ASSESSING FINANCIAL HEALTH OF LOCAL GOVERNMENTS: GOING BEYOND ACCOUNTING STANDARDS
Résumé
Context. The issue of fiscal sustainability has affected not only central governments but also – and in some instances with more severe impacts – local governments (LGs) especially in contexts with high autonomy. This has exacerbated, at both the operational and scientific level, the issue of having effective measurement systems and assessment methodologies to detect, and therefore to prevent, financial defaults. Accounting plays an important role to understand the financial health of local governments. Yet, not only the debate about which system of accounts is more suitable for this purpose is still open, but also the growing development of overlaps and linkages within governments and private-sector organizations to provide local services in the era of the so-called " network governance " (e.g., outsourcing, public-private partnership, and, in some countries, the increasing phenomenon of public owned enterprises) and the intertwining of fiscal rules provided by central governments as well as the differentiated effects of local economies have tangled further. Problem. A greater need for cross countries comparative financial health analysis has emerged for several years, not only to compare central governments, but also LGs, especially in those supra-national settings like the EU. The work on international accounting standards is a great move toward more accurate cross country comparisons. However, the cultural background, the risks and protections offered by each country to LGs may lead to different financial health analysis's objectives and to various methodologies and focuses, that cannot be taken into account by accounting standards only. Objective. The paper offers to identify and discuss practitioners' visions of LGs' financial health and their objectives when assessing LGs' financial health. What do they consider to be a " bad financial situation " ? It aims at understanding the perceived influence of national environment (legislation, accounting reliability, LG perimeter…) on financial analysis objectives and methods, and operates a comparison of Italian and French situation on these issues. Method. To do so, we use a qualitative methodology. Several practitioners in France and in Italy will be interviewed: financial managers in local governments, public auditors and bankers that work in the context of LGs' economies (factoring services to LGs' providers, dealer of LGs' bonds, borrowing to LGs). The content of interviews will be analyzed through a thematic analysis. The main themes that will emerge in France and Italy will be compared and discussed. The qualitative methodology aims at identifying the practitioners' views, without measuring their representativeness. How LGs' " financial health " and " financial risk " is shaped, the methodology used to assess financial health, and issues such as LG perimeter, accounting reliability and country specificities will be discussed. Originality and value. The study aims at giving an overview of elements that should be taken into account for cross cultural financial health analysis, beyond issues of accounting harmonization. Usual cross cultural financial analysis methods neglects differences in risk vision, and in LG's perimeter. The paper aims at giving insights to decision makers of how to interpret and understand the financial situation of foreign LG.
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