On Accounting, Rome and Brussels Are Not in Harmony

In recent years, the fiscal crisis of sovereign debt has led to a number of policy measures aimed at strengthening European financial governance and the coordination of member countries' fiscal policies. This in turn requires higher quality and transparency in national accounting; the EU is in fact pushing for a harmonization of the various accounting systems in public administrations around Europe. Thus an ad hoc project for European Public Sector Accounting Standards has been launched, its criteria deriving from an adaptation of IPSAS – International Public Sector Accounting Standards.

Also in Italy there is talk of harmonization in public accounting, as per the provisions contained in the Legislative Decree 118/2011, which has been recently amended and supplemented following a conference gathering central and local administrations.

However, in the Italian context, harmonization has become synonymous with renewal of the tradition of financial accounting. In fact, the harmonized accounting ystem that Italian public administrations will have to adopt starting in 2015, when the trial currently under way (which has involved about 400 public institutions, including regions, municipalities, and government agencies) ends, provides for the coexistence of financial accounting and the measurement of economic performance through the income statement and the assets and liabilities balance sheet. It mainly emphasizes the adoption of new rules in the traditional financial accounting system, which are designed to make it, at least in the intentions of the legislator, more reliable and more difficult to manipulate through fiscal policy. However, accounting for public costs and revenues remains peripheral with respect to financial accounting, with the risk, amply demonstrated by the effects of a similar reform in the 1990s, of economic accounting being marginalized in the actual behavior of public administrations. This is because the latter does not substitute financial accounting, and, crucially, is not extended to the preliminary budget, which plays a central role in public administration.

It would appear that Italy and Europe are aligned in the pursuit of growing harmonization in public accounting systems. But at a closer look, it emerges that the concept of harmonization is differently interpreted in Brussels with respect to Rome. Therefore, far from having started a process of harmonious convergence, the Italian state proceeds on its own route, with little concern for the road the EU is taking. This should be cause for concern, because it is likely to further marginalize Italy from European decision-making, when given the size of its government debt and the weight it has on its GDP, Italy should instead play a leading role in the process. In this regard, it is significant to note that Italy did not participate in the public consultation launched by the European Commission to gather information on the applicability of the current version of IPSAS to EU member states' accounting systems.