IPSAS IMPLEMENTATION:

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• IPSAS IMPLEMENTATION
• an operational view.
• CIPFA Annual seminar
• Miguel Gracia on behalf of Brian Gray
• Miguel.Gracia_at_ec.europa.eu

14 September 2006
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Agenda

• IPSAS Implementation project description
• EC Accounting rules
• IPSAS Impact on EC accounts
• Most material impacts on the accounts
• Questions

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IPSAS Implementation project description (I)

• The European Commission decided to provide the
  administration with a modern accounting system in
  December 17, 2002
• The European Commission adopts an ambitious plan
  to implement full accrual accounting by 2005.
• "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.
  133 (Council Regulation 1605/2002)
• 1. The Commission's accounting officer shall,
  after consulting the accounting officers of the
  other institutions and bodies, adopt the
  accounting rules and methods and the harmonised
  chart of accounts to be applied by all the EU
  institutions and bodies.
• 2. When adopting the rules and methods, the
  Commission's accounting officer shall be guided
  by the internationally accepted accounting
  standards for the public sector but may depart
  from them where justified by the specific nature
  of the Communities' activities.
• TRANSITIONAL PROVISION 2005 first application.

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IPSAS Implementation project description (II)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 Issue Cash
Budgetary System, dual system
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IPSAS Implementation project description
(III)The 3 levels of the ABAC Project

• 15 New accounting rules
• Chart of accounts
• Accounting Consolidation Manual
• Financial Statements
• Closing procedures

Rules

• Needs functional specifications
• Architecture, Developments
• Progressive integration into one system

IT Tools

• New procedures
• New system
• New information to introduce

USERS
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IPSAS Implementation project description (IV)
Actors involved
Accounting Standards Committee
Supervisory Board
Accounting Officer of the Commission Project
leader
Accounting service
Accounting framework
Project Supervisor
IT service
IT Architecture
User Service Manager
Users
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EC Accounting rules (I)Difficulties involved in
the adoption of the accounting framework based on
IPSAS

• IPSAS are not very detailed (general principles
  rather than detailed rules). For instance
• debts/expenses for grants
• pre-financing
• Cut-off transactions and materiality
• Double contradiction
• some EC transactions not covered (non-exchange
  revenue, employee benefits, financial assets and
  liabilities..etc)
• some IPSAS guidelines are not relevant in EC
  context (service concessions, heritage assets,
  leaseback transactionsetc)
• DECISION
• To apply IAS when IPSAS were not available
• To draft EC accounting rules which customise
  IPSAS / IAS to EC environment
• To draft EC "operational" accounting manual that
  gives detailed explanations on how to apply the
  corresponding accounting rules via the chart of
  accounts

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EC Accounting rules (II) EC accounting rules
adoption proccess

• Analysis of EC transactions to list the areas
  where accounting standards are needed.
• Analysis of corresponding IPSAS. IAS if IPSAS are
  not available.
• DG Budget General Accounting department drafts
  an EC accounting rule
• EC accounting draft submitted to the advisory
  accounting standards committee.
• Accounting draft submitted to the accounting
  officers of all the institutions
• Final decision of the Accounting Officer of the
  Commission

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EC Accounting rules (III) Acccounting rules
advisory Committee

• Members of other institutions (CoJ, EP), and
  Agencies
• IAS and CoA as observers
• 2 independent accounting experts
• Prof Montesinos, which study was the basis of the
  project
• Mr. Hathorn, vice-president IPSASB

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EC Accounting rules (IV) Accounting Rules of the
Commission
Accounting Standards Committee (consultative role)
15 new accounting rules on various subjects
Consolidation, Pre-financing, Provisions,
Accounting Officer of the Commission
BUDG C2
Consolidation
Stocks
Financial statements
Provisions, contingent AL
Payables and expenses
Financial Assets and Liabilities
Receivables and revenues
Employee benefits
Foreign currency
Pre-financing
Surplus or deficit
Intangible fixed assets
Related party transactions
Tangible fixed assets
Leases
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EC Accounting rules (V) Implementation.
Objective The Financial Statements
Accounting Rules
IPSAS
CoA
Specifications for IT
Transaction
Financial statement
IT Developments
01/01/05
Transition
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EC Accounting rules (VI) ABAC High Level
Programme Approach
Accounting rules definition
Accounting Controls manuals definition
Functional Requirements definition
IT Architecture design
Developments
Phased roll-out Opening Balance Sheet
Change Management
Programme Management
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IPSAS impact on EC accounts (I)

• Enlargement in the scope of consolidation. Based
  in control rather than in former FR (16
  additionnal entities)
• Consequences
• Same accounting rules for all bodies
• Development of an IT consolidation tool
• Broad communication with consolidating bodies

Consolidation
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IPSAS impact on EC accounts (II)

• Main Project objective to produce timely and
  reliable financial statements based on IPSAS.
• Consequences
• Balance sheet, Economic outturn account,
  statement of changes in net assets, Cash flow
  table, Notes.
• Not only figures, detailed disclosure
  requirements in the Notes.
• New structure.

Financial statements
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IPSAS impact on EC accounts (III)

• Main business and most of transactions (EAGGF,
  structural funds, subventions, Fines, TOR)
• Consequences
• Event giving rise in general accounting good
  delivered or service rendered. Subventions,
   eligibility check  of cost claim
• Cut-off. Assess the services and goods delivered
  for which an invoice/cost claim is not yet
  received . Biggest impact 64 billions.
• Inventory of entitlements and debts.

Payables and expenses
Receivables and revenues
Stock
Foreign currency
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IPSAS impact on EC accounts (IV)

• Pre-financing not any longer a charge but an
  asset
• Consequences
• Recognition as asset
• Clearing functionality
• Split between the s/t and the l/t
• Opening balance
• Closure transactions (cut-off)
• Related interest recognition

Pre-financing
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IPSAS impact on EC accounts (V)

• EC largely applied already these IPSAS rules but
  events were not registered in an accrual basis.
• Consequences
• Assets are recognised when they are delivered.
• Invoices are linked to the corresponding assets
• Impairement, disposals, financial lease, under
  construction when they occur.

Intangible fixed assets
Tangible fixed assets
Leases
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IPSAS impact on EC accounts (VI)

• Under IPSAS there are stricter rules to recognise
  provisions. Nevertheless disclosure requirements
  in the Notes are enlarged.
• IPSAS confirms the previous practise of
  recognising staff pensions obligations as a
  provision in the liabilities.
• Consequences
• The enlarged information requires detailed risks
  analysis.

Provisions, contingent AL
Employee benefits
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IPSAS impact on EC accounts (VII)
Financial Assets and Liabilites

• Material impact . New concepts such as Fair value
  and impairment
• Consequences
• Change of valuation methods for some financial
  assets
• Recognision of new risks
• Information much more detailed in the Notes.

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IPSAS impact on EC accounts (VIII)

• Consequences
• additional information to include in the annexes
• Informations sur le Key Management

Surplus or deficit
Related party
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Most material impacts on the accounts (I)

• More information for readers Economic Outturn
  Account added (segment reporting), plus cash flow
  table, statement of changes in net assets and
  more detailed disclosures in the notes
• Pre-financing of EUR 29.3 billion included for
  first time DGs have thus a better view of the
  amounts paid out not yet eligible
• Amounts receivable from Member States to fund
  pensions no longer meets accounting criteria to
  be recognised as an asset (normally would be EUR
  32 billion)
• Liabilities year-end accruals (cut-off)
  introduced (EUR 64 billion) reflecting charges
  incurred under EAGGF (EUR 49 billion) and
  Structural Funds (EUR 14 billion)

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Most material impacts on the accounts (II)

• Negative net assets figure of EUR 58.8 billion
  resulting from removal of pension receivable and
  inclusion of accruals. It needs to be clearly
  explained the EC is not bankrupt nor does it
  need to request more money from MS. The net
  liabilities figure simply highlights the
  difference between cash and accrual accounting.
• IAS 32 39 requires lerge volume of financial
  activities disclosures. It could give a
  misleading picture of the significance.

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Questions?