Paul Mason, Assistant Director, Professional Standards and Central Government, CIPFA
Eurostat – the European Union’s statistical agency – is currently preparing a report on the suitability of International Public Sector Accounting Standards (IPSASs) for EU Member States. If this report determines that IPSASs are suitable for Member States, will this be the end of IFRS in the public sector?
Before answering the question, it’s important to put the Eurostat report into context. The report was commissioned partly as a result of the ongoing sovereign debt crisis. To tackle this crisis, improved public financial management is essential, a point CIPFA has already made in its prospectus Fixing the Foundations. Part of the improvement necessary is in financial reporting. Eurostat already collects information on national accounts, prepared under ESA 95. However, this is not designed to be used by entities preparing their own financial statements, and the fact is that across Europe, many public sector bodies are preparing their accounts on a cash or modified cash basis. As a result, many governments don’t know what their balance sheets look like.
A move to accruals based accounts is required if financial reporting is to improve. A consistent set of standards across Europe will provide the consistency and comparability Eurostat are looking for to better evaluate governments’ financial positions. And IPSAS, being specifically designed for the public sector, is the logical place to look for that consistent set of standards.
With the report due in December and time required for the European institutions to debate the issue, any decision to move to IPSASs will be some time away. But if that decision does come, it would have a significant impact on public sector financial reporting, especially for those bodies using cash accounting.
In the UK, the impact would not be so great. We currently prepare accounts under EU adopted International Financial Reporting Standards (IFRS), subject to such adaptations as are necessary for the public sector context. Where adaptations of IFRS are deemed necessary, IPSAS is already one of the sources that can be considered as the basis for the adaptation. And where IFRS is followed in the UK, the accounting treatment under IPSAS is often the same – indeed, many IPSASs are based on IFRS. So whilst there would be changes, the UK is well positioned to adopt IPSASs.
This topic was the subject of a recent webinar, which considered the possible impact on the UK in more detail. The webinar can be viewed here.
CIPFA is actively involved in supporting the development of IPSASs, and it’s Policy and Technical Director is the current UK Board Member on the International Public Sector Accounting Standards Board. We see benefits for Europe in adopting IPSASs, and are ready to support the public sector – in the UK, in Europe, and further afield - if and when the time for change arises.