Heterogeneity when accounting standards are non-binding: Internal service charges in the Swiss cantons

IMPACT

This article evaluates the extent to which decision-makers in the public sector implement non-binding accounting standards. Using the example of internal service charges at the state level in Switzerland, the authors show that the implementation of non-binding standards may fail to achieve real transparency because of the ensuing heterogeneous implementation of accounting policies. Research results suggest that the implementation of the recommended ISC policies differed in terms of their intensity, differentiation, and precision. Standard-setters should anticipate an heterogeneous effective take-up of the recommended accounting standards they issue for the public sector, especially when jurisdictions differ in terms of political preferences.

ABSTRACT

This article explores how the implementation of non-binding accounting standards by public entities might lead to heterogenous accounting policy outcomes. Using panel data from the Swiss cantons, the authors studied internal service charges (ISCs) to evaluate what factors may influence the degree to which recommendations are implemented. In contrast with the existing literature, this study is the first to quantify the determinants of ISC use. Fixed effects regressions show that right-wing preferences and financial management organization were positively correlated to ISC use. These results emphasize the impact of political preferences on the degree to which accounting reforms are implemented.

KEYWORDS:

• Accounting standards
• internal service charges
• local public finance
• public management
• public sector financial management