EUROSTAT
Directorate D: Government Finance Statistics
Unit D-4: GFS Quality Management and Government Accounting
TF IPSAS 12/02
IPSAS assessment report
Draft text of the chapter
"Current state of play in public accounting and auditing in the EU"
3. Current state of play in public accounting and auditing in the EU
3.1 Diversity within and across EU Member States
3.2 Overview of public sector accounting practices
3.3 Links to IPSAS in the public sector accounting systems in the EU Member States
3.4 Public sector accounting and auditing in each Member State
3.1 Diversity within and across EU Member States
The objective of this chapter is to summarise the EU Member States' current public sector accounting and auditing practices.
Eurostat requested a consultancy to collect detailed information on public accounting and auditing practices for each Member State[i] ("The Study"). The Study was designed to be essentially a stocktaking exercise and focussed on the systems in place in 2012, but in addition some information was collected on planned or on-going accounting and auditing reforms, and on the closeness or distance of existing accounting regimes to IPSAS.
This information was collected with two objectives: To provide supporting information for this assessment report and in support of Eurostat's work to verify debt and deficit data reported under the Excessive Deficit Procedure.
In practice the overview of public sector accounting and auditing practices presented below shows a rather complicated and disparate picture. Even if this overview can only give a simplification of the full detail, it shows that currently public sector accounting and auditing practices vary widely, not only between the Member States but, in many cases, also across the different levels of government within Member States.
In this case of some countries below it will be the case that the detailed information collected in the Study is either incomplete or can be usefully further explained, in other cases on-going reforms mean that the information collected will soon become outdated. To that end Eurostat is making available the full report for so that it can be further developed over the coming years.
The following text is therefore a summary of the main results of the Study.
3.2 Overview of public sector accounting practices
Table 1 below gives a summary of the main types of public sector accounting practice used in subsectors of the general government in the EU Member States.
The Study shows that a majority of the Member States have public sector accounting practices that can be characterised as accrual or modified accrual accounting across all levels of government. Although accrual or modified accrual public accounting data is available in these Member States, in many cases parallel cash accounting systems are also maintained, and with few exceptions, budgeting is conducted on a cash basis.
The countries reported to have mixed public sector accounting systems were Austria, Cyprus, Denmark, Germany, Hungary, Ireland, Italy, Luxembourg, Portugal, the Netherlands and Slovenia. These Member States either use differing public sector accounting practices for differing levels or sub-sectors of government, or, for example in the case of Slovenia or Hungary, different financial statements are prepared on different accounting bases.
In Austria the new accounting system implements accrual accounting for the federal government but the states and municipalities operate cash-based systems.
In, Cyprus, Ireland, Portugal and the Netherlands central government applies cash accounting, while the local level of government uses accrual accounting. In Portugal and Ireland an accounting reform, moving to accrual accounting, is underway for central government and in Cyprus it is in the planning phase.
In Germany current reforms are focused on the modernisation of the cash based system at central and state levels. A minority of the federal states, and most of the municipalities, have introduced accrual accounting.
In Denmark the central government and regions accounting systems are accrual based, whereas for the municipalities accounting is mainly cash based.
In Luxembourg central and local government entities, with the exception of public establishments (e.g. research centres, state foundations) and public corporations follow cash accounting principles. Similarly to these exceptions social funds also use accrual accounting rules based on the general accounting principles following the national GAAP.
In Hungary, Italy and Slovenia a cash/modified cash accounting system applies for all sub-sectors of government, although it is reported that accrual/modified accrual accounting is also used when financial statements are prepared.
Table 1: Summary of the accounting model applied by subsectors of
government in the EU Member States
Central / State / Local / Social fundsAccrual / 12 / 2 / 14 / 13
Modified Accrual / 5 / 4 / 4
Combination of Accrual and Cash / 5 / 1 / 7 / 4
Cash / 4 / 1
Not applicable / 23 / 1
No answer or pending reply / 1 / 1 / 2 / 4
Total / 27 / 27 / 27 / 27
In summary …
Based on the main results of the Study:
Accounting practices
The overview of Member States' public sector accounting practices shows that they are indeed very heterogeneous. No two countries have the same set-up not apply the same standards. Moreover, within many Member States various accounting regimes may apply for differing types of government entities.
Those Member States which have a state government sector tend to have the most complex accounting arrangements since state governments usually follow their own accounting standards, which may differ from one state to another. More of the newer Member States of the European Union follow an accrual accounting model than the older Member States. In particular the Baltic countries seem to have accrual based standards close to IPSAS. Local governments are more likely to have an accrual accounting model than central governments.
Financial audits
Financial audits are performed in almost all Member States; however the scope of the audits varies between the countries. The approach to financial audit not necessarily consistent across the EU but, overall, the audit arrangements appear to be less heterogeneous than the accounting arrangements. With a few exceptions the application of the ISA or the ISSAI standards are followed on a voluntary or mandatory basis.
Accounting and auditing reforms
Many Member States are engaged in minor or major reforms, depending on the current status of their accounting and auditing arrangements. One group of the countries – mainly those who have recently implemented accrual accounting - are continuously improving and fine tuning their public accounting systems while another group of countries are still in the progress. There is also a smaller group of countries where no reforms are scheduled or they are only at an early stage of preparation. Finland, Poland and Luxembourg have projects underway to enhance their auditing systems.
3.3 Links to IPSAS in the national public sector accounting systems in the Member States
The IPSASs are a relatively recent set of accounting standards. The first core set of IPSASs were developed between 1996 and 2002, with major work to add further new standards and achieve substantial convergence with IFRS completed in the decade since then. As a consequence IPSAS was a work-in-progress at the time that many Member States last reformed their public sector accounting systems. As a consequence links between IPSAS and national public sector accounting systems tend to be a relatively recent introduction.
Nevertheless, the Study shows that IPSAS is a reference or an orientation for the public sector accounting standards in just over half of the EU Member States. Table 2 summarises how the different accounting standards used by the EU Member States relate to IPSAS.
IPSAS is reported to be referred to or used as a basis or inspiration – when it was deemed relevant - for national public sector accounting standards in more than half of the Member States (Austria, Belgium, Bulgaria, Czech Republic, Denmark, Estonia, France, Greece, Latvia, Lithuania, Malta, Romania, Slovakia, Spain and Sweden).
The remaining Member States do not refer to IPSAS in their public sector accounting framework, but this does not necessarily mean that they are not aware of its existence or that some of their national standards do not conform to IPSAS..
Table 2: Relationship with IPSAS of the national public sector
accounting systems of EU Member States
IPSAS relation / Total / PercentageNational standard based on or orientated by IPSAS / 9 / 33 %
Some IPSAS references / 5 / 19 %
IPSAS for some Local Government entities / 1 / 4 %
None / 12 / 44 %
Grand Total / 27 / 100%
In the Study referred to above, Eurostat's consultants developed an indicative measurement of the distance of each Member State's national public sector accounting standards from IPSAS. Such an analysis can of course only give an indication of closeness to IPSAS, and the main value of the results may be considered to be the dispersion of the scores they show, rather than scores measured for individual countries.
To perform this analysis four characteristics were considered:
► Presentation of the financial statements. This dimension seeks to assess whether all the components of the financial statement required by the IPSAS (according to IPSAS 1) are published;
► Time of recording. This dimension indicates whether the accounting system is either on cash or an accrual or modified cash or a modified accrual basis;
► Property plant and equipment measurement and recognition. This dimension seeks to understand whether the measurement and recognition of plant and equipment is similar in spirit to the IPSAS principle (in particular IPSAS 17);
► Provision measurement and recognition. This dimension seeks to understand whether the measurement and recognition of provision is similar in spirit to the IPSAS principle (in particular IPSAS 19).
It is stressed that because this analysis only takes into account these four dimensions that, for example, if a 100% degree of similarity to IPSAS results from this scoring, would not necessary mean that the Member State applies IPSAS in full. Given that a system of accounting standard includes more accounting issues than the presentation of the financial statement, the time of recording, and the measurement and recognition of the property plant and equipment and their provision, this scoring does not give a full picture of the actual heterogeneity in accounting practices across Member States.
Figure 1 shows the outcome of the analysis of the central government accounting practices. The equivalent charts for the other subsectors can be found in The Study.
Figure 1: Nature of the central government accounting standards per Member State
On the basis of this scoring system, the main conclusions were the following:
There is a great heterogeneity in terms of the accounting practices across Member States. Indeed taking IPSAS as a benchmark, public accounting standards used in the Member States vary between less than 10% proximity to IPSAS to more than 90%.
On this measurement basis, those Member States which apply cash-based accounting standards tend to have the lower scores for similarity with IPSAS. However, the measured score is not always close to zero, for example if, despite most or all public sector accounting being on a cash basis, sub-sectors of government may publishing statements of financial position and performance.
Across the EU as a whole, local government are scored to be closer on average to IPSAS than central government.
According to the Study, the UK public sector accounting standards appeared to be the closest to IPSAS. Indeed the UK public sector accounting standards parallel IPSAS in that they are based on IFRS, adapted to the needs of the UK public sector. This similarity in the origins of the standards explains the proximity of UK standards to IPSAS.
It appears that the more complexity that exists in the national public sector accounting requirements, in the sense that differing requirements apply to different parts of government, the less close are that Member State's accounting standards to IPSAS. The Member States with the least complex accounting arrangements seem to be closest to IPSAS. For example the UK, Estonia and Lithuania - which apply a single public sector accounting standard for all sub-sectors of government - scored as more than 90% similar to IPSAS.
3.4 Public sector accounting and auditing in each Member State
This chapter gives an overview of public sector accounting and auditing in each Member State. In addition to noting the different accounting practices followed within the public sector, the links between IPSAS and national public sector accounting standards are indicated, as are on-going or planned accounting reforms. In addition a brief description is given of the scope of the financial audit framework applied in each Member State for the general government.
This overview is based on more detailed information collected within the Study.
Austria
In Austria, taking into account the new legal requirements coming into force in 2013, the different accounting practices are as follows:
Federal government accounting
Budgets and Closed Accounts Regulation
Internal accounting rules
Austrian commercial code
Accounting Regulation
The Federal government applies the "Federal Government Accounting Law". Länder and municipalities apply the ” Budgets and Closed Accounts Regulation”. Chambers exist in the central and state subsectors, they apply internal accounting rules. Social funds[1] follow the Accounting Regulation which is similar, in a broad perspective to the ” Budgets and Closed Accounts Regulation”. Other entities and government business entities apply general national/international rules (like Austrian Commercial Code or IFRS).
Nature of accounting practices in the sub-sectors
Financial statements / Federal government / Länder and municipalitiesStatement of financial position (balance sheet) / Accrual accounting / Not applicable
Statement of financial performance (Income statement/profit and loss statement) / Accrual accounting / Accrual accounting
Statement of changes in net asset / Modified cash accounting / Not applicable
Cash flow statement / Cash accounting / Cash accounting
The new accounting system takes account of the special needs of the federal government and is modelled on the IPSAS standards in order to ensure international comparability.