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The Role of charts of Accounts - Fabrizio Mocavini, Italy

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This presentation was made by at the 19th OECD Senior Financial Management and Reporting Officials Symposium held at the OECD Conference Centre, Paris, on 4-5 March 2019

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The Role of charts of Accounts - Fabrizio Mocavini, Italy

  1. 1. Chart of Accounts A multidimensional Chart of Accounts for the accrual reform in Italy 19th Annual Meeting of OECD Senior Financial Management and Reporting Officials Paris, 4-5 March 2019 Servizio Studi Dipartimentale - Research Division
  2. 2. Research Division The «Integrated» Chart of Accounts (ICoA) Paris, 4-5 March 2019 The Chart of Accounts 2 • The public accounting and finance reform law of 2009 introduced accrual accounting but only for informative purpose. In this framework the current CoA was developed for implementing a so called "integrated accounting". • The Chart of Accounts was intended for supporting integrated bookkeeping between the traditional budgetary accounting (based on cash/commitment), the financial accounting (accrual based) and for generating statistical data (ESA2010)...... …..just “pushing one single button”
  3. 3. Research Division ICoA: the structure Paris, 4-5 March 2019 The Chart of Accounts 3 The ICoA is composed by three modules 1st module 2nd module 3rd module It is meant to classify the accounting records made under the commitment/cash accounting system. The items are linked with the financial statements built under the commitment/cash method. It is meant to classify revenues and expenses records made under the accrual accounting. The items are linked with the Income statement built under the accrual principle It is meant to classify asset and liabilities records made under the accrual accounting. The items are linked with the balance sheet built under the accrual principle. The items of the 1st modules are connected with the ones of the other modules through a “Transition matrix”. The “transition matrix” is a technical tool built to support the operational accounting entries with the dual “integrated” accounting system. … just “pushing one single button”
  4. 4. Research Division ICoA: how it works Paris, 4-5 March 2019 The Chart of Accounts 1st module Commitment/Cash Budgetary accounting 2nd module Accrual Financial accounting 3rd module Accrual Financial accounting
  5. 5. Research Division Paris, 4-5 March 2019 The Chart of Account 5 The matrix generates distortions with respect to the accrual principle. In fact, the matrix forces to recognize expense (as cost) and revenue (as income) not according to the accrual principle* but according to the relevant commitment/cash phases (administrative acts) of revenue and expenditure for the purposes of budgetary accounting. *According to the Conceptual framework consultation paper (2011) issued by the International Public sector Public Standard Accounting Board (IPSASB) “accrual accounting recognizes transactions and events when they occur, rather than when the transactions and events are realized (cash) or settled (commitment, meant as legal obligation)”. Examples of the proper usage of the accrual principle are: • Record revenue when you invoice the customer, rather than when the customer pays you. • Record an expense when you incur it, rather than when you pay for it. • Record the estimated amount of bad debt when you invoice a customer, rather than when it becomes apparent that the customer will not pay you. • Record depreciation for a fixed asset over its useful life, rather than charging it to expense in the period purchased. • Record a commission in the period when the salesperson earns it, rather than the period in which he or she is paid it. • Record wages in the period earned, rather than in the period paid. ICoA: the matrix is the main inconsistency
  6. 6. Research Division Paris, 4-5 March 2019 The Chart of Account 6  Lack of Unified framework  Redundancies  Lack of Internal consistency  Degree of granularity not always adequate  Use of a statistical vocabulary According to the gap analysis, the Italian ICoA shows critical issues in terms of: Other inconsistencies of ICoA
  7. 7. Research Division Paris, 4-5 March 2019 The Chart of Accounts 7 Gap analysis • Study of EUROSTAT requirements • Analysis of other countries’ CoA (i.e. Portugal, Belgium, France, Estonia…), also with the support of questionnaires. PARTNERACTIVITIES TIMING Structure of the Multidimensional Chart of Accounts Definition of the structure and the underlying accounting rules (compliant to an accrual IPSAS/EPSAS based accounting) 1 2 3 Correlation tables Construction of the correlation table with ESA 2010, budgetary classification, …. March 2019 September 2019 October 2019 Call: Economic governance (ID: ESTAT-PA2O-2018) Topic: “Modernisation of public sector accounting on an accruals basis in support of EPSAS” Design a chart of accounts for the EPSAS/IPSAS based accrual accounting
  8. 8. Research Division International experiences - Lesson learned from… Paris, 4-5 March 2019 The Chart of Accounts 8 PORTUGAL – Multidimensional Chart of Accounts
  9. 9. Research Division International experiences - Lesson learned from… Paris, 4-5 March 2019 The Chart of Accounts 9 BELGIUM – Multidimensional Chart of Accounts
  10. 10. Research Division ICoA Work in progress for a Multidimensional CoA (MCoA) Paris, 4-5 March 2019 The Chart of Account 10 Commitment/cash recognition criteria (Budgetary accounting) Statistic nomenclature (ESA 2010) NO
  11. 11. Research Division ICoA Work in progress for a Multidimensional CoA (MCoA) Paris, 4-5 March 2019 The Chart of Account 11 MCoA Financial accounting (accrual based) 1. Assets 2. Liabilities 3. Net equity 4. Revenues 5. Expenses Budgetary accounting (commitment/cash) classification (Program) COFOG classification Other classifications Intra Group transaction CoA Dimension 1 Dimension 2 Dimension 3 Dimension N Consolidation mark No Intra Group transaction ESA2010 classification Public order and safety 3. Vehicles 1.2.4. Police 7. …… XXXX Transport equipment AN.1131
  12. 12. Research Division Objectives The Chart of Accounts 12 Paris, 4-5 March 2019 Simplification • More flexibility: CoA compulsory only at 3rd level (required for consolidating); • CoA is one single list of accounts (without modules and “transition matrix”); • Use of an appropriate accounting vocabulary (no statistical); • “Tag” intragroup transactions to enable a process of highly automated consolidation of accounts (Portugal experience); Additional information • Multidimensional CoA: Links with other classifications (without “transition matrix”) provides additional information for different purposes (budgetary accounts, management accounts, statistical accounts). Further objectives • Harmonization among public sector entities • Independent accounting systems (the one must not prevail on the other) • In line with the requirements of an accrual IPSAS/EPSAS accounting system.
  13. 13. Research Division 13 Contacts Fabrizio Mocavini – fabrizio.mocavini@mef.gov.it Rocco Aprile – rocco.aprile@mef.gov.it Pierpaolo Italia - pierpaolo.italia@mef.gov.it Ministry of Economy and Finance Via XX Settembre, 97 Rome - Italy Paris, 4-5 March 2019

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