Prelims

Half Title Page

Measurement in Public Sector Financial Reporting

Series Page

EMERALD STUDIES IN PUBLIC SERVICE ACCOUNTING AND ACCOUNTABILITY

Series Editors:

• Enrico Bracci University of Ferrara, Italy

• Laurence Ferry University of Durham, UK

• Alfred Tat-Kei Ho University of Kansas, USA

• Mariafrancesca Sicilia University of Bergamo, Italy

• Ileana Steccolini University of Essex, UK

Recent research has shown that there is a growing gap between academia and practice in public sector accounting, accountability, and auditing. This is a particularly important issue in the context of public services and policies, where a number of emerging issues and trends, such as fiscal sustainability, global climate change, demographic changes, equity and inclusive growth, government transparency, citizen participation and engagement, political polarisation and fragmentation, the growth of false information in social media, and new forms of public–private–non-profit partnership, as well as technological advancements, such as big data, block-chain, and digital transformation, bring about new challenges and require innovative, timely and effective solutions.

To strengthen the debate between academia and practice, Emerald Studies in Public Service Accounting and Accountability aims to provide a forum where academics, practitioners, and policy-makers can interact and promote new ideas related to hot topics and emerging trends. Through innovative use of different formats, such as short-form books, in-depth case studies, and debates, this series will foster a dialogue between those in academia and those in practice, both leading to the advancement of research in this field and increasing its impact.

Volumes in this series:

• Auditing Practices in Local Governments: An International Comparison

  Edited by Laurence Ferry and Pasquale Ruggiero

Editorial Board

• Pawan Adhikari, University of Essex, UK

• Eugenio Anessi-Pessina, Università Cattolica del Sacro Cuore, Italia

• Massimo Anzalone, The Court of Audit, Italy

• Marco Bisogno, University of Salerno, Italy

• Katharina Bryan, EU Court of Auditors, Luxembourg

• David Caplan, Chartered Institute of Public Finance and Accountancy, UK

• Josette Caruana, University of Malta, Malta

• Carolyn Cordery, Aston University, UK

• Drew Cullen, Chartered Institute of Public Finance and Accountancy, UK

• Adina Dudau, University of Glasgow, UK

• Sheila Ellwood, University of Bristol, UK

• Dorothea Greiling, Johannes Kepler Universität Linz, Österreich

• Ron Hodges, University of Birmingham, UK

• Zahirul Hoque, Prince Sultan University, Saudi Arabia

• Gwenda Jensen, International Federation of Accountants, Canada

• Maarten de Jong, The Court of Audit, The Netherlands

• John Kamensky, IBM Center for The Business of Government, USA

• Gustaf Kastberg, University of Gothenburg, Sweden

• Shayne Kavanagh, Government Finance Officers Association (GFOA), USA

• Sanja Korać, University of Speyer, Germany

• Mariannunziata Liguori, Durham University, UK

• Laura Maran, RMIT University, Australia

• Rebecca McCaffry, Chartered Institute of Management Accountants (CIMA), UK

• Dean Michael Mead Governmental Accounting Standards Advisory Council (GASAC – GASB), USA

• Alex Metcalfe, Association of Chartered Certified Accountants (ACCA), UK

• Fabrizio Mocavini, State General Accounting Department – Ministry of Finance, Italy

• Zachary Mohr, University of North Carolina at Charlotte, USA

• Tom Overmans, Utrecht University, The Netherlands

• Gabriel Cid Puron Centro de Investigación y Docencia Económicas (CIDE), Mexico

• Iris Saliterer, Albert-Ludwigs-Universität Freiburg, Deutschland

• Johann Seiwald, International Monetary Fund, Austria

• Ross Smith, International Public Sector Accounting Standards Board (IPSASB), Canada

• Shahzad Uddin, University of Essex, UK

• Jarmo Vakkuri, University of Tampere, Finland

• Frank, H.M. Verbeeten University of Amsterdam, The Netherlands

• Rob Whiteman, Chartered Institute of Public Finance and Accountancy (CIPFA), UK

• Zaozao Zhao, National Academy of Economic Strategy, China

Title Page

Emerald Studies in Public Service Accounting and Accountability

Measurement in Public Sector Financial Reporting: Theoretical Basis and Empirical Evidence

Edited by

Josette Caruana

University of Malta, Malta

Marco Bisogno

University of Salerno, Italy

And

Mariafrancesca Sicilia

University of Bergamo, Italy

United Kingdom – North America – Japan – India – Malaysia – China

Copyright Page

Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2023

Editorial matter and selection © 2023 Josette Caruana, Marco Bisogno and Mariafrancesca Sicilia.

Individual chapters © 2023 The Authors.

Published under exclusive licence by Emerald Publishing Limited.

Reprints and permissions service

Contact: permissions@emeraldinsight.com

No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN: 978-1-80117-162-5 (Print)

ISBN: 978-1-80117-161-8 (Online)

ISBN: 978-1-80117-163-2 (Epub)

Contents

List of Figures

List of Tables

List of Abbreviations

About the Contributors

Berit Adam is a Full Professor at the Berlin School of Economics and Law since 2008. Her research fields are international (especially International Public Sector Accounting Standards) as well as national governmental budgeting, accounting and financial reporting on all levels of government and financial reporting of non-profit organisations. She has practical experience in the reform from cash to accrual accounting in international organisations, as well as local governments in Germany. Her PhD thesis in 2003 was on the applicability of IPSAS in Germany.

Natalia Aversano is an Associate Professor in Accounting at the University of Salerno, where she teaches courses in Financial Accounting, Management Accounting, and Non-Financial Reporting. She holds PhD in Public Sector Accounting. Her research interests are IPSASs, public sector accounting, heritage assets, performance measurement systems in the university, intellectual capital, non-financial disclosure, gender diversity, and accounting education. She is a Member of the Italian Society of Accounting and Business Economics Professors (SIDREA), the European Academy of Management (EURAM), and the European Accounting Association (EAA).

Lucia Biondi is an Associate Professor in Business Administration at the Department of Business Studies, University of ‘Roma Tre’ (Rome, Italy), where she teaches in bachelor’s degree, master’s degree, and postgraduate degree programmes. She is currently a Lecturer in Accounting and Planning & Control courses. She holds PhD in Business Administration and has been a Visiting Scholar at the University of Edinburgh — Business School. Cultural heritage is one of her main research topics since her PhD studies. Her research interests also include public sector accounting, performance management, management control, participatory cultural initiatives, and corporate social responsibility.

Yuri Biondi is a Senior Tenured Research Fellow of the CNRS (IRISSO — University Paris Dauphine PSL) in Paris. A graduate of the Bocconi University of Milan (DES), the University of Lyon (DEA, PhD), the University of Brescia (PhD), and the University of Paris I Sorbonne (HDR). He is a Founding Editor of the Journal Accounting, Economics and Law: A Convivium and Convener of the SASE Research Network devoted to ‘Accounting Economics and Law’. He was Chair of the Financial Accounting Standards Committee (FASC) of the American Accounting Association (AAA) from August 2011 to August 2013. He is a member of the Academic Task Force on Public Sector Financial Management and Reporting jointly established by the CIGAR network, the EGPA PSG XII, and the IRSPM PSAAG.

Marco Bisogno is an Associate Professor in Accounting at the University of Salerno — Department of Management & Innovation Systems (Italy). He received his PhD from the University of Naples ‘Federico II’. He co-chairs the EGPA Permanent Study Group XII, Public Sector Financial Management; and the Academic Task Force on Public Sector Financial Management and Reporting. He is an Associate Editor of the Public Money & Management — CIGAR Annual Issue and a Member of the Editorial Board of the Journal of Public Budgeting, Accounting and Financial Management. His current projects are on International Public Sector Accounting Standards, earnings management, and financial sustainability of public sector entities.

Cristian Carini is an Associate Professor of International Financial Reporting Standards at the University of Brescia, Italy. His research focuses on international accounting, non-financial disclosure, financial measurement, and public sector accounting. He takes part in a national academic Italian research group on consolidated reporting in the public sector and is the Author of publications on the public sector consolidated financial statement. He is a Reviewer for national and international journals also related to the public sector.

Josette Caruana is a Certified Public Accountant and an Associate Professor at the Department of Accountancy of the University of Malta. She coordinates and lectures on courses related to public sector accounting, which is her area of research interest. She is a member of the CIGAR (Comparative International Governmental Accounting Research) Network Advisory Board and co-chairs the Academic Task Force on Public Sector Financial Management and Reporting. She is an Associate Editor of the Public Money & Management — CIGAR Annual Issue and a member of the Editorial Board of the Journal of Public Budgeting, Accounting and Financial Management.

Johan Christiaens is a Full Professor in the Department of Accounting, Corporate Finance and Taxation at Ghent University. Until 2020 he has been registered auditor specialised in public and not-for-profit sector within EY. This explains his continuing relationship with oversight bodies, governments, legislators and standard setting bodies in terms of reform projects, coaching, and advisory boards. He teaches governmental and non-profit accounting and auditing in the ‘Bachelor and Master in Public Administration and Management’ and ‘Master of Health Care Management and Policy’. His research areas are user need research in standard setting, governmental accounting and auditing reforms.

Giovanna Dabbicco is a Researcher at the Italian National Statistical Office (ISTAT) and has been Adjunct Assistant Professor of Planning and Control in Public administrations at the University of Roma Tre, Department of Business studies, Italy. She held previous positions as a Statistical Officer at the European Commission (Eurostat). She received her PhD from the University of Naples ‘Parthenope’. She is a Chartered Certified Accountant and also a member of the CIGAR Network and of the Academic Task Force on Public Sector Financial Management and Reporting. Her research develops at the interface of public sector accounting, government finance statistics, and financial management.

Dimu Ehalaiye is a Senior Lecturer in Accounting at the School of Accountancy, Massey University, New Zealand. He currently teaches Intermediate and Advanced Financial Accounting at the school. He is very involved in research including doctoral supervision, and has authored several prominent journal publications, book chapters, and a commissioned report. His current research interests focus on financial accounting and reporting, accounting in financial institutions, accounting in emerging markets, auditing, accounting standards setting, and public sector accounting. He is also a Chartered Accountant Member of the Chartered Accountants Australia and New Zealand.

Fabio Giulio Grandis is a Full Professor in Management and Accounting of Public Administration at the Department of Business Studies, University of ‘Roma Tre’ (Rome, Italy), where he teaches in bachelor’s degree and master’s degree programmes. He is a Lecturer in Accounting and Management of Public and Not for Profit Entities courses. Public sector accounting is his main research interest. He is an Author of books and research papers in national and international journals. He is currently a Member of the Standard Setter Board of the State General Accounting Department — Italian Ministry of Economy and Finance.

Jens Heiling is a Senior Manager with EY Germany. He has over 20 years of experience in public sector accounting with a focus on Sustainability & ESG Reporting, International Public Sector Accounting Standards (IPSAS), and European Public Sector Accounting Standards (EPSAS). He works at the Financial Accounting and Advisory Services Department in EY Germany’s headquarters in Stuttgart. From October 2011 to January 2013 he was seconded to the IPSAS Board as a Technical Manager and worked on a project on First-time Adoption of accrual basis IPSAS.

Fawzi Laswad is a Full Professor and Head of School of Accountancy at Massey University, Aotearoa, New Zealand. His teaching interests are financial accounting and reporting, information technology, and data analytics. He has published widely in financial reporting for profit and not-for-profit, standard setting, and accounting education. He is currently an Associate Editor of Accounting Education. He served on professional boards and committees. He is a Fellow Chartered Accountant and a Fellow CPA.

Tim Meglitsch is currently studying Management Science with special focus on Accounting, Finance and Taxation at University of Leipzig after completing his BA in Accounting, Taxation, Commercial Law, and with a specialisation in Auditing at Baden-Wuerttemberg Cooperative State University. In his bachelor’s thesis on public sector accounting, he focused on German Standards of Governmental Accrual Accounting, International Public Sector Accounting Standards (IPSAS), and European Public Sector Accounting Standards (EPSAS). He worked for five years at the Audit Department in EY Germany’s headquarters in Stuttgart and conducted projects in the public sector next to his audits.

Fabrizio Mocavini is the Head of Unit in the Italian Ministry of Economy and Finance (MEF), State General Accounting Department, dealing with research in the field of performance measurement, public sector internal financial control, and accounting standards. Recently, he coordinated EU projects aimed at adopting an action plan and a set of accrual accounting standards for the 2025 implementation of accrual-based accounting and IPSAS/EPSAS in Italy. Currently, he is the Head of Technical Staff of the Italian MEF Standard Setter Board established for the implementation of the accrual accounting based on IPSAS/EPSAS. He is the Italian representative on the Eurostat European Public Sector Accounting Standards Working Group for public accounting standards implementation.

Riccardo Mussari, PhD in Business Administration, is a Full Professor in Public Financial Management at the University of Siena, Italy. His main research interests are in the areas of public sector accounting, management control in public administrations, program evaluation, international public management, and public governance. He has been the Editor-in-Chief of the Italian academic leading journal in the area of public management (Azienda Pubblica). He works as a Consultant for local and central public administrations.

Lasse Oulasvirta is a Professor at the Tampere University, in the field of public sector accounting. His research focus has been on public sector financing, accounting, and auditing. He has been holding memberships of several bodies in the field of interest, namely, the Finnish Government Accounting Board; the Scientific Council of the National Audit Office of Finland; the Central Accounting Board of the Church; the Finnish EPSAS group in the Ministry of Finance; the Finnish auditor oversight body; and one leading audit firm in Finland.

Nives Botica Redmayne is an Associate Professor at the School of Accountancy at Massey University, Aotearoa, New Zealand. She teaches and supervises students in advanced auditing and advanced financial accounting. Her research and expertise are in assurance and financial reporting in for-profit and not-for-profit/public sectors. She has authored research published in prominent journals, book chapters, and commissioned reports. She is a Member of several Academic Journals Editorial Boards. She is a Fellow of the Chartered Accountants of Australia and New Zealand (CAANZ) and was the CAANZ President in 2021. She is also a Member of the New Zealand Accounting Standards Board and the New Zealand Financial Market Authority Audit Oversight Committee.

Pasquale Ruggiero, PhD in Business Administration, is an Associate Professor in Public Management at the University of Siena, Italy. Currently, he is the Rector’s Delegate for the Budget of the University of Siena. His research interests mainly concern performance measurement systems of public administrations, partnership systems in the provision of public services and public sector accounting.

Mohamed Salah is a Director with PricewaterhouseCoopers Finance and Accounting consulting unit based in Riyadh focusing on fixed asset management advisory services. He obtained master degree in Engineering and Technology Management from the University of the West of England and over 15 years of experience working in the UK and the Middle East. He performed various valuations in asset intensive industries for the purposes of financial reporting, mergers, acquisitions, privatisations, etc. He is currently leading multiple projects to create the financial fixed asset registers as part of the cash to accrual conversion in the Kingdom of Saudi Arabia.

Kamira Sánchez holds PhD in Economics and has extensive experience in public sector accounting and the implementation of integrated financial administration systems in public institutions. She is a Senior Manager at EY Germany and is part of the Global Public Sector Accounting team of EY, where she is involved in international IPSAS conversion projects in Europe and Latin America. Previous to this role, she served as the Head of the Accounting Norms and Continuous Improvements Department at the Directorate of National Accounting of the Ministry of Economy and Finances of the Republic of Panama. She is a Member of the IPSASB since 2020.

Mariafrancesca Sicilia is a Full Professor at the University of Bergamo. Her research covers public sector budgeting, accounting, performance management, and coproduction. She has published in and is a member of the editorial boards of top-ranked academic journals (such as Public Administration Review and Financial Accountability and Management). She is a Member of the IRSPM’s Board, of the Executive Committee of the IRSPM PSAAG, of the EAA’s Standing Scientific Committee, of the Academic Advisory Group of the IPSASB, and a co-chair of the Academic Task Force on Public Sector Financial Management and Reporting.

Daniela Sorrentino, PhD in Business Administration, is Senior Researcher in Public Management and Accounting, at the University of Siena, Italy. Her research interests are in public sector accounting and performance management, with a focus on accounting reforms and co-production. She also works as a Consultant for Central Public Administrations.

Claudio Teodori is a Full Professor of Accounting at the University of Brescia, Italy, where he serves as Member of the Board of Directors and Vice-President of SIDREA (Italian Association of Accounting and Management Professors). His research interests are mainly focused on financial accounting, public sector accounting, and accounting and crisis. Other research interests regard accounting education, and the relations between accounting and innovation. He coordinates two Italian academic research groups on consolidated reporting in the public sector and on business crisis. He is a Reviewer for national and international journals, and teaches on undergraduate and master’s courses.

Daniele Vari is a PhD student at the Department of Business Studies, University of ‘Roma Tre’ (Rome, Italy). He has taught for three years at the public High School ‘ISIS F. Zuccarelli’ (Grosseto, Italy), and he is currently a Tenured Teacher on leave in Business Administration at the public High School ‘ITIS Giovanni XXIII’ (Rome, Italy). He carried out tutoring and teaching support activities in Accounting and Planning & Control. He participated in several doctoral colloquia presenting his doctoral research project. His main research interests include cultural heritage, public sector accounting, management control, and administration of public service corporations.

Foreword

Accounting is often technical and it can easily become dull. Still, accounting can be provocative, provide food for thought, and challenge ideas that are taken for granted. This book falls in the second category. It is a book about trying to understand and rationalise the ‘whys’ and ‘what ifs’ behind the routine accounting process that is related to measurement.

This book comes at the right moment. Now that the International Public Sector Accounting Standards (IPSAS) are updating their conceptual framework and measurement methodologies. Now that European Public Sector Accounting Standards (EPSAS) are in the process of development. Now that national public sector regulators are drafting their national IPSAS-like accounting standards and gathering ideas and inspiration also from international practice. Now that many governments are in the process of preparing their first balance sheets; struggling with the preparation of a proper fixed assets register; and are puzzled about how to treat heritage assets. Now that governments face the challenge of preparing consolidated financial statements. Now that we scholars try to understand the similarities and the differences between the public and the private sector and draw an informed line.

It is therefore a timely book that can provide a useful means to answer a series of reasonable ‘whys’ in the minds of all those interested in understanding the multifaceted tool of measurement in the public sector. Those that clearly comprehend that valuation in the public sector is not synonymous for ‘public value’. Those that try to understand why different methodologies end up with different information content for decision-making and accountability. Why the prudence principle has become such a controversial issue in public sector standard setting. Why accrual accounting and national accounts diverge when it comes to measurement and provide different bottom lines. Why concluding on the value of public sector entities’ equity calls for diligence in the measurement of assets and liabilities. Why putting a value on heritage can be more than challenging. Why the use of the notion of assets for heritage items is not self-evident.

The book has been co-edited by my dear colleagues Josette Caruana, Marco Bisogno, and Mariafrancesca Sicilia, who are active contributors of important research works in the public sector accounting and financial accounting academic community. They have envisioned and successfully co-edited a book that takes a holistic stance on the topic of measurement in public sector accounting and reporting and includes a series of chapters written by well-known scholars that envisage the topic from several fronts that go from theory to practice and cover not only assets but also liabilities, expenditures, and income.

The pluralism and heterogeneity both in content and structure are what make the book interesting and value-adding. The book chapters try to walk the reader through the different methodologies, implications, and information content that are related to measurement: from the traditional dipole of historical and current cost valuation, to the new current operational value; from the accounting standards to the national accounts; and from the typical fixed assets to heritage. The chapters are also different in structure. They adopt various research methodologies and include theoretical considerations, country cases, and empirical analyses. What they have in common is their critical stance on the topics analysed.

Thus, one could read this book from cover to cover or could focus only on a specific matter area (i.e. frameworks and methodologies, measuring and reporting for financial statements, and heritage-related measurement topics) and study the chapters that fall within. In any case, by using the IPSAS as a reference point in the majority of cases, the book becomes relevant to the international audience.

Different readers are, most likely, going to end up with different takeaway messages after reading the book. However, it is for sure that this book will have made them think about topics they have taken for granted for a long time; wonder about their own preferences when facing alternative options; and object to or coincide with views expressed. Some readers could use the book’s ideas when implementing accrual accounting and need to proceed with measurement in a public sector entity. Others may get motivated to do research on measurement-related topics; to open provocative discussions with fellow professional accountants; and to have a broader and more receptive mind when concluding on accounting standards. Some others could just read the book and feel that accounting is not necessarily technical and dull.

Sandra Cohen

Professor of Accounting

Athens University of Economics and Business

Preface

Josette Caruana, Marco Bisogno, and Mariafrancesca Sicila

This book deals with Measurement in Public Sector Financial Reporting. Literature on the subject is available, but it is dispersed throughout various academic journals, books, and professional publications. The book aims to consolidate and update the literature with empirical evidence from practice, thus making the contents useful for academics, researchers, policy-makers, public managers, international organisations, and standard setters, who are involved in or are responsible for the preparation of public sector financial reporting and related standards. While not designed as a textbook for students, the book can be included in reading lists for university courses and used as a library reference.

The idea for this book arose from the Measurement Project of the International Public Sector Accounting Standards Board (IPSASB). Due to this project, the IPSASB launched a series of consultation papers for public comment. We (the editors of this book) currently co-chair the Academic Task Force on Public Sector Financial Management and Reporting, representing three research networks on public sector accounting, namely, IRSPM PSAAG, CIGAR, and EGPA PSG XII. The main objective of the Task Force is to analyse consultation papers related to public sector accounting (as those issued by the IPSASB) and prepare responses.

The first Consultation Paper tackled by the Task Force was on Financial Reporting for Heritage in the Public Sector in September 2017. The process taken to prepare the response sparked interesting and cohesive debates on the issue, even though the 17 members of the Task Force hail from different jurisdictions. The drafting of this first response laid down the foundations for future responses to more consultation papers. To mention a few, these comprised: Accounting for Revenue and Non-Exchange Expenses in January 2018, Collective and Individual Services and Emergency Relief (Amendments to IPSAS 19) in May 2019, Measurement in October 2019, and Revenue with and without performance obligations and transfer expenses in October 2020. The latter exposure drafts (ED) and responses were the actual trigger for this book.

The IPSASB has kept the Task Force very busy indeed. In April 2021, three very relevant EDs were launched by the IPSASB, namely, the Proposed update of IPSAS 17 Property, Plant and Equipment; the Proposed IPSAS on Measurement; and the Conceptual Framework Update of Chapter 7, Measurement of Assets and Liabilities in Financial Statements. Needless to say, the authors of the chapters in this book had to be aware of these developments and take them into consideration where relevant.

This book adds to existing literature because it deals with a current topic about which an international debate is ongoing. The objective of this book is to present a constructive and thoughtful analysis of possible valuation methodologies for the public sector context. Every chapter seeks to provide a useful contribution to both theory and practice. The authors of the chapters represent a mix of practitioners and academics. The intention of book is to provide a holistic perspective on the subject. In line with the aim of this Book Series, the book attempts to develop discussions and consolidate connections between policy-makers, practitioners, and academics.