Countries across the European Union are adopting accrual-based accounting practices for public sector entities. We look at progress in four developing economies
This article was first published in the March 2018 International edition of Accounting and Business magazine.
In 2015, the European Commission announced the formal adoption of European Public Sector Accounting Standards (EPSAS) in the EU. Its ultimate aim was to encourage uniform and comparable accrual-based accounting practices for all sectors of general government within the EU – seen as crucial for meeting the objectives of fiscal stability and deeper economic and financial integration within the European bloc.
EPSAS are the European equivalent of International Public Sector Accounting Standards (IPSAS) – accrual-based standards for the public sector. Just as the development of IFRS Standards have been credited with bringing greater transparency and international comparability to the financial statements of stock exchange-listed companies around the world, it is hoped that IPSAS will be able to transform and improve accounting and financial reporting across the public sector.
The EU announcement was a significant step in the growing acceptance of IPSAS. So far, more than 40 countries have adopted or are adopting the standards or their equivalent. But as a new report from ACCA shows, implementation from country to country varies enormously.
The report, IPSAS implementation: current status and challenges, tracks the use and adoption rates of IPSAS across the world. It concludes that while progress in developed nations is good, developing economies are lagging behind. The report highlights the difficulties that individual countries face in implementing the standards, from poor reporting practices in public sector organisations to a lack of necessary skills and expertise.
The experience of Europe neatly illustrates the point. The European Commission’s announcement did not specify the date at which each country will be required to adopt the standards. Some EU states had already decided to adopt IPSAS before the commission made its formal announcement, and many have already made substantial progress towards full IPSAS adoption. The UK, for example, has been applying accrual standards based on IFRS for a number of years.
In less mature economies in other parts of Europe, though, the picture is less clear-cut. A few countries have sought aggressively to adopt IPSAS-type standards since emerging from the former Soviet bloc, but progress in others remains slow. ACCA’s report assesses the journey towards accrual accounting in four countries – Estonia and Lithuania are the success stories while implementation in Latvia and Malta is a work in progress (see below).
Overall, the research reinforces the view that those countries that are still in the process of adopting IPSAS need to have a clear strategy in place, with realistic timescales, milestones and resources. Many of the challenges that countries adopting accrual-based standards have seen so far, the report adds, are closely related to broader change management and programme management issues; others are more basic, including inadequate IT infrastructure and poor record-keeping.
The report stresses that governments and their public sector entities are not alone in this work – the accountancy profession can, and should, help. If governments, the public sector and professional accountants work together, it argues, they could achieve a great deal in the journey towards more consistent accounting practices.
Liz Fisher, journalist
"A few countries have sought aggressively to adopt IPSAS-type standards since emerging from the old Soviet bloc"