Greek accounting stumbles towards change

It can only be hoped that the E750bn (£642bn) financial package announced by
the European Union this weekend prevents Greece’s debt crisis affecting other EU
member states.

If it does, then some breathing space will be bought to examine the
weaknesses in the single currency – clearly one of those is the provision of
financial data by Eurozone member governments.

The weakness (even alleged falsification) of Greek financial data made this
crisis worse, and not because Brussels financial issues had no doubts about
these figures – they did. But the proto-diplomatic system that passes for
decision making in the EU Council of Ministers makes it very hard for
governments to challenge fellow member states’ data as unreliable – a
monster-sized spat would result.

Eurostat – the EU’s statistical agency – has already started tightening up
its spot-checking systems of national government financial data, but what of the
Greek accounting system itself? How has it fared in the wake of the crisis?

A key problem has been a focus within the Greek government on cash accounting
records of income and expenditure, with a failure to lay stress on monitoring
liabilities.

Damianos Konstantinou, senior partner at chartered accountants Moore Stephens
in Athens, told Accountancy Age that reforms were being introduced, with more
double-entry account keeping and better budgetary monitoring and control on its
way.

Marios Kyriacou, senior partner at KPMG, interviewed in Athens newspaper
Naftemboriki claimed Greece’s black economy was so large – maybe around E100bn
per annum – it was both the source of Greece’s current woes and its potential
saviour. “If some of it was incorporated into the official economy, the country
will benefit by about E29-30bn-a-year sum, which will go a long way to bring the
country out of the financial maelstrom,” Kyriacou said.

He also advocated insisting upon a universal declaration of income for
Greeks, upon which a new fairer tax system could be based. Referring to money
transferred abroad by Greeks following their government’s plans to tax savings
and impose a special contribution, he said that “most people withdrew their
money from fear that the country would go bankrupt and the banks would not be
able to return their money”.

He denied suggestions that they did it in order to avoid taxation: “The bank
records are there and they are not destroyed.”

The crisis had not damaged the reputation of the Greek accounting and
auditing profession, according to Konstantinou. He argued: “The reputation of
the profession is high and it is likely to be enhanced even more.

“The Greek government has appointed two inspectors from [each of] the major
accounting and auditing houses to the economic ministries to assist with the
collection of taxes and that is an indication of faith in the profession.”

He said that in forthcoming legislation, auditors would be forced to compile
full reports on their clients but become equally responsible with their clients
for their findings. “That is a step in the right direction,” he added.

Nikos Constantinou, the head of a firm of accountants in Piraeus, said: “The
new legislation, which will make chartered accountants as responsible as the
firms for their findings, will improve the link between the profession and the
public, the tax-payer and the accountant, as well as help the state to collect
more taxes.”

Meanwhile, he pinpointed the weaknesses of Greece’s taxation system. “The
state needs to impose taxation on primary resources, such as fuels; computerise
its services and its accounts; make it mandatory for all state provisions to be
inspected by chartered accountants; and finally put some order in the
profession,” he said.

In our view

The struggle to establish a new government in the UK has overshadowed efforts
in Europe to tackle the massive crisis there, in part triggered by Greek
financial woes. What’s becoming clear is that, not only do the Greeks need an
austerity plan, but reform of the way the government there does it’s accounting.
Once again, this places members of the profession at the heart of finding a way
out of trouble. Transparency and accountability lay at the heart of sound
finances, even for a nation state.

Further reading:

Trichet
calls for convergence