This presentation by Giovanna DABBICCO 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. The potential impact of accrual-based public
accounting harmonization on public policymaking from the perspective of national
governments.
14th OECD Accrual Symposium – 3-4 March 2014
Giovanna Dabbicco
This presentation does not necessarily represent the point of view of ISTAT. The interpretations and opinions contained
in it are solely those of the author.

2. Outline
1. Case studies in Europe – (2). Table 1. Basis of accounting for Working
Balance
3. Behavioral change associated with accrual accounting
4. Unfunded pension liabilities – (5). Table 2. Pension expenditure
projections
6. Taxes/revenues
7. Management of fixed assets – (8-9). Table 3. Gross fixed capital
formation and consumption of fixed capital in GG sector
10. Financial management of accounts payable and receivable
11. Contingent operations of government
12. Open question
Giovanna Dabbicco Paris 3-4 March 2014

3. Case studies in Europe: cash to accruals
Central Level (From source E&Y Report 2013)
• ES, FR, UK, BE, DK, SE, FI, EE, LT, PL, AT, BG
Local Level
• ES, UK, IE, BE, NL SE, FI, EE, LT, PL, CZ, AT, MT, BG
Social Security Funds
• ES, PT, FR, UK, NL, SE, FI, EE, LT, PL, AT, BG
Several summary measures related to statistical and accounting
reporting/ planning to look at:
• Deficit /GDP; Debt/GDP (Maastricht criteria)
• Net government debt (UK, Eurostat)
• Debt/government revenue (Basel measure)
• Debt/export earnings ( Debt-to-exports ratio, IMF, WB)
• Programme measures (such as for Greece and Cyprus)
• Internal stability growth pact (e.g. Italy)
2
Giovanna Dabbicco Paris 3-4 March 2014

4. Table 1 - Basis of accounting for Working Balance's measure for EDP reporting by subsectors in EU Member States - Source: EDP notification
October 2013
Central Goverment
Local Government
Social Security funds
Accrual
AT
BE
BG
CY
CZ
DE
DK
EE
EL
ES
FI
FR
HR
HU
IE
IT
LT
LU
LV
MT
NL
PL
PT
RO
SE
SI
SK
UK
Total MS
%
Cash
Mixed
Cash
Accrual
Mixed
Accrual
1
1
1
1
1
Cash
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
M
1
1
1
1
Mixed
1
1
1
1
2
19
7
8
12
8
13
9
5
1
7%
68%
25%
29%
43%
29%
46%
32%
18%
4%
M. Not available
Source: Eurostat – published EDP notification tables. Elaboration on Eurostat GFS database

5. Behavioral change associated with accrual accounting
• How accrual-based accounting influences the acquisition of
information and its distribution
• Managerial impact of the use of accrual on the interpretation
and organization of information
Obstacle: legal compliance is often considered more important
than financial information and management
•
Need to strengthen the capacity of parliament and courts of audit
Sensitive areas to investigate:
•
•
•
•
•
Unfunded pension liabilities
Taxes/ revenues
Financial management of accounts payable and receivable (e.g. trade credits)
Management of fixed assets
Contingent operations of government (e.g. guarantees)
4
Giovanna Dabbicco Paris 3-4 March 2014

6. Unfunded pension liabilities
Complexity of calculation, reliable information
..and changing assumptions, range of imputations, partitions, and rerouting
…affect financial position, liquidity implication, misreporting of costs, bias decision
making, lack to set up provisions
Conceptual issue: asymmetry for governments power to change pension benefits at all times
i.e. not realistic balance sheet
At national level:
• Supportive of long-term decision making, as well as of future government policy in the
area
• Reduce concerns on the extent of off-balance sheet liabilities of government employer
schemes i.e. "recognition better than zero"
Macroeconomic level:
• Improvement of quality and relevance of national accounts statistics
ESA 2010 (Eurostat/ECB Task Force): obligations (and entitlements) on pension schemes
under defined (unfunded) benefit schemes have to be reported in a supplementary table
(position and flow data).
6
Giovanna Dabbicco Paris 3-4 March 2014

7. 2015
EU (27 countries)
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
Elaboration on :
Short Description:
Table 2 - Pension expenditure projections (baseline scenario)- % of GDP Years 2007-2060
2020
2025
2030
2035
2040
2045
2050
10,3
10,5
10,9
11,4
11,8
12,1
12,2
10,9
11,8
13
13,9
14,4
14,6
14,7
8,6
8,4
8,4
8,6
9
9,5
10,1
6,9
6,9
7
7,1
7,6
8,4
9,4
10,2
10,6
10,5
10,6
10,5
10,4
10
10,1
10,5
11
11,5
11,9
12,1
12,2
6,2
5,9
5,8
5,6
5,4
5,4
5,3
4,3
4,6
5
5,4
5,8
6,4
7,1
12,2
13,2
14,8
17,1
19,4
21,4
23
9,2
9,5
10,1
10,8
11,9
13,2
14,6
13,5
13,6
13,9
14,2
14,5
14,4
14,3
14
14,1
14,3
14,8
15,2
15,6
15,4
7,8
8,9
9,8
10,8
11,7
12,8
14
4,8
5,2
5,6
5,9
6,1
6,1
5,9
6,5
6,9
7,6
8,2
8,7
9,1
9,6
8,9
9,9
12,1
14,2
16,6
18,4
20,7
10,9
11
10,9
11
11,4
12,2
12,7
9,1
9,3
9,1
9,3
9,7
10,5
11,3
7,2
7,8
8,4
9,3
10
10,3
10,3
12,8
13
13,4
13,8
13,9
13,9
14
9,6
9,7
9,7
9,4
9,3
9,2
9,1
12,1
12,4
12,6
12,6
12,3
12,5
12,8
8,5
8,8
9,4
10,4
11,5
12,6
13,7
10,6
11,1
12
13,3
14,7
16,1
17,3
6,3
6,3
6,9
7,3
7,8
8,3
8,8
11,8
12,6
13,4
13,9
13,9
13,6
13,4
9,5
9,4
9,4
9,5
9,5
9,4
9,1
6,8
6,9
7,2
7,6
7,8
8
7,9
2055
12,3
14,7
10,8
10,2
9,6
12,3
5,3
8
24
15,5
14,2
14,7
15,5
5,8
10,4
22,1
13,2
12
10,3
14
9,1
13,3
14,8
18,2
9,4
13,3
9
8,1
2060
12,4
14,8
11,2
10,8
9,3
12,5
5,2
8,4
24,3
15,6
14,1
14,2
16,8
5,6
11
23,7
13,7
12,7
10,4
13,9
9
13,1
15,3
18,6
9,9
13,3
9,2
8,6
Source of Data Economic Policy Committee
The pension expenditure indicator includes gross public pensions (i.e. before taxes and compulsory social security contributions)
as a percentage of GDP. It is the sum of different categories of pension benefits, some of which (for example, disability pensions)
may be paid to people who have not reached the standard retiring age. The projections are made on the basis of Eurostat's population
projection - EUROPOP2008 - and commonly agreed underlying economic assumptions that have been prepared by
the European Commission (DG ECFIN) and the Economic Policy Committee (Ageing Working Group).
12,5
14,7
11,3
11
9,2
12,8
4,9
8,6
24,1
15,1
14
13,6
17,7
5,1
11,4
23,9
13,8
13,4
10,5
13,6
8,8
13,4
15,8
18,6
10,2
13,4
9,4
9,3

8. Taxes/ Revenues
Complexity:
•
•
different categories of taxes (on income, corporation taxes, VAT, taxes on products)
different collection systems (taxes withheld by employer, rolls procedure, creditors’ own
declarations to the administrative Authority, etc - whose timing and procedures are governed
by laws ).
• But degree of complexity varies with the categories
….Correctly identifying the principle of accrual:
•
•
Unknown taxable income until declaration calculation, revenue not declared on their due
dates, partial declaration, tax amnesties
Adjustments necessary for pending due payments in subsequent fiscal years, refunds due to
taxpayers, pending entitlements that are unlikely to be collected
Inform performance measurement
•
Clearer link between the revenues and the underlying activity to be founded/planned timing,
risks of uncollectable taxes
• but opponents argue there is no direct relationship (non exchange transactions)
• need a more harmonized fiscal system at national and international level and a good
information system
Giovanna Dabbicco Paris 3-4 March 2014

9. Management of fixed assets
Development and maintenance of a more complete asset register
•
ensuring a complete and correct balance sheet, though some benefits possible without a
move to full accruals accounting (e.g. asset register)
Better assessment of service lives and impairment
•
important for planning, understanding the maintenance requirements of assets and
assessing assets’ performance, resource mobilization and allocation
Exploring how combined National fiscal policy, on both fiscal rules and capital
accounts impact on accounting and fiscal practices…:
Accounting practice under Maastricht Treaty might be seen more as a cash
modified approach, investment is still expensed
•
This might be a bias to lead countries on adoption of accrual
•
Medium term forecasts impacted by those practices made under (cyclically adjusted) budget
balances
Risk of manipulating cash data
•
for investment policy, moving reported capital expenditure artificially between years
. …If there is no systematic data on other accounts payables, this can’t be reflected in the
accounts
Giovanna Dabbicco Paris 3-4 March 2014

10. Management of fixed assets - contd
Reducing discretionarily investments to reduce debt and deficit, pushing debt
(and deficit) off balance sheets through public corporations not consolidated,
greater using of private sector under public-private partnership (PPP)
•
impact the growth, especially if R&D and infrastructures are involved, decline of services
Accrual may give a key tool to identify this behavior with the information
provided on capital stock development, notably when investments are below
depreciation.
Financing distortion, long term expenditure covered by short term debt i.e.
trough unpaid invoices
Adoption of accruals accounting would overcome this distortions?
• Investment depreciated over its service life. In a investment growing
situation, it would reflect the costs of such investment in the future and not
as a direct impact immediately
Giovanna Dabbicco Paris 3-4 March 2014

11. Table 3 - Gross fixed capital formation and consumption of fixed capital in General Government sector in EU MS- % of GDP- Years 2009-2012
2009
2010
2011
2012
Consumption
of fixed capital
Belgium
1,67
Bulgaria
1,44
Czech Republic
4,29
Denmark
1,94
Germany
1,79
Estonia
2,04
Ireland
1,64
Greece
2,17
Spain
1,77
France
2,63
Italy
1,98
Cyprus
0,63
Latvia
3,48
Lithuania
2,87
Luxembourg
1,89
Hungary
3,40
Malta
2,15
Netherlands
2,75
Austria
1,28
Poland
1,81
Portugal
2,13
Romania
2,59
Slovenia
1,83
Slovakia
2,73
Finland
2,25
Sweden
2,36
United Kingdom
1,04
Gross fixed
capital
formation
1,70
4,95
5,10
2,04
1,75
5,07
3,75
3,13
4,47
3,41
2,53
4,21
4,29
3,89
3,93
3,14
2,28
3,76
1,19
5,22
3,01
5,29
4,61
2,33
2,83
3,52
2,70
Consumption
of fixed capital
1,68
1,51
4,24
1,92
1,73
2,10
1,67
2,42
1,89
2,65
2,02
0,65
3,47
2,72
1,80
3,37
2,13
2,77
1,28
1,79
2,16
2,24
1,97
2,67
2,18
2,27
1,04
Source: Eurostat – Elaboration on Eurostat Sector accounts database
Giovanna Dabbicco Paris 3-4 March 2014
Gross fixed
capital
formation
1,64
4,59
4,33
2,23
1,66
3,88
3,48
2,27
3,99
3,12
2,09
3,79
3,72
4,55
4,12
3,39
2,10
3,64
1,11
5,62
3,76
5,70
4,46
2,60
2,49
3,48
2,46
Consumption
of fixed capital
1,72
1,47
4,19
1,91
1,71
1,96
1,61
2,77
1,92
2,69
1,98
0,73
3,20
2,48
1,82
3,29
2,14
2,78
1,24
1,73
2,26
2,38
2,10
2,65
2,15
2,29
1,06
Gross fixed
capital
formation
1,76
3,40
3,66
2,16
1,67
4,13
2,48
1,64
2,96
3,13
2,03
3,55
4,25
4,36
3,79
3,06
2,48
3,34
0,98
5,71
2,61
5,42
3,59
2,30
2,52
3,40
2,15
Consumption
of fixed capital
1,76
1,53
4,16
1,92
1,73
2,06
1,48
3,23
1,98
2,73
2,00
0,72
2,52
2,40
1,92
3,33
2,14
2,83
1,24
1,73
2,37
2,21
2,60
2,23
2,33
1,09
Gross fixed
capital
formation
1,80
3,26
3,20
2,56
1,55
5,43
2,04
1,70
1,71
3,14
1,85
2,74
4,39
3,67
3,83
3,43
3,07
3,34
0,99
4,58
1,66
3,21
1,92
2,61
3,53
2,17

12. Management of accounts payable and receivable
No systematic and comprehensive reporting under pure cash accounting
Accruals better and more transparent approach to the use of resources in
public management by policy-makers
Practice of deferring payments without accounting invoices and/or using
improperly trade credit instruments
•
i.e mis-measurement of the debt and deficit
Adverse economic effects
•
•
access to finance for SMEs
potential for corrupt procurement practices
assist to stimulate macroeconomic growth
Two country-cases:
•
Italy cash data for investments, does not systematically report other accounts payable for
investment (progress more recently)
•
Spain investments on accrual basis and report related other accounts payable (though other
reporting difficulties have been found in the past)
Eurostat is collecting and publishing data on stocks of trade credits and
advances
Giovanna Dabbicco Paris 3-4 March 2014

13. Contingent Liabilities
Liabilities potentially arise from outstanding guarantees: issue for transparency
of the exposures of governments which can impact their financial position
•
in Government balance sheet (as well off balance sheet)
Accrual accounting requires to set up provisions (liability uncertain in timing or
amount) and to record contingent liabilities
Macroeconomic statistics do not recognize provisions and contingent liabilities,
•
Eurostat has started to collect data on contingent liabilities more systematically.
Information in national accounts, but data collection complex and not complete.
Accrual would help in building up on this issue.
•
particularly relevant for liability which uncertainty in timing or amount impacts the measure of
debt, gross and net
Giovanna Dabbicco Paris 3-4 March 2014

14. Open question
During a period of economic crisis, is cash accounting more (not less)
appreciated?
•
Solvency of governments at stake.
•
Borrowing from official lenders increases
•
Note approach in Europe to use combination of (fast) cash data together
with accruals (statistical) data in 'programme' countries.
Giovanna Dabbicco Paris 3-4 March 2014