Accounting

The purpose of accounting is to communicate an organisation’s financial position to managers, investors, banks, and the government. Accounting provides a system of rules and principles that prescribe the format and content of financial statements. Through this consistent reporting, managers and stakeholders can assess the financial standing.

The ERICs presently rely upon simple accounting metrics though, in the future, new focus should be placed on methods that may be driven by key financial performance indicators (KPIs), given the role and the relevance of the ERICs for the deployment of the European Research policies.

Transparency is a matter of vital importance. ERICs require internal control mechanisms that allow their stakeholders to assess the destination of resources (the narrative) in accordance with their goals. Transparency and good governance are necessary to achieve social credibility which allows for the continuity of an organization and the achievement of its goals.

The ERICs – though their juridical status is clearly defined by the European Commission – face a multiplicity of varying European fiscal and accounting regimes for the recording of their development activities. The lack of a universal approach to financial planning and reporting makes the recording and the accounting phases more complex.

Shared accounting rules and standard presentation of economic & financial information of the ERIC are very important for the following reasons

• the grants tracking procedures (recording, collection) require accurate collection of financial information
• providing long-term sustainability assessment is an exercise based on several assumptions
• comparability between the ERICs is not easy since the operational objectives and plans as well as the applied procedure differ from one ERIC/country to another,
• effective communication of the financial and economic performance and the spending and of the objectives accomplished of the ERIC to the public to protect the general public interest plays a very important role for the ERICs implementation.

ERICs scientific excellence goals and impact however are not designed to return profit. Therefore the accounting rules to be applied should be designed to illustrate and measure the execution of its objectives, its impact on society, its sustainability, the transparency of the communication of the results:

• the success of the scientific research infrastructure joint initiatives
• the effective sharing of public physical and intellectual resources in an European and international dimension
• the educational activities
• the sharing of knowledge and scientific advancement.

Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) can improve the clarity of the communication of financial information of the ERICs to the public and ensure a homogenous and comparative analysis of the financial and economic performance of the European Research Infrastructures.

Watch an ERIC Forum webinar “Guidance for accounting principles for ERICs” below.

GAAP (Generally Accepted Accounting principles) are focused on the accounting and financial reporting of U.S. companies under the responsibility of the Financial Accounting Standards Board (FASB). The alternative to GAAP is the International Financial Reporting Standards (IFRS), set by the International Accounting Standards Board (IASB).

It should be highlighted that IFRS1 is a standard-based approach used internationally, while GAAP formally is a rule-based system compiled in the U.S. Entities based in the European Union follow standards adopted by the International Accounting Standards Board (IASB) known as international financial reporting standards (IFRS)

Generally accepted accounting principles: 10 key concepts

• Principle of regularity: accountants strictly adhere to established rules and regulations.
• Principle of consistency: consistent standards are applied throughout the financial reporting process.
• Principle of sincerity: accountants are committed to accuracy and impartiality.
• Principle of permanence of methods: consistent procedures are used in the preparation of all financial reports.
• Principle of non-compensation: all aspects of an organization’s performance, whether positive or negative, are fully reported with no prospect of debt compensation.
• Principle of prudence: speculation does not influence the reporting of financial data.
• Principle of continuity: asset valuations assume the organization’s operations will continue.
• Principle of periodicity: reporting of revenues is divided by standard accounting time periods, such as fiscal quarters or fiscal years.
• Principle of materiality: financial reports fully disclose the organization’s monetary situation.
• Principle of utmost good faith: all involved parties are assumed to be acting honestly.