EPSAS—Worrying the Wrong End of the Stick?

Abstract

The ultimate objective of the European Public Sector Accounting Standards (EPSAS) project is for the European Union (EU) to improve budgetary surveillance of its member states through more reliable statistics. The objective of this article is to analyze the EPSAS decision and discuss the efficacy of the proposed solution. Harmonization is already present through national accounting rules; will more standardization do the trick? Is the problem really being dealt with, or is it just an attempt by the EU to appear to be doing the right thing while the real issue is ignored? This article suggests that targeting governmental accounting systems for this purpose may prove futile.

Keywords:

• ESA
• IPSAS
• harmonization
• standardization
• national accounting

Notes

¹ Some of the sections presented in this article have been taken from Josette Caruana’s PhD thesis at the University of Birmingham, “The Reform of Central Government Accounting in Malta.”

² For example, Tay and Parker (1990), Emenyonu and Gray (1992), Hopwood (1994), Carlson (1997), Cañibano and Mora (2000), Fontes, Rodrigues, and Craig (2005).

³ COUNCIL REGULATION (EC) No 479/2009 of May 25, 2009, on the application of the protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community.

⁴ Council Regulation (EC) No.2223/96 of June 25, 1996, on the European System of national and regional accounts in the community. Subsequently amended by Council Regulation 448/98, Commission Regulation 1500/2000, Commission Regulation 995/2001, EP/Council Regulation 2558/2001, and Commission Regulation 113/2002. The latest update is through Regulation (EU) No.549/2013.

⁵ This category is used to write off liabilities; in the case of a catastrophe; and when a new entity is re-classified as general government. In the latter case, the entity would not be included in opening stock and is, therefore, introduced into the system through this account.

⁶ It is estimated that the ESA2010 new classification of capital expenditure will increase the GDP of the EU by 2% (EC Eurostat, 2014).

⁷ One of the grounds for audit qualification of the UK’s 2011/12 Whole of Government Accounts was the disagreement over which bodies should be included in the report. According to the National Audit Office, the Treasury should have included the Network Rail and the publicly owned banks in the accounts. But the Treasury refused on the grounds that the Office of National Statistics does not classify these bodies as public (Smulian, 2013).

⁸ An extra budgetary unit is a government entity, whatever it may be called—a board, unit, foundation, authority, corporation, limited liability company—that has a governance structure apparently independent of the government as well as its own accounting system. However, the entity is still financially dependent on central budget funds because it is not able to generate revenue that covers at least 50% of its cost of sales.

⁹ The final adjusted data would present a more wholesome picture, but the resulting changes in the data would not reflect the real events due to the inclusion of previously unreported fiscal activity.

¹⁰ The time-adjustment method is allowed (and preferred) by ESA to calculate tax revenue and tax receivable.