Consolidation in the public sector: methods and approaches in Organisation for Economic Co-operation and Development countries
| Published date | 01 December 2016 |
| Date | 01 December 2016 |
| DOI | http://doi.org/10.1177/0020852315576713 |
| Subject Matter | Symposium on The Gordian knot of public sector accounting and the role of IPSASArticles |
International Review of
Administrative Sciences
2016, Vol. 82(4) 763–783
!The Author(s) 2015
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DOI: 10.1177/0020852315576713
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International
Review of
Administrative
Sciences
Article
Consolidation in the public
sector: methods and approaches
in Organisation for Economic
Co-operation and
Development countries
Andreas Bergmann
Zurich University of Applied Sciences, Switzerland
Giuseppe Grossi
Kristianstad University College, Sweden
Iris Rauskala
Zurich University of Applied Sciences, Switzerland
Sandro Fuchs
Zurich University of Applied Sciences, Switzerland
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 inter-
nal 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
Corresponding author:
Iris Rauskala, ZHAW, Zurich University of Applied Sciences, School of Management and Law, Institute of
Public Management, Bahnhofplatz 12, 8400 Winterthur, Switzerland.
Email: info.ivm@zhaw.ch
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.
Keywords
consolidated financial statements, consolidation methods, consolidation scope,
International Public Sector Accounting Standards, Organisation for Economic
Co-operation and Development countries comparison, public sector
Introduction
Changes to the organisational composition of the public sector introduced by
New Public Management-style reforms, leading to contracting-out and privatisa-
tion in their various forms, have led to an increased decentralisation of responsi-
bilities in accounting in the public sector (Grossi and Reichard, 2008; Torres and
Pina, 2002). Not only have these reforms been done for reasons of finding adequate
forms of organising public sector activities, but, very often, the ‘escape out of the
budget’ (to use a German-speaking world expression) was pursued for the purpose
of hiding public debt.
It has now become widely accepted by those investigating financial reporting
requirements in the public sector that the Consolidated Financial Statement (CFS)
is a useful instrument for governments dealing with publicly owned entities because it
presents a clear picture of the current economic status and functioning of the whole
interrelated group (Chow et al., 2007; Grossi and Newberry, 2009; Wise, 2010).
As in the private sector, a need for more harmonised accounting practices in the
public sector has also arisen among countries. Maybe the best way to reach the aim
of more harmonisation of financial reports is to follow the International Public
Sector Accounting Standards (IPSAS), issued by the International Public Sector
Accounting Standards Board (IPSASB), which provide rules for preparing both
annual statements and CFS. The IPSAS 6, 7 and 8 suggest control as the leading
criterion to define the scope of consolidation, and by operationalising it, they adapt
the concept for the specific characteristics of the public sector. With the rising
importance of these single public sector accounting standards being used inter-
nationally, it can be expected that more and more countries will also switch to
the respective suggestions for CFS. However, is it really this way? This article
therefore aims to answer the following research questions:
1. What is the diffusion of CFS in Organisation for Economic Co-operation and
Development (OECD) countries?
2. Which consolidation methods are in use?
764 International Review of Administrative Sciences 82(4)
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