Best practices of EU countries in implementation Slideshow v2

The first inventory of fixed assets• Fixed assets were introduced for the first time in the French State balance sheet in 1/1/2006 • The Public Accounting Directorate now Public Finances

Best practice of EU countries in

implementation of international

standards of accounting and financial

reporting in the public sector

A French example for fixed assets

Introduction - scope of this

presentation

This lecture will deal with:

Only the fixed assets that are

1.controlled by the State itself

2.Or controlled by public corporations, themselves controlled by the State

Plan of the presentation

I The first inventory of fixed assets and their

accounting in the State balance sheet

II The impact of IPSAS on fixed assets: how it was dealt with in French public accountancy

III The current organisation of the French public

accountancy on the fixed assets issue

IV Controlling and auditing the process of fixed

assets accounting

V Problems encountered and limits of this

organisation

I The first inventory of fixed assets

• Fixed assets were introduced for the first time in the

French State balance sheet in 1/1/2006

• The Public Accounting Directorate (now Public Finances Directorate, PFD) was in charge

• In contact with the spending units of the State, the PFD used its network in each French county to list fixed assets held by the State in all parts of the country

I The first inventory of fixed assets

Two main issues:

1 How far to go to list fixed assets:

- all of them for buildings and land

- according to the accounts used to book the initial

expense for other fixed assets

I The first inventory of fixed assets

2 How to value the fixed assets:

– all buildings and land were valued by a specific service named « France State Property »

– other fixed assets were valued at their original costs

(according to the expenses recorded), by the state

accountancy services

– valued by the ministries themselves for specific assets (road network, military assets )

I The first inventory of fixed assets

2 How to value the fixed assets, the case of

building and land:

– at the fair value when there is an active market

– at the symbolic price of 1€ for « historical buildings » that cannot be valued (e.g Notre Dame de Paris) In this case, only the costs of work and installations that take place on them are valued

– at the replacement costs for prisons (no active market)

I The first inventory of fixed assets

During the years following this first inventory, its scope was progressively enlarged:

 To computer goods over 10 000 €

 To cultural items over 6 000 €

 The next step is to extend to any fixed assets over

3000 €

II The impacts of IPSAS on fixed assets

 The question of control

Before the IPSAS, the fixed assets were recorded in the accountancy of the owner, i.e the State

With the enforcement of the IPSAS, many fixed

assets had to be transferred to the public corporation that actually controlled the fixed assets

The value of these public corporations had to be

accurately reported in the State accountancy, the State being considered as holding 100% of the shares of the corporations (therefore considered as financial assets)

It also had an impact on which ministries / directorate would “manage” the asset (see later)

II The impacts of IPSAS on fixed

assets

 The question of depreciation and impairment

The buildings and land are not depreciated as they are valued every year by the State Property Directorate

(SPD) (through the use of a formula or, for 10% of the total through a real valuation)

The other assets are normally depreciated over time

The spending units are in charge of assessing the

internal or external sources of possible impairment

If sources of impairment are found, they warn the

SPD, which carries out an impairment test

In this case, only the fair value will be tested (no

value in use)

III Current organisation on the

fixed assets issue

 The Public Finances Directorate invested in a

powerful, new software, named Chorus, that will progressively integrate the spending process from the voting of the budget to the recording of

accountancy and the inventories.

 This organisation is in place with the deployment

of this software and around 3 actors that are found

in Paris (for the central services) and in every

“departements” (i.e counties)

III Current organisation on the

fixed assets issue

 1 The “fixed assets manager” is located inside the spending unit:

is responsible for the physical inventory of fixed

assets

for “normal” fixed assets:

- creates and adjusts annually a file with the required

information (depreciation rate, possibility of impairment, sale )

- this file is automatically transferred to and controlled by the accountant

III Current organisation on the

fixed assets issue

 1 The “fixed assets manager” is located inside

the spending unit:

for buildings and land:

- inputs the data into the software to automatically adjust the value of buildings and land (formula)

- gives to the State Property Directorate the internal or external sources of possible impairment that could lead to a fresh

assessment of the asset value

will give any other useful information to the SPD or the accountant (change in the control of the asset,

increase or decrease in the occupied area…)

III Current organisation on the

fixed assets issue

 2 The State Property Directorate:

is only involved for buildings and land

controls the data sent by the spending units (that is the computer data and the bills, contracts that are also sent)

creates specific files for the new assets

values the new buildings, adjusts the value of the

others, assesses the possible sale and adjust the files

sends the files and the documents enclosed to the

accountant

III Current organisation on the

fixed assets issue

 3 The accountant (Public Finances Directorate):

records the fixed assets and the adjustment of values (depreciation / impairment / new fair value) in the

books

controls the files automatically sent with the “paper” documents

prepares the final documents: State balance sheet,

profit and loss account, etc

IV Controlling and auditing the

process

 The process itself includes many controls

(especially from the acountant and the SPD)

 The accountant himself is verified by a special cell called the “risk manager” This cell will

check at random that the accountant's work is

correct and that the head of the accounting

services carried out his own internal controls

properly

 The audit service of the Public Finances

Directorate is able to verify the process, should a major issue be found

IV Controlling and auditing the

process

At the end, the Court of Auditors will certify (or not) the State accounts Several problems were identified at first:

 The value of the road network was not reliable (now resolved)

 The value of military facilities and equipments (unresolved)

 The value of financial assets, in particular due to the fact that the fixed assets in public corporations are not recorded in full nor are they valued accurately (unresolved)

The audit service of the Public Finances Directorate is currently working on the unresolved fields

V Problems encountered and

limits of this organisation

The spending units are not sensitive enough to the

accounting issues The “fixed asset managers” are often left alone, have little knowledge of accounting practices and are not fully operational

The spending units can forget to give information about assets that have been transferred to another service or discarded / sold

The switch from the old accounting software to the new one is very difficult, given the amount of data to transfer

Can be hard to adjust the manpower required in the area where you have the main stakes

Thank you for your attention