Accounting, Auditing & Accountability Journal: Article Information

Accounting, Auditing & Accountability Journal
Public sector accounting, accountability and austerity: more than balancing the
books?
Enrico Bracci, Christopher Humphrey, Jodie Moll, Ileana Steccolini,
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AAAJ
28,6
Public sector accounting,
accountability and austerity:
more than balancing the books?
878 Enrico Bracci
University of Ferrara, Ferrara, Italy
Christopher Humphrey and Jodie Moll
Manchester Business School, Manchester, UK, and

Ileana Steccolini
Bocconi University, Milan, Italy
Abstract
Purpose – The era of austerity that has followed the outbreak of the global financial crisis has posed a
myriad of challenges for public services, with demands for major cuts in government spending, the
delivery of balanced budgets and zstrategies for deficit reduction. The purpose of this paper is to
consider how public sector accounting and accountability systems are implicated in the development
and implementation of austerity policies. Also, it pinpoints a range of issues that accounting
researchers need to be contemplating on the subject of accounting for austerity.
Design/methodology/approach – Interdisciplinary literature review, coupled with an illustrative
discussion of the changing nature of public sector accounting practices under austerity.
Findings – Despite the significance and scale of austerity, public sector accounting research on the topic is
in its infancy, with the prominent focus being on how accounting technologies are used to manage austerity.
There have been few attempts to debate critically the construction of austerity and to provide alternative
accounts of austerity. Accounting for austerity, especially in terms of its implications and consequences, is
far too complex and challenging to be categorized as simply seeking to “balance the books”.
Research limitations/implications – As an academic community, we need to be developing
understanding of public sector accounting research under austerity across different organizational
levels and contexts. Also, we should be framing the accounts of austerity in ways that respect and
build on a sound understanding of the extensive available interdisciplinary research on this topic. Key
research questions to address include: how is accounting shaping constructions of, and impressions,
attitudes and behaviors toward, austerity and the status of governments and public service
organizations? What do such patterns of development mean for the roles and contributions of public
sector accountants under austerity? Are accounting systems destined to be used primarily as vehicles
for cost-cutting, or can they be used as engines for growth and for thinking about public service
responsibilities in more socially inclusive forms?
Originality/value – Accountings of austerity in the field of public sector accounting research have
been worryingly limited. This paper and the papers in this special issue of AAAJ address such failings,
revealing a range of critical implications and challenges of austerity policies for public sector
accounting research.
Keywords European union, Global financial crisis, Democracy, Public services,
New public management, Cutback management
Paper type Research paper
I call it balancing the budget. Everyone else is using this term austerity. That makes it sound
like something truly evil (Merkel, as cited in Trotman, 2013).
Accounting, Auditing &
Accountability Journal The “cost of bailing, recapitalizing, and otherwise, saving the global banking system has
Vol. 28 No. 6, 2015
pp. 878-908 been, depending on […] how you count it, between 3 and 13 trillion dollars. Most of that has
© Emerald Group Publishing Limited ended up on the balance sheets of governments as they absorb the costs of the bust, which is
0951-3574
DOI 10.1108/AAAJ-06-2015-2090 why we mistakenly call this a sovereign debt crisis when in fact it is a transmuted and
well-camouflaged banking crisis […]. When government services are cut because of Public sector
“profligate spending”, it will absolutely not be people at the top end of the income distribution
who will be expected to tighten their belts. Rather it will be those who lie in the bottom 40
accounting,
percent of the income distribution […] the folks who actually rely upon government services accountability
[…]. This is why austerity is first and foremost a political problem of distribution, and not an
economic problem of accountancy (Blyth, 2013, pp. 5, 14).
Accounting has real effects across all social domains and has become a language of politics and 879
society. Accounting, together with related technologies such as audit, is increasingly recognised
to be an important element of the material and intellectual culture of society. This draws attention
to a much broader setting that must be addressed to appreciate the richness of accounting as a
social technology with political, moral, and ethical dimensions (Boyce, 2014, p. 129).
1. Introduction
Austerity is not “new”. As Schui (2014, p. 1) stressed, the “notion that individuals,
states and societies benefit from limiting their consumption is almost as old as
humanity” and since the time of ancient Greece “has remained a focus of political and
economic arguments in all ages of Western civilization.” While noting that the term
“austerity” is often used today in reference to the pursuit of public spending cuts (also
see Anderson and Minneman, 2014; Bramal, 2013; Konzelmann, 2014), such usage
misses the main contemporary rationale of austerity which is “to restore balance in
government finances and regain economic dynamism and competitiveness” (Schui,
2014, p. 2).
Between the end of the 1970s and the beginning of the 1980s austerity and decline
attracted significant scholarly attention, giving rise to the development of a literature
on decline and cutback management (e.g. Levine and Posner, 1981; Levine, 1978, 1979;
Pandey, 2010; Weitzel and Jonsson, 1989; Whetten, 1980). New Public Management
(NPM) officially sought to shift the policy focus from crude expenditure cuts to the
pursuit of enhanced efficiency and value-for-money, although its practical capacity to
deliver on official policy claims has been consistently questioned and challenged
(Humphrey and Miller, 2012; Humphrey et al., 1993; Hood and Dixon, 2015). In the wake
of the 2007 global financial crisis, however, policy concerns with enhanced levels and
quality of public service provision have been displaced by governments across the
world adopting austerity policies and scaling back public services, at even greater rates
than in previous decades, suggesting a further development of neoliberalist principles
(Whitfield, 2012; Macartney, 2011; Morgan et al., 2011, Crouch, 2011).
While economists have had a typically dominant presence in debates over the health
of the economy, the state of the public finances and desired strategies for growth
(Chapman et al., 2012), there can be little doubt that public sector accounting and
accountability systems are centrally implicated in these debates and developments
(see, Sikka, 2015b). Such systems can be used to shape, and justify, or, alternatively, to
counter and resist, discourses and measures of austerity (Arnold, 2009; Cooper, 2015).
They matter because they serve to challenge, reinforce and/or sustain particular
representations, assumptions and myths of the value of particular practices, forms of
accountability, and ruling conceptions of the public interest, public services and the state.
As Morales et al. (2014, p. 424) make plain: “Accounting has the potential to destabilize
the way in which states are conceived of and administered.” Yet all too often, as implied
in one of the opening quotes (by Angela Merkel), accounting has been presented as
a technical and neutral practice, used to justify cutback choices by representing them
as financially and economically essential and not “tainted” by political considerations.
AAAJ Indeed, it is striking that, inspite of various calls for accounting scholars to investigate
28,6 and deepen knowledge of how accounting is implicated in policies of austerity (Arnold,
2009; Cooper, 2015; Hopwood, 2009; Van der Stede, 2011), the topic has failed to garner
much attention in the field of (public sector) accounting research.
A main aim of this AAAJ special issue is to ensure that the subject of accounting and
austerity starts to get the research focus it deserves, with the presented empirical and
880 conceptual analysis both enhancing understanding and stimulating further discussion
of changing patterns of accountability and the role of accounting and accountants
under austerity. Austerity poses new challenges to budgeting, measurement and
reporting systems, which may themselves need significant rethinking. Knowledge
enrichment here will require scholars not only to familiarize themselves with public
sector accounting practice but to contemplate key shifts in the underlying rationalities
associated with such practices, and even to construct new theorizations potentially
capable of changing policy and practice behaviors ( Jacobs and Cuganesan, 2014).
The papers in the special issue consider such matters in a variety of ways, from the
defining qualities of budgets and financial reporting standards in framing the scale,
significance and pressing immediacy of austerity (Heald and Hodges, 2015) to the
financial management and control practices of local governments (Van der Kolk et al.,
2015) and other public service providers, including grassroots and charitable
organizations (Ferry and Ahrens, 2015), in implementing, defending themselves against
and mitigating blame for austerity cuts, as well as the role of supranational institutions
(Lapsley et al., 2015). Collectively, they provide revealing indications of the varying
capacity of accounting to represent complex conceptions of governmental austerity in
quite basic, blunt, terms that the everyday household should supposedly understand.
At the same time, they highlight the need for a set of measures to reform governmental
standards of financial reporting in ways that reflect better the sheer complexity of
contemporary governmental finances. Accounting emerges as a function whose
persuasive capabilities can be seen to rest in connections with notions of objectivity
and neutrality, but can also prove to be limited unless accompanied by a compelling
political rhetoric or groundswell of populist support. Ultimately, the nature of
accounting engagements with austerity serve to question the extent to which
accounting should operate as a measure or indication of the financial scale of austerity
or extend to more considered contemplations and accounts of the social and political
consequences and effects of austerity.
Our paper is structured as follows. Section 2 traces the nature of contemporary
concerns with austerity, including its origins and consequences. Section 3 discusses
and illustrates how austerity is changing accountability and accounting in the public
sector. Section 4 reviews broadly how the issues of austerity and the global financial
crisis have been addressed in the accounting research literature to date. Also, it outlines
the essential contributions of the papers included in the special issue. Section 5 closes
our paper by formulating a research agenda on accounting and austerity, and
summarizing the main conclusions of our collective encounters with the subject, as well
as the challenges facing accounting researchers committed to contextually informed,
critical analyses of public sector accounting practices.
2. Austerity: contemporary concerns and consequences

Scholars and practitioners alike have sought to understand the complex set of
issues causing the global financial crisis that prompted governments in recent
years to implement austerity policies (e.g. Blyth, 2013; Chabrak and Gendron, 2015;
Crotty, 2012; Morales et al., 2014; Morgan et al., 2011; Sommers and Woolfson, 2014). Public sector
While the aim of our paper is not discuss such causes[1], it is important to note that, accounting,
following the outbreak of the global financial crisis, many countries initially implemented
exceptional stimulus measures, but by 2010 those measures in many advanced countries
accountability
had been dropped and replaced by austerity programs (Blyth, 2013). The political turning
point is claimed to have been the 2010 G20 Toronto meeting, where the international
response (lobbied by Germany and the European Central Bank (ECB)) to the financial 881
and economic crises shifted to the pursuit of public deficit and debt reduction (Blyth,
2013; Wolf, 2014), with austerity policies being proposed by governments as a necessary
solution to reducing unsustainable levels of public debt and expenditure.
The UK Government was one of the first to call for an urgent uptake of austerity and
to implement drastic measures to reduce public spending (Cameron, 2009). In June 2010,
an ECB bulletin supported the idea and the need to implement “growth friendly fiscal
consolidation,” particularly in those countries with high-public debt and deficits. The
economic rationale for fiscal consolidation was heavily rooted in neoliberalism.
As Reinhart and Rogoff (2010) argued, austerity was necessary to reduce the level of
public debt and restore growth. Despite some subsequently revealed methodological
flaws (Herndon et al., 2013), this paper, together with others on the claimed
expansionary impact on GDP of the fiscal contraction of government (Alesina et al.,
1998; Alesina and Ardagna, 2010), provided significant support for and legitimation
of austerity policies (Blyth, 2013), in the form of a mix of public spending cuts,
reducing/freezing labor costs, and the privatization of public assets and reducing the
welfare state and public services in general (Whitfield, 2012).
While proponents of austerity have pointed to the reduction of public deficits and
debts as necessary for restoring economic growth, austerity critics have highlighted
the ideologically driven nature of such claims and the negative economic and social
consequences of austerity measures (e.g. Blyth, 2013; Bramal, 2013; Chabrak and
Gendron, 2015; Krugman, 2013; McCann, 2013; Mendoza, 2015; Oxfam, 2013; Seymour,
2014). For example, Seymour (2014, p. 161) concludes that “anti-austerity struggles
are predominantly political rather than narrowly economic,” with the reinvigoration
of neoliberalism provided by austerity serving to erode parliamentary democracy,
promoting privatization and ensuring that many aspects of social life are structured by
“competitive” market relations. Some, such as Krugman (2013), have gone so far as to
suggest that the economic case for austerity has lost considerable support among many
economists and retains a puzzling level of political support in countries such as the UK
– to such an extent that it looks more and more likely that the real agenda underlying
austerity policies is the pursuit of a smaller state: the “primary purpose” of austerity,
the Guardian admitted in 2013, “is to shrink the size of government spending” – or,
as Cameron put it in a speech later that year, to make the state “leaner […] not just now,
but permanently[2].”
Interestingly, there are also cautionary remarks in the literature regarding the
importance of not assuming that it is the advocates of austerity who have the monopoly
on economic arguments. As Schui (2014, p. 6) noted, proponents of austerity argue
frequently on the basis of morality and politics, while their critics draw on “the
language of economic efficiency to challenge their viewpoint,” with the resulting
consequence that “the participants in the great debate about austerity often do not talk
to each other, but rather past each other. This form of miscommunication has greatly
contributed to making this controversy one of the longest and most inconclusive
exchanges in Western culture” (p. 7).
AAAJ The European Union appears to have been particularly stricken by austerity, as
28,6 European member states have been required to adhere to new governance parameters,
comply with fiscal compact rules, accept debt consolidation processes, pursue balanced
budgets while still being expected to respect Maastricht treaty requirements. The
adoption of rules for “strengthening” European financial governance, named “Six
Pack” and “Two Pack”, represents an implicit transfer of sovereign power from
882 national states to the European Commission, with national budgets first having to be
discussed with the commission prior to being approved by National Parliaments. Basic
notions of accounting have been instrumental in shaping the governance of inter-
institutional relationships, both nationally and transnationally, whether between
central and local government and public organizations and/or between member states
and supranational organizations, including the Troika (Bramal, 2013). Discussions
about expenditure deficits and the overall level of public debt figure prominently in the
public domain, to the extent that they have arguably served to make routine and
apparently inevitable, what are quite unprecedented decisions regarding cuts in public
expenditure/services (Bramal, 2013). As Peck (2014) argues, the threat of state and local
government bankruptcy has been used to justify the implementation of drastic
measures, with comparably low levels of protest.
Whitfield (2012) has argued that austerity has failed to achieve its rhetorical and
theoretical aims, such as government debt reduction, increased GDP and rising levels of
full-time employment. On the contrary, the current austerity period has witnessed reduced
GDP, increased unemployment, reduced wages and benefits for workers, increased
business closures and failures, a financial crisis in local government, foreclosures and
house price reductions (Whitfield, 2012, pp. 8-11). At the same time, the government and
Troika interventions have protected the banks’ bondholders and resulted in increases in
both share prices and the level of corporate profits and cash holdings (Blyth, 2013;
Sommers and Woolfson, 2014). A study requested by the Economic and Monetary Affairs
Committee of the European Parliament (Sapir et al., 2014, p. 2) also concluded that the
Troika financial assistance program had failed to achieve the expected outcomes,
having made “far too optimistic assumptions about adjustment and recovery” and having
underestimated the scale of the “initial challenge.” Austerity is generally reported to have
had grave implications for society and the human condition (O’Hara, 2014). For example,
austerity policies have been categorized as undermining the foundation of the European
welfare model based on social justice, equity and solidarity (Petmesidou and Guillén,
2014), with a resulting transfer of activity to the private sector and/or ending of public
service provision, particularly in the area of welfare services, coupled with reductions
in public sector pay, employment and pension rights and the general downsizing of local
government (Grimshaw and Rubery, 2012; Grimshaw, 2013).
The overarching conclusion is that austerity policies have led to increased levels
of inequality, and injustice through a reduction or narrowing in the level and modes
of state intervention (Demetriou, 2014; Windebank and Whitworth, 2014). Studies
have concluded: “fiscal consolidation episodes have typically led to a significant
and long-lasting increase in inequality” (Ball et al., 2013, abstract). Besides, UNICEF
(Unicef Office of Research, 2013), in a report, document how the well-being of children
decreased particularly for those living in countries affected the most by austerity. The
Council of European Committee of Social Rights (ECSR, 2013, p. 6) noted that European
public policies since 2009 have led to an increase in poverty in 38 analyzed European
states, with the identification of some 181 violations of European Social Charter
provisions on access to health and social protection. In “bailed-out” countries, the adverse
effects were consistently higher particularly in terms of reduced wages and social Public sector
benefits (ECSR, 2013). Oxfam (2013), in a detailed study of the effects of European accounting,
austerity programs, spoke of Europe contemplating a lost decade, with the prospect
of a further 15-25 million people facing the prospect of living in poverty by 2025 if
accountability
austerity measures continue. It also saw such policies as bearing a striking resemblance
to the “ruinous structural adjustment policies imposed on Latin America, South East
Asia and sub-Sahara Africa in the 1980s and 1990s” (Oxfam, 2013, p. 1). 883
One evident implication of the austerity policies is that in many countries, such
as the Baltic states and in Ireland, young people have been forced to emigrate in search
of jobs (Glynn et al., 2013). For instance, in Lithuania, from 2009 to 2012, some 220,000
individuals (about 7 percent of the population) emigrated, of whom 20 percent were

aged under 19-years old (Sommers and Woolfson, 2014). Notable changes have also
been witnessed in healthcare. Reeves et al. (2014) demonstrate that where the Troika
has implemented its austerity measures there has been a higher reduction of public
spending on healthcare, compared to those countries that did not apply for external
financial support. Such changes have reportedly resulted in worsening safety levels,
general working conditions and job satisfaction among healthcare professionals, with
negative emotional impacts (Burke et al., 2014; Clayton, et al., 2015; Newbold and
Hyrkäs, 2010). In countries such as Greece and Ireland, the Troika interventions have
been accompanied by an increase in the number of persons without health insurance
coverage and with low access to medication and healthcare treatment, coupled with an
overall cost-shifting by government back onto households (Simou and Koutsogeorgou,
2014; Thomas et al., 2014). From an epidemiological point of view, austerity policies
have been found to have affected the health of the population in Greece and Spain in
terms of increases in the rates of suicides, mental health problems, increased epidemics,
increased stillbirths, low-birth weight babies and infant mortality (Cervero-Liceras
et al., 2015; Kentikelenis, et al., 2014; Simou and Koutsogeorgou, 2014). There would
seem to be strong arguments to suggest that financially austere governments have not
only failed to foster economic growth but have failed to take appropriate account of the
increasing inequalities[3], social exclusions and general unhappiness brought about by
their austerity policies. Fiscal and financial matters have been dominant, while issues
such as poverty, fairness and inequality have rarely featured in the Troika “financial
assistance” (i.e. austerity) programs (see, Sapir et al., 2014, p. 6).
The above analysis indicates that austerity interventions stem from specific political,
economic and social evaluations with significant consequences that cannot be reversed
easily, with multiple causes and effects on an accompanying web of competing
stakeholders. They are, in the words of Jacobs and Cuganesan (2014), “wicked problems.”
As Rittel and Webber (1973, p. 155) argued, “in a pluralistic society there is nothing like
the undisputable public good […] policies that respond to social problems cannot be
meaningfully correct or false; and it makes no sense to talk about ‘optimal solutions’.”
Austerity, from such a perspective, is a complex and dynamic matter whose definition
and suggested treatments, despite political assurances to the contrary, are inherently
uncertain and highly controversial (Durant and Legge, 2006, p. 310).
3. Austerity and transformations in public sector accountability and

accounting
In the background to such debates and developments regarding austerity lies the
question of whether the recent crisis has offered even stronger support for advancing
NPM-type policies and practices or is rather causing a paradigmatic shift in notions of
AAAJ government and public service provision (Coen and Roberts, 2012; Di Mascio et al.,
28,6 2013; McCann, 2013). While NPM certainly remains pivotal to academic accounting
reflections on the state of the public sector, especially in the Anglo-Saxon
world (Broadbent and Laughlin, 2013), this section discusses some of the key
differences between NPM and the current era of austerity and further illustrates it
in the ensuing subsections.
884 The NPM official rhetoric was much about promoting the principles of the market,
encouraging competition, results-oriented behavior, the quantification of performance
and an emphasis on value-for-money – all wrapped up in a commitment to, and belief,
in managerialism and the need to hold service providers to account. Governments were
seen as that needed to be and could be “managed” – responsible for the most economic
and efficient use of inputs in order to deliver effective outputs and quality outcomes,
whether as direct providers or commissioners of public services (Humphrey et al. 1993).
Accordingly, under a traditional NPM umbrella, accruals accounting was presented as
a tool for ensuring better use of resources and to “let the managers manage,” focussing
the attention not only on ex-ante budget appropriations, but also on actual results,
costs, assets and liabilities, and infusing the public sector with private sector
rationalism and managerialism by adopting the latter’s accounting and reporting
logics (e.g. Anessi Pessina and Steccolini, 2007; Guthrie, 1998; Lapsley et al., 2009; Olson
et al., 1998).
Already at the beginning of this century, Olson et al. (2001, p. 515), in writing about
the reliance of NPM on accounting-based measures of performance and control (labeled
as New Public Financial Management – NPFM – reforms) alerted us to the possibility
that the public sector was in fundamental danger of getting caught in an “evaluatory
trap”: “At the extreme, it is possible to envisage that successful public service
organizations, managed in accordance with leading private sector management
principles, will increasingly charge for their services and become effectively ‘private’.
Other, less glowing but still attractive candidates, will be sold off, taken over or
subsumed by private sector organizations. The remaining ‘uncomfortable’,
‘unsuccessful’ and ‘unmanageable’ public services will be left to provide to a ‘public’
that cannot afford, or does not want, to pay for, any alternative form of provision.
We believe that the above-mentioned scenarios of NPFM procedures are suggestive of
the public sector being trapped by a residing, but misplaced, belief in the long-term
capacity of NPFM to deliver improved service efficiency/effectiveness. Faced
with rising costs of monitoring and evaluation, more frequent and visible service
charges and a growing loss of identity, the public service arena looks to be set
on a spiral of decline delivering fewer and fewer services. It is effectively caught in
an ‘evaluatory trap’.”
Austerity (particularly in the European Union) appears to have brought about a
deeper and reinvigorated version of neoliberalism (Peck, 2014), with an evident shift
in the content of accountability relationships. Under austerity, macro-data such as
debt/GDP ratios and deficit/GDP ratios, debt ceilings, balanced budgets and the basic
securing of cuts in public expenditure figure much more prominently in driving public
sector policy decisions. There is now a greater emphasis on the state of public finances
at the country level, rather than at an organizational level, with an accompanying
relegated focus on non-financial performance – with Sapir et al. (2014) concluding that
“non-financial” aspects of austerity, such as equity, fairness, social impacts have been
marginalized. Government is represented as a constraint on the economy and on
private (profit- and non-profit) sector initiative, with economic recovery resting firmly
in the hands of the latter. Austerity reforms have focussed on reducing the size of the Public sector
state and the services it delivers, but through some differing means and with different accounting,
accountability requirements than under NPM. Table I provides a broad indication of
several key differential tendencies in accountability relationships under both NPM and
accountability
austerity.
Such shifting accountabilities are visible at different levels. At the supranational
level, governments are experiencing the development of strong forms of 885
transnational accountability between themselves and supranational organizations,
such as the Troika. While transnational accountability has always existed
to support process of legitimation within complex governance settings (MacDonald,
2014), increasingly it is influencing other levels of accountability within the state

and public organizations, with quite profound changes being driven by concerns
over levels of public debt and the scale of government expenditure (Bramal, 2013).
In such contexts, accountability arrangements shift due to trade-offs in
material power relations resulting from structural social and political changes
(MacDonald, 2014).
3.1 Changing roles of auditors and citizens and changing focus of accountability
The case of the Audit Commission in the UK (see also Eckersley et al., 2014) provides an
illustration of the shifting accountability emphases under austerity and more
specifically of the changing roles of auditors and citizens in holding governments
accountable. It also demonstrates the changing contents of accountabilities toward a
strengthened focus on financial issues as well as the quite complex and, at times,
unpredictable, nature of such changes. Given the work of authors such as Power (1994,
1997) on the rise of the Audit Society, one could have expected in an era of austerity to
see a growing significance being attached to official public sector auditing institutions,
especially in light of the reported centralizing tendencies in terms of processes of
financial and economic control both within nation states and at a transnational level.
Surprisingly, however, one of the first commitments of the installation of a coalition
government in the UK in 2010 was to announce the abolition of the globally recognized,
and highly regarded, Audit Commission and the termination of a related performance
measurement system for UK local government. In its place, the UK Government
required local government to publish a range of financial and performance information
Under NPM Under austerity
Accountability
Of whom Public managers, public organizations, A nation’s public sector as a whole
departments
To whom Citizens, users, audit institutions Supranational institutions, other
public sector entities
For what Inputs, outputs, outcomes Expenditure, deficit and debt
Measurement and Budgets, performance reports, value-for- Fiscal rules, financial cuts,
assessment bases money/value-added, market competition constraints and controls
Represented role Holding managers and politicians Reducing expenditure, deficit and
of accounting accountable for both financial and non- debt all with a purely financial Table I.
financial results focus Changing
Supporting decision making in a market/ Governing inter-institutional and/or accountability: from
competition environment intergovernmental relationships NPM to austerity
AAAJ so that citizens could directly hold them to account. In a podcast on transparency Prime
28,6 Minister David Cameron (2010) envisaged the creation of an army of armchair auditors:
By bringing information out into the open, you’ll be able to hold government and public
services to account. You’ll be able to see how your taxes are being spent. Judge standards
in your local schools and hospitals. Find out just how effective the police are at fighting
crime in your community. Now I think that’s going to do great things. It’s certainly going to
886 save us money. With a whole army of effective armchair auditors looking over the books,
ministers in this government are not going to be able to get away with all the waste, the
expensive vanity projects and pointless schemes that we’ve had in the past (www.gov.uk/
government/news/pms-podcast-on-transparency)[4].
This case witnesses a turn in what is accounted for, and to whom, with citizens being
left in the uncomfortable position of having the personal responsibility of evaluating
local government services received at a time when local government are facing
unprecedented financial cuts and having to close whole ranges of public services. This
raises important questions as to the whether a greater role for accounting under
austerity enhances, supplements or displaces the influence of citizens in holding their
governments accountable for the state of public services and stimulates different
priorities and demands regarding public finances.
3.2 Accounting as a constraint to support or as a buffer against austerity?

Empirical studies of public sector organizations adapting and responding to austerity
reforms provide opportunities for developing understanding of the changing role and
significance of accounting systems in financially constrained times, what counts in
practice as “mature” financial management and how such functions and practices are
resisted or absorbed (Hopwood, 2009).
Interestingly, while central government austerity policies have placed major
financial pressures on local government, responses to such policies have been different
(Barbera et al., in press), with accounting systems being used in some cases to support
and advance austerity, especially by central governments, and in others providing tools
for partially buffering or resisting it. For example, major cities have even been declared
bankrupt in the USA (see, Donald et al., 2014; Peck, 2014), while cuts in local
government funding in the UK of 37 percent (for the period 2010-2016) have been
accompanied by a banning of revenue raising fees and charges to offset such
reductions (Comptroller and Auditor General, 2014). Such local governments have been
informed that they should seek to reduce senior staff pay, improve procurement and
back-office shared services and remove non-value adding jobs (Murray et al., 2012).
This has resulted in substantial job losses[5] and accompanying substantial drops in
service levels, particularly in areas receiving the biggest cuts[6]. Interestingly, as the
NAO (Comptroller and Auditor General, 2014, p. 38) points out, the legal framework in
the UK prevents local government from becoming insolvent, meaning that solutions
based on service cuts have become the only viable option for such organizations,
although some 19 percent of metropolitan councils still failed to meet their budget
targets (Comptroller and Auditor General, 2014).
In Italy, the reaction to the sovereign debt crisis was dramatic, in terms of repeated
cuts in public expenditure, a freeze on personnel hiring, etc. However, it also has to be
remembered that the Italian public sector has been under financial stress since the 1990s
(Di Mascio et al., 2013), as a consequence of the Maastricht treaty requirements. In this
respect, public sector accounting and the interpretation of the related rules could also
potentially be seen as having helped to absorb several of the shocks-related first to the Public sector
application of the Maastricht treaty/growth and stability pact and more recently to accounting,
the required “strengthened” European governance. The “fiscal compact,” and more
specifically the “balanced budget” constitutional amendment, was promptly adopted by
accountability
the Italian Parliament in 2012 (albeit with scant public discussion), following concerted
external pressure to show compliance with European requirements. However, the
application of the balanced budget principles, set to take place from 2016, requires 887
the approval of more detailed rules and regulations, which have yet to be passed
and, therefore, casting doubt on the likely scale of implementation of the balanced budget
principle. At the local government level, as Barbera et al. (in press) point out, the
traditional budgetary accounting system appears to have left a certain degree of budget
flexibility with local authorities, enabling them to keep the level of social and political
consensus high or acceptable, at least in the short and medium term, even in conditions of
financial, fiscal and economic stress. In this respect, Clayton et al. (2015) show how the
organizational response to austerity was also to adapt and conform to the dominant
discourse in order to try and maintain resources and levels of service.
3.3 The case for accruals accounting and WGA? From a managerial to a macro-
economic control tool?
A direct illustration of the shifting roles of accounting tools under austerity is evident from
the way that the public sector is (again) being encouraged to adopt private sector
accounting approaches and philosophies, such as accruals accounting. The adoption of
accruals accounting in the public sector had been central in the NPM agenda (e.g. Guthrie,
1998; Hood, 1991, 1995; Olson et al., 1998), where it was seen as the fundamental tool for
infusing the public sector with private sector rationalism and managerialism. Under
austerity, accruals accounting is being promoted in the name of transparency, rigor and
prudent financial management, even though such private sector accounting practices
received heavy criticism in quarters for their (pro-cyclical) role in exacerbating the global
financial crisis and for promoting more volatile accounting measurement approaches
(Ellwood and Newberry, 2007; Newberry, 2015). As stated by the European Commission
(2013, pp. 2-3) on the implementation of harmonized public sector accounting standards in
member states, such criticisms have certainly not damaged the case for accruals
accounting to be adopted in the public sector: “The sovereign debt crisis has underlined
the need for governments to clearly demonstrate their financial stability and for more
rigorous and more transparent reporting of fiscal data. Council Directive 2011/85/EU (the
Budgetary Frameworks Directive) recognizes the crucial role in EU budgetary
surveillance of complete and reliable fiscal data, comparable across Member States. […]
Accruals accounting is the only generally accepted information system that provides a
complete and reliable picture of the financial and economic position and performance of a
government, by capturing in full the assets and liabilities as well as revenue and expenses
of an entity, over the period covered by the accounts and at the moment they are closed.”
In addition to such claims coming at a time when the transparency and relevance
of accruals-based accounts both in the private and the public sector (Anessi Pessina and
Steccolini, 2007; Carlin, 2005; Guthrie, 1998) have been seriously questioned, the
European Union has also proposed to create its own European Public Sector Accounting
Standards (EPSAS) to ensure harmonized, comparable financial reports across member
states – rather than adopting existing standards, such as International Financial
Reporting Standards (IFRS) or International Public Sector Accounting Standards
(IPSAS). The case for EPSAS is being made on quite different grounds than the
AAAJ traditional case for the adoption of accruals accounting under NPM (for a detailed
28,6 discussion, see, Heald and Hodges, 2015). EPSAS are not being justified on grounds of
enhancing managerial or organizational autonomy and performance, but by the need to
provide more central control of public finances. They are not being advocated to support
managerial and local politicians’ decision making, but rather to bolster a more macro-
economic modeling of member states and their public sectors, and thus strengthening
888 broad-based EU policy making. Accruals accounting is thus represented not as a tool for
strengthening managerial and organizational accountability, autonomy, responsiveness,
but as one for putting public finances (and associated debts) under (centralized) control,
and ultimately serving to cede further sovereignty from member states to the EU. Indeed,
the widespread use, or pressure to use, international recognized accounting standards,

like IPSAS or EPSAS, is deeply involved in the discourse around fiscal consolidation
(Biondi, 2014). In making any criticisms of attempts to develop more credible and
reliable public sector accounting systems, it is worth noting the recent comments by
Soll (2015) on the state of government accounting in Greece and how its failure to use
IPSAS was serving significantly to overstate its level of indebtedness and making it
difficult to assess the degree to which its financial position was improving or
deteriorating. Soll’s (2015) critique in an article in the New York Times of the
Greek financial crisis and accompanying austerity policies focussed centrally on the
inadequacies of governmental accounting and the failure of both the Greek and
German governments to apply IPSAS. The direct consequence, from Soll’s viewpoint,
was that the Greek debt was effectively being overstated, while the German
Government’s loss on its “loans” to the Greek Government was essentially hidden
from the view of the German public, causing much more austerity to be applied to or
extracted from the Greek government.
A further initiative demonstrating the macro-economic dimensions of the resort
to accrual accounting has been the development and publication, in the UK, of accruals-
based, consolidated, Whole of Government Accounts (WGA). This has been noted by
the UK’s National Audit Office[7] as providing data that can be used for holding
government to account in terms of its spending choices. In particular, WGA has been
claimed to offer governments a better picture of the “real” value of public debt and the
sustainability of pensions. For instance, Emmerson et al. (2015) recently suggested that
the requirement to report liabilities such as employee pension obligations
(£1.2 trillion) in the balance sheet has forced the government to reconsider how
these will be funded.
The usefulness of WGA has been challenged, with critics such as Newberry (2014)
arguing that majority of readers, including politicians and officials are likely to
misunderstand such reports (see also Aggestam et al., 2014). It is also important,
especially for countries contemplating such accounting developments in response to
austerity, to recognize that the UK Government committed to the implementation
of WGA in the Government Resources and Accounts Act (2000) but did not publish its
first set of accounts until 2011, substantially after the outbreak of the global financial
crisis. So WGA is not an immediate, off-the-shelf solution to austerity, with research on
WGA (see also, Chow et al., 2009; Heald and Georgiou, 2009) having raised important
questions about the processes involved in producing WGA and the extent to which
such annual reports will deliver improvements in public sector financial management.
Indeed, it would appear that one of the major benefits of the development of WGA has
resided in its catalytic, processual effects – in improving internal accounting systems
across different segments of the public sector – as against action taken in response
to published WGA reports – which continue to compete with more economic-based Public sector
National Accounting Data as the primary “accounting” input into central government accounting,
decision making.
Such institutional considerations and consequent social re-shaping effects
accountability
require us to consider how various stakeholders use different kinds of measurement
and reporting systems to support or counter arguments regarding the practical
need for particular public services and to contemplate whether cuts are: necessary; and 889
capable of being reversed. With such thoughts in mind, we now turn to an
examination as to how austerity has been addressed to date in the accounting research
literature.
4. Austerity and the accounting research literature

During the initial spur of the global financial crisis, some accounting scholars debated
the extent to which accounting and auditing practices were implicated in fostering or
causing the financial meltdown and also how the profession had responded to the
crisis. Examples of this interest can be found in the special issues published in journal
such as Accounting, Organizations and Society (Vol. 34, Issues 6-7, 2009) and the Journal
of Accounting and Public Policy (Vol. 33, Issue 3, 2014). More recently, in Critical
Perspectives on Accounting (2015), together with a limited number of papers in other
accounting journals (e.g. Barth and Landsman, 2010; Gendron and Smith-Lacroix, 2015;
Humphrey et al., 2011; Kothari and Lester, 2012; Magnan and Markarian, 2011; Sikka,
2015a, b; Van der Stede, 2011). In particular, the accounting profession has been
criticized for failing to anticipate the crises of banks and financial institutions, with
questions raised regarding the claimed silence of auditors (Hopwood, 2009; Sikka, 2009,
2015a, b) and analyses conducted of the way in which the profession, globally,
responded to the crisis (Humphrey et al., 2009). Considerable attention has been devoted
by accounting scholars to the role and significance of “fair value accounting” in the
global financial crisis, particularly regarding its claimed, damaging, pro-cyclical effects
(see, Bengtsson, 2011; Laux and Leuz, 2009, 2010; Power, 2010; Véron, 2008). Concerns
about the financialization of accounting as a discipline and practice (see, Arnold, 2012;
Richard, 2015; Zhang and Andrew, 2014) has seen accounting described as an integral
part of the “symbolic universe of neo-liberalism” (Cooper, 2015, p. 17). With the latter
ideology said to be centrally implicated in the establishment of a financialized economy
from which the global financial crises emerged in 2008 (see, Aglietta, 2012; Blyth, 2013;
Crotty, 2012; Lehndorff, 2012; Seymour, 2014). According to Zhang and Andrew (2014),
the IASB’s revision of the conceptual framework jointly with the FASB reflected an
increasingly neoliberalist and financialized economy, with Richard (2015) claiming that
accountants and accounting regulation (IFRS, in particular) are directly supporting the
dynamics of modern “financialized” capitalism and the resulting huge financial
imbalances and risks experienced during the financial crisis. Questions have also been
asked of the extent to which accounting practices and accounting firms have
contributed to increasingly inequitable distributions of income and wealth – with some
critics stressing that accounting is far from being a neutral practice, but has been
molded in order to represent dominant class interests (Sikka, 2015a, b). Alternatively,
others have sought to question the impact of accounting practices on the macro-
economic modeling and associated interventions of policy makers and regulators
(Bezemer, 2010).
However, despite explicit calls for accounting studies to explore the social and
organizational dynamics of the global financial crises and the role of accounting and
AAAJ accountants (Hopwood, 2009; Arnold, 2009), it appears that its consequences, particularly
28,6 in terms of the deployment and impact of austerity policies on public services and society
more generally, have received little attention and coverage in the academic accounting
literature[8]. This may be a reflection of the scant attention typically devoted to public
services and organizations in accounting journals (Anessi Pessina et al. in press;
Broadbent and Guthrie, 2008). However, it is still quite surprising, when it is evident that
890 accounting has historically been closely interlinked with changing economic and social
conditions (see, Soll, 2015). Indeed, Soll observed that societies historically have
flourished when harnessing accounting as part of their general cultures (p. 207) but that
they can also frequently lose the capacity to master the interplay between accounting and
cultural life and find themselves in unexpected, avoidable and sometimes cataclysmic
financial crises (p. xvii).
An important exception to such a pattern of study is the examination by Morales
et al. (2014) of the Greek financial crisis, which suggests that there are arguably quite
strong hegemonic forces that serve to shift analytical focus away from the complexities
and contradictions of accounting-based reforms. Their analysis shows that the Greek
government’s financial problems initially were attributed to its inappropriate reliance
on complex financial derivatives, the inadequacies of the advice it had received from
Goldman Sachs and the lax nature of European accounting rules (such as ESA95, 2002
and 2003) which had permitted what came to be classified as excessively creative
accounting practices (also see, Wood and Campbell, 2010). Morales et al. (2014)
demonstrate how blame for the crisis subsequently shifted thematically to a cultural
discourse criticizing the behavior of the Greek Government and its citizens on issues of
corruption, excessive government expenditure, tax evasion, an unwillingness to work
and a “scheming” desire to achieve success without effort. Instead of any systemic
critique of a state privatization agenda, the marginalization of democratic government
and the financialization pressures promoted by the global banking and finance
industry, explanations and solutions served to bolster neoliberalist tendencies: which
shift “blame from ‘flaws in the system’ and places it on bad players that failed to
internalize capitalistic values. The solution is simple: more surveillance and discipline
(of ‘peripheral states’ by ‘central’ institutions), less public spending (austerity
measures), and ‘structural reforms’ – that is, increased neoliberalism” (Morales et al.,
2014, p. 440). “We do not argue that critique and resistance are impossible, but that
their effects are less and less to trigger radical change and more and more to foster an
illusion of debate without disrupting the neoliberal state privatization agenda too
much” (Morales et al., 2014, pp. 441-442).
Of perhaps even more surprise, is the sheer absence of studies of the role of, and
implications for, management accounting practices under an era of austerity. When one
recalls the work of authors such as Aaron Wildavsky on the politics of the budgetary
process (Wildavsky, 1964, 1988) or the vast range of authors who have emphasized the
role that accounting plays in the economy and society (for discussions see Hopwood,
1983; Humphrey and Miller, 2012), particularly during periods of crisis (Arnold, 2009;
Hopwood, 2009, Bhimani, 2008), it would not be unreasonable to have expected a flurry
of accounting research papers on the pressures and difficulties of budgeting processes
in government and public sector organizations facing quite massive levels of austerity.
However, such papers are scarce, with an interesting study (conducted in 2009)
exploring the tightly controlled but turbulent nature of budgetary arrangements in
Swedish local government but, surprisingly, making no mention of austerity and
the global financial crisis ( Johansson and Siverbo, 2014).
Turning to the papers that constitute this AAAJ special issue, they seek to provide Public sector
much-needed evidence and reflection on the role of accounting in a public sector context accounting,
under an era of austerity. Their focus collectively centers on changing patterns
of accountability under austerity, and how accounting is implicated in processes
accountability
of advancing, absorbing or combating austerity at different levels and across different
types of relationships, whether organizational, social and/or political.
In the first paper, Van der Kolk et al. (2015) analyze how management control 891
systems changed under austerity in four departments in two Dutch municipalities.
They find that austerity brought about a stronger reliance on constraining elements
of management control systems, which may ensure stronger financial stability in the
short term. However, tightening of these systems is also reported to have longer term
implications for employee motivation and served to promote increased opportunistic
behavior within departments, forms of resistance, reducing the overall effectiveness
of control. Such effects were capable of being curbed when facilitating elements of
controls were also emphasized, with departmental responses to austerity being
enhanced through the use of a blend of management controls.
Also considering the impact of austerity on local government, Ferry and Ahrens
(2015) provide an empirical examination of the mediating role played by Newcastle City
Council in managing central government imposed budget cuts across a range of
“grassroots” organizations, all seeking to justify their continuing right to receive local
government funding support. This strategy was considered a way of addressing multiple
stakeholder expectations when cutbacks and increasing reliance on centrally imposed
financial goals threatened the decisional room left to the authority. In the process,
accountability relationships were reconfigured in ways that saw grassroots groups being
enrolled, via new budgetary emphases, in different ways of working, becoming policy
proposers with local government acting as assessors and arbiters of competing funding
proposals. While financially weakened by central government cuts, Newcastle City
Council was able to retain a considerable degree of political control through a budgetary
process that essentially allowed it to “divide and rule” but also to keep the support of the
majority of grassroots groups by enrolling them very directly in considerations
regarding the financing and continuing provision of “public” services.
Lapsley et al.’s (2015) paper focusses on the adoption of austerity measures
in Ireland, Greece and Spain. Through the conceptual lenses of legitimation and
resource dependency theories, they show that each of the three countries adopted
cutback measures initially with legitimating purposes in mind and then increasingly
for reasons related to a dependence on resources. They also throw light on the role
of austerity in strengthening the role of supranational institutions, such as the Troika,
and their influence on public policies at the national level through planning and
reporting against financial goals in terms of retrenchment and debt consolidation.
In this way, these apparently neutral bureaucratic arrangements, defined and devised
well afar from “grassroots” and citizens, are shown to be transforming individuals’
lives and society more broadly.
A similar notion, that accounting is at a critical juncture in terms of the kinds of roles
it plays in justifying austerity policy, is also conveyed by Heald and Hodges (2015). Using
Miller and Power’s (2013) framework, Heald and Hodges provide insight into the roles
played by two distinct forms of accounting: government financial reporting and
statistical accounting. They draw attention to the territorializing role that has emerged as
countries, never having adopted accruals-based accounts, contemplate the prospective
demands and consequences of having to become “EPSAS” compliant. They show how
AAAJ accounting also has a mediating role in terms of reconciling the different interests of
28,6 parties keen to shape the outcomes of debates regarding the possible requirements of
EPSAS. They describe how accounting also has an adjudicating role by helping to frame
which techniques will be used to define success and failure in terms of economic
recovery. Finally, they identify how accounting has a subjectivising role since it promotes
structured responses to decision making. Each of these roles, Heald and Hodges argue,
892 strengthens the capability for European/supranational surveillance and intervention
leading to conflicts and contests, and, at the same time, increasing the incentives for
accounting arbitrage and manipulation such as the deployment of off-balance sheet
mechanisms such as PPPs and government guarantees.
These papers collectively provide a useful step forward in developing

understanding of the significance and contribution of public sector accounting in
this new era of austerity. They also invite greater consideration of the way in which
public sector accounting research needs to develop, and it is to such matters that the
closing section of this editorial is devoted.
5. Concluding thoughts: accounting for austerity – a research agenda

In initiating and developing this AAAJ special issue, we have become acutely aware
of the limited impact the topic of austerity has had on public sector accounting
research. The continuing dominant focus on the concept and operationalization of
NPM is not something unique to accounting, with a desire to assess the impact
of NPM over several decades still evident in disciplines such as public administration
(e.g. Andrews and Van de Walle, 2012; Boston and Eichbaum, 2014; Hood and Dixon,
2013; Pollitt and Sorin, 2011). That said, we found the relative lack of attention given
by accounting researchers to austerity to be both surprising and concerning.
As a global academic community we have for many years stressed the economic,
social and political dimensions of accounting (for reviews, see Chapman et al., 2012),
but this tradition has struggled to stimulate accounting research focussed on
austerity commitments that are shaking the roots of democracy and established
notions of government.
The relative absence of accounting research on such matters stands in some
contrast to a burgeoning literature on austerity in other disciplines, as we have
discussed in the previous sections. Austerity is an issue of such scale and significance
that failing properly to address it, almost by definition, makes much public sector
accounting research appear myopic and outdated, if not irrelevant. It also leaves
analysis of the implementation of austerity policies (and resulting implications) in the
hands of non-accounting experts, even though it is evident that austerity requires
the utilization of a sheer panoply of accounting measures, instruments and reports
and the evident exclusion or ignoring of sets of “alternative” accounting philosophies
and associated technologies.
If accounting researchers were contemplating the demise of public services under
much more favorable contexts nearly a decade and a half ago, why has so little been
said under times of austerity? Has public sector accounting research allowed itself
to become too insular, dominated with relatively narrow discussions over on-going
NPM reforms, even getting caught up itself in the increasingly “publish or perish”
culture of academia and the managerialisation of universities and simply missing the
bigger picture of austerity or being deceived by the one-dimensional constructions of
accounting in the standard austerity-rhetoric of expenditure cuts and “balancing the
books”? Whatever the answers are to such questions, they should never be sufficiently
persuasive and powerful to prevent accounting research from being more focussed on Public sector
issues concerning the responsibilities and accountabilities of government, the provision accounting,
of public services and notions of public interest.
It is helpful in this regard to draw a distinction between: accounts of austerity; and
accountability
the use of accounting technologies in managing or responding to austerity.
A good proportion of the content of the papers in this AAAJ special issue
is concerned with the latter dimension – about how different public sector 893
governmental bodies have resorted to accounting technologies in order to manage
constrained levels of resource under austerity; or how different accounting standards
and targets have been used to measure the scale of austerity and to monitor or shape
responses to it. What received less attention are the various ways in which austerity
has been accounted for, or could be accounted for; raising, in the process, serious
questions as to where this latter type of research stands on the priority lists of
accounting researchers?
Extant literature on austerity offers three principal reflections. First, there is no
evidence that austerity works. On the contrary, it has been described as “the great
failure” (Schui, 2014) or a “dangerous idea” (Blyth, 2013). Second, the impact on
public services is widely anticipated to be substantial. Third, despite the scale of
critiques of austerity and policies implemented in its name, alternative reforming
strategies are either said to be in short supply or at least not easy to specify succinctly
and not offering immediate, quick fix solutions. As Whitfield (2012, p. 223) concluded,
reconstruction is required of the economy, state and public services while Seymour
(2014, pp. 187-188) argued that a “successful anti-austerity strategy must ascend the
three vertices of class, state and ideology […] we have a generation of slow, patient
work in front of us if we are to turn fundamentally things around.” This does not
mean that austerity is inevitable and that there are no alternatives to it. Schui (2014)
envisaged the notion of an “ethical austerity,” intent on delivering more democratic
societies exhibiting a more equal distribution of incomes. The redistributive effects
would shift consumption patterns and, in the process, address the “paradox of thrift”
that Schui (2014, p. 185) argued has plagued advanced nations in their pursuit
of economic recovery.
Austerity, thus, is not inevitable, takes on different meanings, and is subject to
different interpretations, giving rise to a variety of policy responses (Anderson and
Minneman, 2014). It is here that there remains much potential for accounting research
in demonstrating alternative accountings of austerity and its consequences; of not
taking it for granted or as an inevitability; of debating what is happening and what
is being achieved, missed, excluded and/or ignored in the name of austerity. Very much
in this respect, accounting research can serve as a reminder, a voice of social
conscience, in terms of what is being secured, lost and devalued under austerity
and triggering more explicit debate and questioning of the concept, its form, scale and
significance and the relative merits and impact of competing policy actions, choices
and consequences.
Along these lines, we suggest below several possible ways forward for public sector
accounting researchers. Underpinning these research directions is the importance
of people being sensitive not only to the practical operationalization and performativity
of accounting technologies in implementing and managing austerity, but also to the
politicized nature of austerity as a concept, the range of, and capacity for, alternative
accountings for austerity and the potential to connect with researchers working in
other disciplines.
AAAJ 5.1 The politics of austerity: the performativity of accounting
28,6 The scale, depth and diversity of the austerity literature and the differing views on the
causes of and critical responses to austerity demonstrate that austerity cannot be viewed
in neutral terms but has to be seen as fundamentally political. This, in turn, serves to
make it explicit that in contemplating the role of accounting in relation to austerity it is
narrow minded to assume the existence of a one-directional, inevitable approach to
894 accounting for austerity as it is much more than just being about balanced budgets.
Accounting, accordingly, has to be seen as a performative activity that can only
be defined through its operationalization (Vosselman, 2014). Particular accountings
highlight certain dimensions of activity (and ignore others), steering or stimulating
particular sets of decisions and policy choices (Humphrey and Miller, 2012). This
implies that while accounting may serve punitive roles it is also capable of serving
emancipatory roles (Bebbington, 1997). For instance, it is possible to account for both
economic growth[9] and social welfare, whether in terms of happiness, cohesion,
inclusion, equality, security, care for the environment and commitments to future
generations. Austerity, by implication, can also be considered and represented (whether
in terms of its symptoms, causes, effects, solutions and consequences) in a much
broader frame than its traditional financial lens. Fundamental here is to give due
respect and recognition to the importance of studying the impacts and ramifications
of accounting in its social, institutional, political and organizational contexts (Bezemer,
2010; Parker and Guthrie, 2014). Just as Hopwood (2009, p. 797) argued that there is the
“need for a more rigorous investment in diverse research perspectives rather than
an unquestioned following of a singular mainstream view,” there is a corresponding
need for researchers and policy makers alike to engage in broader-based accounts
and accountings of, and for, austerity.
5.2 Austerity and management accounting: a view from inside organizations

While the focus of public accountability under austerity appears to be on whole
of government systems, inter-institutional and transnational relationships, which
remain important areas of research, we should not overlook that austerity is also
impacting individual organizations and the way that they consider the financial
consequences of the decisions they make (Donald et al., 2014). Yet, as Hopwood (2009,
p. 801) explained “management accounting research gives little or no guidance on
the modes of organizational response to economic crises,” which is all the more true in
the context of public service organizations. The crisis of public finance represents
an interesting context for providing a better understanding of the functioning of
management accounting practices, such as budgeting, cost control, performance
measurement, incentive systems (Arnaboldi et al., 2015; Van der Stede, 2011). The
nature of management accounting practices means that they can provide information
on the day-to-day decisions being made inside organizations, but they also have
the ability to influence significantly governance and accountability arrangements at
the societal level (MacIntosh and Quattrone, 2010). The overriding question in this
respect is how they are reconfigured (in terms of scale and the kinds of activities they
are used for) and what remedies they provide.
The study of the interrelations between management accounting and organizational
changes, although not new (e.g. Broadbent and Guthrie, 2008; Cruz et al., 2009;
Nor-Aziah and Scapens, 2007; Uddin and Tsamenyi, 2005), should represent an
important field of observation. Austerity programs are putting enormous pressure on
managers, with consequences for management accounting systems in terms of
supporting decision making and controlling needs. Johansson and Siverbo (2014) Public sector
showed that public sector organizations, when faced with budget turbulence accounting,
and uncertainties, tend to use and benefit from a tighter budget control systems.
However, the implications for accounting of austerity pressures and reforms are
accountability
likely to be more multi-dimensional, especially given the number of public service
organizations undergoing radical structural changes (Liguori, 2012), the growing
significance of inter-organizational relations (Jakobsen, 2012), the complexity of 895
governance and network structures (Cuganesan, 2006; Koliba et al., 2011) and the
developing linkages across public sector organizations (Hodges, 2012; Raudla and
Tammel, 2015) as they seek collectively to cope with complex (wicked) problems
and declining resources.
5.3 Accounting for austerity: more than making cuts and balancing budgets?
Accounting for austerity is not as straightforward as politicians or the popular media
would have us believe through their continual reiteration of phrases such as “balancing
the books” and the importance of acting like any sensible household would do in
“keeping its accounts in order.” Such behavior is to rely on quite one-dimensional
or one-sided views not only of austerity and the responsibilities of government but
of the role and significance of accounting. Even those calling for new accountings
(e.g. the importance of governments recognizing the scale of public sector pension
deficits) fail: first, to acknowledge the limits or vagaries of such new accountings and
the capacity for alternative/additional accountings regarding other dimensions of
austerity; and second, to acknowledge the disputed status of the nature of austerity in
the literature and the scope that such controversy gives for a broader conceptualisation
of the role of accounting in austere times. Treating accounting, under the traditional
austerity-rhetoric, as a neutral and objective tool, measuring the scale of public debt
and expenditure and fixing only on financial issues, has not appeared to foster national
growth. If traditional resorts to accounting are correlated with increasing social
inequalities and exclusion, then it is not hard to argue that accounting can, and should
have a broader orientation. Admittedly, broader dimensions of social well-being may
not be easily measured (Messner, 2009), but there is a growing literature in other fields
of inquiry supportive of the need to account for environmental, social, human and
natural capitals and not just financial capital (Piketty and Goldhammer, 2014).
In essence, to capture the broader picture of austerity causes, symptoms and possible
solutions requires an interdisciplinary view not only of “capital” but also with respect
to the nature of social rights and obligations.
These days, the field of accounting is replete with professional bodies and firms
claiming to work in the public interest. Even austerity cutbacks are routinely justified
as being in the public interest. But such a tone and focus is not inevitable. For example,
rather than routinely accepting that contemporary accountings are necessarily in the
public interest, we can ask in what ways does public sector accounting visibly
demonstrate an interest in notions of the “public”? If public sector accounting under
austerity is to be seen as serving more than certain sectional, private interests,
we should expect it to be providing broad-based analyses of the impact of austerity
on public institutions, services and the wider public/social sphere. At one level, this
means that accountings for austerity cannot be allowed to be dominated by the
financial. But it also means that such accountings cannot ignore the financial. Indeed,
there are strong arguments to suggest that current accountings for austerity are not
only weak on their consideration of the social costs and consequences of austerity but
AAAJ could also provide more frank and critical assessments of the risk exposures that
28,6 society still faces in relation to the banking sector post-global financial crisis
(Blyth, 2013, pp. 230-231). Similar considerations apply to the threats posed to
public services, social welfare and the broader democratic authority of nations
by the on-going development of the Transatlantic Trade and Investment Partnership
and the global power shift through the associated operation of the Investor State
896 Dispute Settlement mechanism – which gives corporations the power to sue
governments if they believe that legislation has damaged their future profitability
(e.g. through the banning of products, types of advertising or forms of service
provision)[10].
Wolf’s (2014, p. 351) detailed analysis of what has been learned (and still needs to be
learned) from the global financial crisis and the consequent era of austerity highlights
the failures of Western economic, financial, intellectual and political elites (also see
Engelen et al., 2011). For Wolf (2014, p. 352), the decline in confidence in such elites is
made even worse by economic rescue measures serving to “make the parts of the elite
most associated with the crisis richer than before […]. The loss of confidence in the
competence and probity of elites inevitably reduces trust in democratic legitimacy.
People feel even more than before that the country is not being governed for them, but
for a narrow segment of well-connected insiders who reap most of the gains and, when
things go wrong, are not just shielded from loss but impose massive costs on
everybody else.” Wolf also highlights how an ever more nationally detached
“globalized economic and financial elite” is weakening notions of citizenship and,
particularly, in the Eurozone with the economic dominance of Germany and the rise of
the Troika, creating an insufficiently emphasized sense of constitutional disorder and a
growing divorce between accountability and power which is striking at “the heart of
democratic governance” (p. 352).
5.4 Alternative accounts of austerity: the scope for multi-disciplinary, radical thinking?
Contemplating accounting responses to austerity in a multi-disciplinary fashion
or across a multiplicity of perspectives will help to ensure that public sector accounting
practice does not unwittingly buttress political agendas that, despite vocal claims to the
contrary, serve certain elements of society (and harm others) to great (and unfair
or unanticipated) effect. Accounting, in short, can be more than the henchman of
austerity; a financial or even emotional barrier serving to constrain or prevent the
construction of alternative political and economic agendas and responses to austerity.
The key here is that the contemplation of radicalism is not just the preserve of
economists or political scientists – it is something that accounting researchers and
practitioners should be considering through the development of alternative
accountings and alternative accounting strategies, by analyzing different effects of
austerity and providing different accounts of the “public” and “private” interests being
served by austerity policies. Future research needs to provide an understanding of how
what is accounted for (and not accounted for) supports various kinds of political and
social struggles. How does it lead to particular trade-offs or compromises being made?
Put differently, for example, we at least need a better understanding of how accounting
might be supporting deeper than necessary cuts in public spending to particular
services (Schui, 2014). Are accountants and their accounting techniques functioning
less as the recorders and more as the architects and enforcers of austerity policies? Or
and, instead, serving more constraining and protective roles, or acting as the catalysts
and stimuli for alternative ways of conceiving of, and responding to, austerity?
One does not have to look that hard to find regular references over the last three Public sector
or so decades of the importance of accounting research having a critical edge, typified accounting,
by Dillard’s (1991, p. 25) urgings:
accountability
If we appreciate the power of accounting knowledge to influence resource allocations and
sustain control of dominant power groups within the current socio-economic environment,
we can no longer ignore the moral, ethical and political consequences of our trade. If we do so,
we will continue as accessories, albeit unwitting/unwilling, in facilitating and perpetuating 897
the alienation of vast numbers of human beings. We can no longer be satisfied with only
interpreting the world; we must become an active catalyst for change.
Broadbent and Guthrie (2008) reiterated such sentiments in a public sector accounting
context, lamenting the failure of academic critique of various public sector accounting
and management reforms to influence practice and speaking of the need for academics
to go beyond the pursuit of understanding and to “try to change the world” (p. 156).
Most recently, Hopper and Bui (2016, p. 1) in reviewing developments in management
accounting research, expressed concern at the lack of contribution made in “critical
areas endeavoring to give greater voice and influence to marginalized sectors of society
worldwide. Third sector organizations, politics, civil society involvement, development
and developing countries, labor, the public interest, political economy, and until
recently, social and environmental accounting have been neglected”.
For sure, it remains important to know what is happening within public sector/
service organizations in terms of the way they are running their accounting systems in
austere times and to develop better understanding of how accounting practitioners are
facilitating the operation and maintenance of much needed and valued public services.
As Olson et al. (2001) suggested, public sector accountants can often prove to be critical
but “honest brokers,” cautioning policy makers against excessive reliance on such
systems and making excessive claims as to their relative functionality. Such empirical
depth at the organizational level can also help to reveal aspects of public service
provision and whether the pursued solutions are best focussed on elements of service
delivery or management systems or whether the real failings are at the level of public
policy construction?
We have also shown that austerity has implications for the roles played by
accounting practices and bodies at national and supranational level and there is more
to learn, as Humphrey and Miller (2012) make plain, of the way in which practices and
ideas travel and with what effect, both within and across public sectors and between
the private and public sectors. For example, the dominant economic and political
position that Germany has assumed through an austerity-struck European community
and the way it is choosing to manage the consequences of such power may provide an
inspiring research opportunity for a growing internationally focussed body of German
academic accounting scholars. Likewise, given the social impact of austerity across
countries such as Ireland, Portugal, Spain, Italy and Greece, accounting researchers
in such countries could have been expected to contribute important and powerful
critiques of austerity[11]. Disturbingly, these latter nations, whose histories and
economies were and are important to the construction of the European Union, have
come to be routinely referred to as “peripheral” under austerity. Contemplating how
we classify groups of people, societies, governments and nations in these austere times
is, directly, to think about how we account for austerity. Classifications and
categorizations are accounts of austerity, just as are explanations of the causes of
austerity or analyses of the financial scale of austerity.
AAAJ Public sector accounting researchers have a real opportunity to use their knowledge
28,6 and expertise to demonstrate how austerity is reconfiguring the form and content of
accountability relationships in the public sector and of public services. Accounting
properly for austerity has to involve consideration of the effects of austerity policies
and measures on the economy, the social fabric, the relationship between the market
and the state, and ultimately, the ways in which the state and the public services are
898 configured, governed, managed and held accountable. We can work with colleagues in
other disciplines and certainly also ask questions of an interdisciplinary nature
ourselves (Chabrak and Gendron, 2015). We can also learn from productive
collaborations in fields such as PPPs and the rise of financialization (e.g. Broadbent
and Laughlin, 2003; Engelen et al., 2011; Froud et al., 2010; Hatherly and Kretzschmar,
2011; Shaoul et al., 2012).
Fundamentally, however, academic and practitioner communities have to think in
different ways not only about how we account for austerity but what alternative
austerity accountings could look like? Recent commentaries, for instance, in the
Financial Times have sought to highlight the scale of the public pensions deficit and, by
implication, the need to cut pensions (see, Guthrie, 2015). But where is the talk of
alternative ways of raising finances to cover existing commitments or at least reduce
the deficit? We are told that private sector pension provision has been reformed and the
public sector must follow but what of the hidden “transfer costs” that reductions in
private sector pensions has placed on the public sector and the need to make welfare
payments to “newly poor” private sector pensioners? What of rapidly rising levels of
household debt and the effectiveness of “austerity-oriented” governmental economic
policies in addressing the burdens of growing private (as opposed to public) debt
(Macartney, 2011)? Routine reference is made to the profit-making, wealth creating
capacities of the private sector but how much profit do private sector organizations
extract from their engagement with the public sector? How dependent is the private
sector on the business it has secured from the public sector?[12] A publicly funded
healthcare system appears to be taken for granted in a good number of societies, so
much so that politicians routinely commit to safeguarding or ring-fencing healthcare
from expenditure cuts. But how much profit are private sector pharmaceutical
companies making from their drug sales to public healthcare providers? How much do
we know of such activity, especially in relation to the way such companies buy the
rights to emerging (cheaper) generic drugs to preserve existing patents on what are
highly profitable drugs?
Alternative accountings for austerity, sensitively undertaken and sensibly presented
can help to break down the stereotypical images, myths and biases that prevent
constructive debate and careful, informed, but open-minded thinking. However, we also
have to note that in committing to ask challenging questions of austerity and the
accounts being provided, the scale of collective transformation needs to be substantial.
The rise of NPM, for example, has gone hand-in-hand with a persistently critical academic
accounting literature, inevitably questioning in the process the persuasiveness or even
just the basic visibility of such critique (see, Broadbent and Guthrie, 2008; Humphrey and
Miller, 2012). That said, the sheer severity of the changes being delivered by or,
at least, promised or feared of, austerity, is such that as an important international
research community, we can only seek to do more. There has to be more thought-
provoking accounts of austerity in those countries hit the hardest, while we also
have to encourage more rounded policy analyses of the actions and obligations of those
nations and supranational bodies to have gained more power, influence and success
from the era of austerity (see, Duina, 2011; Eatwell et al., 2014). Indeed, the EU, as Public sector
a body that has been active in pushing the austerity agenda, itself has interesting accounting,
questions to address, given a long history of qualified reports from the European Court of
Auditors, as regards the efficacy of its own accounting systems and associated financial
accountability
statements.
In essence, the prevalent, standardized talk of “balancing the books” needs to be
supplanted by “balanced,” socially and intellectually informed accounts of the 899
application and consequences of austerity policies […] that are not only listened to
but also generate constructive response. Ultimately, as a socially constructed
phenomenon, accounting can only be bound by restrictive technical descriptions
if society allows it to be so. It is somewhat ironic that it takes the financial harshness
of austerity to remind us of the social and political nature of accounting and the sheer
importance of accounting for the things that, as a society, we not only collectively value
and treasure but, potentially, also just take for granted – until they are gone.
Acknowledgments
The guest editors are very grateful to the authors and the referees who contributed to
this AAAJ special issue, helping raise highly needed insights on accounting under
austerity. The guest editors are also very grateful to James Guthrie, who encouraged
the special issue and dealt with this paper editorially, as well as the two anonymous
referees of this paper for their valuable insights and comments. Any remaining errors,
however, are the authors’ responsibility. The authors of this paper are listed in
alphabetic order.
Notes
1. For further details on the global financial crisis and its causes and consequences, see also
the special issues recently published in Accounting, Organizations and Society, Vol. 34,
Nos 6/7 (2009), Cambridge Journal of Economics, Vol. 36, No. 1 (2012), Governance, Vol. 25,
No. 1 (2012), Public Administration, Vol 91, No. 1 (2013), Critical Perspectives on Accounting,
Vol. 30, No. July (2015).
2. www.theguardian.com/business/ng-interactive/2015/apr/29/the-austerity-delusion
3. For instance, in the UK, it has been suggested that women, ethnic minorities, and the
disabled have been most affected by recent changes to tax and welfare schemes (Reed and
Portes, 2014).
4. This represents a shift from the past where governmental accounts were shrouded in
secrecy (Aggestam et al., 2014). But, there remain severe doubts over the sufficiency of such
an approach, especially given that the “army of armchair auditors” has failed to materialize
(Wheeler, 2012; Toynbee and Walker, 2015).
5. For example, resulting in some 3,600 lost jobs to save approximately £310m in Manchester
City Council (www.bbc.co.uk/news/uk-england-manchester-30009940).
6. www.nao.org.uk/report/the-impact-funding-reductions-local-authorities/
7. www.nao.org.uk/highlights/whole-of-government-accounts/ (accessed May 25, 2015).
8. Searching, on May 2015, for the term “austerity” within the accounting journals retrieved
only 15 hits distributed across only seven journals. The journal selected were Abacus,
Accounting and Finance, Accounting Business Research, Accounting Forum, Accounting
Horizon, Accounting Organizations and Society, Accounting, Auditing and Accountability
AAAJ Journal, Advances in Accounting, British Accounting Review, Contemporary Accounting
Research, Critical Perspectives on Accounting, European Accounting Review, Journal of
28,6 Accounting Research, Journal of Business Finance and Accounting, Journal of Public
Budgeting and Accounting, Management Accounting Review, The Accounting Review.
9. It also has to be recognized that the pursuit of growth as an automatic economic policy aim
is open to substantial critique, especially in an increasingly globalized and financialized
900 world (see, Harvey, 2010; Piketty and Goldhammer, 2014).
10. For more details of active social campaigning against Transatlantic Trade and Investment
Partnership and its significance in an era of austerity, see http://corporateeurope.org/
international-trade/2014/10/d19-20-alliance-call-action-against-ttip-and-austerity; www.
opendemocracy.net/can-europe-make-it/thomas-fazi-werner-raza/ttip-next-phase-of-austerity-
agenda; For a summary of the current EU position on TTIP and Investor State Dispute
Settlement, see www.theparliamentmagazine.eu/articles/news/no-ttip-deal-isds-warns-
parliament; Related concerns can also be seen with respect to the global trade discussions
taking place regarding the Trade in Services Agreement and the Trans-Pacific Partnership.
11. A point already noted in the field of organization, regarding the observed scarcity of
(critical) academic studies on the global financial crisis and its consequences (see Morgan
et al., 2011, pp. 150-151).
12. See Gamble (2014, chapter 7) for a discussion of the contemporary interdependency of the
state and markets and the flawed nature of claims that wealth originates only in, and
through, private activities.
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Corresponding author
Professor Enrico Bracci can be contacted at: enrico.bracci@unife.it
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Manchester Business School, Manchester, UK, and

2. Austerity: contemporary concerns and consequences

individuals (about 7 percent of the population) emigrated, of whom 20 percent were

3. Austerity and transformations in public sector accountability and

2014), increasingly it is influencing other levels of accountability within the state

Under NPM Under austerity

3.2 Accounting as a constraint to support or as a buffer against austerity?

the widespread use, or pressure to use, international recognized accounting standards,

4. Austerity and the accounting research literature

These papers collectively provide a useful step forward in developing

5. Concluding thoughts: accounting for austerity – a research agenda

5.2 Austerity and management accounting: a view from inside organizations

and declining resources.

Bebbington, J. (1997), “Engagement, education and sustainability”, Accounting, Auditing &

HC 783 Session 2014-15, November 19.

Administration Review, Vol. 39 No. 2, pp. 179-183.

(accessed February 26, 2015).

Society, Vol. 34 Nos 6-7, pp. 868-873.

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