International Journal of Public Administration

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The International Harmonization Process of Public Sector Accounting in Portugal: The Perspective of Different Stakeholders

Patrícia S. Gomes

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, Maria José Fernandes

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& João Baptista Da Costa Carvalho

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a

Research Center on Accounting and Taxation (CICF), Polytechnic Institute of Cávado and Ave (IPCA), High Management School, Barcelos, Portugal

b

Research Center on Accounting and Taxation (CICF), Polytechnic Institute of Cávado and Ave (IPCA), Portuguese Commission for Public Accounting Harmonization, Barcelos, Portugal Published online: 24 Feb 2015.

To cite this article: Patrícia S. Gomes, Maria José Fernandes & João Baptista Da Costa Carvalho (2015) The International Harmonization Process of Public Sector Accounting in Portugal: The Perspective of Different Stakeholders, International Journal of Public Administration, 38:4, 268-281, DOI: 10.1080/01900692.2015.1001237

To link to this article: http://dx.doi.org/10.1080/01900692.2015.1001237

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The International Harmonization Process of Public Sector Accounting in Portugal: The Perspective of Different Stakeholders

Patrícia S. Gomes and Maria José Fernandes

Research Center on Accounting and Taxation (CICF), Polytechnic Institute of Cávado and Ave (IPCA), High Management School, Barcelos, Portugal

João Baptista Da Costa Carvalho

Research Center on Accounting and Taxation (CICF), Polytechnic Institute of Cávado and Ave (IPCA), Portuguese Commission for Public Accounting Harmonization, Barcelos, Portugal

This paper investigates the reform of public accounting in Portugal through the IPSAS adoption highlighting the perception of different stakeholders. Two competing theories (NPM and the institutional theory) are used to understand public accounting changes within the Portuguese context. In general, different stakeholders agree with the favorable moment and the context of the reform. The context of financial crises and the great external pressures to cut public deficits and to improve the quality of financial information seem to be the most important factors to stimulate changes in public accounting. In addition, stakeholders recommend the use of different strategies to ensure success.

Keywords: public accounting reform, Portuguese context, institutional theory, new public management (NPM), stakeholders’ perspective

INTRODUCTION

The rise of new public management (NPM)-like innova- tions and the inefficiencies of the current accounting model are considered important stimulus to reform public account- ing systems (Argento & van Helden, 2010; Chan, 2003;

Chow, Humphrey, & Moll, 2007; Christiaens, Reyniers, &

Rollé, 2010; Christiaens, Vanhee, Manes-Rossi, Aversano,

& Cauwenberge, 2014; Hood, 1995; Lüder, 2002). The diversity in reformed governmental accounting systems and the growing need for financial and political account- ability demands a broader and more complete accounting system (Christiaens et al., 2010; Grossi & Pepe, 2009;

Oulasvirta, 2014). Based on the assumption that accounting is increasingly regarded as a social and institutional prac- tice (Hopwood, 1992), researchers are interested in the study about implications of accounting changes not only on the

Correspondence should be addressed to Patrícia S. Gomes, Research Center on Accounting and Taxation (CICF), Polytechnic Institute of Cávado and Ave (IPCA), Campus do IPCA, High Management School, 4750-810 Barcelos, Portugal. E-mail:pgomes@ipca.pt

individual and organizational level but also on the society as a whole (Potter, 2005).

The adoption of International Public Sector Accounting Standards (IPSAS) is referred to in the literature as a cru- cial starting point for public-sector accounting changes.

As a consequence, for the last 20 years, there has been a movement advocating the international harmonization of the public accounting sector, which led to the publication of 32 IPSAS for public-sector entities (IFAC, 2008).

However, literature has shown limited evidence on the efficiency of accrual-based accounting systems in public- sector organizations (Arnaboldi & Lapsley, 2009; Bruns, 2014; Lapsley, Mussari, & Paulsson, 2009; Wynne, 2008) and a great heterogeneity regarding the adoption of IPSAS in different countries (Christiaens et al., 2010, 2014;

EUROSTAT, 2012; Lapsley et al., 2009; Pina, Torres, &

Yetano, 2009). An important issue is that accrual-based IPSASs are not mandatory. Thus, IPSAS adoption depends on a free choice (motivated by instrumental and rational reasons) or on institutional pressures (motivated by the influence and pressures of outside parties and the need to legitimate internal actions).

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Besides these two competing approaches that help explain public accounting changes, the truth is that there is a lack of empirical evidence on the efficiency of IPSAS adoption and its impact on the users of this information, leading to various criticism and doubts about the decision to imple- ment this accounting reform (Lapsley et al., 2009; Wynne, 2008). Thus, a more in-depth case study research on public accounting reforms in relation to the adoption of IPSAS is needed to clarify the reasons and the choices on accounting changes (Potter, 2002, 2005). This article helps to mitigate this gap on the nature and determinants of public accounting changes.

Considering the global context related to the IPSAS adop- tion, and the significant changes that are being defined and institutionalized in Portuguese public accounting system, the main goal of this article is to study the introduction of IPSAS in the Portuguese context based on two competing theories:

the NPM agenda and the institutional theory. The focus is on the perception of different stakeholders (named as promoters or reform drivers by Lüder and key players by Oulasvirta) regarding the stimulus and the content of the reform toward the introduction of IPSAS in Portugal. This is a first arti- cle under a research project that looks into the process of the IPSAS adoption in the Portuguese context in a period in which a new model is being conceptualized and designed.

So, this article studies the instrumental and institutional rea- sons to reform public accounting. More specifically, the goal is to answer to three research questions: (1) what are the stimuli and the main reasons for the adoption of IPSAS in the Portuguese context; (2) what are the contents of this reform (goals, means, and strategies) and the expected results; and (3) how far may we expect differences in our results based on the three categories of stakeholders.

The particular interest in the Portuguese case is the analysis of a European-continental country with more than 10 years of experience in the adoption of accounting stan- dards based on the private-sector accounting regime. On the other hand, this article bridges the gap found in the litera- ture (Oulasvirta, 2014) because it presents a country-specific case explicitly addressing the IPSAS adoption contrary to other papers that mainly present international comparisons regarding the degree of adoption of IPSAS in different coun- tries or organizations (see, for example, Benito, Brusca, &

Montesinos, 2007; Christiaens et al., 2010; Grossi & Pepe, 2009; Pina & Torres, 2003; Pina et al., 2009). In addition, this work answers to Potter’s call (2005) to study the perspective of different groups of technical experts in identifying the problems to be addressed on (public) accounting reform and in shaping its content. The study of the stakeholders’

perspective regarding public accounting changes is an inno- vative issue addressed to public accounting and management literature.

The article is organized into five sections. After the introduction, we will present the Portuguese context for the change in government accounting. Further, we present

the theoretical framework of the article and the research methodology. Next, we present the results of the analysis and discussion of the findings. The main findings of the article, limitations, and suggestions for further research are presented in the last section.

THE PORTUGUESE PUBLIC-SECTOR ACCOUNTING REFORM

Being a Southern European country, the traditional bureau- cracy in Portugal is featured by some particular charac- teristics like ‘the “rule by law” approach to management, the formal control of inputs and procedures, the central- ized hierarchical organizational structures, the authoritarian and paternalistic attitudes, the centralized decision-making processes, the fragmented structures, and the low communi- cation levels (Araújo & Branco, 2009, p. 563).

Notwithstanding these particular features of the political/administrative context, the successive Portuguese governments have implemented several administrative reforms in the last two decades (Araújo, 2001, 2002;

Corte-Real, 2008; Gomes & Mendes, 2013). Within this context of change, several reforms have been introduced on government accounting systems since the beginning of the 1990s as a part of a broader set of NPM initiatives.

These changes in accounting occur because some problems arise with the existing practices, and the implementation of “new” and “better alternatives” is needed. This is what Potter (2005, p. 276) calls the problematization process that may be explained under the institutional thinking.

Portuguese government has been preparing accrual-based accounting reform ever since the approval of the public accounting basis law (Law no 8/1990). However, the land- mark of this reform was the publication of the Official Plan for Governmental Accounting for the state accounting, from 1997, followed by the publication of the Official Plan for Local Government in 1999. Currently, the Portuguese government accounting framework “uses double entry com- bining cash-based budgetary accounting with accrual-based financial and cost accountings, providing information for both accountability and decision-making” (Jorge, Carvalho,

& Fernandes, 2008, p. 239). The introduction of the accrual basis accounting regime, the accounting standard- ization, the integration of budget, accrual and management accounting, and the swifter data collection for national accounts represent the main objectives of the existing pub- lic accounting system.

Usually, changes on public accounting systems are intro- duced and became obligatory by law. Thus, coercive and normative forces seem to have major implications on the stimuli and the content of this reform and on their intended outcomes (as was concluded by Argento & van Helden, 2010; Baker & Rennie, 2010; Carpenter & Feroz, 2001;

Lapsley et al., 2009; Oulasvirta, 2014). To reinforce this

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result, we can see the main conclusions of the final report developed by EUROSTAT (2012) with the comparison of public accounting and auditing practices in the 27 EU mem- ber states. This report refers that in Portugal “the move to accrual accounting was decided in the 1990s and, at present, accrual accounting has only been implemented in a lim- ited number of entities” (EUROSTAT, 2012, p. ii)

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and it is expected that the reform started in the 1990s should be con- cluded by the end of 2013. Another result from this report is that “resistance (if any) with the application of IPSAS sys- tems comes from the fact that the IPSAS do not cover key accounting topics for the government” (EUROSTAT, 2012, p. 320). Thus, this is consistent with critical perspectives of several authors about the approach chosen by the IPSASB to develop accrual-based accounting (Baker & Rennie, 2010;

Christiaens et al., 2014; Oulasvirta, 2014; Pina et al., 2009).

As for the opinion of the Portuguese Court of Accounts and the Ministry of Finance in the EUROSTAT report (2012), it states that IPSASs do not provide sufficient guidance on the following topics: (1) recognition of the historical her- itage (monuments and work of art); (2) liabilities related to social funds (not addressed by IPSAS); (3) tax revenue (there is no recommendation on IPSAS on the recording of the tax revenue in an accrual basis); and (4) the consolida- tion process (no guidance is provided on the definition of the controlling entity and controlled entities from a govern- ment perspective). Thus, the reforming process is ongoing, and some technical and managerial problems have not been solved yet (as suggested by Lapsley et al., 2009).

Moreover, ever since 2010, due to a great financial crisis and a great dependence on money lent by the International Monetary Fund (IMF), the Portuguese government has been reforming its financial information systems in accordance with international requirements. The Letter of Intent, the Memorandum of Economic and Financial Policies, and the Technical Memorandum of Understanding signed in March 2014 between the Portuguese government and the Troika showed Portugal’s commitment to improve the accounting and reporting framework. So, the dependence on lenders’

money represents an important external pressure that deter- mines public accounting changes in Portugal. This is what Christiaens et al. (2014) call the reform from a resource dependence theory point of view, which is very common in emerging countries.

On the other hand, at the national level, we have seen the government and the Ministry of Finance pushing for an intro- duction of international practices on public accounting. The

1This EUROSTAT final report is publicly retrieved from http://

epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/

documents/study_on_public_accounting_and_auditing_2012.pdf. The Por- tuguese situation and the context of the reform are available on pages 312–324.

Budget Strategy Document (DEO)

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approved for the period 2012–2016 and, more recently, for the years covering the period until 2018, establishes, at least formally, the need to introduce changes in the public accounting system oriented to better international practices (like IPSAS). This is a for- mal document, in which the political interest in the process of change is shown to the external parties. According to the institutional approach, the need to obtain external support may be deterministic in these desired accounting changes, especially in a country under a great financial crisis.

In addition, the Portuguese government establishes by law that the CNCP (the Public Sector Accounting Standard Setting Committee) is the committee in charge of develop- ing new public-sector accounting model through the IPSAS application. The target established by the Government is the year 2014. During this year, the CNCP shall present pro- posals of the legal requirements to approve the new public accounting system based on the IPSAS nature and objectives.

The Portuguese committee (CNCP) consists of nine mem- bers, who represent different interested parties in the process of change (like Portuguese government ministries and offices related to accounting and budgeting, professional account- ing and auditing associations, high education institutions in the public accounting area, statistics offices, experts or academics on the field, and so on), and reports directly to the government. The relationship between the account- ing standard setting body and the Portuguese government is cooperative, considering that several government members are represented in this committee. On the other hand, the representation of different interest groups in this committee also symbolizes a good network, which may be determi- nant in the definition of the model and the success of its execution (Argento & van Helden, 2010). However, in the opinion of the author who integrates this committee, the task of the CNCP is not easy because it should combine differ- ent interests or goals, namely to bring the public accounting closer to the private-sector rules, facilitating the consolida- tion of the accounts, adopting recognition and measurement criteria similar to those used by the private sector, and pro- viding the integration of different accounting regimes in only one system. Another goal defined for this new model is the increasing importance assigned to management accounting and the production of performance indicators that is essen- tial toward the accountability and the driven managerialism (Lüder, 2002).

Thus, currently, there is a favorable moment and an ade- quate institutional context leading to changes in the new accounting system oriented to IPSAS where coercive and external forces can be determinant to explain public account- ing changes in the Portuguese context.

2Document publicly retrieved from http://www.portugal.gov.pt/pt/os- ministerios/ministerio-das-financas/documentos-oficiais/20140430-mf-deo.

aspx.

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THEORETICAL FRAMEWORK AND METHODOLOGY

Theoretical Framework

The theoretical framework was inspired by frameworks that explain the impetus for public-sector reforms (and espe- cially public accounting changes), particularly the Hood (1995) and Lüder (2002) frameworks and the institutional approach of DiMaggio and Powell (1983).

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These frame- works lead us to understand (1) the motives or stimuli for the adoption of IPSAS in the Portuguese context, (2) the contents of the reform (goals, means, and strategies) and desired outcomes, and (3) the level of cohesion among differ- ent stakeholders (professional associations, regulators, and independent auditors). The answer to these research ques- tions helps to understand the diverse and complex processes through which changes may happen in the public accounting domain (Potter, 2005).

The reform stimuli determine all the process and the con- tent of the reform (Argento & van Helden, 2010; Hood, 1995; Lüder, 2002) and can be associated with differ- ent external and intra-organizational factors (Bruns, 2014).

In this article we focus our analysis on two theories:

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(1) the NPM agenda leading to an increasing demand for result quantification and for highest levels of efficiency and effectiveness (Hood, 1995; Lüder, 2002) and (2) the institutional / external pressures made by institutions, credi- tors, regulators, professionals, government, politicians, and citizens (Carpenter & Feroz, 2001; Carvalho, Gomes, &

Fernandes, 2012; DiMaggio & Powell, 1983; Lapsley et al., 2009; Oulasvirta, 2014). For example, the context of finan- cial crisis and the great dependence on lenders’ money are appointed in the literature as important external pressures (Christiaens et al., 2014; Lüder, 2002; Oulasvirta, 2014).

The intentions of the NPM model are to change manage- ment structures, processes, and practices in the public sector, with the goal to improve efficiency and make organizations more accountable. So, based on this theory, the argument is that the need for more complete and quantitative information on the government action and the stakeholders’ dissatisfac- tion with the current situation leads to public accounting changes and to the adoption of business-like innovations gen- erally used in the private sector (Argento & van Helden, 2010; Hood, 1995; Lapsley & Pallot, 2000; Lapsley et al., 2009). According to Lüder (2002), it is the need for more comprehensive and reliable financial information that moti- vates the creation of more sophisticated public accounting systems. When the current information system is acceptable

3In this article, we focus on the isomorphism perspective of the institutional approach (coercive forces, normative forces, and mimetic forces).

4This theoretical approach is based on two competing approaches of the organizational life similar to those used by Lapsley & Pallot (2000) in the study of organizational changes in local government.

and responds to the real needs of information, then the need for changes is reduced. This can be the main reason for the unsuccessful reform in the Finland case (Oulasvirta, 2014).

The reform content includes the goals/desired outcomes of the reform and the necessary means and strategies to implement the reform and put it successfully into practice, which is consistent with the Lüder’s instrumental variables (Argento & van Helden, 2010) and the transformational stage of the reform studied by Bruns (2014). Generally, the literature suggests that the main goal of a new and more sophisticated public accounting system is to provide feed- back for decision-making and to improve accountability.

This is what Lüder (2002) calls an “accountability driven”

or a “managerialism driven” change to improve the organi- zational performance (p. 3). About the means and strategies to implement and institutionalize the process of change, the appropriate context for the reform and the way to execute it effectively to reduce the gap between the desired and the final outcomes should be considered (Argento & van Helden, 2010; Bruns, 2014). According to Bruns (2014), the implementation stage is a shorter step in the total cycle that consists of the diffusion of the desired outcomes, the achieve- ment of key organizational objectives, and the redefinition of structural relationships. The institutionalization process is a longer cycle oriented to the creation of the acceptance (taken for granted) of changes, the creation of significant governmental capability to improve public service standards, and the creation of significant capacity to improve cross- functional resource flows and relationships. In this article, these two steps are studied as being the content of the reform as a whole.

The level of cohesion and collaboration between different stakeholders concerning the content of the reform is crucial to achieve the intended outcomes of the reform (Argento

& van Helden, 2010). In addition, as was suggested by the literature on public accounting reforms, the establishment of collaborative relationships and the cohesion of differ- ent stakeholders about the direction, goals, and contents of the reform are essential to have success and reduce the gap between intended and final outcomes (Bardach, 1998;

Granovetter, 1992). So, considering the third research ques- tion, this article also analyzes the level of cohesion between the different stakeholders in relation to the stimuli and the content of the reform.

In addition to the accountability and managerial reasons for accounting changes, several institutional pressures may help us understand public accounting choices. These exter- nal pressures may lead to changes, with the main goal to obtain legitimacy and external support and to increase the commitment of external constituents and internal partici- pants (Carpenter & Feroz, 2001; Carruthers, 1995; Lapsley

& Pallot, 2000; Lapsley et al., 2009; Modell, 2009). Based on the institutional approach of DiMaggio and Powell (1983), in this article, we highlight three mechanisms leading to the institutional isomorphism and to the convergence of

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organizational structures: the coercive isomorphism, the nor- mative isomorphism, and the mimetic isomorphism.

Coercive isomorphism is featured by the imposition of rules or legal acts compelling organizations to adopt the same kind of changes in structures and processes, for example, at international level, the (possible) decision of the EU to order the member states to adopt the IPSAS, or the international financial institutions’ and money lenders’ requirements (like the IMF or the World Bank) to make countries adopt IPSAS standards may imply a coercive decision. At the national level, the political interests on this international reform may lead to a coercive imposition by national governments and regulators through legal acts and regulation leading to the adoption of IPSAS.

Normative isomorphism means a strong influence and pressure exercised by professional organizations and other stakeholders to lead organizations to introduce accounting reforms. Norms and rules recommended by the accounting and auditing professions may be important normative forces to support IPSAS adoption. Some important examples in this article are the influence of the IFAC and the IPSASB on the worldwide and of the national professional associations (like the Portuguese Board of Chartered Accountants—

OTOC and the Portuguese Board of Chartered Certified Accountants—OROC). The truth is that professional asso- ciations of accountants and auditors and other stakeholders associated may exercise great pressures on the accounting changes because the IPSAS adoption “will help them to win new customers and gain growth in turnover” (Oulasvirta, 2014, p. 275). Mimetic isomorphism, on the other hand, means the adoption of changes on structures and processes that were successively experienced by another organization.

This is what Johansson and Siverbo (2009) call “following fad organization” or country (p. 203). This fad-following can be an important determinant in the adoption of accrual accounting in the public sector (Carvalho et al., 2012).

Prior research confirms the importance of these concepts to understand accounting changes. As discussed by Baker and Rennie (2010, p. 83) about the Canada case, the decision to implement accrual accounting can be “largely attributed to coercive and normative influences of the Office of the Auditor General of Canada and mimetic isomorphism with other members of the federal government’s organizational field.” The study of Oulasvirta (2014) about the Finland case also emphasizes the role of institutional and political pressures on the success of public accounting reforms. The author concludes, in relation to the Finland case, that the weak coercive, normative, and mimetic forces and the lack of political interest and involvement explain the lack of suc- cess in the process of public accounting reform leading to unintended consequences of these changes. So, the combi- nation of these three mechanisms of isomorphism may be determinant in accounting choices, especially in organiza- tions or countries that operate under great external pres- sures. This way, Portugal may be more motivated to adopt

IPSAS after a successful process experienced in another country or when normative or coercive forces, or a com- bination among them, compel our country to adopt IPSAS standards.

Although the favorable environment introduces accrual- basis IPSAS in several countries and the strong institu- tional pressures to perform these changes, several critical voices appear regarding the IPSAS adoption on the public- sector context. IPSASs are mainly based on the International Financial Reporting Standards (IFRS) published for the pri- vate sector, but the usefulness of IFRS was questioned as inconsistent with the accountability-reporting model use- ful for public sector (Barton, 2005; Christiaens, 2004;

Oulasvirta, 2014). The conceptual framework of public accounting should take into account the institutional con- text of the public entities and their real needs for accounting financial information. For example, the article of Oulasvirta (2014) presents the reluctance and resistance of a devel- oped country (Finland) to choose IPSAS to reform their government accounting systems. One reason for this reluc- tance is associated with the approach chosen by the IPSASB (based on IFRS standards) that, in the opinion of the Finnish Government Accounting Board, “was not well-suited as a cornerstone for developing a conceptual framework for financial reporting by public sector entities” and because the benefits of the change would be lesser than the costs of the reform (Oulasvirta, 2014, p. 279). The insufficient knowl- edge about benefits associated with the accrual accounting adoption and its effects on the managerial effectiveness imply an increasing hesitation among several countries in the decision to adopt or not the accrual accounting (Wynne, 2008).

According to Lapsley et al. (2009), the choice to adopt accrual-based IPSAS is mainly determined by political influ- ence rather than by technical or managerial arguments.

As they refer, beyond the influence of IFAC and IPSASB and their commitment with accrual accounting, the decision to adopt or not to adopt is on the political sphere, indepen- dent of technical or managerial constraints. This perspective reinforces the notion that it is no longer appropriate to think of (public) accounting “merely as a technical practice that is applied to reveal pre-existing aspects of reality or par- ticular truths about an organization” (Potter, 2005, p. 267).

Therefore, in the opinion of Christiaens et al. (2010, p. 537),

“it is clear that the success of IPSAS strongly depends on setting out its strengths and highlighting the necessary conditions to be met.”

So, the theoretical framework based on these two com- peting, but complementary, theories (NPM agenda and insti- tutional approaches) will help understand the stimuli of the reform in Portugal and the institutional pressures of public accounting choices.

Figure 1 presents the theoretical model used on the article, highlighting the stakeholders’ perspective about the stimuli and the content of the reform toward the IPSAS adoption.

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Reform stimuli - NPM approach - Institutional theory

Reform content

- Goals/desired outcomes - Means/strategies - Obstacles/barriers Stakeholders’

perspective

FIGURE 1 Theoretical model.

Methodology

In order to accomplish the main purposes of the article, we have developed a qualitative study focused on the Portuguese case. A review of documents and reports publicly available and regulations, as well as interviews with key stakeholders, were conducted to gather information on public accounting changes toward the IPSAS adoption. The empirical mate- rial was collected in two steps. First, the consultation of documents, reports publicly available (like the Budgeting Strategy Document for 2014–2018 and the EUROSTAT report 2012), and national legislation on public account- ing helps to know the actual system and the point where it is. Also the direct participation

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as a full member in the Public Sector Accounting Standard Setting Committee (CNCP)

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helps to understand the public accounting tradi- tions in Portugal and the evolution toward the international harmonization process. This background is essentially to explain the content of the reform presented in the section

“The Portuguese Public Sector Accounting Reform” in this article.

Second, in a complementary way, five semistructured interviews were conducted with key stakeholders repre- senting groups/organizations with power of influence to conductive public-sector accounting reforms and define the outcomes of this reform. These groups have a very simi- lar role to the Potter’s epistemic communities (2005). These communities may perform a unique and influential position due to their ability to convince policy makers that there is

5The direct participation of an author of the article occurs between 1997 and 2011, in the committee that worked in the first public accounting reform, and since 2012-until now in the new committee that is working on the new public accounting model based on the IPSAS.

6A first Committee for the public sector was created for the period 1998–2012, under the first process of change introduced in public accounting since 1990. However, a new structure was created in 2012 by the decree-law 134/2012 in order to conduct the public accounting reform toward the IPSAS adoption. It was created under the organizational structure of the Ministry of Finance.

a “problem” and their ability to put forward a seemingly appropriate solution’ (Potter, 2005, p. 278). “An epistemic community is a network of professionals with recognized expertise and competence in a particular domain and an authoritative claim to policy-relevant knowledge within a domain or issue area” (Haas, 1992, p. 4).

In this article, we categorize stakeholders in three groups based on the Haas (1992) approach: (1) the profes- sional organizations [represented by the chairman of the Portuguese Board of Chartered Accountants (OTOC) and the chairman of the Portuguese Board of Chartered Certified Accountants (OROC)]; (2) the national public accounting regulators [represented by the coordinator of the Public Sector Accounting Committee (CNCP) and the general- director for budgeting—DGO]; and (3) the independent auditors (represented by president of the Portuguese Court of Accounts—TC). Each stakeholder is the maximum respon- sible by a group/organization and is recognized by their expertize on accounting changes and their power of influence on policy makers which gives the right perspective on the stimulus and content of the reform on the Portuguese context.

Interviews were made between January and April 2014 and were tape-recorded with the interviewees’ permission.

Interviews lasted between 40 and 90 min. All interviews were transcribed manually and sent back to interviewees to analyze and validate the ideas and perceptions obtained during the interview. This process increases the validity of the data. After concluding this validation process, interviews were content analyzed using a combination of excel and access tools.

Analyzing the data, it was possible to categorize and asso- ciate certain pieces of the text (instances) that share certain common features. “Categorization is the process of classify- ing or labeling units of data . . . the essence of categorization is identifying a chunk or unit of data (e.g., a passage of text of any length) as belonging to, representing, or being an exam- ple of some more general phenomenon” (Spiggle, 1994, p. 493). Based on this categorization process, we identify general similarities in the specific empirical instances and label them as representing the same category with theoretical significance in order to reduce and retrieve data for analysis in the form of tabulations. The result of this categorization process for “stimuli” and “content” is reflected on Tables 2–4 of the article. The exploration, development, and test of the theory are facilitated looking for evidence in the text and counting the frequency of these instances. After this initial stage of categorization and exploration of data, we make comparisons in a systematic and methodical way to under- stand the level of cohesion and cooperation between different stakeholders.

The institutional approach and the theoretical framework of public sector reforms help to design the questions for the interviews—namely questions regarding the perception of each key stakeholder/reform driver about the IPSAS adop- tion, the stimuli, and contents of the reform—to study the

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TABLE 1

Script of Questions for Interviews

Objective Script of questions

Reform stimuli – Portugal began a big public accounting reform in the 1990s that is yet ongoing. However, since the last 2 years, the Portuguese government has been working on a new reform that is moving toward the IPSAS adoption. What are the stimuli and the main reasons to carry out this reform?

– Does the group/organization that you represent agree with the adoption of IPSAS in the Portuguese context?

Reform content – What are the main goals and the desired outcomes of public accounting reform toward the IPSAS adoption?

– In order to be successful in this public accounting change process, what means and strategies should be assured?

– Considering the particular features of the political/administrative system and the actual point of public accounting in Portugal, this process of public accounting change can face several difficulties. Please explain what can be the main obstacles and difficulties.

– What is the appropriate time for the implementation process?

level of cohesion or conflict, and to understand the institu- tional and contextual background for the adoption of IPSAS in the Portuguese context. Although we made semistructured interviews, giving the interviewees some time to talk freely and give their opinion, we elaborated a script of questions presented in Table 1 considering the objectives and research questions of the article. Stakeholders were invited to partici- pate in this study in representation of a group/organization, and we ask them to give the organizational perspective in your answers. Thus, the results in this article reflect the perspective of the groups/organizations as a whole.

RESULTS AND DISCUSSION

In this section, we present the main results of the article regarding the stakeholders’ perspective on the stimuli and content of the reform toward the IPSAS adoption in the Portuguese context. We also present the discussion of strate- gies and solutions appointed by interviewees for a successful public accounting reform. Based on interviews, we tried to answer the following objectives: (1) the reform stimuli and the main reasons toward the IPSAS adoption, (2) the con- tents of the reform, and (3) the level of cohesion (discussion of results).

Results About the Stimuli and Content of the Reform After the analysis of the public-sector accounting reform in the Portuguese context based on public available documents and direct participation (the section “The Portuguese Public Sector Accounting Reform”), this section presents the main results concerning the stimuli and content of the public accounting reform toward the IPSAS adoption highlighting the perception of different stakeholders.

The reform stimuli and the main reasons for the adoption of IPSAS

The stimuli to reform public accounting in the Portuguese context toward the international standardized process are

based on two competing theories: (1) the NPM agenda (based on the objectives to increase accountability and the levels of efficiency and effectiveness) and (2) the institu- tional theory (specially the influence of coercive, normative, and mimetic forces). We find that a complementary approach of these two theoretical approaches may help understand the stakeholders’ perception on the process of public accounting change in Portugal and reinforce our findings on the first part of the analysis.

Table 2 presents the main results obtained by empiri- cal data collected by interviews. As we can see, in the stakeholders’ opinion, both theoretical approaches explain the reform stimuli toward the IPSAS adoption. However, the institutional pressures and the combination of coer- cive, normative, and mimetic forces are more determinant in Portugal’s context of change in the last years. Both pro- fessional groups (OTOC and OROC) and public accounting regulators (CNCP and DGO) emphasize the institutional context and the external pressures as the main reasons to reform public accounting in Portugal, highlighting especially the influence of financial institutions (like the IMF) in a period of financial crisis and the EU. As the OROC chairman said:

The great financial crisis that affects our country since the last 4 years and the great pressures of the European Union and the Portuguese government to improve the pub- lic accounting system determine the reform toward IPSAS adoption. (personal correspondence)

The commitment and interest of the Portuguese government to introduce changes in the current public accounting system (through the creation of the public committee) is also an important point. As the CNCP coordinator said:

The political commitment in this process of change is essen- tial for success. We can see this in the Portuguese context by the creation of this public sector committee, under the umbrella of the Minister of Finance, especially dedicated to adapt IPSAS to our real context. (personal communication, March 19, 2014)

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TABLE 2

Stakeholders’ Perspective on the Reform Stimuli

Stakeholder Stimuli/motives Theoretical approach

Board of Chartered Accountants (chairman OTOC)

Pressures of citizens to increase the value of money Institutional pressures/NPM agenda The need to increase accountability and transparency of public actions NPM agenda

Financial institutions (lenders’ money) Institutional pressures International and European institutions (e.g., IFAC) Institutional pressures

Dissatisfaction with the current situation NPM agenda

Board of Chartered Certified Accountants (OROC chairman)

Financial crisis Institutional pressures

Pressures of professional groups (e.g., IFAC) Institutional pressures/normative forces Pressures of media and public opinion Institutional pressures

Legal/government pressures and the European Union Institutional pressures/coercive forces The recent process of change in private sector NPM agenda/mimetic forces General-Director for Budgeting

(DGO)

External pressures to adopt international standards (especially the external creditors)

Institutional pressures Pressures of the European Union (e.g., Eurostat and European

Commission) to increase the transparency of public accountants

Institutional pressures/NPM agenda Commitment of Portuguese government to external groups Institutional pressures

Successful changes introduced by other countries (mimetic) Institutional pressures/mimetic forces Public Sector Committee (CNCP

Coordinator)

Pressures (by citizens and creditors) to obtain more information about the use of resources

Institutional pressures/NPM agenda Political commitment and interest in the reform process Institutional pressures/coercive forces Coercive, normative, and mimetic factors Institutional pressures

Court of Accounts (TC President) The position of the EU in relation to the IPSAS adoption Institutional pressures/coercive forces The need to revise the actual accounting system in order to harmonize

public and private systems;

NPM agenda Difficulties to produce consolidated accounts NPM agenda Pressures of the EU and the EUROSTAT to produce harmonized

standards and public accounts coherent with SEC95

Institutional pressures/NPM agenda

So, first of all, public accounting choices seem to be a con- sequence of an institutional and political context favorable to the IPSAS adoption. This reinforces the institutional think- ing in the perspective, in which changes are associated to the need to obtain legitimacy and external support and increase the commitment of external constituents and internal partic- ipants (Carpenter & Feroz, 2001; Carruthers, 1995; Lapsley

& Pallot, 2000; Modell, 2009). Another point that arises from these data is the pressure placed by citizens and media on the decision to reform public accounting (focused by the chair- man of OTOC and OROC and the coordinator of the Public Sector Committee). These results symbolize the increasing participation of citizens and the society as a whole in these processes of changes which reinforce the role of accounting as a social and institutional practice (Hopwood, 1992; Potter, 2005). These results may be added to the Lapsley et al.

(2009) conclusion, because we find that public accounting choices are stimulated not only by the political context but also by the institutional context and the external pressures.

On the other hand, under the NPM agenda, the need to adopt innovations from the private sector (like accrual accounting, international accounting standards, and consol- idation of accounts), the dissatisfaction with the current situation, and the need to produce more information in order to promote accountability and transparency are also appointed by stakeholders as important reasons to introduce

changes. In particular, with the OTOC and OROC chair- men, representing professional organizations, we feel that these managerial and technical reasons should be the basis for reforming the system and setting the orientations to be followed. As the OTOC chairman said:

We assist to the need to increase accountability and trans- parency of public actions and this implies the creation of good and appropriate accounting information systems.

I think that the urgency of this public accounting reform results from a general dissatisfaction with the current accounting system, besides the greater efforts in the last 10 years. (personal communication, March 10, 2014)

The president of the Court of Accounts emphasizes the need to harmonize public and private accounting systems, as a consequence of the NPM agenda, the need to improve the production of consolidated accounts, and the need to harmonize public accounts with SEC95.

Thus, the NPM agenda and the need for a more informa- tive and transparent public management model is essential to meet the needs of information of different groups inter- ested in this process. So, we find that perceptions of different stakeholders are complementary, and they contribute to a clear picture about the reform stimuli in the Portuguese context.

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TABLE 3

Stakeholders’ Perspective on the Goals/Desired Outcomes of the Reform

Stakeholder Goals/desired outcomes Theoretical approaches

Harmonization and comparability of public accounting among different states Mimetic forces/NPM agenda Increasing proximity with the private-sector accounting standards Mimetic forces/NPM agenda

Increasing the quality of accounting information NPM agenda

Board of Chartered Certified Accountants (OROC chairman)

Produce an accounting system that is more comprehensive, rigorous, professional, and useful

NPM agenda

Integration of different accounting systems NPM agenda

Harmonization with the private-sector accounting system Mimetic forces/NPM agenda General-Director for Budgeting

(DGO)

Produce accounting information with quality for management processes and political decisions

NPM agenda Provide reliable information for the production of national accounts and to

determine the cost of services

NPM agenda Increase the transparency and quality of accounting information NPM agenda

Obtain external support and credibility Institutional pressures

Public Sector Committee (CNCP Coordinator)

Increase the transparency and comparability of public accounting NPM agenda Produce useful accounting information for different users NPM agenda Court of Accounts (TC President) Improve accountability and transparency of public management NPM agenda Increase the level of comparability of financial information NPM agenda Produce performance indicators (financial and economics) NPM agenda Reflect the long-term effects of political decisions on financial statements NPM agenda

The content of the reform and the main obstacles About the content of the reform, we asked the intervie- wees about the goals/desired outcomes of the reform and the means and strategies to be followed in the implementa- tion process, following frameworks of Lüder (2002) and also studied by Argento and van Helden (2010). Table 3 presents the results on the goals/desired outcomes. In general, all the stakeholders highlight the need to produce a more compre- hensive, rigorous, professional and useful accounting system for management and decision-making and the need to har- monize the different accounting systems (both private and public systems) promoting comparability and consolidation of accounts. As the OTOC chairman said:

Increasing the quality of accounting information is the main goal of any accounting reform. In the particularly context of the public sector the desired outcome encompasses a greater proximity with private sector accounting standards and the need to compare information, at the micro and macro levels.

(personal communication, March 10, 2014)

The production of performance indicators and the reflection on financial statements of the long-term effects of political decisions (leading to financial statements for general pur- poses) are the desired outcomes emphasized by the President of the Court of Accounts.

Only the DGO focuses on the need to obtain external sup- port and credibility as a goal to be obtained by this reform (institutional approach). This result may be associated to the fact that this is a government office, which is more sensible to external pressures and to great demands (like the capital mar- kets) to increase the credibility of public accountants. As the DGO said:

the need to obtain external support and to conquest the trust and credibility of markets are the mainly outcomes of this reform. (personal communication, March 17, 2014)

Thus, the goals or desired outcomes of the reform are essen- tially associated to the need to obtain a new governance model for public sector oriented to the accountability and transparency of public accounts.

Concerning the means and strategies to successfully per- form this reform, the interviewees highlighted several points (see Table 4). First, the communication strategy is essential.

Although the need to define the reform goals and desired outcomes at the top level (by policy makers, regulators, and government), a strategic plan should be adopted to commu- nicate them effectively to all the stakeholders, professionals, preparers, and users of information. This strategy is essential in the institutionalization step in order to assure the general acceptance of the changes to be introduced (Bruns, 2014).

Performing national events with a wide coverage by the media and the participation and commitment of politicians and government members and the publication of government official documents compelling the IPSAS adoption may be a good way to clarify and disseminate the desired outcomes of the reform and the role of each part in the system. So, a clear communication strategy in relation to the political commitment is highlighted by interviewees to assure a great involvement of different stakeholders. This strategy can be yet more deterministic because of some obstacles that feature the Portuguese context like the potential resistance to change (OTOC chairman), the lack of consensus about the content and goals of the reform (CNCP coordinator), and the pos- sible lack of political commitment and involvement (OTOC chairman and CNCP coordinator).

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TABLE 4

Stakeholders’ Perspective on the Means/Strategies and Obstacles/Barriers

Stakeholder Means/strategies Obstacles/barriers

Specific training for technicians and public managers Resistance to change Communicate and explain the usefulness and desired outcomes of the

reform (national events)

Lack of political commitment and involvement

Public accounting information should be prepared by chartered accountants

Lack of financial and human resources Skills of public accountants should be certified by the OTOC Lack of technical skills

Government should clarify the desired model for public accounting Adequate training on financial and management accounting and on

public tax

Decentralize the training plan of local and district regions to be successful in the communication of changes and goals Board of Chartered Certified

Accountants (OROC chairman)

Good communication (to the general public and professionals) of the goals and expected results of the reform

Lack of financial and human resources Implement a well-articulated training plan between universities,

government, and professional organizations

Lack of technical skills Use of IT to integrate accounting systems and to have more advanced

systems

Avail the experience of private sector in the adoption of international accounting

General-Director for Budgeting (DGO)

Implement enforcement (auditing) mechanisms to assure the quality of information

Lack of financial and human resources Obtain financial support to implement the reform Lack of technical skills

Define a training plan oriented to different levels (technicians, public managers, politicians,. . .)

Provide the adequate institutional capacity (adequate resources and teams stability)

Clarify the responsibilities of each entity that participate in the reform Provide public accountants with a certified training

Clear definition and communication to the main stakeholders of the goals of the reform and the strategy to be followed

Create a structure responsible for the monitorization and evolution of the process of change

Public Sector Committee (CNCP Coordinator)

Obtain political commitment and involvement Lack of consensus about the content and goals of the reform Promote the participation of different interest groups (preparers,

regulators, supervisors) in the discussion of the new accounting system

Lack of political commitment and involvement

Promote consensus among the promoters/leaders and executers Lack of financial and human resources Lack of technical skills

Court of Accounts (TC President) Define a gradual plan to implement the reform process Lack of adequate IT systems Clearly define the responsibilities of each interest group in the process Lack of financial and human resources Monitor and control the implementation process and evaluate results

and outcomes

Lack of technical skills Evaluate costs and benefits of the reform before the decision to adopt

a new model

Provide adequate material and human resources Promote the involvement of professional organizations Provide institutions with adequate staff and information systems Introduce regular auditing mechanisms to ensure the effectiveness of

the reform

Second, the definition and implementation of a well- articulated training plan with professional organizations, government, and universities and oriented to different lev- els (like technicians, public managers, and politicians) is an essential strategy highlighted by all the interviewees.

The OTOC chairman emphasizes the need to decentralize the training plan to local and district regions in order to

be successful in the communication of changes and goals to local accounting professionals. Associated with the lack of financial and human resources and, specifically, the lack of technical skills on the IPSAS use (either preparers and users), which are obstacles emphasized by all the intervie- wees, they suggest that skills of public accountants (prepar- ers of the information) should be certified and recognized

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by a professional (like OTOC or other). In their opinion, this will give more credibility to the system and to the public accounting information produced and reported by institutions. As the President of the Court of Accounts said:

The objective is to provide public institutions with the proper resource capacity and appropriate information technologies systems to successfully implement the process of change.

(personal communication, April 13, 2014)

This is what Bruns (2014) calls the creation of the ser- vice capacities. The communication strategy referred before will have more success if the necessary conditions and resources (human and materials) are provided to organiza- tions (Christiaens et al., 2010). On the other hand, in spite of the awareness of interviewees with a lack of actual resource and IT system capacity and the need to provide institu- tions with the proper conditions and means, this strategy may also be of commercial interest for professional orga- nizations (Oulasvirta, 2014). In the opinion of Oulasvirta (2014), the compulsory adoption of IPSAS creates a great opportunity for accounting and audit companies to win new customers and gain growth in turnover. This may also have a potential effect in the Portuguese context and particularly in the opinion of stakeholders that represent professional organizations.

Third, the implementation of enforcement/auditing mechanisms (DGO general-directorate) combined with the monitorization and control of the implementation process and the evaluation of results and the obtained outcomes (President of Court of Accounts) is also emphasized as an important strategy to assure the quality of public account- ing information. This auditing process should be based on international standards and performed by independent orga- nizations like the OROC and the Court of Accounts and / or international auditing firms.

In the President of the Court of Accounts’ opinion, an important strategy is to conclude the reform started in the 1990s before the implementation of the international stan- dards. Considering the different starting points of Portuguese public institutions and the contextual and financial con- straints referred before, every interviewee suggested that the IPSAS adoption and implementation should be a gradual and longitudinal process (with a duration between 5 and 10 years) involving the collaboration and participation of different stakeholders. So, we believe that several years are needed for the efforts of the adoption of international stan- dards to take effect in the Portuguese context (as it happened in other countries like the UK).

Discussion

Literature on public accounting reforms highlights the importance to establish collaborative relationships and obtain a great cohesion between different stakeholders about

the direction, goals, and contents of the reform in order to assure the success and reduce the gap between intended and final outcomes (Argento & van Helden, 2010; Bardach, 1998; Granovetter, 1992; Potter, 2005). According to Potter (2005), future research is needed to understand the cohe- sion and influence of professional groups (communities) and explore how they may have impact upon the process of accounting change in specific organizational and social settings. Potter’s study (2002) explores these public-sector accounting changes. This discussion part helps to under- stand the level of cohesion of stakeholders on the stimuli and content of public-sector reform (IPSAS adoption) in the Portuguese context.

Crossing and comparing data obtained from interviews, several points are highlighted concerning the great cohesion on the stakeholders’ perspective:

• The great influence of external and political pres- sures in the decision to reform the public accounting system toward the IPSAS, with combinative effects of coercive, normative, and mimetic forces (reform stimuli);

• The great financial and budget constraints resulting in a high dependence from external financial institutions and the need to obtain external support; this situation increases external demands (from the EU, the capital markets, or the IMF, for example) to reform the current accounting system;

• The favorable environment and political context to introduce this reform, in spite of the contextual constraints related to the high training costs, the lack of organizational capacities and skills on the IPSAS execution, and the budgeting constrains to hire public accounting and auditing professionals and acquire appropriate IT systems to perform successfully changes;

• The strategies to institutionalize and implement the reform changes that should be associated with the context in which public institutions operate (like the communication strategy, the training plan for differ- ent users, the monitorization and enforcement strategy, and the time of the process); more concretely, we find that the professional group (OTOC and OROC) are more concerned about the training plan in order to assure a good preparation of public accounting and auditing professionals on the IPSAS execution and its certification (great concern with technical issues); the DGO general-director and the President of Court of Accounts have concerns related to the definition of auditing and enforcement mechanisms and to provide institutions with the necessary capacity (great concern with managerial and technical issues); for the CNCP coordinator, the main strategy involves the participa- tion and commitment of different stakeholders in the process (great concern with political issues);

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• The adoption of accrual accounting in every subsector of the government assures the production of feasible, relevant, and comparable public accounting informa- tion and shows the long-term effects of political deci- sions. However, they also agree with a gradual process of implementation and institutionalization of changes;

• The cost–benefits of the reform; in spite of the con- cern with the high costs associated with this reform (yet unknown), all the stakeholders agree that the ben- efits will outweigh the costs at the end of the process if the desired outcomes are effectively obtained.

• Finally, and considering the list of obstacles referred by interviewees (high training costs and equipment, institutionalized practices, resistance to change, etc.), we conclude that the combination of all the strate- gies is essential for success. In addition, in the stakeholders’ perspective, contextual and financial constraints require a gradual implementation process (or a step-by-step process) in accordance with the actual reality of different public subsectors with dif- ferent accounting regimes. For example, the local government is more advanced than the central gov- ernment in the adoption of accrual accounting and business-like standards, as it happens in other coun- tries (EUROSTAT, 2012; Pina et al., 2009). This way, the public accounting reform toward the IPSAS adop- tion would be a moderate process of change for more advanced institutions in the implementation of the 1990s reform, but it may imply a radical change for other public institutions that are still starting the imple- mentation of these changes (like government depart- ments and offices).

Taken together, we find significant cohesion on the stakeholders’ perspective about the reform stimuli and con- tent as well as on the obstacles and warnings concerning the specific Portuguese context. Considering the high power of influence of these groups on the accounting policy mak- ers, we believe that this level of cohesion will have positive impacts on the success of the reform because stakeholders agree on the content of the reform, especially on the main strategies to be followed. The institutionalization process of the new practices emerged from the IPSAS adoption may be facilitated if the key stakeholders collaborate and work together to achieve the goals of the reform. We sense a good predisposition to collaborate with other stakeholders and to turn this process of change into a collaborative and participative process that may reduce resistance and reluc- tance. In spite of the specific mission and interests of each interviewed group, we found a good level of cohesion on the desired outcomes for this reform and the strategies to perform successfully inducing a positive relationship between the desired and final outcomes (Argento & van Helden, 2010). In our opinion, these conclusions made Potter (2005) call further works about the influence of specific

professional groups on the process of accounting change (particularly on public accounting).

SUMMARY AND CONCLUSIONS

This article is based on a single-country case providing a comprehensive understanding on the process of change toward the IPSAS adoption. More concretely, the focus in on the study of the reform stimuli toward the adoption of IPSAS in the Portuguese context, the reform content (goals, desired outcomes, means and strategies, and obstacles) and the level of cohesion on the stakeholders’ perspective. The findings from the case study show a strong relationship between the environmental and institutional context of the country and the stimuli and content of public accounting reform. In addition, the high level of cohesion between dif- ferent stakeholders points out the existence of a collaborative process that may be determinant for a greater success on the implementation of the reform. Our findings reinforce the role of accounting as a social and an institutional practice.

During the 1990s, the Portuguese government has approved legislation that has become compulsory in the adoption of the first reform of public accounting oriented to accrual accounting and the private-sector accounting rules.

However, we currently have different accounting regimes in the subsectors of the government and different rhythms in the adoption of accounting changes which have led to the dis- satisfaction of several stakeholders in relation to the current system (EUROSTAT, 2012). As a consequence, we witness a favorable moment and the influence of coercive and political forces leading to changes in the public accounting system toward the IPSAS adoption. The content of the Budget Strategy Document approved by the Portuguese government for the 2014–2018 years and the creation of a committee responsible for the new public-sector accounting (CNCP) that reports directly to the Minister of Finance and repre- sents different interested parties are two central points, which showed the government’s interest in this process of change [contrary to conclusions obtained by Oulasvirta (2014) in the Finland case].

Regarding the stakeholders’ perspective, we find a high cohesion level concerning the reform stimuli and the desired outcomes. Both institutional approach (DiMaggio & Powell, 1983) and the NPM agenda (Hood, 1995; Lüder, 2002) pro- vide important insights into the reform process in Portugal.

The particular institutional context of Portugal determines a great dependence from external institutions and money lenders on the reform stimuli. Taken together, we may conclude that the reform stimuli are mainly influenced by the institutional and political context (also emphasized by Lapsley et al., 2009) and a combination of coercive, norma- tive, and mimetic forces (institutional isomorphism). But the achievement of the desired outcomes is mainly determined by the technical and managerial conditions (means) like the