Academic journal article Business: Theory and Practice

Accounting Changes in the Public Sector in Estonia/Apskaitos Pokyciai Estijos Viesajame Sektoriuje

Academic journal article Business: Theory and Practice

Accounting Changes in the Public Sector in Estonia/Apskaitos Pokyciai Estijos Viesajame Sektoriuje

Article excerpt

1. Introduction

Over the last decades, much time and effort is being spent to move from cameralistic accounting towards accrual accounting in order to increase transparency of the public accounting data. This movement can be considered as a part of an almot world-wide public sector reform. Estonia is no exception to the rule. During the recent dramatic changes in business environment, Estonia has successfully passed a financial and a management reform.

The transition to market economy started in Estonia similarly to other Central and Eastern European countries in the late 1980ies. The legal reform in accounting that took place at the same time required the preparation and implementation of new legal acts, which would lay foundations for the accounting system characteristic of a market economy. The first step here was the Regulation of Accounting, which laid foundations for the implementation of financial accounting in accordance with the International Financial Reporting Standards under the conditions of market economy (Jarve 2006). A further development was the Accounting Act that came into force on January 1, 1995. The Act was prepared by the members of the Estonian Accounting Standards Board; three members out of seven were expatriate Estonians who had international working experience in Sweden, Canada and Great Britain. The contribution of the specialists having international experience in market economies was crucial in order to prevent several mistakes and problems (Haldma 2006).

The Accounting Act, which was really progressive at that time, had its drawback in the determination of the framework that could be implemented in the public sector only to a limited extent. Although the generally accepted accounting principles and concepts apply both to the business and public sector, financial accounting and its administration are characterized by certain peculiarities due to the different, and in some aspects also contradictory, purposes of business entities and public sector entities, which had not been fully taken into account by the act.

The purpose of this paper is to investigate the implementation of the accrual accounting in the entities of the Estonian public sector. In that connection a brief overview of the historical development of governmental accounting theories and examination of the introduction of theorybased accounting policy are given. Main problems and risks in the accounting system change process have brought up and solutions offered.

This study attempts to answer the following research question: how to gain full benefit from accounting information in public sector entities.

The paper is organised into three sections. The first section introduces the historical development of the different accounting systems for public sector and sets a theoretical framework for the public sector reforms. The following section gives an overview of the modernisation of Estonian financial accounting and reporting process for public sector. The next section identifies the major problems to be paid attention. Finally the concluding remarks are presented.

2. Theoretical framework

2.1. The historical development of the government accounting systems

While taking a closer look into the historical development of the government accounting systems one can distinguish between two opinions (Sevim et al. 2008: 2466):

1. Classical Government Accounting

2. Modern Government Accounting

The classical opinion can be viewed as Cameral and Schneider Accounting Systems, and the modern opinion can be separated into Constante and Logismography Accounting Systems.

According to Monsen (2008), cameral accounting was developed as early as the 16th century onwards in order to contribute to increased control of public money. It was applied in Austria in 1768 for the first time. Most of the literature dealing with cameral accounting is published in German, and it seems to be known only to a small extent beyond the German speaking countries. …

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