THE MAGIC SHOES OF IPSAS: WILL THEY FIT TURKEY?

• Author: Ada, Selver Seda

1. Introduction

   The implementation of policies and techniques associated with accrual accounting is understood to be a crucial factor in modernizing the public sector in developing countries (Antipova and Bourmistrov, 2013, p. 444) and IPSAS has been considered a point of departure for streamlining central governments to improve transparency and accountability (Hughes, 2013).

   International Public Sector Accounting Standards (IPSAS) based accrual accounting standards have been well established in most of the OECD countries, and 50% of non-OECD countries have expressed an intention to adopt accrual accounting, often using IPSAS as a reference point (Alshujairi, 2014, p. 1). However, Deaconu, Nistor and Filip (2011, p. 76) suggest that emerging countries have too eagerly accepted the transition from cash-based accounting to accrual-based accounting, and argue that emerging countries seem to have taken it for granted that adopting accrual-based rules will increase efficiency and effectiveness and solve many of the problems in their traditional accounting systems. Studies have demonstrated that 'variation in accounting are still an essential characteristic of governmental financial reporting' (Antipova and Bourmistrov, 2013, p. 443) even in countries in which Government Financial Statistics (GFS) and IPSAS have been adopted.

   Several studies have uncovered evidence regarding various aspects of the adoption and implementation of accrual accounting in the public sector, such as ambiguities in the implementation process and the relationship between central and local governments (Arnaboldi and Lapsley, 2009, p. 809), loose coupling and substantial resistance during the implementation process (Nor-Azizah and Scapens, 2007, p. 209), cost efficiencies associated with accrual accounting (Lampe, Hilgers and Ihl, 2015) and habitual and technical factors associated with adopting accrual accounting (Connolly and Hyndman, 2006, p. 272; Rahaman, 2009, p. 224). Other studies have conducted international comparisons regarding the adoption of IPSAS (Benito, Brusca and Montesinos, 2007, p. 293; Christiaens et al., 2015, p. 158; Christiaens, Reyniers and Rolle, 2010; Pina, Torres and Yetano, 2009, p. 765; Pina and Torres, 2003, p. 334). However, research concerning developing countries and transitional economies adopting and implementing accrual accounting has only begun and has primarily focused on a limited number of country-specific cases involving IPSAS standards adoption (Deaconu, Nistor and Filip, 2011, p. 74; Gomes, Fernandes and Carvalho, 2015, p. 268; Oulasvirta, 2014, p. 272). Most of the studies have demonstrated that failure in the disclosure level of the financial reporting is caused by numerous problems that arise during the implementation process (Allen and Sanders, 1994; Ryan, Stanley and Nelson, 2002; Pina and Torres, 2003; Giroux and McLelland, 2003; Coy and Dixon, 2004; Tooley and Guthrie, 2007; Benito, Brusca and Montesinos, 2007).

   Accordingly, several hypotheses have been formulated to emphasize the problems causing a gap between the executive order (the regulations that are needed to implement the law) and the daily practices, which is also called material harmonization. However little attention has been given thus far to formal harmonization, the gap between the law and the executive order. Therefore, apart from the gap between the executive order and the daily practices (material harmonization) insights into the gap between the executive order and the law (formal harmonization) could be an important factor for the success of the accrual accounting adoption and thus implementation. Hence, this study is designed as follows: we use a mixed-method approach (Tashakkori and Teddlie, 1998) in order to improve our understanding of where and why the adoption and implementation of accrual accounting in the public sector fails.

   First, we use a table derived from the disclosure items (Benito, Brusca and Montesinos, 2007, p. 303) to calculate the formal and material harmonization level as a means to determine the reasons for shortfalls. In the context of our research, (a) the Public Financial Management Control Law (PFMCL) represents the law that is in line with IPSAS; (b) the General Management Accounting Regulation (GMAR) is the executive order as the operationalization regulation of PFMCL; and (c) the Central Government Public Report represents the actual practices after the implementation of the executive order (please see Figure 1). We consider the gaps between (a) and (b) and between (a) and (c).

   Secondly, because the aim of this paper is to shed light on the reasons for the shortfalls in the harmonization levels, we conduct semi-structured interviews with key public sector actors (see Table 1) to explain the reasons for shortfalls in the adoption and implementation of accrual-based rules. We use institutional theory and the decoupling concept to develop possible explanations for the gap with IPSAS. I n light of these research questions, we examine Turkey, which does not fit squarely into either Europe or the Middle East (Muftuler Bac, 2005, p. 18). Similar to many emerging countries, despite the implementation of accrual accounting rules more than ten years ago in the Turkish public accounting sector, there are still shortfalls in the formal and material harmonization levels.

   This paper addresses a gap in the literature identified by Gomes, Fernandes and Carvalho (2015, p. 269), Marti and Kaperskaya (2015, p. 177), and Ouslavista (2014, p. 274) regarding the lack of research on country-specific cases involving IPSAS. As a contribution, we reveal that the difference between the law and the executive order has been created intentionally as a way to avoid changes in the internal structures of organizations. Second, in accordance with Andrews (2012, p. 137), this study is a good source of data to deepen our understanding of possible failures in the actual practices of implementing formal rules in an emerging country in order to identify relevant practices for emerging countries instead of best practices. The remainder of this paper is structured as follows: Section 2 addresses the theoretical framework. The research questions and methodology are then followed by a presentation of the level of disclosure and discussion. The final section presents our conclusion.

2. Theoretical framework

   The rational motive behind several countries' decision to adopt the accrual accounting method is a common institutional theory, which is one of the major theoretical approaches in public sector accounting research (Van Helden, 2005, p. 108). DiMaggio and Powell (1983, p. 150) identify three mechanisms for institutional isomorphic change: coercive, mimetic and normative isomorphism.

   Coercive isomorphism arises from political influence and relates to the problem of legitimacy; it is characterized by the imposition of rules to adopt similar forms of change in both structures and processes. An important political concern at the national level may result in the implementation of IPSAS (Oulasvirta, 2014, p. 274), and because Turkey regards the EU as a benchmark, its concerns are Turkey's main motivation for the change in the public sector accounting. Turkey currently enjoys financial and technical support from international bodies such as the IMF, the EU, and the WB, and one of the requirements for this continued support is the presentation of transparent and accountable financial statements consistent with the international standards. Thus, inspired by international standards, the Public Financial Management and Control Law no. 5018/2004 was introduced by the Turkish government to provide accountability and transparency to encourage the effective, economical and efficient distribution of public resources (in the form of coercive isomorphism). This accrual-based accounting regulation applies to public institutions, including the central government, local governments and social security institutions, through regulations based on the law, including the General Management Administrative Regulation, which is intended for application by the general management of the public sector in Turkey.

   Mimetic isomorphism results from standard responses to uncertainty, and involves adopting changes that have been previously undertaken by other organizations. Reluctant organizations attempt to reorganize themselves in the likeness of organizations that they perceive as legitimate (DiMaggio and Powell, 1983, p. 152). Normative isomorphism, which is associated with professionalism, refers to the strong effects and pressures associated with professional affiliations. The influence of IFAC and IPSASB are examples of normative forces pressing for the adoption of IPSAS (Gomes, Fernandes and Carvalho, 2015, p. 272). These isomorphic processes cause organizations to become similar to one another, thus facilitating inter-organizational transactions. Although the three mechanisms may emerge under different conditions and have different outcomes, they tend to 'intermingle in an empirical setting' (DiMaggio and Powell, 1991, p. 67). Notwithstanding the fact that each mechanism involves a separate process, two or more isomorphic pressures can operate simultaneously, and clearly identifying the effects of each type of pressure is difficult in such situations.

   Although these processes increase an organization's legitimacy, they also conflict with day-to-day activities (Nor-Azizah and Scapens, 2007, p. 213) in practice. Because of this incongruity between institutional pressures and an organization's exertions, institutional theorists argue that formal structures and actual operations of the formal structures often become 'decoupled' (DiMaggio and Powell, 1991, p. 67; Nor-Azizah and Scapens, 2007, p. 213; Bromley and Powell, 2012). Decoupling is described as a gap between policy and practice that protects the technical core and the internal structures of an...