This presentation by Sandra Kaiser and Bernhard Schatz was made at the 14th Annual OECD Public Sector Accruals Symposium, Paris 3-4 March 2014. Find out more at http://www.oecd.org/gov/budgeting/14thannualoecdpublicsectoraccrualssymposiumparis3-4march2014.htm

1. Introducing Accruals – the Lessons from
Experience
Sandra Kaiser & Bernhard Schatz
14th OECD Annual Symposium - Paris, 3-4 March 2014

2. Agenda
Design and concept
Strategic and operational obstacles
Challenges, lessons learned, results
Opening balance sheet
Outlook
2

3. Design and concept
Strategic and operational obstacles
Challenges, lessons learned, results

4. Austrian Federal
Budget Reform – Legal Basis
Budgetary Principles in the
Austrian Constitution
Efficiency
Focus on
Outcomes
Transparency
True and
fair view
4

5. Introduction
Austria undertook a comprehensive budget
reform
Key Elements:
• Medium Term Fiscal Framework
• Budget Structure
• Performance Budgeting (as of 2013)
• Accrual Accounting and Budgeting (as of 2013
in alignment to IPSAS)
5

6. Overview 1st and 2nd Stage
of the Budget Reform
 Budgetary discipline and planning:
binding MTEF & strategy report
 Flexibility for line ministries
through full carry-forward
possibilities without dedicate it
Result-oriented
management of
budget managing
bodies
Performance
Budgeting incl.
Gender Equality
New budget
structure:
„lump-sum
budgets“
Accrual budgeting
and accounting
6

7. Accrual budgeting &
accounting as of 2013
Amendment of the constitution:
New budgetary principles:
impact orientation, efficiency, transparency, true and fair view
Integration of accruals in a general framework of financial management
New Balance of Managerial Flexibility and Accountability
Improved Management of finances and performance by integrated approach
New budget
structure:
„lump-sum budgets“
MTEF, fiscal rules and
sustainability reports
Accrual budgeting
and accounting
Result-oriented
management of state
bodies
Performance Budgeting,
Controlling and
Reporting
7

8. Accrual accounting
and budgeting
Operating Statement
(direct linkage with federal
cost accounting system)
Statement of
Financial Position
Cash Flow
Statement
(Balance Sheet)
8

9. Relevance of Accrual
Accounting and Budgeting
As cash provides important information (liquidity) on fiscal
situation:
Accruals do NOT detract cash.
But provide ADDITIONAL perspectives:
Use of resources (operating statement): Part of the annual budget
and subject to parliamentary budget decision
Parliament votes on two perspectives: cash + operating
statement – Accrual Budgeting makes accruals relevant!
Comparison of assets and liabilities (annual balance sheet):
Submitted to Parliament by Court of Audit.
9

10. Merits of Accrual Budgeting
Enhances transparency of public finances
Reduces the scope for fiscal illusions
Helps to steer public finances according to fiscal reality
Makes it harder for stakeholders to ignore future budget
challenges
Can enhance accountability of decision-makers
10

11. Strategic Obstacles
Improving Financial Information for Decision
Making
Medium Term Fiscal Planing needs accrual
accounting
Performance budgeting needs cost accounting
Gaining Know How on accrual accounting within
public administration
11

12. Annual Budget Statement as of
2013 per Global Budget
Global Budget xx.01 Operating Statement
Budget
n+1
Budget
n
Revenues from operating activities and transfers
Revenues from financing activities
Revenues
Personnel expenses
Operating expenses
Transfer expenses
Expenses on financial activities
Expenses
…thereof variable expenses
Net balance
Legally binding
Global Budget xx.01 Cash Flow Statement
Actual
n-1
l
Budget
n+1
Budget
n
Actual
n-1
Receipts from operating activities and transfers
Receipts from investment activities
Receipts from repayments of loans
Receipts
Personnel and operating expenditures
Expenditures from transfers
Expenditures from investment activities
Expenditures from loans
Expenditures
…thereof variable expenditures
Net cash balance
Comment: On global budget level, total expenses (operating statement) and total expenditures (cash flow statement) are
legally binding.
12

13. Medium-Term
Expenditure Framework (MTEF)
Heading
n+1 n+2 n+3 n+4
1 General Government Affairs, Court and Security
2 Employment, Social Services, Health and Family
3 Education, Research, Art & Culture
4 Economic Affairs, Infrastructure and Environment
5 Financial Management and Interest
 Budgetary discipline and planning:
binding MTEF & strategy report which explains the
ceilings of the MTEF but not individual
appropriations.
13

14. Medium Term Fiscal Planning
If you want to plan cash flows for multiannual periods you need an
instrument to monitor deferrals  Accrual Accounting
Medium Term Fiscal consolidation needs cut of structural cost 
Accrual Accounting
Enhancing Resource Responsibility needs management information
 Accrual Accounting
14

15. Performance Budgeting
Quality of performance targets depends on underlying
information quality -> resource management
Example:
• Ministry of Transport:
• Outcome objective: Enhancing traffic security
• Operative objective: 650 technical on road assessments
• Activities: providing staff and technical assement trucks
15

16. Gaining Know How
Fostering the transition between public and private sector
employees
Making public accounts accessible for broad academia,
auditors and other stakeholders
Know How results in confidence
16

17. Strategic approach in reform
development and
implementation I
Intensive study of other countries‘ reform experience: Learning
about do‘s and dont‘s, intercultural aspect to be considered
Making the reform process irreversible: Key elements in
constitutional amendments, detailed legislation at a later stage
Reform design and implementation through own staff: Keeping
external consultancies to a minimum, building and strengthening internal
know-how
Pragmatic reform design: Reducing complexity, less is more, no 100%
perfectionist approach
Ensuring a pilot phase for sufficient testing
17

18. Strategic approach in reform
development and
implementation II
Ministry of Finance (MOF) as reform driver and standard setter
Winning interest and support on political level
Getting key players on board:
• Politics and Parliament:
• “Advisory Council Budget Reform” with representatives of all
political parties, regular meetings and discussions with MOF
• Keeping the reform out of political controversy
• Court of Audit: Shared interest with MOF as “friends of the tax
payer”,
• Federal Chancellery: Responsible for coordination, controlling and
evaluation of performance, while MOF coordinates the resources
• Line Ministries: Continuous involvement, training phase for
preparation of the new “budget world”
18

19. Challenges of Accrual
Budgeting
Commitment of political and senior administrative level is key
Skills of stakeholders need to be enhanced (civil servants; politicians;
media; interested public)
→ Extensive training required
Complexity threatens transparency
→ Relevance and accurateness need to be balanced
→ Less can be more
Standardization
→ Which standards?
→ Consideration of public specifics
→ Who is legitimized to set standards?
IT-support: crucial to very closely link technical and IT-issues in order to
assure that the new system works adequately
19

20. Challenges of project
management and
implementation
Standard setting:
• by Ministry of Finance, Court of Audit and Federal Chancellery
• Information of Parliament
Budget transition:
• Cash-related budget elements are based on previous budget model
• Completed by non-cash elements (depreciation, provisions)
• Technical process of adjustment between MOF and line ministries
Opening balance sheet:
• Use of information of „old accounting system“
• Data gathering for new elements started 2010, „old“ data updated
New accounting system:
• IT-system is crucial
• Tests and concurrent operation in 2011 and 2012
20

21. Implementation of the
Austrian Budget Reform
2004
2005
2006
2007
2008
2009
2010
2011
2012
Federal Budget law
2013
Screening of
international
Benchmarks
IT Testing phase of both systems
(accrual and cash)
Federal
Budget Law
2013 inkl.
Budgetary
Framework
Trainings and Education of
Employees
Implementation of IT Changes/System
Accounting and
Asset Management
Decrets
Opening Balance Sheet
Decret
System of Accounts
Decret
Preparation: 5 years
Implementation: 4 years
Total Reform: 9 years (2004-2012)
21
2013

22. Improving Decision Making
Enhance discussion at point of decision making (going
beyond reports)
• Budgetary discussion in parliament is about performance targets,
accrual figures and cash figures (both have legally binding
appropriations)
• Every project which needs approval of the MOF is assessed for its
performance relevance (financial, SME, environment, economy,
gender, administrative burden, social and youth impact)
22

23. Result-Oriented Management of
Administrative Units
Administrative units are accountable for resources as well
as for outputs and outcomes  improved integration of
financial and performance management
Administrative units must be granted necessary budgetary
flexibility and decision-making competences
Incentives for public managers for an efficient use of
resources: Possibility for building-up of reserves, end-of-the-year
flexibility, autonomous decision-making within certain ceilings/limits
Multi-annual performance contracts on resources and
output/outcome objectives
23

24. Operative Obstacles

25. Operative Obstacles
Be pragmatic
• 80% solutions  improve
• Get a starting point
• Don’t be afraid of reversing solutions
Make it irreversible
• Part of public documentation (budget!)
• Make it accessible (close to common standards)
• Get unanimous consent
Train all stakeholders
•
•
•
•
Public Administration
Parliament
Media
Citizens
25

26. Being pragmatic
Important task to compile opening balance sheet  starting
point
Define thresholds or broad brush methods
Design processes to improve (dialectic elements, e.g. court
of auditors)
26

27. Irreversibility
Implement on the highest legal level possible
(constitution, special laws)
Change peoples expectations and minds
Mandatory set of minimum standards
Educate public administration (bottom up)
27

28. Importance of stakeholders
Parliament shouldn’t just discuss reports, they should
have to recognize all the information available at the
approval vote
Media should have full information to provide citizens
with full picture on financial position
Informed public should be able to engage in discussions
about possible discussions
28

29. Opening Balance Sheet
Financial Position of the Federal Government of Austria
as of 1.1.2013

30. Accounting system: 1986 – 2012
Cash budget (with some accrual modifications)
Incomplete accrual accounting system
• No appropriate valuation rules
• No management impact
• IT-infrastructure in place
• Some practical experience of staff with accruals
Cost accounting
• Implementation in central units of the ministries from 2000 –
2005
• No steering function
30

31. General remarks
The Financial statements shall provide a fair and true view of the
financial position, financial performance and cash flows of an
entity (IPSAS 1). This requires information on assets and liabilities
in addition to information on cash flows and financial resources.
Sustained positive growth in public finances requires the utmost
clarity about the financial consequences of decisions.
Opening Balance Sheet: first financial position with full
transparent presentation of federal assets and liabilities.
Reference standard: IPSAS (International Public Sector
Accounting Standards)
31

32. Opening Balance Sheet
structure
Assets
Liabilities
Net Assets
Non-current assets
Non-current liabilities
Current assets
Current liabilities
Total
=
Total
32

33. Reporting entities in the federal
accounting system
Federal accrual system is obligatory for Federal Level:
• Ministry of Finance
• All line ministries
• All federal agencies
 Standard setting by MOF and Court of Audit
Separate reporting:
• Regional level (9 provinces/states)
• Local level (> 2300 municipalities)
• Off-budget corporatisations
Efforts to develop an aligned framework for regional and local
level
33

34. Accouting principles I
True and fair view of
financial position
Principle of no
offsetting
Adjusting events
Economic perspective
Opening
Balance
Sheet
Materiality
Reliability
34

35. Accounting principles II
True and fair view of financial position
•
Without intentional overevaluation or underevalution
Economic perspective
•
Economic ownership of assets vs. legal form (federal assets were included in the opening
balance sheet if the federal government is the economic owner - entity, that controls, in
particular possesses and uses the asset, has the power to dispose and bears the risk of
loss and destruction)
Materiality
•
Recognition and measurement was performed based on materiality. It depends on size
and type of the items
Reliability
•
The opening balance sheet was prepared using reliable information. The accounting
procedure of the opening balance sheet is based on the standard federal chart of
accounts. Accounting policies were applied in a reasonable, verifiable and neutral manner.
Adjusting events (events after reporting date)
•
Were taken into account, when became known between 1 January 2013 and the date on
which preparation of the opening statement of financial position was completed.
Principle of no offsetting/gross presentation
•
Each asset and liability was measured individually
35

36. The scope/coverage
The goal is to fully report federal assets and liabilities while avoiding
major administrative expenses as far as possible:
The “Austrian Opening Balance Sheet Regulation” provides a number of
exceptions and simplifications to reduce administrative burden without
reducing the quality of the information it contains.
Flat-rate and comparative parameters were used
Measurement alternatives were permitted (if this was the only
way to perform reliable measurement)
Use of external experts was avoided, due to building up measurement
expertise within the administration.
No full consolidation
Off balance sheet commitments (employee benefits) – see separate slide
36

37. Applied accounting and valuation
methods - assets
Balance sheet item
Method (s)
Property, plant and equipment and
intangible assets
Depreciated or amortised cost
Land
Acquistion cost, appraisal reports, land raster
method
Land improvements
Depreciated cost, specified reference values or
average values
Buildings
Depreciated cost, appraisal cost, average cost
of buildings with similar function, etc
Cultural assets
Cost, appraisal reports, fair value
Securities and other financial assets
Nominal value
Equity investements
Federal Government‘s proporionate share of the
estimated net assets
Receivables
Nominal amount, non current: present value
Financial instruments
Nominal value, derivates: fair value
Inventories
Cost, first-in-first-out principle
Cash and cash equivalents
Nominal value
37
37

38. Applied accounting and valuation
methods - liabilities
Balance sheet item
Method (s)
Payables
Repayment amounts
Provisions
Current: anticipated payment amount
Non current: present value
Severance payments and anniversary bonuses:
projected unit credit method
Financial liabilities and currency swaps Nominal value
Currency swaps (receivable and payable):
nominal value and repayment amount
38

39. Opening Balance Sheet 1.1.2013
ASSETS
A Non-current assets
A.I Intangible assets
A.II Property, plant and equipment
A.III Securities and other investments
A.IV Equity investments
A.V Long-term receivables
B Current assets
B.I Short-term financial assets
B.II Short-term receivables
B.III Inventories
B.IV Cash and cash equivalents
Total assets
in EUR
76,102,292,902.39
368,174,458.38
39,588,678,261.93
3,824,000,000.00
25,189,128,452.17
7,132,311,729.91
13,406,897,790.94
0.00
8,499,492,321.12
698,836,278.74
4,208,569,191.08
89,509,190,693.33
NET ASSETS AND LIABILITIES
in EUR
C Net assets (balancing item)
-133,873,299,331.09
D Non-current liabilities
D.I Long-term financial liabilities, net
D.II Long-term payables
D.III Long-term provisions
E Current liabilities
187,219,596,890.75
169,702,071,074.72
14,004,805,522.87
3,512,720,293.16
36,162,893,133.67
E.I Short-term financial liabilities, net
19,848,526,578.95
E.II Short-term payables
15,931,759,970.13
E.III Short-term provisions
Total net assets and liabilities
382,606,584.59
89,509,190,693.33 39

40. Pragmatic approach
Multitude of valuation methods (tangible assets)
e.g. historical buildigings, land improvements
Simplified method (“Land raster method”)
Basis: land register, categorisation derived from land register (forest, agricultural
use, building area), price of square meter out of tax agency data of land sale,
deductions for limited use (e.g. bodies of water, alpine land, military land)
At equity
Thresholds for valuation
concerning assets, inventories, receivables, provisions
creation of groups
•
for provisions (for litigation expenses)
•
for adjustments of receivables (taxes, custom duties, advance of child
support)
40

41. Asset valuation - Land
improvements
Asset value: ≈ € 1bn
Roads, railways, airports and port facilities
depreciated cost, or based on specified reference values or average
values
Linear depreciation based on the usable lives specified in a decree by
the Austrian Federal Ministry of Finance:
−
Paved:
− Unpaved:
useful life 33 years
useful life 10 years
Example of a cobblestone road
Measurement: Values were calculated as average prices based on a
variety of relevant sources.
Classification of condition as good (A), medium (B) or poor (C).
41

42. Measurement of historical
buildings
Asset value: ≈ € 3.6 bn
no cost figures available, value can not be determined on market
price due to the lack of an active market
special measurement method:
• average costs of comparable buildings
• categorization of use as well as condition of building (good, medium,
poor)
• resulting net book values were calculated based on remaining useful
lives
42

43. Historical Buildings
Reported as heritage assets
Burgtheater € 98.10m
Schönbrunn Palace € 285.7m
Historical Parliament Building ramp area € 33.89m
Vienna State Opera € 102.8m
43

44. Asset valuation associated entities
(equity investments)
Asset value € 25,2bn
Measurement on the Federal Governments proportionate share of the
estimated net assets (@ equity) – based on financial statements of
each subsidiary.
Categorization according to IPSAS (affiliates, associates, other equity
investments)
If significant influence or control can be exercised over a company
or a institution, it is reported as an equity investment, regardless of the
legal relationship.
Universities are included
No FULL CONSOLIDATION
44

45. Pensions
Liablities for pensions displayed in an annex and in fiscal
sustainability report – not as a provision in the financial statement
2013: € 6.1bn EUR (net – not covered by contributions)
30- year projection of pension liability (2013-2042) : € 342.2bn (net –
not covered by contributions)
45

46. Opening Balance Sheet
Asset valuation - difficulties
Austrian specific problems with complex legal structure
(e.g. streets are owned by state, but leased unpaid to agency without
restriction)
Tension of true and fair view and pragmatic approach
Discussion about value added of balance sheet
it is not envisaged, that
• assets are being sold
• assets have a cultural value
• state is not an enterprise
Standard setting and data gathering involve costs
46

47. Opening balance sheet –
lessons learned …
spring clean – „aha-experience“
e.g. asset valuation, equity investments
stock taking
consistent and homogeneous asset management
developing awareness of assets
depreciation of property shows upcoming investments
set-up of know-how in the Federal Administration
47

48. Conclusion
Negative value for net assets shows that federal liabilities are significantly
greater than federal assets.
The significance of this item lies more in the changes over time than its
value at this date.
Transparent information on assets and liabilities
that help to induce efforts to achieve sustainable
public finances.
48

49. Future Financial statements
Court of Audit
Very detailed annex
Main additions to opening Balance Sheet:
• Including 2nd Level of Subsidaries in the annex
• Leasing: operating leasing – future payments
49

50. Outlook
Next steps –
coherent accounting rules in all government sub-sectors

51. Federal states and
municipalities - under compulsion
EU (Six Pack, Fiscal Framework Directive, EPSAS)
The perceptions with the “Salzburg case” underscore the
urgent need for action due to the following deficiencies:
•
•
•
•
•
lack of informative value and transparency
lack of completeness
lack of comparability
no sufficient governance
differing mid-term budgetary planning
Budgeting and Accounts Regulation (VRV new!)
51

52. Thank you for your attention!