IPSAS Implementation in the EC - Practical challenges

Transcription

1 IPSAS Implementation in the EC - Practical challenges Rosa Aldea Busquets European Commission DG BUDG / Accounting Unit 27/ 02/ 2007 AGENDA Why modernise? The implications of the project Approach taken by EC Challenges involved The main keys to the success of the project Page 2 1

2 Why modernise? Internal needs and external expectations Management needs: better financial information and better monitoring An exhaustive follow up of Assets, Liabilities and Ownership A compliment to the budget: multiannual vision General Accounting Beneficiaries: Internal users: Management & Administrators External users: Decision Makers Improve transparency Facilitate comparison between public entities To position the Commission at the forefront of modernisation Towards better governance Page 3 The European Commission decided to provide the administration with a modern accounting system Brussels, December 17, 2002 The European Commission adopts an ambitious plan to implement full accrual accounting by "Today's action plan is the latest step in this long term strategy of modernisation: it maps the Commission's progress towards the wholesale implementation of the most up-to-date public sector accounting standards by 2005, taking into account all the constraints and necessary detailed changes. With these measures the Commission will be far ahead of most administrations in the world." Commissioner Michaele Schreyer Basis: Financial Regulation of June 2002, art. 124 (Council Regulation 1605/2002) "The Financial statements shall be drawn up in accordance with the generally accepted accounting principles" Page 4 2

3 AGENDA Why modernise? The implications of the project Approach taken by EC Challenges involved The main keys to the success of the project Page 5 Two types of accounts : Budgetary Accounts General Accounts Priority: To develop a reference framework for general accounting that is in line with the private company accounting and that is internationally accepted. Choice: The adoption of IPSAS Consequence: Accrual accounting Page 6 3

4 Modernisation project has impact on 3 levels 15 new accounting rules New chart of accounts New accounting procedures Financial Statements with accrual opening balances Accounting manuals RULES Adaptation of existing system to new recording needs Ability to capture a wide range of information Introduction of new modules (for registering contracts, invoices, assets etc.) Progressive integration into one system Complete re-engineering of management of the transactions in general accounting IT TOOLS Training New practices & procedures Impact on human & financial resources USERS (DGs, Agencies, Institutions) Page 7 AGENDA Why modernise? The implications of the project Approach taken by EC Challenges involved The main keys to the success of the project Page 8 4

5 APPROACH TAKEN BY THE EC IPSAS used as basis (IAS/IFRS if necessary) EC transactions analysed 15 EC accounting rules developed Detailed accounting manual prepared 1 January 2005 rules in force 2005 accounts prepared using new accounting rules. Positive reaction from the Court and from the budgetary authority. Page 9 AGENDA Why modernise? The implications of the project Approach taken by EC Challenges involved The main keys to the success of the project Page 10 5

6 CHALLENGES INVOLVED IPSAS are general principles The Budget Starting from way back Not a perfect fit EC Specificities, Accounting issues Page 11 CHALLENGE 1: IPSAS are general principles not detailed rules Anglo-Saxon approach Generally EC rules are very prescriptive Comply with the Financial Regulation Importance of the accounting manual Page 12 6

7 CHALLENGE 2: The Budget Budget is the basis for everything Established long before accrual accounting Budget rules very prescriptive Confusion with jargon e.g. "commitments" Conflicting rules e.g. provisions Have to maintain dual-accounting, the budget is in cash basis + commitments Page 13 CHALLENGE 3: Starting from way back Not the same as an IAS conversion Had to develop most rules from zero Limited existing knowledge within EC Page 14 7

8 We are different! CHALLENGE 4: Not a perfect fit Certain IPSAS not relevant IPSAS 10 Hyperinflationary economies IPSAS 16 Investment property Other areas not covered by IPSAS Pension IAS 39 How relevant are IAS as a fallback solution? Large volume of financial activities disclosures giving a misleading picture of their significance? Page 15 CHALLENGE 5: EC specificities- accounting issues Who to compare with? Cut-off/year-end accruals ( 66.7 billion) Pre-financing ( 29.4 billion) Consolidation control concept different Net Assets : Amounts to be called from Member States 65 billion Political sensitivities although negative net assets, the EC is not bankrupt nor does it need to request more money from MS Page 16 8

9 Accounting issues: NET ASSETS What is Assets minus Liabilities in the EC? It is a negative 62 billion! How can this be best represented? Look at how the EC operates Amounts to be called from Member States 65 billion A fair representation of the difference between cash & accruals Page 17 BALANCE SHEET NON CURRENT ASSETS: Intangible fixed assets Tangible Fixed Assets Investments Loans Long-term pre-financing Long-term receivables CURRENT ASSETS Stocks Short-term investments Short-term pre-financing Short-term receivables Cash & cash equivalents TOTAL ASSETS NON CURRENT LIABILITIES Employee benefits Provisions for risks and charges Financial liabilities Other long-term liabilities CURRENT LIABILITIES Provisions for risks and charges Financial liabilities Accounts Payable TOTAL LIABILITIES NET ASSETS Reserves Amounts to be called from Member States Staff pensions (long-term) Other amounts 31/12/2005 (EUR millions) 31, ,141 1,874 2,397 22, , ,440 6,633 7,238 11,854 58,706 (38,026) (33,156) (1,097) (1,920) (1,853) (82,825) (275) (22) (82,528) (120,851) (62,145) 2,808 (64,953) (33,156) (31,797) Page 18 9

10 Accounting issues: PENSIONS Liability OK (IAS 19 actuarial valuation) No pension fund for staff, no employer contribution Staff contributions are an administrative revenue Guarantee from Member States to pay when due (Budget) Previously an asset was recognised A guarantee is not an asset Do we recognise all future revenues then? Prudence Auditors opinion OECD example Page 19 AGENDA Why modernise? The implications of the project Approach taken by EC Challenges involved The main keys to the success of the project Page 20 10

11 The main keys to the success of the project Rapid decision-making High level support from the hierarchy Availability of resources Good planning for the project Establishing communication/continuous dialogue Mobilising the different actors for the changes Explaining well the advantages of the new system Page 21 11