Public sector accounting reforms under way, but convergence of standards in Europe remains a challenge
London, 23 September 2010 — In the aftermath of the global economic crisis, concerns about accountability, transparency, and sustainability have surged back to the top of the international political agenda. Policymakers are now beginning to recognize that the public sector needs a robust and uniform set of accounting standards according to Towards transparency: a comparative study of governmental accounting in Europe.
The study examines how the debate around accrual accounting is progressing in 19 European jurisdictions, and in particular, whether IPSAS (International Public Sector Accounting Standards) has proven to be a successful tool for simplifying adoption, and whether governments have made serious efforts to reform their public sector accounting systems. The results suggest that out of 19 European jurisdictions in 17 countries, over half of the entities surveyed at the local and national level converted to accrual accounting and for several other, the question seems more ”when” than “if”. However, the study also reveals that many jurisdictions for the moment prefer to use local business rules to IPSAS. These standards so far rather serve as orientation and guideline, out of which some elements are chosen.
Philippe Peuch-Lestrade, Global Government & Public Sector Leader at Ernst & Young, said: “The debate among European public entities over whether to move from cash to accrual accounting is over. However, a single accrual method is not yet being adopted and IPSAS remains more of an aspiration than a feasible destination. The global financial crisis would seem to be a ‘teachable moment’ for focusing the attention of leadership on the advantages of accrual accounting generally, but public finance directors do not seem to have considered the advantages of adopting a single set of accrual standards.”
Ten out of 19 respondents currently use an accrual approach. They believe it improves cost and efficiency, makes it easier to exercise external accountability and oversight control. However, one-third of respondents said they were still using cash accounting , and confirmed they do not intend to adopt accrual accounting, due to cost and difficulties of implementation. Therefore, despite the best efforts of the IPSAS Board and other international organizations to encourage the use of IPSAS, no jurisdiction yet has entirely adopted IPSAS.
Thomas Mueller-Marqués Berger, Global Public Accounting Leader at Ernst & Young, concludes, “Given the difficulty involved in making any reform, pragmatists may find it tempting to adopt familiar local business rules instead of IPSAS. However, this would be a mistake. IPSAS-aligned reforms will add long-term value to governments. Creating a common set of measures will make it much easier for local and regional governments to benchmark their performance against each other, as it could be observed for international organizations like European Commission or the United Nations. It therefore will provide greater accountability and transparency for governments.”
About the report
This study is based on a joint research project between Ernst & Young and the ARPS-Accounting Research Public Sector Centre of the Ghent University, led by Prof. Johan Christiaens. A scientific version of this study was publishes in 2010 in the International review of Administrative Science by Johan Christiaens, Brecht Reyniers and Caroline Rollé.
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