Comparability in IPSASs: Lessons to be Learned for the European Standards

Abstract

In 2013 the European Commission started addressing issues concerning public sector accounting harmonization across EU Member States, embarking on a project to develop European Public Sector Accounting Standards (EPSASs). Although acknowledging the indisputable reference of the existing International Public Sector Accounting Standards (IPSASs), it highlighted that IPSASs, as they were, could not be suitably applied in the EU context (European Commission, 2013a). IPSASs were considered as not covering specific important matters of public sector accounting, not showing enough stability due to the need of constant convergence with IFRSs, and offering several options that compromised comparability.Comparability of public sector accounts across Member States is one of the main objectives of EPSASs (EUROSTAT, 2016(EUROSTAT, , 2019, clearly established as a qualitative characteristic in the draft EPSAS Conceptual Framework (EUROSTAT, 2018). It is critical for EU economic and fiscal convergence that countries' accounts allow for substantial comparison and standardized transition to the National Accounts (Jorge et al., 2014).The IPSAS Conceptual Framework (IPSASB, 2014), meanwhile issued, sustains that adopting these standards would improve comparability of General Purpose Financial Reporting (GPFR), in this way strengthening transparency and accountability of public sector finance. Given that, despite the above concerns, EPSASs are to be developed on the basis of IPSASs (European Commission, 2019), the purpose of this paper is to show that IPSASs are not an adequate reference for EPSASs in terms of allowing the desired comparability of countries' accounts in the EU. It relies on evidence gathered from IPSAS-based financial reports prepared by some Agencies of the United Nations System and from audit reports of the UN Board of Auditors.The research illustrates that IPSASs only allow for de jure comparability of financial reports at a very broad level. Their implementation and interpretation in practice (due to the options permitted and the judgement required) does not allow for de facto comparable GPFR. European standard-setters need to be aware that the comparability EPSASs need to address across EU Member States' accounts must go beyond the one that is permitted by IPSASs -EPSASs need to stretch IPSASs harmonization to a higher level of standardization.

Implementation of the international public sector accounting standards in Europe. Variations on a global theme

“…Given this, standards are adapted to the national context, and processes of translation and manifestation of "glocalization" can be observed (Baskerville & Grossi, 2019). Yet, these developments can be seen as running counter to comparabilityone of the central objectives of the IPSAS project (Jorge et al, 2019;Mattei et al, 2020).…”

“…Actors advanced a plethora of reasons for their decision to deviate from IPSAS as issued by the IPSASB. As a consequence of deviations, there is a threat that the comparability of financial reporting between entities will be undermined, with the risk of leaving the full reform potential unrealized (Mattei et al, 2020).…”

“…There is a trade-off between an increased comparability of financial statements among countries (and possibly easier access to the credit market) in the case of unaltered adoption and the necessity to respect national accounting particularities (Manes Rossi et al, 2016). As a consequence of deviations (and of non-adoption), there is a threat that the comparability of reporting between entities will be undermined, with the risk of leaving the full reform potential to be unleashed by IPSAS' implementation unrealized (Mattei et al, 2020). This is also echoed by the current discussion on whether the plurality of accounting options allowed by IPSAS may actually reduce comparability (EY, 2016;PwC, 2019).…”

Heritage assets in financial reporting: a critical analysis of the IPSASB's consultation paper

“…Historical cost, market value, value in use, contingent valuation, travel cost method, hedonic pricing method, expertise and symbolic/token value are the most common methods (Biondi, 2018). This has led to a variety of practices among countries and, as a consequence, limited the comparability (Mattei et al, 2020).…”

“…Not even the IPSAS 17 (Property, plant and equipment) or IPSAS 31 (Intangible assets) provide a definitive solution, leaving public sector entities the choice of which accounting approach to adopt. This has resulted in a variety of practices in different jurisdictions and, consequently, reduced comparability (Mattei et al, 2020). In 2017, the IPSASB initiated a discussion by releasing the Consultation Paper (CP) "Financial Reporting for Heritage in the Public Sector" (IPSASB, 2017a).…”