Best practices of EU countries in implementation Slideshow v2

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