AuthorPollanen, Raili M.


Calls for harmonized global financial reporting are well known. Primary examples of harmonization efforts are the adoption of the International Financial Reporting Standards for the private sector (and also for the public sector in some countries) and the International Public Sector Accounting Standards for the public sector in many countries. There have also been attempts to harmonize accounting standards across the private and public sectors. For example, the Institute of Chartered Accountants of Australia (2013, p. 6) called for "coordinated action to achieve globalisation of financial reporting across both sectors, and to achieve it in a way that results in comparable reporting between the sectors." Australia, along with the United Kingdom, has adopted the International Financial Reporting Standards as primary standards for its public sector, with some public-sector-specific modifications (Chow et al., 2019). In principle, hardly anyone could argue against improved comparability, if it were truly achievable in practice.

Accounting standard setters in many countries have concluded, however, that the public and private sectors are fundamentally different, requiring different accounting standards. Hybrid approaches also exist, for example, New Zealand and Canada prescribe the International Financial Reporting Standards for profit-oriented public entities; whereas, public sector standards apply to other public entities. New Zealand, however, adopted the International Public Sector Accounting Standards after the private sector standards proved inadequate for its public sector (Cordery & Simpkins, 2016). On the other hand, the Public Sector Accounting Board in Canada maintains its own public sector standards long after adopting the International Financial Reporting Standards for Canadian publicly listed companies and also for profit-oriented public entities. The United States also has national public sector standards but there are two standardsetting boards, the Governmental Accounting Standards Board for the state and local governments and the Federal Accounting Standards Advisory Board for the federal government (Gnanarajah, 2017).

Gaining and maintaining legitimacy is a key concern to international standard setters, such as the International Accounting Standards Board and the International Public Sector Accounting Standards Board, due to their lack of legal legitimacy (Richardson & Eberlein, 2011). As private non-profit organizations, they have no power to impose their standards on organizations in sovereign jurisdictions. National governments or other regulatory bodies, for example, the Securities and Exchange Commission or the European Union, could, however, pass regulations to mandate international standards. Through the approval of their legislative or administrative bodies, governments could thus delegate authority for accounting standards to their national standard setters or to an international body (Richardson & Eberlein, 2011). The development of accounting standards, however, are not neutral processes but can involve promotion of self-interests, power struggles, and rhetorical justification (Durocher & Gendron, 2011).

Many countries have adopted the International Public Sector Accounting Standards (or the International Financial Reporting Standards in some cases) for their public sectors. Early Anglo adopters, i.e., New Zealand, Australia, and the United Kingdom, have been followed by European countries (e.g., Sweden, Spain, and Switzerland) and Asian countries (e.g., Indonesia and Malaysia), as well as, some South American and African countries in various stages of implementation (Association of Chartered Certified Accountants, 2017). Therefore, it is surprising that two prosperous Anglo countries, Canada and the United States, have not adopted the International Public Sector Accounting Standards for their public sectors (nor the latter the International Financial Reporting Standards for the private sector). On the contrary, their missions refer to their efforts to influence the International Public Sector Accounting Standards, suggesting their desire to control not only their national but also international standards.

Abundant research exists on adopters but little, if any, on non-adopters. This study reviews the public sector accounting standards authority, structure, and approaches in Canada and the United States in an effort to identify and understand reasons for their reticence to adopt the International Public Sector Accounting Standards. The importance of the public sector in Canada and the Unites States is discussed first, the public sector accounting standards authorities and structures examined next, and the public sector standard-setting approaches assessed. Finally, conclusions, limitations, and future research directions are presented.


The public sectors account for well above one third of all economic activity in both Canada and the United States. Government expenditures per capita, shown in Table 1, are higher in the United States than in Canada, $21,157 vs $18,167, accounting for 38% of the Gross Domestic Product (GDP) in the United States vs 41% in Canada (Organization of Economic Cooperation and Development, 2017). Higher military expenditures in the United States, 3.5% vs 1% of the GDP in Canada (McCarthy, 2019) result in more than half (52%) of all government expenditures in the United States occurring at the federal level vs one quarter (25%) in Canada. Both countries finance their expenditures largely by debt, the gross debt in the United States being 106% of the GDP vs 98% in Canada (Organization of Economic Cooperation and Development, 2017). Credible, transparent, and comparable financial information based on common accounting standards could help, not only control government expenditures and improve policy decisions in each country, but also promote trade between the two countries.

As two North American neighbouring countries with strong Anglo roots, Canada and the United States have had an important longstanding trade relationship. In 2014, exports to Canada accounted for 16% of the total United States exports, and Canada was the number one export market for 35 states. On the other hand, 20% of Canada's GDP comes from exports to the United States (Embassy of the United States of America, Ottawa, Canada, n.d.). With the United States' and Canadian economies being closely tied, and the new trade deal between Canada, the United States, and Mexico struck in 2018, and subsequently ratified by each country, it can be argued that accurate, consistent, and comparable accounting of public revenues and expenditures is essential in order to avoid trade disputes resulting from the use of different accounting standards.


Accounting standard setting and oversight in Canada are almost completely in the control of the accounting profession (Pollanen & Pollanen, 2008). The Public Sector Accounting Board is responsible for public sector standards for all government organizations and the Accounting Standards Oversight Council exercises oversight over both the Public Sector Accounting Board and the Accounting Standards Board (Financial Reporting and Assurance Standards Canada, n.d.). The Council appoints its own members and members of both standard-setting Boards. Members are mostly volunteers with broad professional and business expertise and include financial statement preparers, users, auditors, academics, and regulators. Chartered Professional Accountants Canada provides funding and support services for these independent Boards and Councils. Contrary to users being underrepresented on the Accounting Standards Board (Durocher & Fortin, 2010), six of the 13 members on the Public Sector Accounting Board represent executive functions and could be considered as users, allowing greater user influence on the Public Sector Accounting Board's decisions (Public Sector Accounting Board, n.d.).

Like other professional standard setters, the Public Sector Accounting Board considers due process central for its standard-setting initiatives. Heavy and increasing emphasis on due process was also found by Durocher and Fortin (2010) for the Accounting Standards Board and Richardson and Eberlein (2011) for the International Accounting Standards Board. Due process procedures (Public Sector Accounting Board, 2012, p. 3) state:

Due process is designed to serve the public interest by addressing the need for transparency in and accessibility to the developmental process, including consultation and responsiveness to input received from all stakeholders. These procedures are critical in maintaining the objectivity of the process and the quality of the output. The basic ingredients of due process are information gathering, discussion and consultation.

The Public Sector Accounting Board, in its current configuration, has a 20-year history. Buhr (2012) reviewed its key historical developments. In 1975, the Joint Research Steering Committee of the Canadian Institute of Chartered Accountants established a task force to study the need for accounting and reporting standards for the federal and provincial governments. Its report recommended that the Canadian Institute of Chartered Accountants ask governments to cooperate in creating an independent body to develop government accounting standards, resulting in the establishment of the Public Sector Accounting and Auditing Committee in 1981. It faced opposition, however, as some argued that separate government accounting standards were not needed. Its role was strengthened in 1993, when it became the Public Sector Accounting and Auditing Board, and again in 1998, when it was renamed the Public Sector Accounting Board after the audit function was transferred to the Assurance and Auditing Standards Board.

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