European public finance accounting reform urged

30th June 2014

MGI World European public finance accounting reform urged

Accounting and financial reporting within Europe’s public sector require a major overhaul, a new joint study claims. The report from the Institute of Chartered Accountants in England and Wales (ICAEW) and PwC warns that shortcomings in accounting, reporting and financial reporting represent a “major risk” for the sustainability of public finances in many European countries.

The two organisations set out ten points for achieving improved public finances based on the twin tenets of democratic accountability and fiscal sustainability.

ICAEW’s regional director for Europe, Martin Manuzi, says tackling the current shortcomings is a matter of “critical public interest”. He notes that while the debate currently taking place in the European Union over which path to take to harmonise public sector accounting standards is important, improving decision-making has to be the central focus.

“It is essential that the debate on the way forward in Europe focuses on the degree of financial transparency and comparability achieved,” argues Mr Manuzi.

The report highlights a number of interlinked factors are critical, while it also identifies a key issue around improving the financial literacy of citizens, policymakers, and intermediaries.

“Debates on fiscal sustainability can often be very complex. We need to further promote a basic understanding of EU countries’ financial situation and the impact of future fiscal sustainability challenges,” adds Mr Manuzi.

The report also stresses that the introduction of accruals accounting throughout the public sector in Europe is not “an end in itself”, but part of wider process of improving accounting and financial reporting.

Patrice Schumesch, PwC global partner for Public Finance and Accounting, commented: “Accruals accounting is just one piece in the jigsaw – albeit a critical one: to reap the full benefits of reform, a comprehensive change management process, involving the broader financial management and governance systems of the public sector, is required.”

The report also calls on Europe to take a lead in the world on the areas covered. While the EU has done this in private accounting by championing global standards through IFRS, it could once again play a strong leadership role in public finance.

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