Public accounting history in post-communist Romania

Figures & data

Table 1. Synthesis of Romanian post-communist accounting history^*.

Analysis factor	Post-communist period
	Stage 11991–2001	Stage 22002–2005	Stage 32006–present
PEOPLE (1)	The accountants are professionals highly trained in a quality educational system in high schools and Universities specialised in the accounting area.
	From a professional accountant’s perspective, this period does not bring many changes and is still accepted as a continuation of the public accounting of the communist period (cash accounting), being practically indifferent to global trends in this field. The Educational System is making reference through extremely timid attempts to the international references of public sector accounting (IPSAS), this being referred to majorly in studies and research papers published in specialised journals.	It is the period of major changes, when the professional accountant is heavily involved and required. A total of 13 budget owners are subjected to double accounting approach (in cash basis and accrual basis), in order to quantify the problems and solutions of implementing the accrual accounting system. Staff training is performed slowly and uncorrelated with the needs of practice. Assimilation is slow compared to the start of the new accounting system implementation. Barriers are organisational (trainings are performed for the budget owners, members of the financial and accounting departments being excluded from this), age and mentality related (usually the average age of employees is higher in the public sector), determined by ignorance of international trends in the field (accounting regulations contain IPSAS elements, but there is no explicit reference to their existence or content). The educational field (Universities) includes in the training of the future generations of practitioners the study of IPSAS. Professional bodies begin the process of familiarising the accountants with the form, content and role of IPSAS in the public accounting field.	It is the period when no more significant legislative changes are performed and the effects of previous measures are manifesting stronger, by recognising the Romanian public accounting system as one in accrual basis. The adaptation of professionals to the accounting environment is improved, the group of professionals grows younger and changes of mentality and traditions take place. Under the positive influence of education, the actions taken by the professional body and the experience accumulated in the previous stages, the new euro-international concepts are managed better. Romania’s accession to the EU has brought in front of the accounting professional issues of attitude, reasoning, ethics, and strategy. The theory, practice and experience in the accounting field provide alternatives which the accountant must assess and choose.
	The public accounting system moved very slowly from the socialist practices, did not take into account global changes, as it responded only to a very limited extent to the need of information of internal and external users, not being harmonised with international standards in this field. Information contained in the financial statements, in the income statement, is presented in a completely different form compared with that of economic entities, causing many difficulties for both practitioners and users of accounting information.	In the sphere of accounting information users, the changes are minor, as the cash basis system is the predominant reporting system, with certain adjustments required by the accounting transition to accrual basis.	Besides the state as the main trainer and user of financial statements, investors and creditors are also becoming important stakeholders. The transformation of public institutions into entrepreneurial entities, generated by the need of resources and correspondence with the area of economic entities makes transparency of public funds use a concern both of the regulatory body and for the accounting professional. Creating a legal basis for supporting financial statements disclosure on the websites of public institutions increases the citizen’s involvement in assessing the activity of state institutions.
PROFILE OF REGULATIONS (2.1)	The accounting system is still reminiscent of the communist accounting system. On the one hand the Romanian accounting system for economic entities has been reformed, thus answering the users’ need of information, as well as requirements for harmonisation with the European Directives and International Accounting Standards, but on the other hand public institutions still use the same chart of accounts as in the socialist period, adopted in 1984, only modified to meet the momentary requirements. The accounting system is cash based and it reveals a budgetary result (financial) based on the difference between the received cash and the paid cash. The set of accounting regulations is enforced by a state body, Ministry of Finance, business and accounting profession being subject to these requirements. The state acts as a preferential user of accounting information, given the fact that the financial statements are structured so that they are of use exclusively to the state.	During the EU accession process, through the Document of position at chapter 11 ‘The Economic and Monetary Union’, Romania took responsibility for reporting the data of public finances according to the provisions of the European Accounts System (SEC 95), and for adopting the accrual accounting. A new objective of financial accounting was fixed – the faithful representation of the patrimony, the financial statement and results – and principles that could sustain it were introduced (prudence, conformity with the rules, sincerity). Elements specific for the accrual accounting system are starting to be implemented in the cash accounting system (e.g., impairment of public institutions’ assets needed to reflect physical and technological depreciation; risk coverage/provisions for reversible depreciation of assets/value adjustments; book accounts payable and account receivable at the moment the transaction occurs). Legislative projects are issued as a basis for negotiation between legislators and practitioners (13 budget owners are undergoing parallel approaches of cash accounting versus accrual accounting). IPSAS elements are found in their structure as the foundation of implementing accrual accounting.	The current accounting system in force since 1 January 2006 is accrual based, and international standards are reference for certain elements. The IPSAS^1 standards considered the foundation of new accounting regulations are: IPSAS 1 ‘Presentation of financial statements’, IPSAS 2 ‘Cash flow statements’, IPSAS 12 ‘Inventories’, IPSAS 17 ‘Property, plant and equipment’, IPSAS 19 ‘Provisions, contingent liabilities and contingent assets’. In the case of Romania, out of the 38 total IPSAS standards issued by the IPSASB until present, there are a total of five standards mainly presented in the national legislation.
PRACTICES (REGULATIONS APPLICATION) (2.2)	Accounting practitioners are still dependent on normative acts. There is a lack of correlation between the evolution of Romanian public accounting system (cash based) and the transformation of the Romanian society, generated by renouncing communist principles.	It is difficult to assess the needs of a public sector according to rules implied by economic principles in a society where the state moves from being a dictator into a partner for the citizen. This period is difficult both for theoreticians and for practitioners. The former must have the ability to adapt the existent amount of information to the characteristics of national public accounting while the later must understand and measure the practical aspects of previously stated theories. The 13th budget owners step in and connect theory with practice in the sense that they apply theoretical requirements and based on them they can make observations which are ultimately processed by theoreticians with the end result of improvements made in the accounting system.	There is a larger closeness between the regulations and practice, in comparison with the previous stage. By applying the requirements of new accounting regulations passed through the filter of professional judgement, the role of accounting deepens, as it becomes an information source needed by internal and external users.
PROPAGATION (OF REGULATIONS) (3)	Because Romania is in a latent phase, subsequent to the transition from the communist regime, the public accounting system is obsolete, outdated and within it there are still elements specific to the communist accounting system.	The institutions’ transformation process was a consequence of certain external pressures rather than an outcome of public sector development and other internal factors. In 2002 the reform of public accounting and its harmonisation with the European and international regulations became mandatory in the context of Romania’s accession to EU. Thus, the political factor was decisive in the transformation process. On the other hand, the dependence on financing resources necessary for the regeneration of the public sector, which led to a dependency on external financial assistance and to the ensuring of the accountability for those resources, is another factor. International financial institutions (WB, IMF) ask for financial statements of the public sector based on IPSAS. The accounting assistance was provided by the EU and specialists from Glasgow Caledonian University (UK). It was the beginning of the accrual basis influence in the Romanian public accounting environment.	IPSAS are constantly spreading around the world. International organisations such as the United Nations, the OECD, NATO and others are also in favour of their implementation. At the basis of this support there is the need for common accounting language, a guaranty for transparency, efficiency and flexibility in the public sector. In Romania the new accounting system is based on European Directives and the European System of Accounts (ESA 95), with elements of the International Public Sector Accounting Standards (IPSAS), which represents a sign of obvious progress.
PRODUCTS (4)	Non-rhythmicity was noticed between the accounting regulations and the signals of the public sector. Accounting is still seen as a tool for the state to collect and distribute resources in a centralised, totalitarian manner.	Besides some inconsistencies, globally, the role of accounting has changed from an instrument of control used by the government to an instrument more and more relevant to the entrepreneurial environment of the public sector.In the legislative projects the objective of public accounting enriches by comprising budgetary income and expenses, which reflect received income and paid expenses (cash basis), also general accounting based on the principle of recognising rights and obligations, which reflects the evolution of the financial and patrimonial situation and also budget deficit or surplus (accrual basis). There is greater concern for disclosing the financial statements specific to the public sector in a similar form to financial statements specific to economic entities.	A favourable evolution of the accounting profession and of the educational system can be observed, as a qualitative interpretation, to the benefit of the users of financial reporting. As a consequence of users’ demand accounting services diversify. Accrual basis financial statements allow internal and external users to assess: the accountability of the public institution for the resources it controls/manages; the performance, financial position and cash flow statement; implications triggered by decisions made in relation to resource usage or activities connected to other economic entities/public entities. However, elements specific to cash-based accounting are still present to a limited extent (e.g., budgetary accounts necessary in the establishment of the budget execution account).
PROFESSION (5)	In 1992 the accounting professional association, the Body of Expert and Licenced Accountants of Romania (CECCAR), was re-established, created in the interwar period and abolished in the communist period. It was acknowledged as a self-governing legal entity in 1994 when the settlement of the liberal profession in Romania began.	The accounting profession is developing at the administrative level (42 CECCAR branches), educational level and in what concerns the national and international representation of Romanian accounting professionals.	CECCAR is acknowledged by the international bodies (becomes an IFAC and FEE member). It supports the access to the profession and provided both quantitative and qualitative training.
	The accounting profession is found under the domination of the legislative act. The Romanian regulations do not offer too many alternatives, maintaining their regulatory explicit nature. It is acknowledged that IPSAS standards recommend and provide the possibility to choose between accounting treatments or application of a policy established by professional judgement, correlated with the regulatory requirements. As a result, in the Romanian legislation the professional judgement manifests rather uncertainly. This should be encouraged by the involvement of the representative body of the accounting profession CECCAR. We take into account, however, that throughout public accounting’s history, the accounting profession’s role was more consultative, the effective decisions being taken for totally different reasons (political, social, economic). Moreover, the existence of CECCAR is the result of political decisions which were aimed its establishment (1921), then its dissolution by the communist regime (1951), and its re-establishment (1992) after the Revolution, when the communist regime fell (1989).

^* Sources: Ionascu (1997), Calu (2005), Dascalu et al. (2006), Cenar (2007), Nistor, Sucala, Matis, and Ienciu (2008), Deaconu et al. (2009).

¹ IPSAS references are available on https://www.ifac.org/public-sector

Table

Period	Name and date of the act	Subjects of mandatory application	Major contents concerning financial reporting
	Law no 10/1991 on Public Finances was a real financial charter of Romania.	Public institutions	The major part focuses on the principles of establishing, approval and execution of the national public budget. The Law introduces the concept of state budget instead of single national budget. For the first time, the law gives a true autonomy to the budgets that comprise the general budget.
	Law no 72/1996 on Public Finances (modifies Law no. 10/1991)	Public institutions	Establishes regulations for identifying, managing, using and controlling the financial revenues of the State, territorial administrative units and public institutions.
1991–2001	Government Resolution no. 78/1992 that authorises the Ministry of Public Finance to establish treasuries in subordinate bodies, namely: County General Districts of Public Finances, Bucharest General District of Public Finances, financial administrations.	Public institutions	This was one of the coordinates of the financial system’s reform in Romania. Through its own treasury the state moves directly or indirectly available funds, while ensuring the smooth performance of the Ministry of Public Finance and its territorial units. Moreover, through the public finances treasury, the efficient use of state resources by public institutions is assured along with the conformation of the funds’ destination approved by the budget law and consolidation of budget owners’ accountability related to public funds management.
	Accounting Law no. 82/1991		Mentions the role of the public institutions accounting for providing information to the budget owners regarding income and expenditure budgets, assets under management, as well as preparing the annual general account of execution of the state budget, the annual account for execution of the state social security budget, special funds and annual accounts for execution of local budgets.
	Government Resolution no. 32/2002 regarding the approval of the Activity plan for 2002 and 2003 of the government programme	Public institutions	The Ministry of Public Finance had the task of restructuring budgetary accounting by supplementing cash-based accounting with accrual-based accounting.
	OMPF 1,746/ 2002 for approval of the methodological norms regarding the organisation and management of accounting in public institutions, the chart of accounts and the monograph of the main accounting operations.		It is mandatory for 13 budget owners to keep records simultaneously both in the cash-based system and in the accrual-based system. The aim is to identify possible inconsistencies between theory and practice. Applicable experimentally since 1 January 2003 for 13 budget owners.
2002–2005	OMPF no. 1,792/2002 for approval of the methodological norms regarding engagement, liquidation, allocation and payment of expenses		Establishes recognition criteria for expenses, and also the organisation, book keeping and disclosure or budgetary and legal obligations.
	OMPF no. 1487/2003 for approval of the methodological norms regarding revaluation and impairment of fix assets in public institutions and legal entities without patrimonial purpose	Public institutionsLegal entities without patrimonial purpose	Requires revaluation of fixed assets starting with the fourth quarter of 2003. Requires recognition of impairment of fixed assets starting with 1 January 2004.
	OMPF no. 1917/2005 for approval of the methodological norms regarding the organisation and management of accounting in public institutions, the chart of accounts for public institutions and their instructions for application		Establishes the framework for the accrual-based accounting system, with important significance to assets, debts and equity. Applicable since 1 January 2006.
2006–present	OMPF no. 3.471/2008 for approval of the methodological norms regarding re-evaluation and impairment of fixed non-current assets in public institutions		Determines that the revaluation process of fixed assets in public institutions should carry on until the end of 2010. Recognises streamline impairment as the only impairment method.
	OMPF no. 1.187/2008 that modifies and completes the methodological norms regarding the organisation and management of accounting in public institutions, the chart of accounts for public institutions and their instructions for application, approved by OMPF 1.1917/2005		Creates new accounts related to non-reimbursable funds need for settlement with the European Community, without affecting the characteristics of the existent accounting system.
	Order no 529/2009 that modifies and completes the methodological norms regarding the organisation and management of accounting in public institutions, the chart of accounts for public institutions and their instructions for application, approved by OMPF no. 1.1917/2005		Includes only modifications related to terminology or introduction of new accounts, without affecting the characteristics of the existent accounting system.
	Order no. 2021/2013 that modifies and completes the methodological norms regarding the organisation and management of accounting in public institutions, the chart of accounts for public institutions and their instructions for application, approved by OMPF no. 1.1917/2005		Includes only modifications related to the terminology or introduction of new accounts, without affecting the characteristics of the existing accounting system.

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