Accounting rules for the European Communities: a theoretical analysis

In the last decade the European Union has been engaged in a modernization effort to reform its accounting system. The aim of the article is to analyse the renewed accounting system that addresses the financial accounting and reporting by the European Communities in order to assess their capacity to truly and fairly represent its economic activity as a non-business entity. The article contains a theoretical analysis of the EU accounting rules, drawn upon IPSAS: they are analysed from a theoretical perspective, comparing different accrual accounting representations based on wealth (static accounting), cash or economic flow (dynamic accounting). The article is also based on a documental analysis and few semi-structured interviews with EU officials. Then, a hypothetical-deductive and normative approach has been used, by adapting a dynamic accounting conceptual framework to public sector economics, and applying it to the EU accounting system. The new EU accounting system has improved some financial accounting and reporting objectives, such as: the economic function of redistribution related to the economic solidarity between member states; the prevention of frauds concerned with transfers and financial operations; the accomplishment of intergenerational and transnational equity, through the recovery of incurred expenditures by taxpayers located in different places at different times. This article fulfills the need to analyse the EU accounting reform because of its possible future influence on EU member states’ accounting systems.