The institutionalization of public sector accounting reforms: the role of pilot entities

The institutionalization of public sector accounting reforms: the role of pilot entities Susana Jorge Faculdade de Economia, Universidade de Coimbra, Coimbra, Portugal and Research Centre in Political Science, University of Minho, Braga, Portugal S onia P. Nogueira Instituto Polit ecnico de Bragança, Campus de Santa Apol onia, Bragança, Portugal and Research Centre in Political Science, University of Minho, Braga, Portugal, and Nuno Ribeiro Management Applied Research Unit (UNIAG), Instituto Polit ecnico de Bragança, Campus de Santa Apol onia, Bragança, Portugal Abstract Purpose –This paper aims at understanding the action of pilot entities, in order to ultimately infer about their role to the overall reform process of public sector accounting (PSA). Design/methodology/approach –Taking the Portuguese case as a reference, the new institutional theory (isomorphism perspective) and institutional logics are used to explain the action and stance of pilot entities in the implementation process of reforms. Findings –Pilot experiments are expected to provide feedback on the main difficulties felt in the implementation of a new PSA system, helping to define a global strategy to overcome those problems and to improve the system to be generally and finally put into practice. Nevertheless, entities seem to find it important to be pilots, more for individual advantages than for the common benefit of the reform as a whole. Therefore, in order for them to actually be important actors in the reform process, pilots need to be included in the decision process, better realizing the benefits of the new IPSAS-based system and be provided with the proper technical, human and financial support. Research limitations/implications –This research suffers from some limitations, namely concerning the use of questionnaires. The findings may, in some points, reflect the perceptions of the respondents and not the actual reality. Additionally, the respondents were not asked about any personal background factors, which may influence their answers. Also, they did not allow relating the new PSA system features with the way pilot entities (re)acted. In regard to the implications for practice, the study points to a need for decision-makers and external support bodies to work more closely with pilot entities in the overall design and implementation of PSA reforms. Pilot entities need to understand the importance and usefulness of changes, and reform authorities need to better recognize their institutional reality and the support they require. Only in this way, the use of pilots can make a difference in the implementation of PSA innovations. Originality/value –This paper contributes to theory by adding to a better understanding of the role of the ones acting in the development and implementation of PSA innovations, enlightening on how pilot entities can act/react. Despite several studies on PSA reforms, very few so far have addressed pilot entities in particular, their attitude and actual contribution toward PSA reforms, and why. The case of Portugal as a frontrunner in JPBAFM 33,2 114 This study was conducted at the Research Center in Political Science (UIDB/CPO/00758/2020), University of Minho and supported by the Portuguese Foundation for Science and Technology (FCT) and the Portuguese Ministry of Education and Science through national funds. It was also conducted at UNIAG, I&D unit funded by FCT - Portuguese Foundation for Science and Technology and the Portuguese Ministry of Education and Science. Project no. UIDB/GES/04752/2020. The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/1096-3367.htm Received 13 August 2019 Revised 15 January 2020 1 July 2020 14 September 2020 12 November 2020 29 November 2020 Accepted 30 November 2020 Journal of Public Budgeting, Accounting & Financial Management Vol. 33 No. 2, 2021 pp. 114-137 © Emerald Publishing Limited 1096-3367 DOI 10.1108/JPBAFM-08-2019-0125 adopting an IPSAS-based system within the EU helps contribute to that understanding in the setting of European countries. Keywords Accounting innovations, Implementation strategy, Institutional theory, Institutional logics Paper type Research paper 1. Introduction As in business accounting, international harmonization issues have also been raised in public sector accounting (PSA), especially in the last two decades. In the European setting, the financial crisis context, particularly after 2009, has emphasized the need for harmonized public sector accounts, in order to get more reliable data for the purpose of monitoring the fiscal stability required for the Euro currency. Accordingly, many countries across the world have recently embarked on PSA reform processes, introducing accrual-based accounting, some towards International Public Sector Accounting Standards (IPSAS), to complement traditional budgeting, cash accounting and reporting systems. Within the European context, IPSAS-based European Public Sector Accounting Standards (EPSAS) are being considered, also to meet particular reporting needs (Aggestam and Brusca, 2016). These processes have followed different implementation strategies, sometimes involving different stakeholders, also. While, in some countries, the reforms have followed a top-down process (e.g. Spain), from central government to state and local governments, in others it has been stepwise, extending to different types of public sector areas and using pilot entities (e.g. Italy). The use of pilot entities allows a government to gain experience on how to deal with the reforms and the problems likely to be encountered and proceed with staff training. In Portugal, a top-down process was considered, also resorting to pilot entities at both central and local levels of government and embracing several sectors of the Public Administration. In the institutionalization process of PSA reforms, pilot entities seem to be strategically important to consider in cases where the new system involves significant innovations and complexities to be implemented by multiple and diverse entities at the same time. Because closer assistance often cannot be provided to all, it becomes necessary for some entities to experiment it first to get feedback, leading to eventual adjustments to the system to be finally implemented overall (Christiaens, 2001;Ridder et al., 2005). Pilot experiments ensure the accomplishment of previous conditions to the implementation of the reforms (Peterson, 2001; McLeod and Harun, 2014), so within the pilot group, it is important to consider the representativeness of the diversity of entities in which the new system is going to be applied (e.g. several areas within the public sector, different levels of government, different dimensions, ...). A strategy for a reform process implementation comprises several stages, namely: recognizing, improving, changing and sustaining (Peterson, 2001). An evolutionary strategy and pilot entities experimenting and giving feedback seem to be the most adequate within this chain. Although there is a vast literature about PSA reform processes, especially in regard to changing to accrual accounting, and lately on the adoption of the IPSAS (Schmidthuber et al., 2020), studies addressing the implementation of reforms are rare and fewer analyze the use and role of pilot entities in these processes. Therefore, there is still a significant gap in understanding the role of pilot entities, at all, in a successful implementation strategy of PSA reforms. This paper tries to add to the theory in filling this gap. Framed by the new institutional theory and by institutional logics, it uses Portugal as an illustrative case to discuss the importance of having pilot entities to the institutionalization process of PSA reforms. The role of pilot entities in PSA reforms 115 According to Hayes et al. (2015, p. 8), an illustrative case is used to “describe a situation or a phenomenon, what is happening with it, and why it is happening,”making it possible to demonstrate a certain behavior of the reality, as intended in this paper. It particularly addresses the perspective of the pilot entities themselves, on the way they have acted towards implementing the new PSA system. Portugal is an interesting example for other countries with upcoming reforms, as it is a frontrunner in the EU context in adopting an IPSAS-based system, mainly from an external imposition. In particular, the objective of this paper is to take stock of pilot entity behavior (motives, commitments, difficulties, ...), in order to realize about the role of these entities in the implementation of a new PSA system. It relies on a questionnaire for pilot entities, so as to answer the following research questions (RQ): RQ1. How did pilot entities act (people, procedures, involvement, commitment, criticalities, ...) in the implementation of the new system? RQ2. What could make the implementation process easier, from the pilot entities’ standpoint? RQ3. How did pilot entities see their contribution to the overall implementation of the PSA reform? Hereafter, the paper is organized as follows. Section 2 addresses the theoretical framework on the new institutional theory and institutional logics. Section 3 presents a brief literature review on PSA reforms and the use of pilot entities. Section 4 introduces the empirical study of the Portuguese case, beginning with a characterization of the recent PSA reforms, then explaining the methodological issues, and finally presenting the main findings. Section 5 offers a discussion and concluding remarks. 2. Theoretical framework In the last decades, traditional approaches of the institutional theory, essentially following an economics rationality, have developed into new approaches of the institutionalism, based on sociological perspectives. The new institutional theory (sociological institutionalism) assumes that expectations and values, both inside and outside organizations, as well as the rules of society, play a role in the decision to introduce organizational changes, including accounting reforms, inasmuch as they make up the institutional environment, forming the meaning of concepts such as individual, social action, state and society (DiMaggio and Powell, 1983;Meyer and Rowan, 1991;Ryan et al., 2002;Carpenter and Feroz, 2001;Carpenter et al., 2007). This sociological stream of the institutional theory has been used to explain how organizations respond to the pressures of their institutional environments (Carpenter and Feroz, 2001;Carpenter et al., 2007;Chapman et al., 2009). It seeks to identify a series of external factors that can pressurize or induce the process of organizational internal change in order to gain external legitimacy (DiMaggio and Powell, 1983;Meyer and Rowan, 1991;Lapsley and Pallot, 2000). Within this approach, DiMaggio and Powell (1983) introduced the concept of “institutional isomorphism” as the process by which organizations tend to adopt the same practices and structures over time, in response to institutional pressures, as a self-defense behavior: when facing problems for which they do not yet have their own solutions, organizations tend to behave similarly to others. Accordingly, isomorphic change can occur through three mechanisms: coercive, normative and mimetic isomorphism. This theoretical perspective helps to explain the overall process of reforms in PSA towards accrual accounting and IPSAS. In particular, coercive isomorphism is interesting, because, although countries also use mimetic (seeking for some legitimation) and normative JPBAFM 33,2 116 (following business accounting) approaches, they tend to impose PSA reforms often derived from political decisions and/or requirements from external financiers, as in the case of Portugal. The concept of institutional logics emerged within the new institutional theory (Friedland and Alford, 1991;Thornton and Ocasio, 2008) and seems to be useful in explaining PSA reforms, especially framing the way certain agents act/react in the reform process. Accordingly, it seems particularly suitable to explain the behavior of entities, when reacting in the process of being pilots and when starting to deal with an imposed new accounting system. Since the 1990s, the concept of institutional logics has been central in efforts to grade understandings of isomorphism and convergence advocated by proponents of the new institutional theory (Thornton et al., 2012). This grading has involved the idea that organizations are able to navigate or balance multiple institutional logics over time, and therefore there is an increased emphasis on agency and forms of institutional work in the processes, whereby organizations respond to institutional demands (Reay and Hinings, 2009). Based on this premise, Thornton (2002) perceived that although economic forces influence organizations, as the meaning and consequences of these forces are interpreted by the actors, their repercussion in organizations depends on higher order institutional logics. DiMaggio and Powell’s (1983) analytical distinctions of institutional forces explain the different organizational responses. Forces of external change may also be seen as institutional change, for example, seeing the shift from administrative orientations in the public sector towards managerialism as a shift from an old institutional logic to a new one (Meyer and Hammerschmid, 2006), or transitions to NPM practices as a shift in institutional templates and a change to emergent values and attitudes (Kitchener, 1998). 3. PSA reforms and pilot entities In recent decades there has been a wave of reforms in government and PSA systems based on the New Public Financial Management framework (NPFM). The modernization efforts focused mainly on implementing accrual-based accounting systems and seeking convergence with the business accounting model (Manes Rossi et al., 2016). Due to several factors, the framework and the setting up of PSA reforms towards accrual accounting appear to have been diverging (Christiaens, 2001). Recent reform processes have differed in accrual accounting adoption procedures (full or partial), modes and paths across countries (Ridder et al., 2005;Mussari, 2014). Still, it can be noticed a growing common trend in PSA developments towards introducing accrual-based financial accounting and reporting, as a complement to budgeting, especially to cash-based budgeting (Christiaens and Rommel, 2008). More recently, PSA international harmonization seems to be increasing, as there appears to be a raising interest in the IPSAS (Christiaens et al., 2015;Brusca et al., 2018;IFACCIPFA, 2018;Jorge et al., 2019), namely in some parts of these standards that may reveal appropriate in developing the national public sector accounting systems (Baskerville and Grossi, 2019;Jayasinghe et al., 2020). Notwithstanding, neither accrual accounting nor IPSAS are consensually accepted in PSA (Brusca et al., 2015). Despite the generalized trends of PSA reforms across the globe, the academic literature is scarce in studies addressing the implementation processes, either in countries overall or in specific government levels or jurisdictions. Nevertheless, a few researchers have called attention to the fact that, sometimes, the objectives of PSA are not reached by simply implementing a new system based on what is applied in business accounting (e.g. Brusca and Martinez, 2016;Arnaboldi and Lapsley, 2009; Christensen, 2007;Potter, 2002;Peterson, 2001). McLeod and Harun (2014, p. 240) explain that, “it is important to remind policy makers that improved governance, accountability and The role of pilot entities in PSA reforms 117 performance of public sector organizations cannot automatically be achieved simply by issuing new laws and private sector-style reporting standards, and producing accrual-based reports.” Additionally, as explained by Peterson (2001, p. 131), “before more complicated financial “management”reforms can be introduced that focus on outputs and outcomes, the existing “administrative”financial systems which control inputs have to be understood, implemented and improved.” Potter (2002), in the Australian setting, discussed how the conceptual framework was used as a means of connecting the properties of accrual accounting practices with the reporting and accounting needs of the public sector. This process was described as “institutional thinking,”in that any thinking that was outside the conceptual framework was deemed irrelevant and not considered by those involved in the standard-setting process (Potter, 2002, p. 70). Accordingly, during the standard-setting process, only certain types of questions were asked, and many important issues were not addressed. Developing, promoting and supporting regulations that impose new accounting practices are affected by this “institutional thinking.” Baskerville and Grossi (2019) referred to the concept of “glocalization”to explain how IPSAS have been considered and incorporated in New Zealand PSA standards, by a process of making universal standards compatible with local/national standards. In this process based on sociological institutionalism, IPSAS have been adopted, at the same time as national PSA identity and culture have been retained. The authors highlighted how global vs. local standards may facilitate PSA reform processes worldwide towards the adoption of accrual accounting and of IPSAS. Other few studies have addressed how countries or jurisdictions have been implementing PSA reforms towards the introduction of accruals, showing how the “implementation strategy”(L€ uder, 2002) may affect their success (Argento et al., 2018;ter Bogt and van Helden, 2000). Sometimes, radical solutions may raise even more problems, and it is better to make these reforms stepwise and resort to individual experiences, especially when the innovation is considerable. Some good examples come from developing countries, such as Ethiopia (Peterson, 2001) and Indonesia (McLeod and Harun, 2014), underscoring the need for reforms to be implemented in an evolutionary way, prioritizing goals, so as to attain success. Evidence of some prudence in the implementation of (sometimes) radical reforms was also observed in European countries. The case of Estonia is interesting to mention because “it offers insights into how a radical accounting change can be smoothly accomplished in the public sector”(Argento et al., 2018, p. 40). After leaving the Soviet Union and moving to a market economy, Estonia had to develop the public sector and create PSA rules from scratch. The process of PSA reforms comprised several (increasingly complex) stages: stage (1) creating the basic accounting regulation, beginning with cash accounting but allowing future adoption of international standards, and establishing the standard-setting body; stage (2) reforming business accounting conforming with IFRS and adopting accrual accounting along with cash accounting; and stage (3) anticipating the entrance to the EU, full adoption of IFRS or IFRSbased standards for businesses and IPSAS for the public sector, representing full accrualbased PSA. The adoption of IPSAS in Estonia was described by Argento et al. (2018) as “smooth –yet gradual,”thanks to the role of key actors performing as “institutional entrepreneurs.”The different stages of the process were accomplished through the activities of important bodies, namely the standard setter and the State Chief Accountant (nominated by the Ministry of Finance in stage 3). Argento et al. (2018) underlined that the background in business accounting, personal interests and networking, allowed those actors to deal with the interplay between exogenous and endogenous forces interfering in PSA reforms in the country, making Estonia to be the first country of the EU to adopt the IPSAS. JPBAFM 33,2 118 In reforming accounting standards, some studies referred to the use of pilot entities. For example, when analyzing the convergence of the accounting reforms in Flemish welfare and day care centers with the municipal standards in the late 1990s, Christiaens (2001) highlighted the use of pilot entities, increasing the number from one year to the other, during the testing phase. Ridder et al. (2005) also referred to the use of pilot entities in the accounting reform process in German municipalities, underlining their importance in the changing process dynamics. The authors explained that pilot entities were selected with a twofold purpose: “first, to gain experience in the suitability of accrual accounting and output-based budgeting for local government in order to determine their efficiency; second, to identify the dynamics of change during the process of implementation, that is, expectations, change management, opposition and conflicts”(p. 444). In governmental accounting reforms in Norway, pilot entities were invited to participate in the development of standards in order to ensure the relevance of the standards for the accounting work (Bourmistrov, 2006). Pitulice (2013, p. 68), in regard to the reform design in Romania, warned of the fact that “for the pilot entities there was not any public informing whether the project was a success or not.” Rossi and Trequattrini (2011, p. 145) referred in the description of the design of the reform process in Italy that the “implementation phase provides for the start-up of pilot projects to test the hypothesized course on local governments and central administrations, with the consequent redefinition of the accounting model, the redesign and reengineering of processes/procedures and organizational innovation measures (development of adequate skills with respect to human resources, realization of the functionalities of the information systems) in the pilot entities.” Ridder et al. (2005) and McLeod and Harun (2014) additionally explained that, besides the relevance of pilot entities in identifying difficulties related to the implementation process, it would be expected that their experience would eventually lead to additional guidance and/or corrective measures provided by the standard setter, which would affect the system finally adopted. In the German case, the implementation in pilot municipalities allowed the adaptation of the accounting practices to the new accrual regime and created an opportunity to incorporate the changes in the new legislation, in due time. In the above literature, it was observed the recourse to pilot entities in the design and implementation of reforms taking place in some countries, but no research was found analyzing the performance of those entities as a contribution to PSA reforms. This research makes an attempt to fill in such gap. 4. Empirical study Public sector organizations in Portugal, despite the NPM, are still rooted in a prevailing bureaucratic logic, which determines their reaction to reforms (Ara ujo, 2002). While large and significant reforms, like the one in the accounting system, are often legally and centrally imposed (centralization tradition), the entities know that they are usually not implemented at once (Ara ujo, 1999), but are generally postponed in relation to the initially established starting date. Therefore, the legal approval for a reform does not necessarily imply immediate action or reaction by organizations. In light of this fact, many entities may not act proactively but instead expect to be instructed on how to proceed, sometimes via other detailed regulations. When given broad instructions, entities sometimes nominate working groups to study the subject, but the commitment for the change is not very serious (Ara ujo and Branco, 2009), especially when change is imposed and there is no clear explanation of its usefulness for the entity’s management; they tend to claim lack of time and resources, inadequate expertise, in particular. The role of pilot entities in PSA reforms 119 In the following sections, these issues become evident in the reforms of public sector accounting. 4.1 Public sector accounting reforms in Portugal Portugal started introducing accrual accounting in the public sector in the 1990s. Financially autonomous public sector entities were required to apply a financial accounting system similar to business accounting, along with a budgetary accounting system that remained cash-based. In 1997, the first Public Sector Accounting Plan (POCP) was approved by law, embracing cash-based budgetary accounting together with accrual-based financial and cost accounting, including budgetary and financial statements in the annual accounts, and using a chart of accounts (Jorge et al., 2007). Given the lack of experience in the public sector, the whole process of implementing (double entry) accrual-based financial accounting and particularly the POCP, was unhurried and careful. The standard setter provided some guidelines, specifically stating that the first stage of the POCP would be implemented using a sampling of entities that, by their condition, would be presented as ready, the selection being made by the Ministry of Finance. That condition was assessed through a questionnaire answered by entities that supposedly had already had some experiment with accrual accounting; the selection was made after a meeting between the standard setter and the heads of those entities. From this process, 13 entities were selected and finally approved by the Ministry of Finance as pilots to experiment with POCP beginning in 1999. At this stage, the whole implementation process was followed by the standard setter, who gave the pilot entities, in particular, the necessary support to facilitate the implementation of the new accounting system. From these experiments, two interpretative standards were issued on technical matters in 2001, but the law originally passed was never changed. From the “mother”POCP, several plans were derived for different sectors within the Public Administration –local government (POCAL), health (POCMS), education (POCE) and social security (POCISSSS) entities. The POCP and the sectorial plans that followed were derived from the existing business accounting plan, which was replaced when Portugal adopted an IFRS-based system in 2009 (the SNC). From that period, the PSA system based on the POCP lost its conceptual basis, becoming increasingly out of date, fragmented and inconsistent. In recent years, there have been entities within the Portuguese public sector adopting the IFRS directly, others adopting the business accounting system IFRS-based or non-for-profit accounting standards, and others still using the five different PSA plans. This fragmentation raised inconsistencies, creating difficulties in consolidated accounts within the organizations and as a whole (Decreelaw 192/2015, preamble). In this context, Portugal was seriously affected by the economic and financial international crisis of 2009, forcing it to ask for financial assistance from the Troika (International Monetary Fund, European Central Bank and the European Commission) in 2011, and to sign a “Memorandum of Understanding”on specific economic policy conditionality. The lenders, among other things, also pressured for better accountability regarding public sector financial management and accounts, including the reforming of the existent PSA system in favor of the adoption of the IPSAS (Law 64C/2011). In mid-2012, a new governance regime for the accounting standard-setting commission was passed (Decree-law 134/2012), holding the same entity responsible for both business and public sector accounting, but clearly including a separate committee for PSA standards (CNCP), whose main task would be to create the new IPSAS-based System of Accounting Standards for Public Administrations (SNC-AP). The development of this system began in JPBAFM 33,2 120 2013 and was passed as law in September 2015 (Decree-law 192/2015). It is to be applied to all sectors of the public administration, including local government. SNC-AP comprises a conceptual framework, a chart of accounts and 27 accounting standards (25 IPSAS-based addressing financial accounting and reporting, 1 for budgetary accounting and reporting and 1 concerning management accounting). The conceptual framework is a translation of that of the IPSASB; the standards related to financial accounting and reporting are translated from IPSAS, with slight adaptations; the chart of accounts and the financial statements models were adapted from those of the IFRS-based business accounting (SNC). The initial target for starting implementation was January 2017. During 2016, it would be tested for implementation in a group of pilot entities selected by the Ministry of Finance; other entities wanting to participate in the piloting experiments should send a request. A list of pilot entities under the Ministry of Finance was published by the Directorate-General of the Budget in April 2016, being completed by the Directorate-General of Local Government to include municipalities. Meanwhile, the standard setter CNCP was to provide close guidance to those entities, namely answering questions on a web portal and preparing an Implementation Manual. Initial training would also be given to professionals, with the support of the Portuguese Institute of Certified Accountants (OCC). These procedures went into effect in mid-2016. The Ministry of Finance, however, which was ultimately in charge of the PSA reforms, decided to postpone the implementation of SNC-AP to January 2018 (Decree-law 85/2016), acknowledging that the appropriate technical, legal and institutional conditions for public sector entities to be able to prepare the first annual accounts according to SNC-AP were not yet in place. This decree established that during 2017 any entity could voluntarily start experimenting with the new system. An implementation and dissemination strategy at the national level, for 2017, was finally published as law in April (Order 128/2017). However, these instructions were very broad, specifically in regard to the need for: generalized staff training (a global training plan would be prepared by the Ministry of Finance, involving professional institutes and higher education institutions); the adaptation of IT systems (there would be supporting mechanisms for the entities to adapt their IT systems, specifically their integration into the general system of the Ministry of Finance); continuous support to clarify issues related to the accounting standards, through the use of a web portal run by the standard setter CNCP; and the establishment of a technical group to monitor the SNC-AP implementation overall (UniLEO). There were no further references to pilot entities, neither in legislation nor in other public reports, the last one being in a report from the Court of Auditors in March 2017, about the overall state of implementation of SNC-AP, highlighting that, after one year of experimentation, “pilot entities did not actually work as such”(Tribunal de Contas, 2017, p. 23). At the beginning of 2019, one could observe that the SNC-AP implementation strategy was not being duly accomplished, namely regarding the global training plan and the IT adaptations to report from entities to supervising authorities; also, the monitoring process by UniLEO was not effectively put in practice (Tribunal de Contas, 2019). Meanwhile, the implementation of SNC-AP in the local government was postponed to 2020 (Decree-law 84/2019). The postponements, as well as the non-accomplishment and revision of the implementation strategy, appear as signs of difficulties to deal with a PSA new system that overall, and despite previous experience with accrual accounting, was revealing to endure a high level of complexity. Such was clearly stated by the Minister of Finance: “...in any process with this scope and complexity one cannot exclude the need for revision of certain aspects”(Tribunal de Contas, 2019). The role of pilot entities in PSA reforms 121 4.2 Methodology This study is based on a quantitative research approach, relying on a survey using a questionnaire sent to the pilot entities directly. This method was considered because: (1) it is the most suitable way to gather attitudes, perceptions and behaviors, in the scope of a sample, which allows the generalization of the results for the population studied; and (2) it allows a large number of individuals to be surveyed, over a wide geographical area (Hill and Hill, 2008). The questionnaire contained several specific questions related to the process of implementing SNC-AP and the Portuguese situation. In particular, a set of questions was prepared considering the above-described process, to allow gathering information so as to answer the RQ presented in Table 1 [1]. Most of the questions were “closed questions,”based on a multiple choice five-point Likert-type rating scale. This typology provided information about the degree of importance, satisfaction, implementation, difficulty, effort or commitment and impact in relation to various aspects under study. The analyses are based on frequency tables and correlation coefficients. The questionnaire was applied online during February and March 2017, to all 53 pilot entities finally selected for experimenting with the implementation of SNC-AP. These entities, according to the selection criteria, were distributed through different sub-sectors and were using different IT systems and seven accounting references or plans (Table 2). The survey was addressed to the heads of the financial and accounting departments/services usually in charge of implementing accounting and reporting procedures. 35 valid responses were obtained, with one of the entities explaining it had asked to leave the group of pilot entities (Table 3). Research questions Topics addressed in specific questions in the survey RQ1: How did pilot entities act (people, procedures, involvement, commitment, criticalities, etc.) in the implementation of the new system? Difficulties encountered in starting implementing SNC-AP Entity’s degree of effort in the transition process (commitment) from the current system to SNC-AP The reasons leading the entity to be a pilot in the implementation of SNC-AP Departments and number of people involved in the process of implementing SNC-AP Changes occurring in the organization due to the implementation of SNC-AP Degree of implementation of a set of procedures developed with a view to facilitating SNC-AP Type of external support the organization has had and the level of satisfaction with this RQ2: What could make the implementation process easier, from the pilot entities’standpoint? Type of support the entity considers important for improving the conditions and/or overcoming the difficulties encountered in implementing SNC-AP Type of impact the entity anticipates SNC-AP may have on its management How the implementation of SNC-AP should be carried out RQ3: How did pilot entities see their contribution to the overall implementation of the public sector accounting reform? Pilot entity’s opinion about its contribution to the successful general implementation of SNC-AP Table 1. Topics surveyed in the questionnaire JPBAFM 33,2 122 Regarding the degree of satisfaction (on a scale from 1 Very Unsatisfied to 5 Completely Satisfied) with the individualized support supposedly offered from each external body, this was found to be generally low (Table 8). The bodies giving the most support to pilot entities are the ones they express the most satisfaction with. Here, the only ones presenting a positive Yes No Financial Technical Institute of Certified Accountants (OCC) 74.3% 25.7% Yes Public Sector Accounting Standards Committee (CNCP) 68.6% 31.4% Yes Entity of Shared Services of Public Administration (ESPAP) 20.0% 80.0% Yes Software houses 62.9% 37.1% Yes Ministry responsible 8.6% 91.4% Yes Directorate-General of Local Government (DGAL) 8.6% 91.4% Yes Directorate-General of the Budget (DGO) 42.9% 57.1% Yes Court of Auditors (TC) 0.0% 100.0% Institute of Certified Auditors (OROC) 2.9% 97.1% Yes Other: Regional Office of Finance and Public Administration of the Autonomous Region of Madeira 2.9% 97.1% Yes Very unsatisfied Quite unsatisfied Satisfied Quite satisfied Completely satisfied No answer Average Institute of Certified Accountants (OCC) 3 3 9 9 2 9 3.15 8.6% 8.6% 25.7% 25.7% 5.7% 25.7% Public Sector Accounting Standards Committee (CNCP) 4 11 8 1 11 3.25 –11.4% 31.4% 22.9% 2.9% 31.4% Entity of Shared Services of Public Administration (ESPAP) 3 1 1 2 28 2.29 8.6% 2.9% 2.9% 5.7% –80.0% Software houses 1 5 6 9 1 13 3.18 2.9% 14.3% 17.1% 25.7% 2.9% 37.1% Ministry responsible 1 1 1 32 2.00 2.9% 2.9% 2.9% ––91.4% DirectorateGeneral of Local Government (DGAL) 2 1 32 1.67 5.7% –2.9% ––91.4% DirectorateGeneral of the Budget (DGO) 4 1 8 1 1 20 2.60 11.4% 2.9% 22.9% 2.9% 2.9% 57.1% Institute of Certified Auditors (OROC) 1 34 2.00 –2.9% –– – 97.1% Other: Regional Office of Finance and Public Administration of the Autonomous Region of Madeira 1 34 2.00 –2.9% –– – 97.1% Table 7. Support provided by external entities Table 8. Satisfaction in relation to support from external entities The role of pilot entities in PSA reforms 129 degree of satisfaction, albeit low, are OCC (3.15), CNCP (3.25), software houses (3.18) and DGO (2.60). The fact that only 5 entities replied they were very satisfied is noteworthy, and overall, there were significant percentages of no answer. There seems to be some evidence that pilot entities basically highlighted the support of OCC, CNCP and software houses, which is consistent with the technical difficulties they have indicated they were experiencing: human resources training, supported by the Institute of Certified Accountants (OCC); specific technical doubts regarding the new accounting system, to be clarified by the standard setter CNCP; and software and IT adaptations by the software providers. However, when pilot entities were also asked if they found that the performance of the monitoring entities overall had helped in the implementation of the SNC-AP –a modest majority of 68.6% gave a positive answer. 4.3.5 Factors facilitating the process of implementing SNC-AP. RQ2 addresses issues that could make the implementation process easier. Regarding this matter, pilot entities were asked about the type of support they considered important to overcome the difficulties (multi-optional question). They highlighted as fundamental to making the reform process easier the offer of support regarding (in order of frequency): (1) More precise orientation from DGO, DGAL and/or other supervising organizations; (2) More precise orientation from CNCP (the standard setter); (3) Training actions by external entities, directed to the specificities of each type of entity (e.g. health sector, education, local authorities, reclassified public entities, ...); (4) The possibility of hiring more accounting professionals; (5) Provision of an open forum where all pilot entities could share their doubts; and (6) Joint meetings with the entities responsible for the SNC-AP and the pilot entities. It also stands out that various entities referred to the need to develop specific software, as well as the respective certification. Pilot entities were also questioned about the type of impact (positive or negative) they anticipated SNC-AP would have on their management. They considered there might be a positive impact in relation to: decision-making support; the financial management process; budgetary and financial reporting; transparency; financial and budgetary performance; the process of budget management; and internal control. On the other hand, they indicated there might be a negative impact on administrative expenses and on the complexity of administrative processes. Within the scope of RQ2, while the former may be facilitators, the latter are factors capable of hindering the implementation of reforms. As to the implementation process, pilot entities seemed to agree with what was decided for SNC-AP. 77.1% considered that both creating a transitory period and resorting to pilot entities facilitates the implementation process, disregarding the immediate application to all entities. Additionally, entities did not find it important that progressive implementation, by sector of activity or level of government, would necessarily facilitate the process. 4.3.6 Pilots’contribution to the overall implementation of the reform. RQ3 assesses how pilot entities saw their own contribution to the overall implementation of the PSA reform. The evidence presented above, where entities did not find it very important to become pilots so as to contribute, with the experience gained, to implementing SNC-AP in other entities (see Table 5), was corroborated by the answer to the question: “On a scale of 1–5, where 1 is Not at all important and 5 is Very important, how do you consider your pilot entity’s contribution to a successful general implementation of SNC-AP?”Only 5.7% of the entities considered this individual contribution as very important, and the average answer was 3.31. JPBAFM 33,2 130 Therefore, it appears evident that pilot entities overall did not see themselves as making a difference in the reform process, i.e. they acknowledged not having such an important role. 5. Conclusion and discussion This paper addressed the importance of using pilot entities in the institutionalization of a reform in PSA, by analyzing the behavior and actions of pilots themselves in the process. Ultimately, it sought to understand whether the use of pilot entities can in fact make a difference, as in theory it would be expected, especially when innovations are complex. The research considered Portugal and the recent reform towards an IPSAS-based system (SNC-AP), as an illustrative case. It provides interesting insights to be pondered in the implementation processes of other countries, including in the EU, which may be considering similar reforms towards IPSAS or EPSAS. In contexts such as the one in Portugal, where a PSA reform IPSAS-based was imposed as a whole, resulting from a political decision, and essentially following recommendations by the lenders, in a careful and legitimating attitude, the change is explained by the new institutional theory, particularly within the (coercive and normative) isomorphism framework (DiMaggio and Powell, 1983). Accordingly, a small group of entities were forced to become pilots (top-down selection process, whereas for the POCP it had been bottom-up); exceptionally, a few cases gladly accepted the invitation and, in a more voluntary spirit, wanted to be frontrunners applying for the experience. Decision-makers promised closer support to all of them, and in return, they were expected to give some feedback, providing important contribution to the overall final implementation of the new system. However, as this research showed, this imposition did not have the desired effect, given the institutional logics (Friedland and Alford, 1991;Greenwood and Hinings, 1996;Thornton, 2002;Thornton and Ocasio, 2008;Thornton et al., 2012) affecting the behavior of Public Administration entities overall, where a bureaucratic logic still prevails and entities are used to waiting for specific instructions and not taking much initiative for reforms, including those introducing accounting innovations (Ara ujo 1999;Ara ujo and Branco, 2009). Moreover, the benefits of these reforms and of SNC-AP in particular (IPSAS-based, private sector inspired and deemed complex) were not explained to the entities, who were not involved in the decision, many did not have organizational structures prepared for such a complex accounting system and were not given the support they were expecting –namely reinforced human resource accounting qualification, adequate IT systems and specific financial means. These handicaps, acknowledged by the entities surveyed, have been highlighted in the literature (e.g. ter Bogt and van Helden, 2000;Potter, 2002;Ridder et al., 2005;Connolly and Hyndman, 2006;Nor-Aziah and Scapens, 2007;Rahaman, 2009;Hyndman and Connolly, 2011;Harun et al., 2012;McLeod and Harun, 2014) as factors capable of hampering PSA reforms in general. Therefore, this study calls for an alert to the relevant authorities in charge of the reform implementation to be very aware of the difficulties felt by the pilot entities, while noting that these difficulties are not dependent on the commitment of each one but are quite generalized. The stance and actions of the pilot entities as they start with the reform reveal how the new PSA system was firstly dealt with in practice. Within the institutional logics molding actors’practices and expectations (Thornton and Ocasio, 2008), pilot entities faced (and reacted to) the change according to their internal dynamics, proper to Public Administration entities, and to the way the new PSA system was perceived by the internal organizational actors. Imposition of an IPSAS-based system (which relevance may not be properly recognized) versus bureaucracy and insufficient preparation, allied to the fact that the entities were neither directly consulted regarding the PSA reform nor provided with the expected support, made it more difficult for them to understand the benefits over the costs of such The role of pilot entities in PSA reforms 131 process, justifying the overall lack of commitment. Pilot entities did not feel prepared to engage in the reforms, in spite of being seen as main actors by reform decision-makers. Ridder et al. (2005) call attention to the consequences of the non-involvement of the human resources in the development and implementation of a new PSA system, leading to indifference and to the possible introduction of inadequate new accounting practices, jeopardizing the objectives of the reform. Adding to the overall low commitment, in initiating the implementation of the new PSA system respondents in this research acknowledged that no significant organizational changes were happening in the pilot entities. Subsequently, the degree of implementation of procedures to facilitate the introduction of SNC-AP was generally very low. The new accounting system appears to have been faced by pilots as an element disturbing the regular functioning and routines of the organization, not ultimately so useful, but as another external requirement to comply with. Entities saw in being pilots an opportunity to have the proper support, creating conditions to accomplish with the new obligations. Therefore, legitimating self-interest behavior seems to be more important than contributing to the general implementation of the new PSA system. In fact, this research showed that entities did not consider it very important to become pilots in order to contribute to the overall implementation of SNC-AP. They find it important to be pilots more for individual benefit (“selfish attitude”) than for the “common good,”i.e. for the reform of the PSA system in general. Within the institutional approaches, this may reflect the market logics, whereby entities are mainly concerned with individually accomplishing what is required by law and the hierarchy, not caring much about the collective behavior. Those happy to accept undergoing the experience appeared to want to be seen as good examples, following some legitimation strategies; those not recognizing the benefits did not become very involved. In spite of the compulsory selection, considering that pilots could also be voluntary, this research additionally allowed understanding why entities wanted to be pilots and how they saw their own contribution to the PSA reform process overall. The main reasons indicated as leading entities to become pilots, yet again, evidence issues for self-benefit of the entity regarding human resources and technical support. Ridder et al. (2005), referring to the accounting reform in German municipalities, emphasized that, being selected as pilots allowed entities to benefit from resources, consulting and training, so as to cope with the new issues and the increase in the usual administrative tasks. This is a great advantage when the reforms become generalized, considering that other entities would be in an unfavorable position. Accordingly, in the present study, pilot entities clearly valued being pilots, expecting to benefit from closer support from the standard setter, as well as from supervising and monitoring organizations, in the implementation of the SNC-AP. This fits again in with institutional logics, relating to the recognized needs to improve professional knowledge and IT systems (Thornton and Ocasio, 2008), and to legitimation attitudes. However, as evidenced, these expectations were not accomplished. Considering the expectations regarding the support by oversight bodies, evidenced by what entities pointed as main reasons for becoming pilots, there was understandably a certain degree of disappointment, which is probably reflected in a lower dedication to the reform process. Even the rare cases of those entities that are more driven by market logics, which may have wanted to serve as example and benefit from having closer support than others, ended up reflecting the same disappointment and level of dedication. Institutional logics may also justify that the way pilot entities act regarding PSA reform also depends on the type of impact they expect innovations to have on their management. Several positive and negative effects were anticipated, respectively seen as facilitators of and hindrances to the implementation of reforms. Nevertheless, this recognition did not seem to have had any consequences on the effective role of pilot entities in the process of the reform implementation. JPBAFM 33,2 132 Regarding the implementation process of such an innovative accounting system, this research also showed that, despite pilot entities recognition of have not making a difference in the current PSA reform in Portugal, they agree with the consideration of a transitory period and the use of pilot entities in the process, as generally facilitating the transition from the previous system to the new one. However, they also emphasized that the process should be improved with the provision of better support by, and meetings with, the relevant authorities (accounting standard-setter and the government directorates). These considerations are aligned with Ridder et al. (2005), who explain that the selection of entities with similar characteristics and the close cooperation between them, the ministry responsible for the reforms, and consultants, led to efficacy in developing and implementing the new accounting system. In summary, this research evidences that the role of pilot entities for the reform process of PSA is rather weak, or even null, in accounting reforms as that happening in the public sector in Portugal. Indeed, pilot entities do not make a difference in reforms implementation in cases where: (1) there is as imposition of a new system across Public Administrations overall, without these being involved or consulted; (2) the system imposed is rather complex, IPSAS-based and private sector inspired; (3) pilot entities are mostly compulsorily selected and are not particularly explained about the usefulness and benefits of adopting the news system; and (4) the support they have been promised and so eagerly expected, is finally not duly provided. In order to actually be important actors in the reform process, pilots need to be more committed and move from an “individualist”to a more “collectivist”attitude. This may only be reached if enough compensation is offered. Entities need to be consulted and more involved in the process, so as to understand the reasons and implications of the changes (i.e. usefulness of the new PSA system) and increase their commitment. In the Portuguese case, to have made a real difference in the reform implementation, pilots should have been given the right conditions, namely the appropriate resources, and reform decision makers should have provided further explanations on the interest and importance of such reforms for the public sector financial management and, in general, should have worked closer with the entities, in order to better understand their institutional reality when adopting the new accounting system. Only in this way, PSA reform pilot experiences can generate useful feedback. As acknowledged by Peterson (2001), a public financial management reform, including public sector accounting, embraces several innovations and solutions, becoming a challenge for any government. To be successful “it takes political commitment, administrative capacity and significant financial and human resources. It also takes a long time”(p. 145). Despite relevant contributions to reform process decision-makers, this research suffers from some limitations. One regards the use of questionnaires. The findings might therefore reflect the perceptions of the respondents, and not the actual reality. Additionally, the respondents were not asked about any personal background factors, which may influence their answers. A way to overcome these limitations in future studies might be to use case studies with fieldwork in pilot entities to be carried out in loco on what is being done in respect to PSA reforms. This will also make it possible to move from a descriptive and exploratory approach to a more explanatory one in the study of the role of pilot entities in the process. Furthermore, the findings do not allow to conclude whether the entities’low commitment is due or not to the intrinsic characteristics of the new PSA system, namely its proximity to IPSAS or, instead, to the national accounting culture. The questionnaire did not address this issue; interviews would be needed to explore this. A comparative-international perspective with other countries, specifically in Europe, that are already using or considering the use of pilot entities in the same type of reform could also better inform the findings in this study. The role of pilot entities in PSA reforms 133 Notes 1. The questionnaire (in Portuguese) can be made available upon request. 2. It should be noted that UniLEO, the unit created also to monitor the implementation of the SNC-AP, was created on April 2017, only after this survey had been applied. 3. 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Nogueira can be contacted at: [email protected] For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: [email protected] The role of pilot entities in PSA reforms 137