Public-sector accounting – IPSAS/EPSAS

Modernisation of budgeting and accounting

Against the background of the intended implementation of harmonised accounting principles for the public sector in the EU Member States, a profound process of change in relation to the coverage of budgeting and accounting in public administration is in full swing (this takes you to the Commission’s report to the Council and the European Parliament: ‘Targeted implementation of harmonised accounting principles for the public sector in the Member States, the suitability of the IPSAS for the Member States’, Brussels, 6 March 2013).

Efforts of the European Commission to provide decision-relevant information on the basis of accruals accounting to all government units by 2021 lead to an increase in the significance of IPSAS (International Public Sector Accounting Standards) as well as the emerging EPSAS (European Public Sector Accounting Standards). Against the background of the sovereign debt crisis in Europe, fiscal accounting systems can no longer be regarded as an adequate information and control system.

IPSAS is a set of specific accounting principles for the public sector; they are based on IFRS wherever the specifics of the public sector do not need to be taken into account by deviating provisions. IPSAS, currently consisting of 38 double-entry accounting system standards and one fiscal accounting standard, has already been adopted by several countries in Europe, America, Asia and Africa. For example, the OECD, NATO, UNO and the EU all base their accounting on IPSAS.

Impact on the public sector in Germany

Based on the proposal by the Commission, the European Council and Parliament will adopt an EPSAS framework regulation in the period from 2015 to 2017 and define the core principles of EPSAS. By 2021 EPSAS is expected to be gradually introduced in the Member States (endorsement procedure). Some 17,500 public-sector units (federation, state, local authorities and social security institutions) would be affected by the transition process after final determination of the EPSAS scope. Most Member States have already adopted accrual accounting in the public sector or are in the implementation phase, although there are currently different systems in the Member States. In Germany, many municipalities and some states already account in accordance with the provisions of commercial law; nevertheless, there is still a lack of harmonisation. The further development of public-sector accounting in Germany leaves public-sector units facing considerable challenges. Early consideration of the application of new accounting principles helps to avoid future migration overhead. A cost-benefit analysis commissioned across Europe concludes that the benefits outweigh the overhead of migration.

BDO performance spectrum

Assuming that EPSAS is introduced in 2021, a smooth migration depends on early and efficient orientation of the conversion project. Based on our experience and with a view to complexity, it is important to focus on the migration project several years before adoption, in particular due to the considerable overhead involved in inventorying assets and liabilities; of course, the migration overhead for a unit still relying on fiscal accounting will be significantly higher than for a unit that already relies on double-entry accounting.

Our range of activities in particular includes

  • Consultancy for migration to double-entry accounting,
  • Consultancy and support for initial adoption of international accounting standards,
  • Support for project planning,
  • Conceptual design of a manual for balancing and valuation,
  • Creating or auditing annual and consolidated financial statements as well as reviews,
  • Consultancy in the analysis of business processes with pointers to vulnerabilities and risks,
  • Submission of suggestions for improvement,
  • Advice on adapting your IT systems (IT selection procedures, database structures, reporting, authorisation concepts)
  • Training of your employees.

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