The Institute of Chartered Accountants in England and Wales () a professional accountancy body interviewed Dr Josette Caruana from the Accountancy Department at the University of Malta, together with Dr Giovanna Dabbicco, a researcher from ISTAT, Italy, about their ongoing research covering two important areas.
One of the research is of interest at EU level, since it concerns the Stability and Growth Pact (SGP) reporting by EU Member States post Covid and the relevance of the Balance Sheet approach for financial management during these turbulent times. The other research is of interest at a global level as it examines the role of accounting for the achievement of the UN’s Sustainable Development Goals.
In order to tackle the financial stress brought on by the Pandemic, governments have undertaken various interventions in their economies, leading to inevitable increases in their deficits and debts. For EU Member States, this would have implications for adherence to the Maastricht criteria as stipulated in the Stability and Growth Pact (SGP). In fact, the terms of the agreement were suspended until the Member States face the storm and recover from financial distress.
In times of crises, the arguments for and against the balance sheet approach of financial Management always crops up in the financial debates. Research currently being carried out by Dr Josette Caruana from the Accountancy Department, together with Dr Giovanna Dabbicco from ISTAT, explores the utility of the balance sheet approach for SGP reporting. They suggest a deviation from the traditional definition of a balance sheet for this purpose because, while the capitalisation and depreciation of capital expenditures may not be useful
for such reporting, the analysis and reporting of contingent liabilities is very important. Having said this, it would still be ideal to maintain cumulative records of capital expenditures in the various sectors (health, education, infrastructure, etc.) so that the deficit levels could be analysed into investments and other expenditures. Overall, the research points to the need for a more flexible approach towards reporting for SGP purposes; an approach that would take into consideration the particularities of each Member State, including the level of investment undertaken.
The other work of these two researchers concerns the practical contribution of accounting towards the attainment of Sustainable Development Goals (SDGs). The research highlights that accounting can offer much more than reporting standards and commentaries regarding this important global initiative. A carefully designed chart of accounts and effective application of management accounting practices can actually help to divert funding towards the activities that lead to the attainment of SDGs. The focus is on the public sector because it is at this level that financial decisions have ripple effects over the whole economy.
Read the full with ICAEW ‘The Balance Sheet Approach for the EU post COVID’ with Josette Caruana and Giovanna Dabbicco as well as the with ICAEW ‘SDGs and the role of accounting.'
