels. At the entity level, there would be benefits in terms of transparency and accountability. It would also improve the quality of decision-making since the information available would reflect all relevant costs and benefits in a comparable manner.Harmonisation of public sector accounting will allow financial markets to better judge the situation of the many government entities issuing debt. Harmonised accruals accounting would provide greater transparency for the proper functioning of the internal market in financial services. Without those there is a danger that owners of government securities would be entering into transactions without a proper understanding of the level of associated risk.Highest possible comparability is the target of the current statistical method for EDP calculation. Having harmonised accruals-based upstream accounts will significantly strengthen the quality of the data at macro-economic level by means of harmonising public sector accounting and reporting at micro level.Moreover, the prospect of further fiscal and budgetary integration in the EU highlights the need for harmonised public-sector accounting standards in order that budgetary decisions at national level can be assessed at EU level. For the sake of accountability and transparency, government entities should report in a complete and comparable manner on their use of public resources and their performance.
||Soundbite by Algirdas Šemeta (in ENGLISH): Let me say a few words about the value we see for auditing which would come from the adoption of European Public Sector accounting standards. In that context, I was very pleased to receive the supportive views of the European Court of Auditors concerning harmonised accruals accounting in the EU. EPSAS will lead to the reinforcement of the common European culture in public sector auditing. Supreme Audit Institutions (SAIs) will share common standards while auditing EPSAS based public accounts, which can benefit the efficiency and effectiveness of their work. I welcome the intervention in this conference of the representatives of the seminar of the Supreme Audit Institutions held in March on the EPSAS project. It is a confirmation that SAIs have an important role to play in this project. I will assure the SAIs, that being experts in public accounts, they should be the partners in this project. I would recall in this context that my responsibilities also cover relations with the European Court of Auditors and the SAIs of Member States, and moreover the discharge of the Commission’s accounts.The Commission has long been a strong proponent of harmonised accrual accounting. In December 2002, the Commission decided to implement accruals-based accounts complying with international accounting standards for the public sectorThe deadline for achieving this was 1 January 2005, and this was met, even if improvements continued throughout the financial year 2005. Already for those first accounts for 2005, a positive opinion was given by the European Court of Auditors. It has repeated this opinion since then. This shows that a transition to IPSAS is perfectly possible and can in some circumstances be made quite rapidly.The annual consolidated accounts of the European Union cover more than 50 European Agencies, Institutions and other European Bodies with a total annual budget of more than EUR 140 billion. In the Commission’s experience accrual based accounts are an important source of financial information. The advantages are better control over assets and liabilities – that is the financial position - as well as expenses and income – that is the financial performance. This is an indispensable condition for improved financial management and efficiency gains. There is, therefore, no justification for the public sector to have standards of financial accountability which are below those of the smallest successful private business.Last but not least, these harmonised accounting standards could pave the way, in the longer term, for an integrated accounting framework. Within this framework macro accounts would be compiled as a direct consolidation of micro accounts. EPSAS would also need to take into account, as far as possible, good aspects of European System of National Accounts. The latter in its turn should move towards the direction of EPSAS.
||Soundbite by Algirdas Šemeta (in ENGLISH): Ladies and gentlemen, Let me elaborate on challenges to be addressed before EPSAS becomes a reality. First, we have to base our further work on the Commission's report on the suitability of International Public Sector Accounting Standards (IPSAS) for the Member States published on 6 MarchI will leave to Walter Radermacher, Director-General of Eurostat, to remind you of the detailed conclusions of the Commission report. However, I retain only the most important one. The report clearly indicates that it is possible to obtain in the medium term a set of harmonised EPSASs.Second, EPSAS is a strategic and challenging project. Its objective is, subject to their materiality, to have the many thousands of government entities in the EU compile their accounts on the same basis. This will need the adoption of technical accounting standards in the form of EU legislation. This, of course means that the Member States must apply them consistently. It is, therefore, a medium-term project. This must, however, be weighed against the potential benefits. And the benefits are very clear: better governance, accountability, improved public sector management and the financial transparency which is essential for the proper functioning of markets. EPSAS would, in our view and based on the Commission’s own experience, bring a real and important net positive value added to the EU and to the Member States.As for the future steps, I am sure you will discuss them during the Conference. Therefore, I can only point out that we all know that practical implementation will not be quick or easy. It needs a realistic and detailed road map, setting out the medium-term plan for implementation of EPSAS across the Member States.And this should be done as soon as possible via a Commission Communication to the Council and the Parliament. With their political support the reform can have a greater impetus.Finally, I hope that the Conference will also reflect about the need for EPSAS governance; a need for a strong mechanism for standard setting and oversight. EPSAS principles and standards will have the status of binding rules.
||Soundbite by Algirdas Šemeta (in ENGLISH): Ladies and gentlemen. To conclude, I am convinced about the importance of accruals based accounting as an information tool for the public sector management. It has to be noted that the key principles of “transparency and comparability of public sector reporting” have already been referred to explicitly in the last communiqué of the G20. I hope this conference will contribute to this idea extending beyond the already convinced world of accounting experts, to the world of policy makers.I would like to express my hope that the outcome of the conference will be the shared understanding of the need to move forward. I am convinced that everyone here will be able to learn from EU bodies and some of our Member States’ experiences. I am looking forward to your discussions on a direction we can take on EPSAS standard-setting and governance, and on preparing for the implementation of EPSAS. Finally, I would like to express my appreciation first to the European Parliament and the Council, for their support in promoting harmonised accruals accounting. I want also like to thank to the representatives of the International Federation of Accountants (IFAC) and of the International Public Sector Accounting Standards (IPSAS) board. They already underlined the necessity of developing international norms in public accounting about two decades ago.