Consolidation in the public sector: methods and approaches in Organisation for Economic Co-operation and Development countries

Abstract

Organisational changes of the public sector have led to increased decentralisation of public services. Only fully fledged financial accounting and reporting systems guarantee the consolidated information needed by executive and legislative bodies to fulfil their duties in financial management and the supervision of network entities. Consolidated financial statements may serve to increase accountability and transparency towards internal and external stakeholders. The article aims at giving an overview of consolidation approaches in Organisation for Economic Co-operation and Development countries. It will focus on the methods applied and the guiding principles followed to define the perimeter of consolidation. The analysis is carried out through a comparison of legal requirements and standards for consolidation, and the published consolidated financial statements, taking the International Public Sector Accounting Standards as a benchmark. Points for practitioners: The analysis of consolidation practice in Organisation for Economic Co-operation and Development countries reveals that while the use of consolidated financial statements is increasing, there are still significant deviations from the perspective of international accounting standards. The results show that the equity method plays a crucial role as it is used in a transition period to full consolidation and/or for organisations having major influence on the statements of financial position. These findings are of interest in the ongoing debate of international standard-setting in the field of consolidation, as well as for the discussion of European Public Sector Accounting Standards

The enabling role of institutional entrepreneurs in the adoption of IPSAS within a transitional economy: The case of Estonia

“…Estonia is the first country in Europe that adopted IPSAS (ACCA, ) and is one of the few countries (like the United Kingdom—see Chow, Humphrey, & Moll, ; Jones, Lande, Lüder, & Portal, ; PwC, ) in the EU that applies a whole‐of‐government financial reporting approach for public sector activity (Bergmann, Grossi, Rauskala, & Fuchs, ; Grossi & Pepe, ). Since 2004, a full accrual accounting and reporting system in accordance with IPSAS has been implemented in Estonia.…”

The UK's Exit Charge from the EU: Insights from Modes of Accounting

“…Bergmann et al . () attribute the growing attention in OECD countries to consolidated government financial reporting to the increasing fragmentation of government, in part due to the influence of new public management. Consolidated information can provide an overview of the financial performance and position of government which the accounts of individual entities cannot do.…”

Usefulness of consolidated government accounts: A comparative study

“…Nearly three decades since the advent of New Public Management (NPM) in the 1990s, governments in many Western nations remain interested in accruals-based accounting and budgeting reforms (Robinson, 1998;Likierman, 2003;Paulsson, 2006;Lapsley et al, 2009;Ezzamel, et al, 2014). More recently, research interest has branched out to also examine reforms closely related to accruals, such as consolidated government accounts, that bring together the public sector in a single set of audited financial statements (Chow et al, 2007;Grossi and Pepe, 2009;Newberry and Pont-Newby, 2009;Newberry, 2011;Bergmann, 2014;Chow et al, 2015;Bergmann et al, 2016). In particular, there continues to be strong academic and practitioner interest in understanding the usefulness of government accounting reforms (Ezzamel, et al, 2014;Kober et al, 2010;Lapsley et al, 2009;Barton, 2009;Chow et al, 2015).…”

“…It was a nominal change only after ten years of accruals-based government-wide financial reporting. Consolidation therefore appears to be taken for granted as a natural or self-evident development of accruals accounting reforms due to its strong normative appeal as being an economic reflection of the entity (Bergmann et al, 2016). However, expanding the scale of reforms on the basis of normative logic alone is problematic.…”

“…The growing trend for consolidation practices in government has also piqued academic interest. Coming from a stakeholder theory perspective, Bergmann et al (2016) argue that full consolidation is important for both internal (e.g., politicians and public managers), as well as external stakeholders (e.g., citizens, financial institutions and rating agencies), because it provides a fuller, whole of entity, perspective on the government's financial position and performance, due to otherwise significant exclusions of agencies contributing to government activity (Heald and Georgiou, 2000;. Others (Ball, 2012;Ball and Pflugrath, 2012;Grossi and Pepe, 2009) view reforms based on private sector practices and international harmonization favourably, persuaded mainly by perceived economic benefits.…”