Developing XBRL taxonomies in the Spanish Public Sector

How IGAE (public sector accounting coordinators) see the advantages of XBRL with public sector financial information at local governments.

Bonsón-Ponte, Enrique -- Escobar-Rodríguez, Tomás -- Flores-Muñoz, Francisco

AECA, XBRL Spain, University of Huelva, Spain

Index

• Importance of the public sector accounting information.• Final users and its decisions.• Special characteristics of the Spanish public sector.• Rules and regulators.• XBRL in this context.• Local government in Spain.• IGAE

• Local government XBRL taxonomies, now.

Importance of public sector accounting information.

The importance of the public sectorin the Spanish economy.

Spanish public sector represents around a 40% of the national production. According to that weight, is necessary to consider what is the level of transparency and quality of the information provided by public organisms.

Goals of the public sector, such as redistribution of resources, equality, high quality services in education and health, investment in R+D and public infrastructures, are additional reasons for that

necessity of transparency and quality.

Public information necessity.

Citizens are not very much involved in the daily management of public sector activities, so, as it occurs in the private sector, a reporting system is needed to inform final users about the activity of the public sector.

In different countries, the redefinition of the role played by public sector in the economy is perceived as a incentive to apply different reforms on regulations and systems.

New mechanisms of management and new objectives (as a more balanced result between income and expense, and efficiency) are the

new topics to work with.

Functions of public accounting

Traditionally in Spain, public sector accounting had a legal function and the main users were the control organism within the public sector.

Today, public accounting information is considered as one of the most important inputs in the decision making process of all modern economies, considering the importance of the public sector weight in the economy.

So, the traditional set of budget information, referred only to one fiscal year, is not enough to the modern users.

Objectives of the public sectoraccounting information

Modern public sector accounting is now more than budget controls referred to one year. To support the decision making process, users need information about the economic and financial position of the public organism, about the result and the efficiency that these entities obtain.

The main objective is to provide information for the users decisions, at it occurs with the business areas. So, if the objective is next, the financial statements to be provided could be similar in both public and private sector (balance sheets, income statements, budgets, cash flows, …)

Objectives of the public sectoraccounting information

And finally, as users, we can think in the tax contributors, clients, suppliers, regulators, … really, all the citizens. Of course, not only control organisms.

Theoretically, users can decide about a broad set of issues using that information.

One sector, two accounting rules.

Public sector is not only public administration. It includes different foundations, autonomous agencies and companies owned by the State, providing different services. Some groups of entities are involved in the economy in that way that they have to provide accounting information following the private sector rules.

So, sometimes, consolidation is not clear within a public framework if we have public and private accounting information.

For us, in this presentation, we consider only the entities that have to provide accounting information according to the public sector rules.

We need information, but really…

…we need good information.

Concepts of quality

Important aspects of quality in public sector accounting information could be (not necessarily ordered by importance):

• Timeliness• Frequency• Free of frauds• Respect for GAAPs.• Fair view of situation and operations

Concepts of quality

The technical support can improve the quality of the information, making possible to ensure the timeliness and frequency of the information, and validating aspects about legal rules introduced in the artificial systems.

So, if the society incorporates more quality requirements in the public sector accounting, it will have two consecuences:

• Users will have a best tool to support the decision making process

• Technical complexity will be aided by new languages and tools.

Characteristics of “good” public accounting information

According to modern international principles, the public accounting information must be:

• Relevant: it must influence decision making processes and cover necessities of users.

• Reliable: giving a accurate and exact information.

• Complete: including all aspects according to a certain level of materiality.

Characteristics of “good”

public accounting information

• Identifiable: clearly defining the entity it refers to, and the concepts included in the financial reports.

• Clear: ensuring users using that information in the correct way, without ambiguity.

• Comparable: supporting decisions in which election between public entities is a key factor.

Characteristics of “good”

public accounting information

• Substance over form: containing relevant concepts more than a certain visual format.

• Relative importance: considering only aspects according to materiality criteria.

• Of Fair view: giving an exact image of the situation of the entity, which is the final objective of the information if it follows all these principles.

Fair, relevant, reliable, frequent, on time…

A lot of things!

Technical tools could help.

XBRL? We will say…yes

Final users and its decisions.

Users of public sector accounting information

Analyzing interrelationship between the public sector and different types of users, is possible to identify the following user decisions:

• Users of the services given by the State: they are interested in determine the capacity of the public sector of produce high quality services.

• Politic organisms: they need financial information to support the political decisions.

Users of public sector accounting information

• Control organisms: they must monitor the information provided by the public sector activities, to ensure the quality of that information.

• Creditors of the State: they need information about the capacity of the State to pay the debts and interests, about the solvency of the public sector.

• Financial agents: they need information to qualify the financial assets related with public sector activities (bonds, notes…).

Users of public sectoraccounting information

• Analysts: they must consider public sector performance to judge and preview the markets reactions.

• Employees: they need information about the entity they work for, to organize the actions that ensure the labor rights.

• Other national and international entities within the public sector framework: to manage the coordination between them.

• Citizen and mass media: to monitor the politic and administrative

performance and take democratic and economic decisions.

Special characteristics

of the Spanish public sector

Spanish public sector structure

Since 1975, the democratic development in Spain has promoted decentralization in the public administration, recognizing different autonomous regions and improving the politic and administrative competences of different levels of the State.

The modern structure is approximately divided in national, social security and tax, autonomous region, province, and local government

levels.

Spanish public sector structure

National Level &

Tax Administration Level

Autonomous Regions Level

Local Level

Special characteristics,an approximated view.

• The public activities have not the goal to produce a monetary profit. The final objective is to produce a set of high quality services for citizens.

• The public sector has income not directly connected with the services it produces, because the expenses are established by means of a democratic process (political programs)

• To measure the efficiency of the public sector, is necessary to use a set of indicators, not only the profit or result, because, as it is said before, this profit is not really significant.

Special characteristics,an approximated view.

• Spain have different providers of public sector accounting information, one Public GAAP (1994) and the IGAE rules (Intervención General de la Administración del Estado or General Auditors of the State), and 17 Tribunales de Cuentas (or Accounting Courts, one for each autonomous region).

• Public entities generate the public sector accounting information, according to IGAE rules and supporting services, and later, the Accounting Courts receive and analyze that information.

Rules and regulators.

The main rule

The main rule in public sector accounting in Spain is the Plan General de Contabilidad Pública (or Public Plan of GAAP) of 1994.

The main objective of that rule is to homogenize and standardize the accounting between the different Public Administrations, and, at the same time, it tries to homogenize its contents and presentation, as far as possible.

Other important objective is to provide an accounting model more

similar to the private sector model.

Other rules

We have other minor rules dedicated to different aspects of the public sector accounting.

Specially, we can mention the IGAE rules, called Instructions.

Instructions make possible to provide public information from local governments, in a detailed way, and provide the model of financial statements, and so, we have a reference to create de XBRL

Taxonomies.

XBRL in this context.

Accounting in the public sectorand digital information

XBRL can play an important role with the public sector, supporting both financial and not financial information.

The standard implies a certain level of agreement between different users, regulators and technical agents, and it owns different technical advantages.

RegulatorsRegulators

UsersUsers

Technical supporters

Technical supporters

PublicSector

PublicSector

Advantages of using XBRLin the public sector

• Regulators can offer a validated XBRLTaxonomy as an Annex of the legal rules. It is a very high quality way to offer regulations (regulation which will be technically tested).

• If the public sector contains a broad range of entity sizes and characteristics, XBRL can play a vital role, giving the technical support to the communication flows between these entities and aiding small entities to easily provide high quality digital information about their activities.

• The need for an agreement between users, technical people and regulators to create the Taxonomy makes regulations more democratic and it makes the changes less dramatic.

Advantages of using XBRLin the public sector • XBRL will increase the nowadays low digital transparency and degree of

detail of the Spanish public sector accounting information.

• XBRL will allow the use of different ratios and indicators to improve the public management and application of different policies with a better

information.

• If the users need a more detailed and validated information, XBRL can show how this goal is technically possible.

Stages in XBRL implementation for the public sector.

The Spanish public sector could prepare a set of stages to implement the XBRL standard, according to the public sector structure.

1. Local Government (IGAE XBRL Taxonomy) in process. 2. National Level

3. Tax Administration Level

4. Autonomous Regional Level

National Level& Tax Administration

It is possible to generate a XBRL Taxonomy which will support the main document which emanates from the national level: The General Budget of the State.

It is also possible to generate different Taxonomies to support the disclosure of the financial and non financial information of the State at the national level, including the tax income, and connecting it with the tax administration.

Autonomous Regions Level

The need for compatibility is clear when we think about the 17 different autonomous regions existing within Spain.

XBRL can help to maintain compatibility and connection between different administrations, as it occurs along Europe between different countries.

Depending on agreements in the next future, is possible to implement autonomous regions taxonomies coming from national level taxonomies by extension, depending on the national level experiences.

The local government in Spain.

Local entities

At the local level, we can find the same degree of diversity. Municipalities, Metropolitan Areas, Companies, … exist at this level. This group of entities have a more direct contact with citizens. They are, for example, responsible for urbanism, water provision, security in the cities, and a broad set of activities, depending on the population size and other factors.

Sometimes, due to the lack of a optimal size, public local entities has not the organizational capacity to generate public accounting information in a efficient and high quality way.

IGAE

IGAE goals within Spanish public sector

The Intervención General de la Administración del Estado, assigned to the General Secretariat of State for Tax and Budgets, has functions of internal control, by means of the exercise of the financial control, the direction and management of the public accounting, the formation of the economic accounts of the public sector and the planning, design and execution of the digital policy of the General Secretariat. Since 1997 IGAE runs a publicly available portal web providing an ample range of information and services, that is extended day to day in order to approach the budgetary Administration to the citizens and the rest of Organisms of the public Administrations.

IGAE and digital world

• So, IGAE, as a high level supporter of digital and administrative services for public organisms and citizens, is very involved in digital developments within the public sector, leading the XBRL developments.

• One example of the implication of IGAE with digital world is the implementation of BASICAL, a system that support the elaboration and transmission of accounting information in small local entities.

• IGAE BASICAL developments consist not only of the creation of that system, but its implementation and usage, and the technical and business supporting for the small local entities through the process of implantation and updating.

Local government XBRL taxonomies, now.

XBRL-IGAE developmentsuntil today

• IGAE development of XBRL taxonomy for the local government started at the beginning of 2006.

• Today, the Working Group is improving a first draft of the taxonomy, and have considered a set of strategic decisions about the global design of the modules of the future taxonomy.

• As usual in XBRL developments, all the materials are publicly accessible (with a pre-admission process) in the XBRL-ES-SECTOR PÚBLICO Yahoo Groups for comments.

IGAE-XBRL Working Group

• A Working Group have been created within XBRL Spain to support the IGAE implementation of a taxonomy for the local public accounting models.

• In this context, different entities are deeply participating in the tasks, as accounting courts, audit firms, analysts, computer vendors, regulators and the university.

IGAE rules and XBRL modules

Local accounting is structured in three models, depending on size criteria. Each rule generates a XBRL modular taxonomy:

Model IGAE rule XBRL modular taxonomy

• Normal Model Instruction 4041/2004 igae-n

• Simplified Model Instruction 4042/2004 igae-s

• Basic Model Instruction 4040/2004 igae-b

The models are different in the number of financial statements they contains, but the Normal Model could be considered as an extension of the Simplified one. Basic is special, and BASICAL system helps small local entities with it. So, at the level of the basic model, is being implemented a system of bidirectional mapping XBRL – BASICAL.

A few details about the designIGAE accounting models are based on this kind of tables, for which the group have decided to use tuples. Using tuples, users will reply each line of data they must to provide. Accounting courts are preparing a set of detailed linear calculations to validate de information reported with the new taxonomy.

Tuple head

Calculation relationships

Line being replied

A few details about the design

• The simplicity of the model has been considered by the XBRL Spain technical coordinators and so, the recommendation is not using dimensions here.

• The tuple structure is a good option for this kind of reporting model, so it ensure the same number of lines in each column.

• Now, the priority is the definition of the calculation rules needed. This definition of rules is based on the regulation, and will allow to improve the quality of quantitative information provided by local entities.

Final considerations

• XBRL will support a high level of validation in the information provided by the local entities, aiding the implementation of high quality digital processes in not very developed contexts (as small local entities).

• XBRL will show its capacity of adaptation with pre-existing systems, as BASICAL, and the technical advantages will allow a best public resources management.

• The local experience will be the starting point for the implementation of more advanced and technically complex XBRL projects within the public sector.

Thanks for your attention.

References

• AECA (Spanish Accounting and Business Administration Association). Public Sector Accounting Conceptual Framework http://personales.ya.com/aeca/comisiones/comisionsectorpub.htm

• IGAE http://www.igae.pap.meh.es/• XBRL Spain http://www.xbrl.org.es• IGAE XBRL Taxonomy Yahoo Group XBRL-ES-SECTOR PÚBLICO• IFAC (International Federation of Accountants). Handbook of

International Public Sector Accounting Pronouncements