From Governmental Accounting into National Accounts: Adjustments Diversity and Materiality with Evidence from the Iberian Countries’ Central Governments

In a context where governments around the world acknowledge a need for more informative governmental financial reporting to improve financial sustainability, the European Council is proposing that EU member states adopt International Public Sector Accounting Standards (IPSASs)— which are recognized as also allowing improved reliability of government finance statistics— in all subsectors of the General Government Sector (GGS). Consequently, the Governmental Accounting (GA) role of running and reporting on governments’ budgets for purposes of decisionmaking and accountability is changing to include being part of the EU budgetary and monetary policy, specifically within the Euro zone. Accordingly, the objective of this paper is twofold. First, it aims to start a debate in the literature about the ability of GA as it stands across Europe to meet the European System of National and Regional Accounts (ESA) requirements concerning GGS data. This assumes particular relevance in a context where the two systems have to coexist, but given that budgetary reporting (GA) is the main input to ESA reporting (NA), reconciliation between the two systems is required. The second objective is of a more technical nature—empirically demonstrating the diversity and materiality of the main adjustments to be made when converting GGS data from GA into NA. This is done by using evidence for Portugal and Spain, focusing on Central Government data for the period 2006–2009 and measuring their quantitative impact on the public (budgetary) deficit. We conclude that GA systems as they are across EU do not meet ESA requirements, and further alignment is therefore needed to reduce adjustments as much as possible when translating data from GA into NA. Additionally, in the case of Portugal and Spain, the main findings show that the adjustments from GA into NA present great diversity for both of these Iberian countries. As for materiality, their impact is greater in Spain, but still significant in Portugal. Therefore, both the reliability and comparability of final budgetary balances reported by EU member states within the Excessive Deficit Procedures (EDP) requirements may be questionable