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 € To cultural items over € 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