Accounting Competencies and the Changing Role of Accountants in Emerging Economies: The Case of Romania

Abstract

Over a recent short period, a number of interventions potentially helped move the Romanian accounting system away from being a tool simply used to support a planned economy. They include harmonization with the European Directives, the introduction of International Financial Reporting Standards (IFRS) and an increased move towards modern information technologies such as Enterprise Resource Planning (ERP) software. In this study, we directly explore these influences by applying job-offer analysis as a reflection of the current and future demand for accounting competencies. We first document current competencies expected from accountants in Romanian businesses and then assess the intervention impact on financial and management accountants. We hypothesize external influences would move Romanian accountants away from the traditional separate specialized positions towards more hybrid accounting positions, such as that adopted in the UK. Whilst our analysis supports a degree of transition with alignment to recent global trends, it also reveals some intransigence in the sense that management and financial accounting positions still tend to retain attributes associated with the two-cycle accounting system. Our findings have implications for harmonization issues and accounting education in Romania.

Acknowledgments

The authors wish to thank two anonymous reviewers and the editor, Donna Street, Marc Nikitin, David Alexander, David Hillier, Iain Clacher and Ivo de Loo, for their feedback and constructive suggestions on previous drafts of this paper. The authors would also like to thank participants at the Management Accounting Research Group Conference 2007, participants at the 31st Congress of the European Accounting Association 2008, and participants at the Paper Development Workshop co-hosted by IAAER and ACCA on 19 June 2008 in conjunction with the 3rd edition of the Accounting and Management Information Systems Conference held at the Bucharest Academy of Economic Studies, Romania. This work was supported by CNCSIS-UEFISCSU, project number PN II-RU 337/2010.

Notes

Our research differs in method from most others that focus on evaluating the impact of IFRS such as applying a value relevance approach using event or association studies (Barth et al., 2007; Hung and Subramanyam, 2007; Daske et al., 2008) or by assessing if accounting manipulations have increased or decreased (Barth et al., 2007). It also differs from a previous Romanian study that investigates the consequence of IFRS implementation on the cost of capital in Romania (see Ionaşcu et al., 2007), and augments the limited research aimed at stimulating reform in the accounting function. In particular, we build on the premise of Haldma and Lääts (2002) that changes in financial accounting from international regulations may contribute to ‘improvements’ in management accounting practice.

The same organization of the accounting system is currently in use in France and many other European Continental countries, although various attempts have been made even in these countries to establish an integrated model (see Levant and Nikitin, 2010 and Elad, 2000, for such attempts documented in France). Ultimately, the ‘standardized’ (Levant and Nikitin, 2010) separated model imbedded in the French accounting system was imported to Romania.

The statement made by King et al. in 2001 that ‘There is very little material in English-language academic journals on accounting developments in Romania’ (p. 151) still holds today.

Managers conceived this requirement as simply a shift of presentation of financial statements rather than the implementation of accounting policies that enhance ‘economic reality’ and provide an aid to decision-making.

A reference to ‘accounting’ in Romania usually means ‘financial accounting’ and ‘cost calculations for financial statement purposes’. This is due to a number of factors, including: the perpetual role of the accounting system to serve the State for tax purposes, the continuous reform of financial accounting and the perceived role of management accounting in companies, which is generally to calculate costs for inventory measurement. In having this perception, businesses are also influenced by academia, that mistakenly used the term ‘management accounting’ for what really was ‘cost calculation’; as such, Romanian companies and managers do not seem to understand the full potential of management accounting and limit themselves to the mandatory purpose of cost calculation.

We thank an anonymous reviewer for making this clarification.

This approach also has industry support. In a recent interview by the CIMA (2007), two professionals (Douglas Flint, Group Finance Director, HSBC Holdings plc, and Priyan Fernando, Executive Vice President and Chief Operating Officer, American Express Business Travel) shared their insights on the changing needs of the accounting function over the next 10 years. They underlined the need for accounting professionals to become part of the global economy, to expand their roles in driving change throughout the organization, in performance measurement for creating value for shareholders, to influence strategy by developing not only technical skills needed for financial reporting but strong business management and leadership skills.

Characteristics of ERPs such as integration, standardization, routinization and centralization, support several major advantages: enhanced decision support, improved quality of information, possibility to centralize the coordination of data processing and the possibility of real-time reporting (Granlund and Lukka, 1998b; Scapens and Jazayeri, 2003), as well as continuous auditing in the current insecure and dynamic organization context and responding to the quest for more rapid information due to increased globalization and competitiveness.

It should be noted, however, that Järvenpää (2007) uses this approach as one of several methods, in a purely qualitative way and then only to triangulate with other information gathered for his study.

Ideally, we should use general purpose advertisement databases (created by established academic or professional bodies), but unfortunately such data do not exist in Romania. Instead, advertisements that detailed accountant's activities were selected by means of manual collection.

While in other jurisdictions overlapping roles of accountants and other professions might exist (see, for example, the case of German lawyers also performing accounting tasks), in Romania there is a much clearer separation of these roles, with only accountants being able to provide accounting services.

We acknowledge the comments by a reviewer regarding the data collection limitations – specifically, of forcing the number of advertisements to be equal, by dropping some observations. Our view is that it is better to trade off a relatively few discards against the desire for comparability.

A description is available online at: http://www.lerucher.com/dossiers/1002/info1.asp. To the best of our knowledge, a similar taxonomy is not available for Romania.

For example, one announcement requires previous experience in the textile industry; several others require previous experience in one of the Big 4 or a driving license for more than one year.

Of course, other competencies such as insolvency and auditing are associated with the work of accountants; yet, we do not view these competencies as being important in distinguishing between financial and management accounting positions. Moreover, such competencies are not usually required from candidates seeking accounting positions in Romania.

While finer Likert scales were envisaged, the scarcity of explanations regarding the degree to which competencies were required rendered finer gradations infeasible.

The 300 selected advertisements were independently analyzed by two of the research team, thus reducing the risk of inconsistencies in analyzing data.

See Moores and Yuen (2001) for a similar methodological approach.

The within-class variation of this solution is 1.963 for 2009, while the between-class variation obtained is 2.817.

The k-means method is a prototype-based, partitional clustering technique (as opposed to other techniques such as agglomerative hierarchical clustering or density-based clustering). k-means defines a prototype in terms of a centroid, which is usually the mean of a group of points and is typically applied to objects in a continuous n-dimensional space (Tan et al., 2005, p. 497), with repeated iterations until the centroids do not change anymore. While this technique requires specification of the number of clusters before the analysis is run, the technique is simple and easy to run. To ensure the robustness of the analysis, we have also performed agglomerative hierarchical clustering, a technique that does not require the previous specification of the resulting number of classes. This alternative technique also identified three clusters, with the same class centroids as obtained via k-means, and with insignificant variation of the number of objects in each class (one or two objects). Accordingly, the three-cluster solution that we employ is robust.

In the cluster analysis we have not used IFRS, ERP, personal and environment-related competencies as these competencies are preserved for later analysis; as shown in previous research (Moores and Yuen, 2001, p. 363), performance of significance tests on variables used to create the clusters is meaningless since it will always reveal significant differences.

Summing up the total number of hybrid positions originating from positions initially considered pure financial accounting (based on the title, i.e. 21), with the number of ads classified as financial accounting (group 1, i.e. 30), the total is 51 instead of 50, the expected value. The opposite applies for managerial accounting positions (49 in total, instead of 50). This is the result of the reclassification (based on the clustering technique applied) of one ad (entitled controller) in the financial accounting group (group 1), which we had originally classified as a managerial accounting one. All the other ads across the three samples were correctly originally classified based on their titles.

More specifically, in 2007, 96.4, 97.3 and 100% of jobs were correctly classified into clusters 1, 2 and 3.

This is, in fact, very interesting considering the significant extent to which various items of IAS/IFRS affected accounting regulations in Romania through the OMFP 1752/2005, and still continues to affect the current regulations, via the OMFP 3055/2009. While a critical analysis of the appropriateness and technical correctness of such influences is beyond the scope of this paper, several influences can be found.

For example, even though US GAAP was never imposed in Romania, 16% of the 50 financial accounting job offers in the 2007 sample require such competencies.

In the case of the management accountant probit regression, a separate interaction term for IFRS*D08 was not possible since IFRS takes a value of ‘1’ in every instance of the MA sample in 2008 – thereby, leading to a perfect prediction of the binary response that is indistinguishable from the intercept.

Nevertheless, it is true to say that several accounting treatments in IAS/IFRS are closely allied to management (accounting) information. See, for example, the case of value in use to be determined under IAS 36 when testing for impairment of assets; such a calculation presumably requires at least understanding of forecasts and management accounting concepts such as costs.

The apparent negative significance of ENV in 2008 is deceptive – while incrementally significant, it is not significant overall as the p-value for the sum of the two estimated coefficients is 0.1372.

We thank an anonymous reviewer for drawing our attention to the generalizability of our results.