Standards for smaller and less risky government entities

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EUROPEAN COMMISSION EUROSTAT Directorate C: National accounts, prices and key indicators Task Force EPSAS TF EPSASsta 14/04 Luxembourg, 3 February 2014 Task Force EPSAS Standards to

1 EUROPEAN COMMISSION EUROSTAT Directorate C: National accounts, prices and key indicators Task Force EPSAS TF EPSASsta 14/04 Luxembourg, 3 February 2014 Task Force EPSAS Standards to be held in Luxembourg on 12 February 2014 room Quetelet, BECH Building Item 5 of the Agenda Standards for smaller and less risky government entities Paper by Eurostat for discussion

2 1 Introduction IPSAS standards are applicable to all sizes of government entities, but that need not necessarily be the case for a future set of EPSAS standards. The report from the Commission to the Council and the European Parliament COM(2013) 114 assessing the suitability of IPSAS for the EU Member States, in Part 6 - A Way Forward, said that: It is also to be expected that the extent of implementation for smaller entities would be limited, or at least that the more important entities would be prioritised, taking into account their materiality. In describing the process by which EPSAS might be taken forward in three stages it also stated that one of the aims of Stage 2 would be to: Develop and put in place the practical arrangements, addressing issues such as finance, governance, possible synergies and the concerns of smaller government entities. The purpose of this document is to launch a first exchange of views on this issue with Task Force participants. Questions to Task Force participants In order to launch a first discussion of these issues, Task Force participants are requested to consider the following questions: Q1 Have any of the Member States recently analysed the issue of reduced accounting requirements for smaller government entities? If so, what conclusions were reached? Q2 What do you see as the main obstacles (and benefits) to simplifying requirements for smaller government entities? Q3 What do you see as the main obstacles (and benefits) to prioritising implementation in the more important entities, compared to in smaller government entities? Q4 If simplified requirements for smaller government entities were to be developed, how could these be delimited so that they would apply only to less risky entities? 2

3 2. Private accounting standards for SMEs In private sector accounting, the accounting and reporting standards for small and medium sized entities followed in the EU Member States vary from country to country, but it is relatively common to have simplified standards. An overview can be found in DG Enterprise and Industry s study Accounting requirements for SMEs : See in particular Annex 3, page 4 to the report, "Are there reduced accounting requirements for these enterprises?" _systems_en.pdf 3 New Zealand Accounting Standards Framework for Public Benefit Entities In the context of EPSAS, an interesting example may be the work carried out in recent years by the New Zealand Accounting Standards Board, which has been developing simplified accounting standards applicable to smaller public benefit entities 1. The simplification concerns both the content and the way in which transactions and balances are reported. In New Zealand there are four tiers of standards, from Tier 1, which applies to the largest public benefit entities, to Tier 4, which applies to the very smallest. Public benefit entities are defined as: Reporting entities whose primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders. Both public sector entities and not-for-profit entities may be PBEs. Although different suites of standards have been issued (or are in the process of being issued) for public sector entities and not-for-profit PBEs, the suites for each tier are almost identical. Tier 1 PBE Standards PBE Standards are based on IPSASs, with some limited modifications and additions for New Zealand. They comprise: (a) (b) (c) 30 standards based on IPSASs; 5 standards based on IFRSs; and 5 domestic standards (including 2 dealing with transition). 1 Eurostat thanks Ken Warren, Chief Accounting Advisor, New Zealand Treasury and Joanne Scott, Senior Project Manager, New Zealand External Reporting Board (XRB) for providing information for this document. 3

4 Public Sector PBE Standard s Both the final standards and the feedback statement are available at: PBEs_T1-4.aspx The feedback statement is at the bottom of that webpage. It is called Feedback Statement: PBE Standards and PBE Framework May 2013 There are no templates for these standards. NFP PBE Standard s The proposed enhancements to PBE Standards for NFP entities have been developed and are currently out on exposure. The ED is available at: ED NZASB Enhancements to the PBE Standards for Not-For-Profit Entities (issued November 2013) Comments are due 2 May 2014 Tier 2 PBE Standards RDR The RDR in the title stands for Reduced Disclosure Regime. Tier 2 is available to PBEs that are not publicly accountable and are not large. That is, the entities must have expenses under $30 million. These are the same as the PBE Standards, but entities in Tier 2 may take advantage of the disclosure concessions indicated in the standards. The RDR concessions are almost identical to those provided for for-profit entities applying IFRSs. The for-profit concessions are harmonised with those provided to for-profit and public sector entities in Australia. They are based on IFRSs for SMEs. The RDR concessions are almost identical in the public sector standards and the proposed NFP standards. One difference is that it is proposed that NFP entities be required to comply with some of the related party disclosures that public sector entities do not have to. Public accountability here follows the International Accounting Standards Board (IASB) definition of public accountability, i.e.: its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance providers, securities brokers/dealers, mutual funds and investment banks; 4

5 An entity has public accountability if it is deemed to be so under XRB A1 (FP Entities + PS PBEs Update), with the following being so deemed: issuers, registered banks, nonbank deposit takers, and registered superannuation schemes. Tier 3 PBE Accounting Standards Tier 3 PBE Accounting Standards is an accrual based simple format statement. A public sector PBE may elect to report in accordance with Tier 3 PBE Accounting Standards when the entity: does not have public accountability; and has total expenses less than or equal to $2 million (details of how this is calculated are available on the XRB website). Public Sector Tier 3 Both the final standard and the feedback statement are available at: _T1-4.aspx#t3 The Standard is called Public Benefit Entity Simple Format Reporting - Accrual (Public Sector) (issued November 2013) The feedback statement is at the bottom of that webpage. It is called Feedback Statement: PBE SFR-A (PS) Nov 2013 There is an Optional Template and Associated Guidance Notes for these standards. NFP Tier 3 Both the final standard and the feedback statement are available at: Profit_T1-4.aspx The Standard is called PBE SFR-A (NFP) Public Benefit Entity Simple Format Reporting - Accrual (Not-For-Profit) (issued November 2013). The feedback statement is at the bottom of that webpage. It is called Feedback Statement: PBE SFR-A (NFP) Nov 2013 There is an Optional Template and Associated Guidance Notes for these standards. Tier 4 PBE Accounting Standards Tier 4, for specified entities, usually with no staff and less than $ expenses, is a cash-based simple format statement. The following Public Sector PBEs (that are all very small in NZ) may elect to report in accordance with Tier 4 PBE Accounting Standards: Rural Education Activity Programmes (REAPs); Reserves Boards and Administrating Bodies; 5

6 Trustees of Cemeteries; Provincial Patriotic Councils; and Any other entity that is permitted by legislation or any other legal instrument or agreement to report on a basis other than in accordance with GAAP. The relevant documents are: Es_T1-4.aspx#t4 PBE SFR-C (PS) Public Benefit Entity Simple Format Reporting - Cash (Public Sector) (issued Dec 2013) Feedback Statement: PBE SFR-C (PS) (Nov 2013) For-Profit_T1-4.aspx#t4 Public Benefit Entity Simple Format Reporting - Cash (Not-For-Profit) (issued Dec 2013) Feedback Statement: PBE SFR-C (NFP) (Nov 2013). 6

XRB A1 (FP Entities + PS PBEs + NFPs Update) (with legislative compilation)

External Reporting Board Standard A1 Accounting Standards Framework (For-profit Entities plus Public Sector Public Benefit Entities plus Not-for-profit Entities Update) (XRB A1 (FP Entities + PS PBEs +