Evolution of EU public sector financial accounting standardisation: critical events that opened the window for attempted policy change

Abstract

This paper analyses agenda-setting for EU policy change in respect to public sector accounting harmonisation, adopting the garbage can model for its theoretical framework. It utilises qualitative research methods to determine what caused the window of opportunity to open, why it led to a proposal for compulsory public sector accounting standardisation for member states and why the International Public Sector Accounting Standards were not adopted by the EU. It concludes that harmonised accrual accounting is likely to be only a minor instrument of EU fiscal governance and its Excessive Deficit Procedure aiming to prevent governments running structurally unbalanced public finances.

Keywords:

• Public accounting standardisation
• EDP
• garbage can
• IPSAS
• EPSAS

Notes

1. Deloitte, Ernst & Young, KPMG and Pricewaterhouse Coopers (PwC).

2. These interviews were not tape-recorded; only handmade notes were taken.

3. ESA is the European version of the SNA of the United Nations (System of National Accounts).

4. Commissioner Semeta’s answer to a research enquiry by the authors in 2013.

5. For example, Ernst & Young (2012) prepared a report for Eurostat on public sector accounting and auditing in EU member states and both Ernst and Young and PwC offer help with the adoption and implementation of reporting standards under the IPSAS framework.

6. http://www.cipfa.org/topics/ipsas (accessed 12 August 2013).

7. http://www.publicfinanceinternational.org/video/2013/03/ (accessed 12 August 2013).

8. The CMFB was established by a European Council Decision in 1991. (http://www.cmfb.org/, accessed 18 March 2013).

9. Recommendation of the Commission of 25 May 2005 on the independence, integrity and accountability of national and community statistical authorities. COM (2005) 217 final.

10. The Council regulation of 25 May 2009 (No. 479/2009) and 26 July 2010 (No. 679/2010) amended regulation number 479 and strengthened the rules of methodological visits to member states with respect to the upstream data.

11. The Council Directive on requirements for budgetary frameworks of the Member States (the Council Directive 2011/85/EU).

12. The Commission and the Council used these powers for the first time in 2015 when the Council imposed a fine on Spain for the manipulation of deficit data in the Autonomous Community of Valencia (Decision 10297/15, Brussels, 8 July 2015).

13. PwC in its report (2014) assured that the benefits should, however, be greater than the costs.

14. Likewise, IAS/IFRS or fair value accounting has not prevented failures of private sector enterprises or financial crisis in the banking sector (Barth and Landsman 2010). Critics see fair value accounting as a catalyst of the sub-prime crisis, and some regard fair value reporting as questionable from the perspective of the EU’s own principles and objectives (Palea 2015).