This presentation by Sandra Kaiser and Bernhard Schatz 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
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Introducing Accruals – the Lessons from Experience Sandra Kaiser & Bernhard Schatz
14th OECD Annual Symposium - Paris, 3-4 March 2014
Agenda
Design and concept
Strategic and operational obstacles
Challenges, lessons learned, results
Opening balance sheet
Outlook
2
Design and concept Strategic and operational obstacles Challenges, lessons learned, results
Efficiency
True and fair view
Transpa-rency
Focus on Outcomes
Austrian Federal Budget Reform – Legal Basis
Budgetary Principles in the Austrian Constitution
4
5
Introduction
Austria undertook a comprehensive budget reform
Key Elements: • Medium Term Fiscal Framework • Budget Structure • Performance Budgeting (as of 2013) • Accrual Accounting and Budgeting (as of 2013
in alignment to IPSAS)
Result-oriented management of
budget managing bodies
Performance Budgeting incl. Gender Equality
New budget structure:
„lump-sum budgets“
Accrual budgeting and accounting
Overview 1st and 2nd Stage of the Budget Reform
Budgetary discipline and planning: binding MTEF & strategy report
Flexibility for line ministries through full carry-forward possibilities without dedicate it
6
Accrual budgeting & accounting as of 2013
Amendment of the constitution: New budgetary principles: impact orientation, efficiency, transparency, true and fair view Integration of accruals in a general framework of financial management New Balance of Managerial Flexibility and Accountability
Improved Management of finances and performance by integrated approach
MTEF, fiscal rules and sustainability reports
Accrual budgeting and accounting
New budget structure:
„lump-sum budgets“
Performance Budgeting, Controlling and
Reporting
Result-oriented
management of state bodies
7
Accrual accounting and budgeting
Operating Statement (direct linkage with federal cost accounting system)
Statement of Financial Position
(Balance Sheet)
Cash Flow Statement
8
Relevance of Accrual Accounting and Budgeting
9
As cash provides important information (liquidity) on fiscal
situation:
Accruals do NOT detract cash.
But provide ADDITIONAL perspectives:
Use of resources (operating statement): Part of the annual budget
and subject to parliamentary budget decision
Parliament votes on two perspectives: cash + operating
statement – Accrual Budgeting makes accruals relevant!
Comparison of assets and liabilities (annual balance sheet):
Submitted to Parliament by Court of Audit.
Merits of Accrual Budgeting
Enhances transparency of public finances
Reduces the scope for fiscal illusions
Helps to steer public finances according to fiscal reality
Makes it harder for stakeholders to ignore future budget
challenges
Can enhance accountability of decision-makers
10
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Strategic Obstacles
Improving Financial Information for Decision Making Medium Term Fiscal Planing needs accrual accounting Performance budgeting needs cost accounting Gaining Know How on accrual accounting within public administration
Annual Budget Statement as of 2013 per Global Budget
Comment: On global budget level, total expenses (operating statement) and total expenditures (cash flow statement) are legally binding.
Global Budget xx.01 Operating Statement Budget n+1
Budget n
Actual n-1
Revenues from operating activities and transfers Revenues from financing activities Revenues l Personnel expenses Operating expenses Transfer expenses Expenses on financial activities Expenses …thereof variable expenses Net balance
Global Budget xx.01 Cash Flow Statement Budget n+1
Budget n
Actual n-1
Receipts from operating activities and transfers Receipts from investment activities Receipts from repayments of loans Receipts Personnel and operating expenditures Expenditures from transfers Expenditures from investment activities Expenditures from loans Expenditures …thereof variable expenditures Net cash balance
Lega
lly b
indi
ng
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Medium-Term Expenditure Framework (MTEF)
Budgetary discipline and planning: binding MTEF & strategy report which explains the ceilings of the MTEF but not individual appropriations.
Heading n+1 n+2 n+3 n+4
1 General Government Affairs, Court and Security
2 Employment, Social Services, Health and Family
3 Education, Research, Art & Culture
4 Economic Affairs, Infrastructure and Environment
5 Financial Management and Interest
13
Medium Term Fiscal Planning
If you want to plan cash flows for multiannual periods you need an instrument to monitor deferrals Accrual Accounting Medium Term Fiscal consolidation needs cut of structural cost Accrual Accounting Enhancing Resource Responsibility needs management information Accrual Accounting
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Performance Budgeting
Quality of performance targets depends on underlying information quality -> resource management Example: • Ministry of Transport:
Fostering the transition between public and private sector employees Making public accounts accessible for broad academia, auditors and other stakeholders Know How results in confidence
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Intensive study of other countries‘ reform experience: Learning about do‘s and dont‘s, intercultural aspect to be considered Making the reform process irreversible: Key elements in constitutional amendments, detailed legislation at a later stage Reform design and implementation through own staff: Keeping external consultancies to a minimum, building and strengthening internal know-how Pragmatic reform design: Reducing complexity, less is more, no 100% perfectionist approach Ensuring a pilot phase for sufficient testing
Strategic approach in reform development and implementation I
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Ministry of Finance (MOF) as reform driver and standard setter
Winning interest and support on political level
Getting key players on board: • Politics and Parliament:
• “Advisory Council Budget Reform” with representatives of all political parties, regular meetings and discussions with MOF
• Keeping the reform out of political controversy • Court of Audit: Shared interest with MOF as “friends of the tax
payer”, • Federal Chancellery: Responsible for coordination, controlling and
evaluation of performance, while MOF coordinates the resources • Line Ministries: Continuous involvement, training phase for
preparation of the new “budget world”
Strategic approach in reform development and implementation II
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Challenges of Accrual Budgeting
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Commitment of political and senior administrative level is key
Skills of stakeholders need to be enhanced (civil servants; politicians; media; interested public) → Extensive training required
Complexity threatens transparency → Relevance and accurateness need to be balanced → Less can be more
Standardization → Which standards? → Consideration of public specifics → Who is legitimized to set standards?
IT-support: crucial to very closely link technical and IT-issues in order to assure that the new system works adequately
Challenges of project management and implementation
Standard setting: • by Ministry of Finance, Court of Audit and Federal Chancellery • Information of Parliament
Budget transition: • Cash-related budget elements are based on previous budget model • Completed by non-cash elements (depreciation, provisions) • Technical process of adjustment between MOF and line ministries
Opening balance sheet: • Use of information of „old accounting system“ • Data gathering for new elements started 2010, „old“ data updated
New accounting system: • IT-system is crucial • Tests and concurrent operation in 2011 and 2012
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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Screening of international Benchmarks
Federal Budget Law 2013 inkl. Budgetary Framework
Federal Budget law 2013
Accounting and Asset Management Decrets
Opening Balance Sheet Decret
System of Accounts Decret
IT Testing phase of both systems (accrual and cash)
Trainings and Education of Employees
Implementation of IT Changes/System
Implementation of the Austrian Budget Reform
Preparation: 5 years Implementation: 4 years
Total Reform: 9 years (2004-2012) 21
Improving Decision Making
Enhance discussion at point of decision making (going beyond reports)
• Budgetary discussion in parliament is about performance targets,
accrual figures and cash figures (both have legally binding appropriations)
• Every project which needs approval of the MOF is assessed for its
performance relevance (financial, SME, environment, economy, gender, administrative burden, social and youth impact)
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Result-Oriented Management of Administrative Units
Administrative units are accountable for resources as well as for outputs and outcomes improved integration of financial and performance management Administrative units must be granted necessary budgetary flexibility and decision-making competences Incentives for public managers for an efficient use of resources: Possibility for building-up of reserves, end-of-the-year flexibility, autonomous decision-making within certain ceilings/limits Multi-annual performance contracts on resources and output/outcome objectives
23
Operative Obstacles
Operative Obstacles
Be pragmatic • 80% solutions improve • Get a starting point • Don’t be afraid of reversing solutions
Make it irreversible • Part of public documentation (budget!) • Make it accessible (close to common standards) • Get unanimous consent
Train all stakeholders • Public Administration • Parliament • Media • Citizens
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Being pragmatic
Important task to compile opening balance sheet starting point Define thresholds or broad brush methods Design processes to improve (dialectic elements, e.g. court of auditors)
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Irreversibility
Implement on the highest legal level possible (constitution, special laws) Change peoples expectations and minds Mandatory set of minimum standards Educate public administration (bottom up)
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Importance of stakeholders
Parliament shouldn’t just discuss reports, they should have to recognize all the information available at the approval vote Media should have full information to provide citizens with full picture on financial position Informed public should be able to engage in discussions about possible discussions
28
Opening Balance Sheet Financial Position of the Federal Government of Austria as of 1.1.2013
Presenter
Presentation Notes
Thanks Bernhard! I‘d now like to start by drawing your attention to our latest baby of the budget reform. The opening balance sheet.
Accounting system: 1986 – 2012
Cash budget (with some accrual modifications)
Incomplete accrual accounting system • No appropriate valuation rules • No management impact • IT-infrastructure in place • Some practical experience of staff with accruals
Cost accounting • Implementation in central units of the ministries from 2000 –
2005 • No steering function
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Presenter
Presentation Notes
First of all, let‘s go a step back. What was the accounting system for the Austrian administration before the change as at 1st of 2013? There was a reform in the year 1986, which defined some first accrual elements. Nonetheless the focus was on the cash perspective with some significant incompletenesses and gaps. For example there did not exist any appropriate valuation rules The impact on management decisions was very poor. The used IT-infrastructure was well-established, there were no intentions to change to something new. The majority of the employees in the administration only knows the simple entry bookkeeping. Only a few were familiar with the accrual system. A testing phase startet in 2000 with the so called “flexi-units” “Flexi” means that an agency �Remains within administration�Keeps its legal form �Decides about spending above plan�against reserves or savings �Has a multiannual plan �personnel�receipts and expenses�output Incentives for good performance Decentralisation: selected government agencies under a new management regime with increased flexibility and accountability while remaining within the ministries. When: 2000 - 2012 Scale: currently covering 20 agencies, 0.2% of total federal budget expenditures in 2010 How: - additional article in the Federal Budget Law with constitutional status - negotiated on a case-by-case basis in a 4-year contract between the agency, the parent ministry and the MoF Reasons for it: Cost and performance orientation Medium term budget and work plans Pilot project – basis for further reforms What I’d like to point out here is that ambitious intentions towards accrual have been done earlier than the budget reform starts itself. The instrument of flexi-agencies was a usueful way to test some details in a pre-phase.
General remarks
The Financial statements shall provide a fair and true view of the financial position, financial performance and cash flows of an entity (IPSAS 1). This requires information on assets and liabilities in addition to information on cash flows and financial resources.
Sustained positive growth in public finances requires the utmost clarity about the financial consequences of decisions.
Opening Balance Sheet: first financial position with full transparent presentation of federal assets and liabilities.
Reference standard: IPSAS (International Public Sector Accounting Standards)
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Presenter
Presentation Notes
Before I go over to the opening balance sheet. Let me just give you some general remarks. In the conception we worked according to some general rules. The Financial statements should provide a fair and true view of the financial situation. Implementation of accrual budgeting within the Federal Budget 2013, which includes an operating statement (revenue and expenses on accrual basis including non-cash items as provisions and depreciation) and cash flow statement in the budget documentation (both perspectives binding by law) This can be fullfilled with help of the 3 components: financial position, financial performance and cashflow. It is absoluetly necessary to have a comprehensive overview of the financial data. The opening balance sheet is a first step to get full transparency of federal assets snd liabilitites. It is the really first beginning for getting more information about property and debts. The reference standard are without any doubt IPSAS. The whole implementation of accrual budgeting and accounting is in most items based on IPSAS. Our federal organic budget act 2013 is very much geared to the IPSAS. There are only a few deviations. Let’s now have a look at the structure of the balance sheet.
Opening Balance Sheet
Assets Liabilities
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net Assets
Total Total =
structure
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Presenter
Presentation Notes
As you can see on the slide, the structure of the Austrian statement of financial position follows very strong the recommendations in IPSAS 1. It shows the (a) Assets; (b) Liabilities; (c) Net assets/equity; (d) Revenue; (e) Expenses; (f) Other changes in net assets/equity; and (g) Cash flows. Current assets= They fall due within one year. Non-current assets= They fall due in more than 12 months. for each asset and liability line item that combines amounts expected to be recovered or settled (a) no more than twelve months after the reporting date and (b) more than twelve months after the reporting date, an entity shall disclose the amount expected to be recovered or settled after more than twelve months.
Reporting entities in the federal accounting system
Federal accrual system is obligatory for Federal Level: • Ministry of Finance • All line ministries • All federal agencies
Standard setting by MOF and Court of Audit
Separate reporting: • Regional level (9 provinces/states) • Local level (> 2300 municipalities) • Off-budget corporatisations
Efforts to develop an aligned framework for regional and local level
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Presenter
Presentation Notes
Who are the reporting entities in Austria? Regarding the statement of financial position it was clear. The Ministre of Finance had to The standard setting body is the Ministry of Finance in agreement with the Court of Audit
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Opening Balance Sheet Materiality
Reliability
Principle of no offsetting
Adjusting events
Economic perspective
True and fair view of financial position
Accouting principles I
Presenter
Presentation Notes
In generation of the opening balance sheet we follwed some accounting principles.
Accounting principles II
True and fair view of financial position • Without intentional overevaluation or underevalution
Economic perspective • Economic ownership of assets vs. legal form (federal assets were included in the opening
balance sheet if the federal government is the economic owner - entity, that controls, in particular possesses and uses the asset, has the power to dispose and bears the risk of loss and destruction)
Materiality • Recognition and measurement was performed based on materiality. It depends on size
and type of the items
Reliability • The opening balance sheet was prepared using reliable information. The accounting
procedure of the opening balance sheet is based on the standard federal chart of accounts. Accounting policies were applied in a reasonable, verifiable and neutral manner.
Adjusting events (events after reporting date) • Were taken into account, when became known between 1 January 2013 and the date on
which preparation of the opening statement of financial position was completed.
Principle of no offsetting/gross presentation • Each asset and liability was measured individually
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Presenter
Presentation Notes
Let‘s look more closely at the mentioned principles.
The scope/coverage
The goal is to fully report federal assets and liabilities while avoiding major administrative expenses as far as possible: The “Austrian Opening Balance Sheet Regulation” provides a number of exceptions and simplifications to reduce administrative burden without reducing the quality of the information it contains.
Flat-rate and comparative parameters were used
Measurement alternatives were permitted (if this was the only way to perform reliable measurement)
Use of external experts was avoided, due to building up measurement expertise within the administration. No full consolidation Off balance sheet commitments (employee benefits) – see separate slide
36
Presenter
Presentation Notes
How did we deal with some obstacles in the opening balance sheet? We used certain exceptions and more simple methods. The goal was to avoid an administrative burden. Because as in a lot of countries, also Austria has to deal with limited human resources. The change process was for all employees a big challenge which required great efforts. As I said before, simplifications were for example: using of flat-rates and comparative parameters Permission of measurement alternatives, if no other method was possible. I’ll go into a bit of detail for some of theses issues later in the presentation. The politicians made a commitment that no support from external experts for example obtaining expert advice for an asset valuation. To keep it simple, the decision was making that in this first step there is no consolidation requirement. Nonetheless we used the appendix to provide additional information about the equity investments, the human resources and their arrangement of the different ministries and the pension expenses.
Applied accounting and valuation methods - assets
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Balance sheet item Method (s)
Property, plant and equipment and intangible assets
Depreciated or amortised cost
Land Acquistion cost, appraisal reports, land raster method
Land improvements Depreciated cost, specified reference values or average values
Buildings Depreciated cost, appraisal cost, average cost of buildings with similar function, etc
Cultural assets Cost, appraisal reports, fair value
Securities and other financial assets Nominal value
Equity investements Federal Government‘s proporionate share of the estimated net assets
Receivables Nominal amount, non current: present value
Financial instruments Nominal value, derivates: fair value
Inventories Cost, first-in-first-out principle
Cash and cash equivalents Nominal value 37
Presenter
Presentation Notes
Okay, let‘s move on with the mentioned flexibility regarding the valuation methods. Property, plant and equipment and intangible assets are measured at depreciated or amortised cost, the original cost less linear depreciation or amortisation. Depreciation was perfomed based on a table of useful lives specified in a decree by the Austrian Federal Ministry of Finance. Land The opening statement of financial position includes land that is owned by the Federal Government or over which the Federal Government has power of disposal of as economic owner. A number of valuation methods were permitted in order to ensure that valuation could be performed with currently adailable data. Land is not subject to regular depreciation, since its useful life is unlimited. There are 3 differnet methods, Acquistion cost, appraisal reports and the land raster method, which I will describe later in this presentation Land improvements With an Asset value of almost 1 billion euro, this balance sheet item is not that important. Roads, railways, airports and port facilities are the main land improvements. These were measured at depreciated cost, or based on specified reference values or average values. Linear depreciation is used based on the usable lives specified in a decree by the Austrian Federal Ministry of Finance: Paved:useful life 33 years Unpaved:useful life 10 years Measurement: Values were calculated as average prices based on a variety of relevant sources. Classification of condition as good (A), medium (B) or poor (C). Buildings There are a number of several measurement methods which are permitted for buildings. Depreciated cost, appraisal report, average cost of buildings with similar functions acquired or built during a period of up to 40 years before measurement date, etc… The measurement of historical buildings was particularly challenging, more in detail later in the presentation Cultural assets are measured at cost, if this can be reliably determined, or measured based on values from appraisal reports. A distinction is drawn between movable and immovable cultural assets. Movable are not depreciated. Immovable cultural assets, e.g. buildings can be depreciated if this provides better measurement results (e.g. reflects federal operational use).
Applied accounting and valuation methods - liabilities
Balance sheet item Method (s)
Payables Repayment amounts
Provisions Current: anticipated payment amount Non current: present value Severance payments and anniversary bonuses: projected unit credit method
Financial liabilities and currency swaps Nominal value Currency swaps (receivable and payable): nominal value and repayment amount
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Presenter
Presentation Notes
Next, I want to highlight the main applied accounting and valuation methods of the liabilities. Here you can see an overview. It is less special than the methods of the assets. Payables war obligations ont he part of the Federal Government of Austria to generate payments. They are measured at their repayment amounts. A distinction in long-term and short-term was made. Provisions must be formed if the event triggering the obligation occurs, or will occur with overwhelming probalitity before the financial statement reporting date and the amount fo the acutal obligation can be reliably calculated. The obligation can arise from a statutory or contractual liability. Financial liabilities are measured at nominal value. A currency swap consits of a reveivable and a payable. Currency swap receivables are measured at nominal value and payables at their repayment amounts. Net premiums, discounts and interest from federal financing activities are recognised on an accural basis. Premiums are recognised as other payables, discounts as other receivables. Fees and commissions are reported as other financial expenses at the time of payment.
Opening Balance Sheet 1.1.2013
ASSETS in EUR A Non-current assets 76,102,292,902.39
A.I Intangible assets 368,174,458.38 A.II Property, plant and equipment 39,588,678,261.93 A.III Securities and other investments 3,824,000,000.00 A.IV Equity investments 25,189,128,452.17 A.V Long-term receivables 7,132,311,729.91
B Current assets 13,406,897,790.94 B.I Short-term financial assets 0.00 B.II Short-term receivables 8,499,492,321.12 B.III Inventories 698,836,278.74 B.IV Cash and cash equivalents 4,208,569,191.08
Total assets 89,509,190,693.33
NET ASSETS AND LIABILITIES in EUR C Net assets (balancing item) -133,873,299,331.09 D Non-current liabilities 187,219,596,890.75
E Current liabilities 36,162,893,133.67 E.I Short-term financial liabilities, net 19,848,526,578.95 E.II Short-term payables 15,931,759,970.13 E.III Short-term provisions 382,606,584.59
Total net assets and liabilities 89,509,190,693.33 39
Presenter
Presentation Notes
Let’s move on to the facts and figures. As everybody can see on the slide, the Austrian Federal Government has significantly negative net assets. That shows that federal liabilities are fundamentally greater than federal assets. At this point, I’d like to emphasize that The significance of this item lies more in the changes over time than its value at this date. Therefore Transparent information on assets and liabilities, that help to induce efforts to achieve sustainable public finance. What are the main balance sheet items? The largest items on the asset side are property, plant and equipment and federal equity investments, on the liability side: non current financial liabilities. Documents made publically available: Everyone can have a look at the documents on the website of the Ministry of Finance. 1.Financial position for each budget chapter 2.Financial position for the Federal Government of Austria 3.Report (statement) on the financial position Lets now turn to the next important point. The process of compilation and how we found manageable and working access.
Pragmatic approach
Multitude of valuation methods (tangible assets)
e.g. historical buildigings, land improvements
Simplified method (“Land raster method”)
Basis: land register, categorisation derived from land register (forest, agricultural
use, building area), price of square meter out of tax agency data of land sale,
deductions for limited use (e.g. bodies of water, alpine land, military land)
• for adjustments of receivables (taxes, custom duties, advance of child
support)
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Presenter
Presentation Notes
Remember what my colleague said, you have to have a pragmatic approach. We really followed this credo. Here some examples: The valuation of assets: Not only one there were no acquisition costs available. Because of this the decree of opening balance sheet provides a range of possible valuation methods. In agreement with the court of audit we developed a valuation method for the historical buildings. Most of them are in the centre of Vienna. Land raster method This is based on the International Public Sector Accounting Standards (17slash 98) to provide an estimate for the opening statement of financial position. Measurement was based on the prices collected by the Austrian Ministry of Fianance from actual took place land purchases. Based on the location and usage type of the land, each land area was multiplied by the base price for developed or agricultural land and the premium or discount stipulated in the Austrian Opening Statement of Financial Position Regulation. Equity investments I’ll explain our handling with the equity investments in a moment. The Austrian Opening Balance Sheet regulation provides the use of some thresholds. For example: regarding the inventories: there is a materialitiy limit, only if the inventory has a value greater than 5,000 Euro. Or at the provisions: Here provisions for outstanding invoices have to have an expected value of 50,000 Euro or more Furthermore it’s possible to create groups for measurement. As for example for adjustments of receivables. This possibility was used for the adjustments of taxes, custom duties or advance of child support
Asset valuation - Land improvements
Asset value: ≈ € 1bn
Roads, railways, airports and port facilities
depreciated cost, or based on specified reference values or average
values
Linear depreciation based on the usable lives specified in a decree by
the Austrian Federal Ministry of Finance:
− Paved: useful life 33 years
− Unpaved: useful life 10 years
Measurement: Values were calculated as average prices based on a
variety of relevant sources.
Classification of condition as good (A), medium (B) or poor (C).
Example of a cobblestone road
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Presenter
Presentation Notes
First of all, interestingly we discovered that the Federal Government is not the owner of many roads. Cause of an outsourcing, the motorways are not in the balance included. Under the word “land improvements” we understand roads, railways (not the ÖBB), but there are some railways in the area of Roads, railways, airports and port facilities are the main land improvements. Very pragmatic approach, was the result of research and consulting with the court of audit Linear depreciation is used based on the usable lives specified in a decree by the Austrian Federal Ministry of Finance. We distinguish between the categories paved and unpaved. We decided reference values for each category and classified the condition of the land improvements in good, medium and poor. With this parameters we calculated the value on the reporting date.
no cost figures available, value can not be determined on market
price due to the lack of an active market
special measurement method:
• average costs of comparable buildings
• categorization of use as well as condition of building (good, medium,
poor)
• resulting net book values were calculated based on remaining useful
lives
42
Presenter
Presentation Notes
The Austrian Federal Government is the owner of a number of historical buildings. Most of them are in the centre of Vienna.
Historical Buildings
Reported as heritage assets
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Schönbrunn Palace € 285.7m Vienna State Opera € 102.8m
Historical Parliament Building - ramp area € 33.89m
Burgtheater € 98.10m
Presenter
Presentation Notes
I‘ve brought some examples of measured historical buildings with me. Because the most frequently asked question is, if the Schönbrunn Palace is measured and in the opening balance sheet. Yes, the valuation of the Schönbrunn Palace was quite easy, because it existed a surveyor‘s report, which could be used. The Burgtheater and the Vienna State Opera were measured at this special mesurement method. You can see the carrying amounts on the slide. The ramp area and visitor centre of the Parliament Building was constructed some years ago. So the method of depreciated costs was possible. The old part of the Parliament was not measured, because it is still depreciated. There are plans for reconstruction. As you can see, the valuation of heritage assets is possible.
Measurement on the Federal Governments proportionate share of the
estimated net assets (@ equity) – based on financial statements of
each subsidiary.
Categorization according to IPSAS (affiliates, associates, other equity
investments)
If significant influence or control can be exercised over a company
or a institution, it is reported as an equity investment, regardless of the
legal relationship.
Universities are included
No FULL CONSOLIDATION
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Presenter
Presentation Notes
The carrying amount of the associated investments represents more than 25 billion euros. The Federal Government of Austria held 182 diret equity investments with around 300,000 employees as at the reporting date of the statement of financial position. Most of the affiliates and associates have their registered offices in Austria. The Federal Government interests are primarily in the areas of infastructure (railway and roads), agriculture and the environment, culture (museums and theatres) and universities. In addition to these large interests with very high carrying amounts (in the billions), there is also small carrying amount fo interests in cooperatives int he agricultural area, such as interets in warehouses, milk cooperatives and animal breeding associations. An equity investment is measured based on the Federal Government‘s proportionate share of the estimated net assets. Measurements were based on the separate financial statements of each subsidiray as at 31 december 2012. The net assets include share capital, other capital contributions, revenue reserves, capital reserves and certain other forms of capital permanently available to the organisation. The categorization in the 3 categories: according to their capital ownership percentage (more than 50%, from 20 to 50% and under 20%) affiliates, associates and other equity investments. In addition to this criteria, I’d like to stress that If significant influence or control can be exercised over a company or institution, it is reported as an equity investment, regardless of the legal relationship.
Pensions
Liablities for pensions displayed in an annex and in fiscal sustainability report – not as a provision in the financial statement
2013: € 6.1bn EUR (net – not covered by contributions)
30- year projection of pension liability (2013-2042) : € 342.2bn (net – not covered by contributions)
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Presenter
Presentation Notes
As the colleagues form Switzerland mentined in their presentation earlier. We are in the same situation. We do not display the pension liabilities in the statement of financial position. But they are described very detailed in the appendix. So we can show more information about this hot topic than we would be able to in the balance. Pension expenses are pension benefits that the Federal Government must pay for ist civil servants. In 2013 the Federal Government paid approximately 8,5 billion euros in pension benefits. This was offset by revenue in the amount of 2,3 billion euros. This means that more than 6billion euros was not covered by contributions and is therefore a future burden on the federal budget. Regarding to the 30year projection: It shows that more than 402,7 billion euros for pension expenses will be necessary, offset by revenues in the amount of a little more than 60,5 billion euros. As a consequence, this means that that 342,2 billion euros are not covered by contributions and is therefore an extremely future burden on the federal budget. The Federal Government is also liable for expenses for offsetting about 563 billion euros in net obligations of statutory pension funds. I think there is no need for a deeper explanation. Everybody knows this problem.
Austrian specific problems with complex legal structure (e.g. streets are owned by state, but leased unpaid to agency without restriction)
Tension of true and fair view and pragmatic approach Discussion about value added of balance sheet it is not envisaged, that • assets are being sold • assets have a cultural value • state is not an enterprise
Standard setting and data gathering involve costs
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Presenter
Presentation Notes
To summarize, what were the main difficulties concerning the asset valuation? Austria tends to have really complex legal structure. So you have to study each contract seperatley, because there is no guarentee that it is what the title says. On the one hand there is the constitutionally order to a true and fair view of the financial situation. On the other hand you have to fulfill the pragmatic approach. This is a tension you have to deal with. There were some principles which we have to preach and to preach No, solely because we valuate assets, we do not sell them. Also objects of cultural value can be measured and part of the assets. The state is not an enterprise. We follow different paths. Our aim is not to pay as less taxes as possible.
Opening balance sheet – lessons learned …
spring clean – „aha-experience“
e.g. asset valuation, equity investments
stock taking
consistent and homogeneous asset management
developing awareness of assets
depreciation of property shows upcoming investments
set-up of know-how in the Federal Administration
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Presenter
Presentation Notes
What are the main lessons learned? This new and concentrated focus on assets had a very nice side effect. We were under compulsion to look at the assets. Especially the areas of land, land improvements, buildings, heritage assets were very disregarded for years, for decaded. The data collection showed some objects of virtu. Nobody has much interest in the equitiy investments. In some reports shareholdings were stated, of which the company is already closed. So the valuation implicated an absoluetly necesserily stock taking. The budget reform caused a consistend and homogeneous asset management. It was a change of the IT-system, but now every reporting entity works in the same system. All these issues involved the developping of a stronger awareness of assets. Cause of the straight-line method depreciation it is possible to see at one look the upcoming investments The support of external experts was not allowed. This generated a great set-up of know-how in the Federal Administration
Conclusion
Negative value for net assets shows that federal liabilities are significantly greater than federal assets. The significance of this item lies more in the changes over time than its value at this date.
Transparent information on assets and liabilities that help to induce efforts to achieve sustainable public finances.
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Presenter
Presentation Notes
The lessons learned bring me to the conclusions of the opening balance sheet. Yes, there is a negative value for net assets. And it is our task to working on it. The Austrian Federal Government budget reform is a comprehensive reform addressing the whole system and not only specific elements. It is more than a mere change of managerial, budget and accounting rules. It involves cultural change within the administration as well as on the political level (setting priorities, defining measurable objectives, transparent decision-making, etc.). Transparent information on assets and liabilities in addition to the operating statement and the cash flow-statement is the key and the right path to sustainable public finances.
Future Financial statements
Court of Audit
Very detailed annex
Main additions to opening Balance Sheet: • Including 2nd Level of Subsidaries in the annex • Leasing: operating leasing – future payments
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Presenter
Presentation Notes
The first financial statement according by the new budget rules is in preparation. It has to be in parliament by the end of September. The annex is going to be very detailed and comprehensive. The main additions to the opening balance sheet are furthermore that the 2nd level of subsidaries is displayed. Secondly, there are going to be more tables of future payments. To summarize, the opening balance sheet with its 130 pages was a light version of the next financial statement. All information will be published on the internet
Outlook Next steps – coherent accounting rules in all government sub-sectors
Presenter
Presentation Notes
We are very close to the end now, but lets have look at future developments. As I said before, the budget reform was only binding for the Federal Government. The federal states and municipalities did not undertake this reform. All the more I am glad to stress that things are in a state of flux.
Federal states and municipalities - under compulsion
EU (Six Pack, Fiscal Framework Directive, EPSAS)
The perceptions with the “Salzburg case” underscore the urgent need for action due to the following deficiencies:
• lack of informative value and transparency • lack of completeness • lack of comparability • no sufficient governance • differing mid-term budgetary planning
Budgeting and Accounts Regulation (VRV new!)
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Presenter
Presentation Notes
Efforts to develop an aligned framework for local level and municipalities are currently being pursued. According to the political coalition agreement a legal framework for the implementation of the budget reform on all levels are government should be in place by mid 2014. The legal text will be transferred to all stakeholders by the Ministry of Finance and Court of Audit in the upcoming weeks. Consequently a full comparable accounting system on all levels will be in place when realized Art 13 para 2 of the Federal Constitutional Law (B-VG) requires macro-economic equilibrium and provides for the duty of coordination with regard to sustainable and sound public budgets Section 16 para 1 of the Constitutional Finance Law (F-VG) tasks the Federal Ministry of Finance to standardise the form and structure of financial statements in agreement with the Austrian Court of Audit (ACA) Different valuation methods of assets in the federal states, for example Carinthia, Lower Austria and Tyrol Real estate and investment Capitaliation of roads There are a lot of more examples, but I think you all understand that there is a stronlgy need for action. Last week the Minister of Finance gave the go-ahead for a new form of an existing decree. The Budgeting and Accounts Regulation (VRV) which provides mandatory and harmonised budgeting and reporting standards for the federal states and municipalities. The legislative procedure is going to be started in the next days. We are looking forward to pass the law by the end of June. To sum it up, we are convinced that the accrual budgeting and accounting provide information which is curcial for a good decision making. We are not ready yet, it is still a way to go.
Thank you for your attention!
Presenter
Presentation Notes
The basic message we are trying to get across in our presentation is simple. We can‘t do everything totally perfect at the first time, but we realised the advantages of accrual budgeting and accounting and are looking forward to becoming better and better. Thank you very much for your attention and I‘ll pas over to the chairman.
