Beyond the Financial Statement: the Role of Accounting Harmonization in Shaping Sicily's Financial Future

The complexity and fragmentation of accounting regulations in European public administrations have made it essential to adopt a uniform and transparent system (Manes Rossi & Caperchione, 2018). Directive 2011/85/EU represents a crucial step towards the implementation of an accrual-based accounting system for all public administrations in the European Union. This initiative aims to promote consistency, transparency, and comparability of financial statements, as well as to increase the reliability of sources of information for national account data (Caruana et al., 2019). These accounting reforms not only respond to institutional pressures for greater transparency and accountability, but also represent a key step towards the long-term financial sustainability of governments by ensuring more efficient and responsible management of resources. They were driven by coercive, normative and mimetic pressures, as outlined by new institutional theory (DiMaggio & Powell, 1983). These dynamics align with the principles of New Public Management (NPM), which emphasize efficiency, transparency, and accountability. Consequently, reforms inspired by international standards simultaneously respond to isomorphic pressures and the NPM's goal of improving public sector performance. The reform process, drawing inspiration from International Public Sector Accounting Standards (IPSAS), seeks to implement European Public Sector Accounting Standards (EPSAS) to enhance financial transparency across the EU. This perspective represents an opportunity to adopt a uniform and comprehensive accounting system based on the principle of double-entry to monitor financial management effectively. Accounting harmonization has emerged as a central theme in public governance in recent decades, especially in national and regional contexts characterized by complex regulatory fragmentation (Manes Rossi & Caperchione, 2018) and heterogeneous accounting practices. In examining how these initiatives translate to the national level, Italy provides a particularly interesting context for studying accounting harmonization in the public sector. This is owing to its layered administrative structure, encompassing national, regional, and local government levels (Mussari et al., 2021). The revolution that has impacted the landscape of Italian public administrations was realized through Legislative Decree No. 118/2011, which has brought traditional cash-based accounting closer to accrual principles. However, despite these efforts, the coexistence of traditional cash accounting and accrual-based accounting systems has posed challenges (Anessi Pessina, 2018), especially concerning the management of outstanding balances. Among the changes introduced by the reform, the Extraordinary Reassessment of Outstanding Balances has highlighted how opportunistic accounting of outstanding receivables has led to deficit situations in regional and local financial statements, jeopardizing the financial sustainability of public management. The Sicilian Region, with the highest administrative deficit among Italian regions (nearly 7 billion euros as of January 1, 2015), offers a compelling case study within the Italian context. The literature attests to a significant research gap exploring the impacts of accounting harmonization at the local and regional levels (Anessi Pessina, 2018), emphasizing the importance of further analysis of the regionalism issues that may arise with the globalization of public sector accounting practices (Aggestam Pontoppidan & Brusca, 2016; Baskerville & Grossi, 2019). This study aims to identify and analyze isomorphic pressures (coercive, mimetic and normative) in the adoption of new accounting practices in the Sicilian Regional Financial Statement, and the challenges arising from the accounting harmonization. By investigating the interconnections between transparency and financial sustainability of regional government, this article seeks to highlight how these dimensions influence the ability of the Sicilian Regional Financial Statement to support public policies. The research seeks to enrich the current debate on the financial sustainability of the Sicilian region's financial statement management, taking into account the recent decisions of the Regional Court of Auditors. The relevance of this issue is reinforced by recent rulings of the Court of Auditors, which have raised concerns over accounting irregularities and the Region’s financial situation. This study adopts a qualitative case study approach, combining semi-structured interviews with key stakeholders (regional officials, Court of Auditors members, academics and practitioners) and document analysis of financial reports, regional statements, and reports on Parity Judgments for the financial years 2015-2019. The analysis aims to identify specific isomorphic pressures that have influenced the adoption of these practices. It is expected that the results will highlight the urgent need for greater transparency in public financial management in Sicily and the persistent administrative deficit's negative impact on the region's long-term financial sustainability. This research contributes to the literature on public sector accounting reforms by applying new institutional theory to analyze the adoption of managerial accounting innovations. It attempts to explore how their institutionalization affects transparency and financial sustainability, providing new insights into how NPM objectives are pursued through these reforms. On a practical level, the research is expected to provide concrete recommendations for policymakers in the Sicilian Region, emphasizing the importance of more effective and transparent financial management strategies. The findings may inspire further research on the links between accounting harmonization, transparency, and financial sustainability, providing both theoretical insights and practical guidance for regions transitioning to accrual accounting.