Art:10.1007/s10997 009 9103 Z PDF

J Manag Gov (2010) 14:313350
DOI 10.1007/s10997-009-9103-z
Trajectories of accounting and auditing development

in EU enlargement: comparative analysis of ten new
member states
Judy Day Peter Taylor
Published online: 16 July 2009

Springer Science+Business Media, LLC. 2009
Abstract This paper presents comparative qualitative analysis of the development

of accounting and auditing in the ten member states which joined the European
Union in May 2004, eight with transition economies and two with established but
emerging market economies. The post-communist eight shared many similarities at
the outset of transition but subsequent economic and political experiences were
strongly divergent. In contrast, Cyprus and Malta had established market economies
(but at relatively lower levels of development than more established EU member
states). Compared with the transition eight they also differed in having established
accounting and auditing professions. The papers research questions and associated
hypotheses address varying institutional characteristics and comparative intertemporal institutional change among the ten member states. In testing these
hypotheses we use qualitative analysis on descriptive data developed as part of the
official EU evaluation of accession states suitability for membership. In adopting
this research approach we are consistent with a range of studies of institutional
change which have been undertaken in an EU context, largely in political theory and
political economy. We find evidence that different trajectories of institutional
development are observable in the ten new member states. This research thus
documents a major exercise in pan-European regulatory change, adds to the record
of the transition to market structures and institutions of eight transition economies,
and assists understanding of accounting development in two emerging economies.
J. Day (&) P. Taylor

Manchester Business School, University of Manchester, Crawford House,
Manchester M15 6PB, UK
e-mail: judy.day@mbs.ac.uk
P. Taylor
e-mail: peterjt@liv.ac.uk
P. Taylor
School of Management, University of Liverpool, Liverpool L69 7ZH, UK
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J. Day, P. Taylor
Furthermore, it informs understanding of processes under way for other EU

applicants and for new membership applications which may arise in future.
Keywords
EU enlargement Accounting transition Regulatory change
1 Introduction
In 1993, at the Copenhagen meeting of the European Council, it was agreed that the
European Union (EU) should be further enlarged by the admission of all those
countries with which association agreements had been concluded, and which wished
to be admitted. Accession would take place as soon as the applicant was able to
satisfy the necessary economic and political conditions. Among these conditions
was a requirement for the existence of a functioning market economy. Appropriate
administrative and judicial structures would be needed to provide the conditions for
effective implementation of relevant EU legislation (sometimes referred to as the
acquis communautaire, henceforth acquis). In 1997 the Luxembourg European
Council also agreed that the enlargement of the EU must involve the strengthening
and improvement of the operation of institutions in keeping with the provisions of
the Amsterdam Treaty. As a result, significant expansion has taken place and further
expansion is in prospect. On 1st May 2004 ten new member states, eight of which
were transition countries, joined the EU. Two additional transition countries have
obtained EU membership since the influx of 2004 (Bulgaria and Romania, both
acceding on 1st January 2007) creating a then total membership of 27 countries. At
time of writing three other countries have outstanding candidatures for membership,1 four others have been recognised by the EU as potential candidate members,2
and a range of other countries are possible members of widely varying degrees of
likelihood.
The membership criterion of a functioning market economy was explicitly stated
to involve various prerequisites, among which was that an appropriate legal system,
including the regulation of property rights, should be in place and laws and contracts
must be enforceable. Certain necessary conditions to support these essential
institutions of a market economy did not appear to be explicitly mentioned. Notable
explicit omissions were the need for a well-functioning system of accounting and
auditing practices and procedures which were effectively promulgated and
regulated; and an established accounting and auditing profession. This raises
research questions in two broad areas: firstly, how applicant countries are and have
been assessed on criteria relating to accounting and auditing institutions and systems
1
Namely, Croatia, FYR of Macedonia, and Turkey. Croatia was granted candidate status in 2004 and
accession negotiations opened in 2005. FYR Macedonia became a candidate for membership in
December 2005 but accession negotiations have not yet commenced. Turkeys status with regard to EU
membership has been long, having been an associate member of the EU and its predecessors since 1964, a
candidate member since 1999, and in negotiations for membership since October 2005. Despite the initial
screening process having been completed in October 2006, Turkeys final accession remains
controversial.
Namely, Albania, Bosnia and Herzegovina, Montenegro, and Serbia.
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prior to a decision on EU membership; secondly how applicants have developed

accounting and auditing institutions and systems in ways which would satisfy the
requirements for accession; thirdly, what patterns are present in this institutional
development; and fourthly, what might be the determinants of difference in those
patterns. The first question has been addressed in an earlier paper (Day and Taylor
2005). In this paper we address the other three research question by presenting a
comparative analysis of the experiences of institutional change in accounting and
auditing of the ten member states which formally joined the EU in May 2004. This
analysis may be applicable to subsequent accession applications.
Our analysis focuses on how the ten 2004 new member states developed
accounting and auditing practices and procedures, accounting and auditing
professions, and relevant regulatory systems. Such an analysis is made interesting
by the magnitude of the simultaneous institutional changes which were represented
and by the variety present amongst the new member states. These new member
states comprised eight transition economies (the Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, the Slovak Republic, and Slovenia) and two emerging
market economies (Cyprus and Malta). Apart from the differences implied by
transition and emerging status other differences can be noted both within and
between these two groups. The transition eight includes countries from Central
Europe (the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia)
and the Baltic (Estonia, Latvia, and Lithuania). In addition, although the postcommunist countries as a whole shared many similarities at the outset of the
transition process, their economic and political experiences have been strongly
divergent. Some succeeded in stabilising their economies relatively early and
became set on course for rapid growth and convergence with Western market
economies whilst others have been less successful. Transition economies in general
vary significantly in their level of economic and social development, political,
economic and social stability, and position in the transition cycle and the transition
eight, despite their commitment to and relative success in transition when compared
to the generality of transition countries, exhibit important differences of experience.
Cyprus and Malta, as emerging economies, had established market economic
systems which were at relatively lower levels of economic development at least in
comparison with the more established members of the EU. In comparison with the
eight transition countries they had another interesting difference in that they both
already had established accounting and auditing professions. Thus these ten new
member states represent an interesting and varied sample for analysis.
We consider the research reported in this paper to be important for a number of
reasons. It adds a new dimension to the record of the transition to market structures
and institutions of the eight former communist countries which joined the EU in
2004, as well as assisting in understanding the accounting development of the two
emerging economies which already had democratic and market institutions. It also
further informs our understanding of the EU accession process which is presently
under way for the three countries which are currently candidates for membership
and which are now at various stages on the road to accession and it provides a
framework for the analysis of accounting institutional development in both future
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J. Day, P. Taylor
candidates for EU membership and transition and emerging countries more

generally.
The paper is organised as follows. We present a literature review in Sect. 2 and
go on to outline and discuss our hypotheses. In Sect. 3 we present analyses of
comparative data on the ten countries paths to accession as tests of our hypotheses.
Section 4 contains our conclusions and suggestions for directions for further
research.
2 Literature review and development of hypotheses

In this section of the paper we consider literature relating to institutional differences
between the sample countries, in particular but not exclusively relating to their
accounting and auditing systems, and also to analyses of institutional change in
other contexts.
It is well-documented that extensive differences existed between communist
accounting and capitalist accounting (Bailey 1988; Garrod and McLeay 1996).
Accounting in the centrally planned economies of the USSR and Eastern Europe
was designed in accordance with communist economic theory and represented
Marxist-Leninist accounting (Seal et al. 1995; Daniel et al. 2001) and thus were
based on quite different objectives, concepts and terminology, and exhibited
distinctly different practices and professional characteristics from those in market
economies. For the external audit of enterprises, differences of similar magnitude
existed. Bychkova (1996) states that auditing as understood in the West never
existed in either Russia or the USSR, rather systems of external control were
present. Similar circumstances were observable elsewhere in communist Eastern
Europe. Furthermore, accounting and auditing did not exist as professions in the
sense that they do in most capitalist countries (see for example Sucher and Zelenka
1998 for the Czech Republic).
The foregoing points to the initial existence of substantial institutional gaps for
all eight transition economies both in the broad sense of transition to market based
institutions as well as their more narrowly focussed and administratively driven
transition to EU structures and practices. Recognition of this raises two related
questions: were the institutional gaps for each of the eight transition economies
effectively the same; and were the paths which they followed to close those gaps
effectively the same (both in terms of speed and other characteristics)?
Whilst the accounting systems of these eight member states may have possessed
broadly comparable institutional bases at the end of communism, they also have
distinct histories and cultural values, both pre- and post-communism, which suggest
that particular characteristics might emerge in their accounting and auditing systems
during transition. Thus, accounting in the countries of Eastern Europe before the
communist era was subject to a range of influences with dominant influences in
certain countries being Austrian and German (see Seal et al. 1995; Krzywda et al.
1995). Thus, adopting the methodology of Gray (1988) we might argue that history
and culture in the eight transition economies would generally tend to favour
statutory control over professionalism in accounting and audit regulation,
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uniformity over flexibility in accounting regulation, conservatism over optimism in

accounting practices, and secrecy over transparency in disclosure and financial
reporting.3 Empirical evidence from transition countries tends to bear this out.
Daniel et al. (2001) note in the case of Slovakia that post-1989 changes in the
accounting system were strongly influenced by Continental European models.
Borbely and Evans (2006) in an analysis of developments in Hungarian accounting
regulation during transition note a persistent influence of taxation on accounting,
and of other Continental European, code-law regulatory and accounting features,
reflecting inter alia an over-strong influence of government and legislation and a
continuation of traditional approaches stressing detailed accounting methods in both
practice and accounting education. The influence of centralised direction is also
present in Slovakia through the role played in the development of accounting
practices by the Ministry of Finances Department of Accounting Methodology.
Kosmala-MacLullich (2003) and Kosmala (2005) in empirical research on the
introduction of the construct of the true and fair view into Polish financial reporting
in the context of European harmonisation and EU accession, concluded that Polish
practice perceived the true and fair view to be primarily a matter of formal and legal
compliance because of the continuing difficulty of expressing judgements based
upon accumulated experience when much of Polish experience reflected Continental
European influence, in particular the German tradition, and the regulatory and
economic arrangements of a centrally planned economy (see also Dragneva and
Millan 2002, for both Hungary and Poland).
In addition, there is some support in the literature for a prediction of degrees of
homogeneity in trajectories of institutional change arising from an expected high
degree of commonality in the objectives of policy makers. For example Boross et al.
(1995) (see also Borbely and Evans 2006) cite as policy objectives for the
development of accounting in Hungary during transition, fiscal policy and tax
collection, the need to attract foreign investment, and the presence of international
accountancy firms, and if we add the needs of general economic liberalisation and of
improvement in corporate governance, it is arguable that these influences would be
amongst those facing policy makers in most of these transition economies.
These issues suggest some commonality in trajectories for transition in
accounting and audit among the eight transition economies considered in this
paper but this view may be modified by examining the aims and actions of policy
makers in particular countries. Some researchers thereby argue for a considerable
degree of diversity. Thus, Richard (1998) argues that considerable diversity was
present in the evolving accounting systems of the transition economies, including
variation in the development of accounting principles. He attributes this variety to
the influence of short-term strategic alliances made by particular transition
governments with foreign states and institutions, selected for economic and
political advantage, overriding more fundamental and longer-term cultural and
historical factors. This observation is supported by the findings of a number of
researchers. For example Sucher and Zelenka (1998) note the influence of UK
3
For a more detailed discussion of Gray (1988), and of further work based on his model, see Day and
Taylor (2004a, b).
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J. Day, P. Taylor
legislation in the development of audit in the Czech Republic, whilst Krzywda et al.
(1998) refer to the diversity of Western influence on the development of audit in
Poland. Adams and McMillan (1997) note UK and French influences on Polish
accounting (see also Jaruga 1993 on these issues as perceived in the early stages of
transition in Poland); Illes et al. (1996) report influences on and reactions to
accounting reform in Hungary; and Jermakowicz and Rinke (1996) present evidence
on the Czech Republic, Hungary, and Poland. Bailey et al. (1995) reports
differences in the pattern of development of accounting reform in Estonia, Latvia
and Lithuania.
Taking a wider view of institutional change and development adds strength to
the argument of heterogeneous experience in transition. Hungary, Poland and the
former Czechoslovakia had already experimented with economic reform before the
breakdown of their communist regimes whilst the other four transition economies
had no equivalent experience. Thus, for example, Hungary was an early
experimenter with economic reforms which sought to address the basic institutional
failings of the communist system. Hungarys early experience with institutional
reform, although clearly flawed, appears to have given it an impetus not shared by
some other transition economies (Crane 1991), suggesting an early-mover
advantage in institutional change. Some of the necessary market-orientated
institutions were in place when the socialist regime was replaced and economic
agents were already familiar with their working when transition formally began.
Additionally, the early reforms helped to create an entrepreneurial class. In
comparison, other transition economies were slow starters and appeared to continue
to lag in certain areas. Detailed modelling and empirical analysis of institutional
change in a sample of twenty-five transition economies by Raiser et al. (2000)
provides evidence to support this conclusion. Raiser et al. find compelling evidence
that economic reforms and political liberalisation are stronger forces than changes in
economic structures induced by those changes. From this they conclude that there
may be positive spillovers from early reforms in liberalisation and privatisation into
institutional reforms, but with a significant lag. Thus, countries which lag behind in
making fundamental changes at an early stage may find it very difficult to catch up
with the leaders in transition. A related theme is the extent to which institutional
legacy from the pre-Communist era assisted certain transition countries in beginning
and accelerating institutional change. In some transition countries pre-transition
institutional legacy was extensive. For example, a stock exchange was established
as early as 1817 in Poland (the Warsaw Mercantile Exchange) and this exchange,
together with exchanges in six4 other cities operated until 1939 (Warsaw Stock
Exchange 2006). Trading recommenced in the recreated Warsaw exchange in 1991.
Similarly, Poland had a long history of professionalised accountancy (see footnote
21 below) and first legislated on insolvency in 1934 (EBRD 2003).
Supporting evidence from a different perspective comes from indices developed
by de Melo et al. (1996) and the European Bank for Reconstruction and
Development (EBRD) in various studies to measure the extent of reforms needed
4
One of these exchanges was in Vilnius, then part of Poland, but now capital of Lithuania, indicating a
shared institutional legacy.
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Table 1 Estimated indices of
progress in institutional reform
for selected transition countries
Source: World Bank (2002),

adapted from Fig. 2.1, p. 14
319
1990
1995
1998
Czech Republic
0.24
0.84
0.88
Estonia
0.27
0.81
0.87
Hungary
0.56
0.85
0.94
Latvia
0.22
0.70
0.77
Lithuania
0.22
0.73
0.77
Poland
0.64
0.82
0.89
Slovak Republic
0.24
0.81
0.84
Slovenia
0.68
0.78
0.82
to make markets the main mechanism for resource allocation, and data on these
indices for the eight transition economies is shown in Table 1. The indices are
composites of scores against seven elements.5 The indices reported in Table 1 are
on a linear scale from zero to one where zero represents an unreformed centrally
planned economy and one the standards of a market economy. The year 1990
represents an effective starting point for formal transition following the general
removal of communist regimes around that date.
In interpreting Table 1 it should be noted that the Czech Republic and the Slovak
Republic have the same score in 1990 as they then comprised the single country of
Czechoslovakia. The Table indicates that the three lead countries in institutional
development were Hungary, Poland and, perhaps surprisingly, Slovenia, with the
remaining five clustered some way behind. Comparative data suggests, however,
that the five lagging countries had at least accomplished moderate institutional
development (in comparison in 1990 Russia had an index of 0.15, the republics of
the former Soviet Union other than Russia had indices equivalent to that for Russia,
and Albania had the lowest index at around 0.1 of all transition countries in Europe).
These differences in part reflect different experiences in the pre-transition phase as
well as in the early period of transition among the eight transition economies.
Hungarys opening position was different since it began its transition in 1968 with
the introduction of the New Economic Mechanism when detailed central planning
was abandoned. There was a period of recentralisation in the 1970s which was
followed by additional market-orientated reforms. Thus, many of the reforms
implemented after political transition had already been developed and had begun to
be introduced earlier, suggesting much stronger and longer continuity in reforms
than can be observed for any other transition country (Hare 1991). By early 1991
Hungary had advanced significantly towards a market economy after 20 years of
experience in reform. The benefit of this strong foundation can be seen in the
progress made between 1995 and 1998.
The aspects of institutional reform included in these indices are: the imposition of hard budget
constraints on banks and enterprises, the creation of an enabling environment for private sector
development, legal and judicial reform, macroeconomic stabilisation: price and trade liberalisation:
reform of the tax system and public finances: and reform of public sector institutions.
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In the case of Czechoslovakia the communist regime was removed from office in
the so-called Velvet Revolution of 1989. Some early transition progress had been
made in 1968 in the Dubcek era but this had been sharply reversed after the Soviet
invasion which also stifled subsequent attempts at reform and made conditions
difficult for transition when the opportunity arose (Brada 1991). Once transition
began in earnest the two parts of Czechoslovakia pursued transition quickly.
In contrast to the transition economies discussed above, Malta and Cyprus are
two emerging market economies. Classification studies of international accounting
and national accounting systems differences, whilst infrequently including either
Cyprus or Malta directly in samples of classified countries, nonetheless consistently
provide classifications which would locate the two countries variously as British
Commonwealth (Nair and Franks 1980) and UK influenced (Nobes 1992) or
similar.6 Relevant academic research on Malta is sparse but institutional detail
supports the foregoing. Malta has been independent since 1964 but during its long
period of association with the UK developed institutions modelled partly on those of
the UK. Thus, the legal system was based on English common law as well as Roman
civil law. The Malta Institute of Accountants (MIA) was founded in 1942 and
following the establishing of an alternative professional body, the Malta Corporation of Accountants (founded 1954), emerged in its present form in 1965 from the
merger of the two bodies (Malta Institute of Accountants 2008). Recognition of
accountancy as a profession occurred in 1979 through the Accountancy Profession
Act, which introduced the granting of warrants to Certified Public Accountants and
Certified Public Accountants Auditors by the Malta Minister of Finance. Under the
Act the MIA was given statutory recognition and is the only recognised local body.
Legal control of the profession is governed by the Accountancy Board, a
government body appointed under the 1979 Act (Malta Ministry of Finance, the
Economy and Investment 2008). The MIA was approved as a member body of the
Federation des Experts Comptables Europeens in 1989.
In the case of Cyprus, classification studies are well supported by empirical
studies of aspects of Cypriot financial reporting. Thus, Vafeas et al. (1998) observe
that as a result of the countrys history as a British colony, the accounting system in
Cyprus is much closer to the Anglo-Saxon model than to the Continental European.7
The legal system was based on common law with civil law modifications, with
company law having originally been modelled on UK legislation. After independence in 1960, public companies were incorporated under the Companies Law,
Chapter 113 of the Laws of Cyprus, which was almost identical to the UK
Companies Act 1948 (Neocleous et al. 2000, p. 317). The Cyprus Income Tax Law,
1961 is based on English revenue law and it is common practice for English tax
cases to be used as precedent in Cyprus and more generally authority from UK Law
is used extensively in Cyprus. In addition the concept of true and fair view has
been prevalent in Cyprus (Vafeas et al. 1998). The country has had for many years a
professional accountancy body, The Institute of Certified Public Accountants of
6
See also Doupnik and Salter (1995), Roberts (1995), and Nobes (1998).
In making this distinction we note the controversy over the validity of the distinction (see Alexander
and Archer 2000; Nobes 2003). .
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Cyprus but with membership based on qualification overseas.8 Charitou et al. (2005)
note that a form of over-the-counter stock exchange has been in operation in Cyprus
since the early 1980s through dealers and brokers, but without a proper institutional
framework (Vafeas et al. 1998). Some monitoring of this process was provided by
the Cyprus Chamber of Commerce and Industry but no specialists or official market
makers were used during this period.9 In March 1996, an official Cyprus Stock
Exchange (CSE) was established by government through the Securities and Stock
Exchange Regulations, 1995 and Securities and Stock Exchange Law, 1996,
regulation being provided by a Council and a Securities Commission, both bodies
containing heavy government representation (see Krambia-Kapardis and Psaro
2006). In this respect Cyprus is similar to Malta which established its stock market
in 1992 and to the eight transition countries discussed in this paper which also
opened their stock markets during the 1990s. Krambia-Kapardis and Psaro (2006)
examine the implementation of corporate governance regulation in Cyprus and
observe the importance for reform of the need for foreign capital and the role played
by the CSE following a market crash in 2000, noting that the CSE introduced the
Cypriot Corporate Governance Code in September 2002 and that the Code is
predicated largely on Anglo-Saxon principles of corporate governance.
The foregoing review leads us to develop hypotheses concerning the trajectories
of institutional development of these ten new member states. Firstly, we argue that
the suitability of the institutional legacy at the beginning of the process of accession
is likely to be a significant determinant of trajectories of institutional development.
Thus, the comparatively long isolation of the eight transition economies from
practices and institutions of Western capitalist accounting and auditing compared to
the experiences of Cyprus and Malta lead us to hypothesise:
H1 The two emerging market economies of Cyprus and Malta are expected to
exhibit smoother accession trajectories than the eight transition economies.
Despite the greater volume of (academic) evidence on Cyprus there is little to
justify a significant distinction between it and Malta and as a consequence we
hypothesise that:
H2 Cyprus and Malta are expected to exhibit broadly similar accession
trajectories.
Within the group of transition economies we noted variation in pre- and earlytransition experiences and approaches and, in particular, the presence of an
observable early-mover advantage amongst transition countries in areas of
economic activity, suggesting the following hypothesis:
Applicants for membership must be a member of one of the following bodies: the Institute of Chartered
Accountants in England and Wales; its counterparts in Scotland, Ireland, Canada, South Africa, and New
Zealand, or the Chartered Association of Certified Accountants. Members of the American Institute of
Accountants and the Association of International Accountants may also be accepted for membership.
9
See Travlos et al. (2001) for, inter alia, analysis of transactions in the CSE between 1985 and 1995 and
changes that occurred in the structure of the CSE during the period.
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J. Day, P. Taylor
H3 Hungary, Poland, and the Czech Republic are expected to exhibit smoother
accession trajectories than the other five transition economies.
H3 can also be based on the argument that the overall quality of a countrys
institutions (and the effectiveness of policy-makers responses to the need for
institutional improvement and change) will determine the speed and smoothness of
the accession trajectory. Thus, the weaker are institutions and the more problematic
are policy-makers responses, the less smooth are likely to be accession trajectories.
Consequently we can hypothesise further expected relative trajectories within the
transition group, thus:
H4 Estonia, Latvia, and Lithuania are each expected to experience less smooth
trajectories than Slovenia.
H5 Slovenia is expected to experience a smoother trajectory than the Slovak
Republic.
3 Data, analysis, and discussion

The research questions addressed in this paper concern institutional characteristics
and comparative inter-temporal institutional change. There is a large and complex
academic literature related to the study of such issues embracing micro- and macroapproaches and qualitative and quantitative modes of institutional representation
and analysis applied in a number of disciplines. In this paper we use descriptive data
developed as part of the official EU evaluation of accession states suitability for EU
membership and analyse that data qualitatively, focusing on institutional development through time. In adopting this approach we are consistent with a range of
studies of institutional change which have been undertaken in an EU context,
largely in political theory and political economy (eg Henderson 2003; Johnson 2003
on institutional development in the EU; Schimmelfenning et al. 2003 on EU strategy
to induce institutional change in applicant countries; Sicherl 1999 on disparities
between the institutions of EU Member States).10
We shall consider three components of institutional change during accession,
namely initial institutional gap, accession trajectory, and residual institutional gap.
An institutional gap will be present because of differences between the requirements
of the acquis and the actual organisational and institutional structures in place in the
applicant state (ie institutional misfit) and institutional deficiencies in the applicant
state (ie institutional shortfall).11 The presence of initial institutional gaps for all the
ten new member states is expected although the expectation is that they will be of
different sizes and degrees of seriousness depending inter alia upon the institutional
legacy of the country and the effectiveness of pre-accession preparations. These
expectations are implicit in the hypotheses developed above. The formulation of
precise expectations on the presence of residual institutional gaps on accession is
10
In addition there are a number of methodological studies relevant to the analysis of institutional
change, for example Lindner and Rittberger (2003).
11
The concept of institutional gap is widely used in political theory, see for example Borzel (1999).
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problematic. Accession is not prima facie evidence of the absence of a residual

institutional gap. Day and Taylor (2005), in a study of the accession assessment
process by EC officials, reported interview evidence that not being in compliance
with an article from the 4th or 7th Directive would be very unlikely to be a reason
for not becoming a member state12 and, despite the possibility of the granting of
derogation for a transition period in areas of non-compliance, it was reported that
derogations were unlikely to arise due to the strictness of application of criteria
related to internal market aspects of the acquis. The path of travel of institutions
during the accession period (ie between the initial and residual, if any, institutional
gaps) is the institutional trajectory. The concept of institutional trajectory is applied
in various disciplines which study institutional change.13 The sense in which
trajectory is used in such studies, and which is applied in this paper, is as the way in
which a process (in this case institutional change) develops over time. Thus, it
involves identifying a series of institutional states in dynamic development and, by
implication, observing institutional development mechanisms. Underlying the
analysis is assessment of the relative success of national strategies for wideranging institutional reform implemented to achieve accession, each of which
represents a planned trajectory of institutional change through time.
3.1 Data
The data we analyse is generated from the bureaucratic administration of the
accession process itself. The process of accession to the EU broadly begins with the
negotiation of a Trade and Cooperation Agreement which is normally followed by
the conclusion of a more formal Association Agreement. In some cases an
Association Agreement comes into force, or is even negotiated, simultaneously with
the countrys application for membership. The final stage before actual accession is
normally an Accession Partnership. Table 2 shows dates at which the ten new
member states reached these various points in the transition process. Two sources of
data for the analysis of transition trajectories are generated by the stages reported in
Table 2. Following an application for membership, EC officials are required to
produce a report giving an opinion on the application for membership, which is laid
before the European Parliament. Each EC Report on Membership Application
contains a section which considers the applicants ability to assume the obligations
of membership. In column two of Tables 3, 4, 5, 6, 7, 8, 9, 10, 11 and 12 we
summarise the findings of the EC Reports on Membership Application for each of
the ten new member states, with particular emphasis on commentary on their ability
to comply with the acquis on accounting and auditing issues. These analyses give
indications of the extent of institutional gaps at the beginning of the formal
accession process.
12
Sicherl (1999) confirms, at least in the case of Central and Eastern European countries, that decisions
on integration into the EU would turn on political issues not technical ones.
13
As recent examples see, from sociology, Garcelon (2006), social economics, Zukowski (2004) and
political theory, Duit (2007).
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123
1989
1990 (Former Czechoslovakia)
1980, Suspended 1991. New

agreement in force 1993
Poland
Slovak Republic
Slovenia
1991 (In force 1993)
Latvia
1992 (In force 1993)
1988
Hungary
1971 (Effectively an association

agreement which was not
fully completed)
1994 (In force 1995)
Estonia
Malta
1990 (Former Czechoslovakia)
Lithuania
None
Czech Republic
Trade and cooperation agreement
Date of
Cyprus
Country
Interim agreement in force 1997
1991 Czechoslovakia; then 1993 (in force 1995)

with Slovak Republic
1991 (in force 1994)
In force 1971
1995 (In force 1998)
1995 (In force 1998)
1991 (In force 1994)
1995 (In force 1998)
1991 Czechoslovakia; then 1993 (in force 1995)

with Czech Republic
1972; Also customs union protocol concluded in 1987
Association agreement
Table 2 Key Dates in the accession process of the ten countries
1996/1997
1995; Not fully

approved until 1999
1994/1997
1990/1993 But suspended

1996 and reactivated 1998
1995/1997
1995/1997
1994/1997
1995/1997
1996/1997
1990/1993
Application for membership/

approval given
1998
1998
1998
2000
1998
1998
1998
1998
1998
2000
Accession
partnership
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J. Day, P. Taylor
325
The second source of data relates to accession trajectory and is contained in a

series of annual reports on progression to accession for the applicant countries
(henceforth EC Regular Reports). Following acceptance in principle of an
application for membership, EC officials undertake the preparation, review and
negotiation of a National Programme for the Adoption of the Acquis (NPAA) for
each applicant (see Day and Taylor 2005 for a more detailed description of this
process). Commission officials then produce annual Regular Reports which review
the current status of and progress on each individual application for membership.
These reports on respective NPAAs go to the European Council. These Regular
Reports cover all areas of the acquis, as well as making more general
recommendations on political and other issues. Annual reports were prepared on
each of the ten new member states for the years 19982002, together with a
composite report (henceforth Comprehensive Monitoring Report) which summarised the overall position for all the applicants (see European Union 1998, 1999,
2000, 2001, 2002, 2003). These reports, together with the judgements on the ten
applications for membership have been examined for references relating to
accounting and auditing aspects of the acquis and Tables 3, 4, 5, 6, 7, 8, 9, 10, 11
and 12 summarise the findings of this analysis.
3.2 Data analysis
Table 2 gives an overall indication of accession trajectory by dating certain key
events in the accession process for each of the ten new member states. It is clear that
for the eight transition economies the whole process was compressed into a far
shorter period of time than was the case for the two emerging market economies.
We note that Malta concluded an Association Agreement as early as 1971, 20 years
before the earliest date for an Association Agreement with any of the transition
eight (Czechoslovakia as was, and Poland). The Association Agreement with
Cyprus came in 1972, with a customs union protocol following in 1987.
Applications for membership from Cyprus and Malta were also earlier (Cypruss
application was 1990, accepted 1993 and Maltas 1990, accepted 1993, suspended
1996 and reactivated 1998). Moreover, neither Cyprus nor Malta had an accession
partnership in place until 2000 for political reasons.14 This overview weakens
support for H1 that Cyprus and Malta are expected to exhibit smoother accession
trajectories than the eight transition economies. However, we may note additionally
that the ECs reviews of the ten applications for membership indicated that, as
expected, Cyprus and Malta had (in 1993 for both) each already achieved
compliance with a substantial part of the elements of the acquis relating to
accounting and auditing (which come under the heading of Company Law),
indicating relatively small initial institutional gaps. This is supported by the reviews
of applications for membership of the transition economies undertaken between
1994 and 1997 (excepting Slovakia whose application was not fully approved until
14
Negotiations with Cyprus were delayed mainly because of the issue of reunification with Northern
Cyprus, and negotiations with Malta were suspended for 2 years in the mid-1990s after a change of
government.
123
123
1993
Date of
favourable
Report
1990
Date of
Application
Company law already

incorporated
much of
the relevant
parts of
the acquis
Comment from EC
report on membership
application
1999
Companies failing to
comply with filing
of annual reports
now being struck off
companies register
Legislation bringing
Directives
the approval of the
provisions on balance
statutory auditor in
sheets and profit and
line with the
loss accounts yet to
requirements of the
be implemented.
8th Directive still
Concern over current
outstanding
rules for private
exempt companies
Computerisation of
and the off-shore
companies registry
sector
in progress making
the publication of
Enforcement
company documents
identified as issue
easier
Acquis on company
Progress reported in
law still open to
company law but
negotiation, with
still areas where
little further
alignment with the
progress having
acquis was necessary
been made in the
Although Cyprus
areas of company
following IASs,
and accounting law.
much of EU
1998
2001
2002
2003
acquis (despite
certain
reservations)
the requirements of
the 4th Directive and
certain other
company law
Directives urgently
required
Institute of Certified
Negotiations on the
No particular
Draft law
Public Accountants
chapter of the
developments were
incorporating the
of Cyprus approved
acquis on
noted in the area of
outstanding
as the competent
company law now
accounting law but
requirements of the
regulatory
provisionally
progress noted in
4th and 7th
closed
1999 on
Directives adopted
professional body
enforcement of
in September 2003
Provisions of the 8th Administrative
company law
Directive had been
Amendments to
capacity for
continued
enacted in the
company law
enforcing company
Cyprus
Implementation of
allowing nonlaw being
Companies
the 8th Directive
qualified auditors to
strengthened by
(Amending) Law
proceeding
practice and audit
further appointments
of 2001
accounts of publicly
to the offices of the
Cyprus considered to
listed companies
registrar of
be to a large extent Position on
raised new concerns
companies and the
accounting law
in line with the
about compatibility
official receiver
now considered
acquis on
with acquis
in line with the
accounting
Legislation to fulfil
2000
EC regular reports on progress to accession, 19982002, and comprehensive monitoring report, 2003
Table 3 Accession trajectory of Cyprus
326
J. Day, P. Taylor
1993 and updated 1999
Date of Favourable
Report
1990 but suspended 1996

and reactivated 1998
Date of Application
1998
1999
2000
2001
2002
2003
Necessary amendments
to align law with the
8th Directive drafted
but not yet adopted
Now largely in line Commitments on

Fairly good degree of Report did not note Report noted that the
Fairly good degree No progress report
with the acquis.
accounting met and
administrative system
any further
compliance with
produced; Maltas
of compliance in
country should be in
regarding accounting
developments
the acquis in the
application for
company law
position to implement
had been modified in
field of company
membership
(including
acquis in this area
order to better
law noted
suspended in 1996
accounting and
from date of accession
implement the acquis
and reactivated in Malta had already
auditing)
1998
No transition
Malta institute of
implemented
arrangements in
accountants recognised
nearly all the
respect of accounting
by Government as an
company and
or auditing law
official administrative
accounting law
requested
body responsible for
Directives
most administrative
work previously
carried out by
accountancy board
Comment from EC
report on
membership
application
Table 4 Accession trajectory of Malta

327
123
123
Date of favourable
opinion 1997
Date of Application
1996
Possibility of
transitional
problems of
implementation
due to shortage of
qualified
accountants and
auditors noted
Existing legislation
already some way
to compliance with
EU accounting and
auditing
requirements;
planned
amendments
expected to
complete process
Comment from EC
application
Transitional
problems relating
to implementation
and a shortage of
suitably qualified
auditors still
evident
No further progress
reported in other
areas
Commission for
strategic issues in
accounting &
auditing established
as advisory body at
Ministry of Finance
on proposals for
restructuring
accounting system
and professional
regulation
Amendments made
to legislation,
including changes to
the scope of
Accounting Act,
definition of
accounting year, and
rules on disclosure
and depreciation
New Act on auditors

in force ensuring full
compliance with
acquis
National accounting
legislation needs to
include additional
requirements to ensure
full compliance with
acquis, e.g. disclosure
requirements on
number of staff,
emoluments and
advances to directors,
inclusion of profit and
loss account of parent
companies in
consolidated accounts,
and some audit and
publication
requirements
Administrative
structures assessed
as adequate
Commitments on
accounting met
and country
should be in
position to
implement acquis
in this area from
date of accession
Amendment to
Accountancy Act to
align accounting
legislation with acquis
in force in January
2002 requiring use of
IASs for consolidated
accounts of listed
companies and fair
value accounting for
some financial
instruments
Chapter of acquis on
company law
provisionally closed
New Act on Auditors

to be in force
from 1 January
2001
Accountants now
registered with
chamber of
auditors and to be
examined by
commission
composed of
Ministry of
Finance officials
and accountants
appointed by
chamber of
auditors
Accounting Act and

the Act on
Auditors to be or
had been
implemented on
schedule
Overall assessment
that legislation in
accountancy
already largely in
line with acquis,
although new
legislation
(expected for the
end of 2000) still
necessary to fill
remaining gaps
2003
2002
2001
2000
1999
1998
Table 5 Accession trajectory of Czech Republic
328
J. Day, P. Taylor
Date of favourable
opinion 1997
Date of application
1995
Transitional problems
of lack of qualified
accountants and
auditors would
need major effort
to permit proper
implementation of
new and impending
legislation
Measures in relation
to consolidated
accounts still
outstanding
Noted that training

and qualification
of auditors needed
reinforcement
Identification of need
for governmental
supervision of selfregulating Institute of
Authorised Auditors
to ensure public
credibility of audits
Overall legislation
was considered to
be in line with
accounting &
auditing elements
of acquis
No developments
noted on auditing
Overall country
would comply with
acquis by accession
Problems of
administrative
capacity and
shortage of
qualified
auditors noted
Position on auditing
less clear due to
lack of information
Accounting Act
amended to introduce
requirements for
consolidated accounts
in line with 7th
Directives and IASs
Reiteration of minor
concerns on
shortcomings in Act
on authorised
public accountants;
some discrepancies
relating to auditing
which needed to be
corrected; need for
government
supervision of the
Institute of
Authorised
Auditors noted
Act on authorised
public accountants
of February 2002
largely aligned
with acquis
Reorganisation of
Accounting
Standards Board still
required
Negotiations on
company law
chapter of acquis
provisionally
closed
Adoption of
Auditing Act
1999 noted
dealing with
approval of
persons carrying
out statutory
audits, the legal
framework within
which they
operate, and basic
principles for the
Institution of
Authorised
Auditors
No progress on
accounting or
auditing
institutional
development
reported
Recent and planned

legislation
expected to bring
accounting in line
with EU Directives
and IASs
Authorisation
Committee for
Auditors
established with
representatives
from government
bodies and other
agencies
2003
2002
2001
2000
1999
1998
Comment from EC
application
Table 6 Accession trajectory of Estonia

329
123
123
Date of favourable
opinion 1997
Date of application
1994
Possible transitional
problems of
implementation
due to shortage of
qualified
accountants and
auditors. On
current timetable
these problems
capable of
resolution
Country had basic

legislative
framework in
place
Comment from EC
report on
membership
application
Table 7 Accession trajectory of Hungary
Planned auditing,
developments had
been instituted;
newly-created
Chamber of
Auditors
addressing
shortage of
qualified auditors
but still gaps
Accounting and
auditing elements
of acquis stated to
be substantially
met
Still no accounting
standards body
and no national
accounting
standards
introduced
Funding made
available to enable
the translation of
IASs into Magyar
Modifications to
criminal code now
allow violations of
accounting
regulations to be
rigorously
addressed
Now provision for

external quality
control of auditors
Administrative
structures assessed
as adequate
Recent revision to
valuation rules for
annual and
consolidated
accounts of certain
types of
companies, banks
and other financial
institutions
remained to be
dealt with, as did
introduction of
national
accounting
standards
Very nearly fully

aligned with
acquis on
accounting and
auditing
Modifications to Act
on Accounting
established legal
basis for
accounting
standards
company law
closed
New law on
accounting to take
effect from 2001
to provide for
further alignment
with acquis and
for legal basis for
introduction of
national
accounting
standards
No progress
reported in areas
previously found
deficient; noted
that high degree
of conformity
had already been
achieved
Noted that there

were areas of
accounting law
where further
change was still
needed
Chamber of
Auditors
has 7,000 auditors
and auditing firms
registered
2003
2002
2001
2000
1999
1998
330
J. Day, P. Taylor
Date of
application
1995
Practical
implementation
of laws could
be difficult due
to a shortage of
suitably qualified
accountants and
auditors
Further legislation
planned for
accounting and
auditing
New laws on
accounting were
good start to
alignment with
Date of
4th Directive and
favourable
further
opinion 1997
amendments in
1996 increased
rate of progress
Comment from EC
report on
membership
application
No other progress
noted
Recommended that
attention be paid
to ensuring
effective
implementation
and enforcement
of legislation
Current legislation
still required some
amendment to be
fully in line with
acquis but process
of alignment
considered to be
quite far advanced
Amendments to Law
on Annual Accounts
of Enterprises in
force April 2001
Law on Sworn Auditors

in force, transposing
8th Directive into
domestic law
Law on Sworn Auditors

due to be in force in
early 2002,
transposing 8th
Directive into
domestic law
Supervision of auditors
resolved; main issue
remaining was
amendment of
Administrative capability
work on its legal basis
domestic law to allow
still lacking. Shared
necessary
fair value accounting
responsibility between Overall, alignment with
Ministry of Finance
No transitional
accounting and
and Ministry of
arrangements
auditing elements of
Economy created need
requested
acquis considered
for closer cooperation
good
Accounting and auditing

legislation appeared
broadly in line with
acquis
company law
provisionally closed
Financial Accounting
Standards Committee
now established
Implementation of
consolidated
accounting continuing
IAS implementation
continuing
2002
2001
force January 2000 to

align domestic law
Process of implementing
with the 7th Directive
IASs continuing
but some
Practical implementation
incompatibilities
of consolidated
between other
accounting assisted by
domestic laws
issue of Manual on
regulating
Preparation of
accountancy and some
Consolidated Annual
gaps
Accounts
Further work necessary
Latvian Financial
to achieve alignment
Accounting Standards
with 8th Directive on
Committee being
auditing
established but further
Detailed negotiations
Acquis screening
opened on company
process on
law chapter of acquis
company law now
completed
Law on annual accounts
amended December
No new legislation
1999 to align with 4th
on accounting and
Directive
auditing adopted
since previous
Law on Consolidated
report
Annual Accounts in
Training centre for

accountants and
auditors had been
established to
address shortage
of qualified
personnel
2000
1999
1998
Table 8 Accession trajectory of Latvia
Country in position
to comply with
accounting and
auditing elements
of acquis; no
particular
concerns noted
2003

331
123
123
Date of
favourable
opinion 1997
Date of
application
1995
1998
Shortage of
qualified
accountants and
auditors was
identified as
practical problem
needing remedy
to implement
acquis effectively
2000
2001
2002
2003
No further progress Negotiations on company Further alignment on

Country meeting
on development
law chapter of the
accounting made via
majority of
in accounting
acquis provisionally
adoption of Law on
commitments
closed
Consolidated Financial
under acquis
Chamber of
Accounts and Law on
National audit law
Auditors
No legislative
Financial Statements in force
remained to be
developments reported
established and
late 2001
further aligned
in accounting or
Code of Ethics
particularly on
auditing
Law on Financial Accounting
for professional
scope of audits
in force early 2002
auditors approved Further revision to
and practical
auditing legislation
Law on Audit adopted May
Overall assessment
training of
needed to ensure
2002
was that although
auditors (with
compliance with
the basic
Chamber of Auditors had
amendments in
1999 raising
provisions of new Civil
requirements of
issued 17 audit standards
preparation)
qualification and
Code
the acquis were
since 2001
Amended law on
professional
largely met, there Legislation on
Government resolution of
quality assurance
requirements for
were certain
consolidated
December 2001 established
for statutory audit
applicants to
gaps, and that the
accounting needs
Register
of
Legal
Entities
had been adopted
audit profession
necessary
strengthening
December 2001 Institute
Overall,
Chamber of
institutional
Institutional framework
of Audit, Accounting and
administrative
Auditors
structures needed
for both accounting and
Property Valuation
capacity assessed
proposed as
to be established,
auditing requires
reorganised
and
Institute
of
as adequate
professional
plus
attention
Accounting
established
as
a
body with
improvement of
Expected that
Clarification
needed
on
public
institution
with
separation of
the qualifications
country would be
which institution would
responsibility for business
functions of
of specialists
in position to
exercise formal power
accounting standards
performance
comply fully with
to set accounting
oversight and
Overall alignment with
accounting and
standards needed
training
accounting and auditing
audit elements of
Current supervision
elements of acquis
acquis by
mechanisms for
considered to be fair
accession
auditing not considered
although questions remained
adequate
on ability to put legislation
into practical effect
1999
Existing and
No developments Acquis screening
planned
in accounting
process on
legislation meant
or auditing
company law
no major
noted
now completed
problems
No new
expected with
developments in
acquis on
accounting
accounting
reported and
Evidence on
some gaps were
auditing
noted
insufficient to
New audit law
assess prospects
introduced in
Comment from EC
report on
membership
application
Table 9 Accession trajectory of Lithuania
332
J. Day, P. Taylor
Date of favourable
opinion 1997
Date of application
1994
Possible
transitional
problems of
implementation
due to shortage
of qualified
accountants and
auditors
No real problems
foreseen as long
as plans were
fulfilled
Acts on
accounting and
auditing
modelled on EU
directives and
IASs existed
Comment from EC
report on
membership
application
Noted that a high

degree of
conformity had
already been
achieved
Noted that existing

accounting laws
broadly in line
with acquis and
that
implementation
was main issue
Despite generally satisfactory

state of potential
compliance with
elements of acquis, law on
auditors did not specify
subjects to be included in
qualifying examination for
auditors as required by 8th
Directive
New Control Commission

established to oversee
work of auditors
No areas of serious
concern identified
Overall full
compliance with
acquis on
accounting and
auditing was not
considered to be a
problem
Administrative
structures assessed
as adequate
Legislative
alignment on
accounting and
auditing almost
complete with just
some areas of
Law on Statutory
Auditors still
needing to be
fully aligned with
8th Directive
Chapter on Company Law
acquis now closed.
However, it should be
noted that the parts on
had been effectively
concluded before this
Comprehensive
amendment to the
Law on
Accounting
adopted to be in
force in January
2002, making
important changes
to the law of 1995
including
provisions of 7th
Directive and
issue of
transparency of
financial reports
No new progress
in accounting
was reported,
mainly because
Poland was by
then largely in
compliance
with the acquis
No further progress
reported in areas
previously found
deficient
Problems of shortage
of qualified
auditors again
identified
No legislative developments
reported on accounting
2003
2002
2001
2000
1999
1998
Table 10 Accession trajectory of Poland

333
123
123
Date of application
1995
Information available on
not enough to allow
detailed assessment of
present conformity with
acquis or prospects of
achieving it although
timetable for reform
reasonable.
Existing legislation and

planned amendments
covered some of the
requirements of EU
Directives
the acquis in many

areas
No progress in
accounting and
auditing
met and National

Programme for
Adoption of
Acquis had
improved
Commercial Code
amended to
incorporate
Date of opinion of
elements of
General concerns on
1997
acquis
lack
of
Country did not fulfil
Auditors
now
institutional
and
Transitional
problems
political criteria.
brought together
administrative
relating to implementation
This aspect finally
through the
capacity for
of new accounting &
approved in 1999
Slovak Chamber
adoption of acquis
auditing rules identified
of Auditors
including shortage of
National Programme
qualified accountants and
Noted that political
for Adoption of
auditors. Major efforts
elements of
Acquis found to be
needed to solve these in the
Copenhagen
lacking in proper
medium term
criteria now being
understanding of
2003
Chapter of acquis on New Accountancy

Some progress on
Commitments on
Company Law
accounting law
accounting had
Law aimed at
provisionally
with partial
been met and
achieving full
closed
alignment to 4th
country was
compliance with
and 7th Directives Accounting law
expected to be in
4th and 7th
position to
Directives due in
largely in line
Amendment to Act
implement the
force in January
on Auditors.
with acquis,
accounting and
2003
although
further
Chamber of Auditors
audit elements of
Full
alignment
with
amendments
to
adopted
acquis from date
accounting and
fully reflect 4th
of accession
Partial
auditing elements
and 7th Directives
implementation of
of acquis and IASs, Administrative
still required
8th Directive
capacity judged
should be achieved
Several working
adequate
when New
National Programme
groups established
Accountancy Law
for Adoption of
under a National
in force
Acquis still
Steering
required
Commission to be New Auditors Act
improvement,
due in force in
responsible for
including more
January 2003 to
alignment process
realistic target
meet requirements
in accounting
dates for
of acquis on
achievement of
authorisation of
alignment with
persons responsible
acquis
for carrying out
statutory audits
Comment from EC report on EC regular reports on progress to accession, 19982002, and comprehensive monitoring report, 2003
membership application
1998
1999
2000
2001
2002
Table 11 Accession trajectory of Slovak Republic
334
J. Day, P. Taylor
Implementation of
relating to
the existing rules
implementation
still noted as
in practice of
issue, particularly
new rules
with regard to
including a
shortage of
shortage of
qualified auditors
qualified
accountants and
auditors. These
not considered a
problem in
medium term
Some fine-tuning of
Date of application Nearly all
the 1993 Law on
requirements of
1996
Audit still
4th, 7th and 8th
Date of favourable
necessary to
Directives
opinion 1997
bring it in line
implemented
with 8th
Transitional
Directive
problems noted
Commitments had
No further developments in
essentially been
accounting and auditing reported
met
Noted that legislation was to very
2003
large extent in line with the

acquis on accounting matters
Administrative
structures were
assessed as
Necessary administrative capacity
adequate although
considered to be in place in
minor adjustments
company law and accounting
still needed to
Need to ensure Institute of
ensure that
Auditors sufficiently prepared to
Institute of
produce accounting standards
Auditors
sufficiently
Institute of Auditors is
prepared to
responsible body for accounting
produce
and auditing, and issues
accounting
accounting standards in
standards in
accordance with the Act on
accordance with
Accounting as a private
the Act on
institution vested with public
Accounting
powers in the domain of auditing
of financial statements and also in Alignment of
No further legislative
the domain of the adoption of
amendments
domestic
auditing, internal auditing,
considered
accounting
accounting, business finance
necessary except
standards with the
standards
for detailed
accounting
elements of acquis
auditing and
Institute for Revision responsible
remained to be
accounting to be
for registration of certified
confirmed
laid down by
auditors, contents of audits, code
Auditing Institute
of ethics including independence,
after approval by
establishing standards of
Ministry of
auditing, and disciplinary action
Finance
and sanctions
Chapter of acquis on Last elements of

New Law on
Accountancy Act
Company Law
Accountancy
implemented in
now provisionally
adopted by
January 2001,
closed
Parliament in
namely
March 1999 to be New Law on
instructions on
effective January
Accountancy
method and time
2000
made effective
periods for
National Programme Implementation of
adjusting assets
for Adoption of
legislation on
and liabilities and
Acquis revised to
accounting for
on equity
extend scope of
non-profit
investments
acquis coverage
organisations
Auditing Act
but for accounting
Auditing Act to
adopted January
and auditing no
bring legislation
2001 aligning with
acquis-related
on
auditing
in
line
the 8th Directive
text included with
with
8th
Directive
and abolishing
only a section on
still
before
restrictions on
administrative
parliament
establishment of
capacity
foreign audit firms
Comment from EC EC regular reports on progress to accession, 19982002, and comprehensive monitoring report, 2003
report on
1998
1999
2000
2001
2002
membership
application
Table 12 Accession trajectory of Slovenia

335
123
336
J. Day, P. Taylor
1999). Hungary, Poland, the Czech Republic and Slovenia were considered to have
made progress towards accession, and in many areas to have the basic necessary
legislative framework in place. The Baltic States and the Slovak Republic clearly
lagged behind. Indeed, in some cases it was reported that the information available
was not sufficient to be able to make a detailed assessment of their current
conformity with the acquis, or their prospects of achieving conformity by accession,
although the proposed timetable seemed reasonable. For all countries except Cyprus
and Malta, a potential shortage of qualified accountants and auditors was noted. This
was considered a problem because it might lead to transitional difficulties of
implementation of accounting and auditing reforms. We now consider more detailed
reviews of the data for each new member state in order to test the hypotheses,
drawing on Regular Reports and the composite report.
For Cyprus full negotiations started in 1998, the acquis screening process was
completed in 1999, negotiations concluded in 2002, and the accession treaty signed
in 2003. As indicated above and in Table 3, Cypruss acquis screening process
noted that company law already incorporated many provisions of the acquis,
indicating few areas where further alignment was considered necessary.15 Full
alignment with the acquis regarding Company Law Directives was expected by 1st
January 2003, with some exceptions.16 It was noted that a Bill was being prepared to
regulate the accounting profession in line with the 8th Directive. On administrative
capacity, the institutions responsible for administering and enforcing company law
were identified as the Department of the Registrar of Companies, the Law Office of
the Republic, the Customs Department, the Police and the Courts. The screening
process did not expect any implementation problems and at its conclusion, the
government of Cyprus stated that it was in a position to fully implement, the acquis
with respect to company law. No transitional period or derogation was requested
from the acquis in relation to company law. Examination of the annual Regular
Reports on progress tends to confirm this initial positive view of a small initial
institutional gap and a likely smooth transition trajectory. For example, by 2001
negotiations on company law matters in the acquis had been provisionally closed.
However, as the acquis screening process continued, some delay in meeting plans
was observed. The 2002 Regular Report noted that legislation to fulfil the
requirements of the 4th Directive and certain other company law matters was now
urgently required. By the 2003 Regular Report it was reported that a draft law
incorporating the outstanding requirements of the 4th and 7th Directives had been
adopted (in September 2003) but the presence of amendments to company law
allowing non-qualified auditors to practice and even audit accounts of publicly listed
companies raised new concerns about compatibility with the acquis. Nevertheless,
this was not considered an issue of serious concern.
15
Which were: publication of companies information in the Official Gazette; adoption of the procedures
envisaged in the 3rd and 6th Directives, regarding mergers and divisions of public limited companies and
related matters.
16
Namely, public disclosure of accounts and identity of shareholders of Cyprus-based ship management
companies and Cypriot companies entered in the Register of Cyprus Ships, both reflecting important
activity for the Cyprus economy.
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Following the reactivation of Maltas application for EU membership in 1998 a

report was prepared to update the original Commissions opinion on Maltas
application for membership. The acquis screening process began in 1999, followed
in 2000 by negotiations on certain chapters of the acquis and after 9 months many
of these areas were provisionally closed including Chapter 5 on company law. This
outcome was a reflection of Maltas 1995 Companies Act, the principal relevant
statute, being already largely modelled on EU standards,17 and the Maltese
government agreeing to enact various amendments to deal with the necessary
changes identified as a result of the acquis screening process.18 No transitional
arrangements or derogations were requested at this stage. The Regular Report for
1999 confirmed this good degree of compliance with the acquis on company law,
and observed that Malta had already implemented nearly all the company and
accounting law directives. The Regular Report for 2000 had no further developments to report but the 2001 Regular Report was able to report that the
administrative system for accounting and auditing had been modified to better
implement the acquis, notably that the Malta Institute of Accountants (MIA) had
been legally recognised as the official administrative body responsible for most of
the administrative work previously carried out by the state Accountancy Board.19 It
also noted that the necessary amendments to align Maltese law with the Eighth
Directive had been drafted but not yet adopted. The 2002 Regular Report had no
further developments to and the 2003 report concluded that Malta had met its
commitments regarding accounting and should be in a position to implement this
aspect of the acquis on accession. No transition arrangements in respect of
accounting or auditing law were requested.
Diplomatic relations between the (then) European Community and the Czechoslovak Republic were established in September 1988, and the Czech Republic
presented its application for EU membership in early 1996. The application received
a favourable opinion in 1997, in which it was noted that the Accounting Act 1991
had substantially aligned Czech accounting regulations with the 4th Directive, and
that further amendments to this act becoming effective in 1999 were expected to
bring about full conformity. Amendments to the 1992 Act on Auditors implementing the 8th Directive were to become effective in 1998. It was noted that there were
no accounting standards extant but procedures for them were laid down by the
Ministry of Finance, with methodological recommendations being issued by the
Union of Accountants. Rules on consolidated accounts were given in Ministry
declarations. Certain transitional problems were noted relating to the practical
implementation of the new rules, including a shortage of qualified accountants and
auditors, but the view was that these could be solved in the medium term. As an
overview, full compliance with the acquis on accounting and auditing by the date of
17
The Accountancy Profession Act 1979 further regulated statutory auditors by establishing a state
Accountancy Board responsible for, inter alia, issuing accountants and auditors practising certificates,
registration of partnerships of accountants and auditors, and professional disciplinary matters.
18
For example the protection of employees rights when a company is transferred; and the regulation of
offshore companies along the same lines as normal companies by the year 2004.
19
The MIA commissioned its own consultancy on the impact of EU accession on the accountancy
profession in Malta, see MIA (2000).
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accession was not considered to present a problem. Little progress was reported up
to 2000, when the Regular Report gave an overall assessment that accounting
legislation was already largely in line with the acquis, although new legislation
expected for the end of 2000 was still necessary to fill remaining gaps. The 2001
Regular Report noted that negotiations on the acquis company law chapter had
provisionally been closed. Progress in relation to IAS was noted in the Regular
Report 2002, and in 2003 the Comprehensive Monitoring Report noted that:
The Czech Republics commitments in the field of accounting have been met
and it will be in a position to implement the acquis in this field from the date
of accession. The administrative structures are adequate.
This implies steady rather than spectacular progress, but without any major
problems.
Estonia concluded an association agreement with the EU in 1995 and submitted
its application for membership in November 1995. The Commission gave a
favourable opinion on Estonias application in 1997 and in April 1998 Estonia
presented its first version of the NPAA and the acquis screening process
commenced, concluding in late 1999. The opinion of 1997 referred to recent
reform in accounting and auditing, with the Law on Accounting (enacted 1994,
effective 1995) being considered largely in line with the 4th Directive, and
guidelines for consolidated accounts, based on the 7th Directive and IASs, together
with further standards, being under preparation.20 A law on auditing was under
preparation, implementing the 8th Directive. However, transitional problems with
implementation of the new regulations were identified arising from a shortage of
qualified accountants and auditors. Overall, Estonia was felt to have a realistic
chance of full compliance with the accounting elements of the acquis by the
proposed date of accession, whilst the position regarding auditing was less clear due
to the lack of available information necessary to make the assessment. No further
progress was reported until 1999, when reforms on auditing were noted in the
Regular Report. By the Regular Report 2000, negotiations on the company law
chapter had been provisionally closed, despite noting that training and qualification
of auditors needed reinforcement and that planned measures relating to consolidated
accounts were still outstanding. The Regular Report 2001 noted that reorganisation
of the Estonian Accounting Standards Board had yet to be addressed, but that the
Accounting Act was to be amended to introduce requirements for consolidated
accounts in line with EU Directives and the requirements of IASs. Government
supervision of the self-regulating Institute of Authorised Auditors was needed to
ensure public credibility of audits. The Regular Report 2002 noted that the Act on
Authorised Public Accountants, 1999, following amendment in February 2002, was
largely in line with the acquis though shortcomings were identified, but that there
had been no further developments to note regarding auditing. Overall, Estonias
legislation was judged in line with the acquis in these areas. The Comprehensive
Monitoring Report of 2003 reiterated some minor concerns but the overall
20
See Bailey et al. (1995) for background to these early developments.
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conclusion was that Estonia would be in a position to comply with the acquis by
accession. The picture thus seems one of fairly steady progress.
Hungary submitted its membership application in 1994, receiving a favourable
opinion in 1997 which noted that the Accounting Act 1991 provided a basic
framework for the annual accounts of companies and rules for consolidated
accounts, and that a National Accounting Committee had been created to develop
principles of accounting, propose changes to legislation, and suggest new
legislation. Plans to enact further legislation to remove discrepancies between
existing law and Directives were noted, although no timetable had at that time been
given. The report observed that there was no accounting standard setting authority,
and that no authority directly supervised auditors, but that provisions in the
Accounting Act (and government and Ministry of Finance decrees) provided basic
authorisation. To further resolve this, a law on auditing was being prepared to
implement the provisions of the 8th Directive, and a Chamber of Auditors was to be
created. It was also noted that there might be transitional problems of implementation arising from a shortage of qualified accountants and auditors. Overall, it was
concluded at that time in respect of accounting and auditing law that legislation was
almost completely in place. Hungary did not ask for any transition arrangements.
Hungary presented the first version of its NPAA in March 1998, followed
immediately by the commencement of the acquis screening process which was
concluded in autumn 1999. In the Regular Report 1998 it was noted that there
remained areas of accounting law where further change was needed. On auditing,
the promised developments had been instituted, and the newly-created Chamber of
Auditors was taking steps on training to address the shortage of qualified auditors.
Hungary appears to have made significant progress and had started from a relatively
strong base. No further progress was reported in the Regular Report 1999 and by the
2000 Regular Report it was noted that a new law on accounting would take effect
from 2001 to provide further alignment with the acquis and the legal basis for the
introduction of national accounting standards. By the end of September 2001 the
chapter of the acquis on company law had been closed. Some minor concerns were
mentioned, but it was clearly considered that the accounting and auditing acquis had
been substantially met, as there was little other mention of them in the Regular
Report. In 2002 the Regular Report noted that further modifications to the Act on
Accounting had established the legal basis for accounting standards and there was
provision for external quality control of auditors. Modifications to the criminal code
meant that violations of the regulations on accounting could be addressed more
rigorously and funding had been made available to enable the translation into
Hungarian of IASs. Understandably, this was described as steady progress. The
Regular Report 2003, the last before accession, confirmed that in accounting and
auditing law, Hungary was nearly fully aligned with the acquis, with administrative
structures assessed as adequate.
Latvias relations with the EU began in 1991 when trade concessions and other
benefits were granted. With the other Baltic States, Latvia entered into a free trade
agreement with the EU in 1995, followed later that year by Latvias application for
membership. The application received a favourable judgement in 1997 and in 1998
the partnership for accession was signed. In its opinion on Latvias membership
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application, the Commission noted that the Law on Accounting 1992 and the Law
on Annual Accounts of Undertakings 1992 had made a good start towards alignment
with the 4th Directive, and further amendments in 1996 had increased the rate of
progress. A law on consolidated accounts was in preparation, and the Law on Sworn
(Certified) Auditors was based on the 8th Directive. However, the practical
implementation of these laws was considered difficult due to a shortage of suitably
qualified accountants and auditors. The acquis screening process began in 1998,
when Latvia presented its first NPAA. Later that year the EC published its first
Regular Report on Latvia and progress on professional training was noted. By the
time of the 1999 Regular Report it was reported that the acquis screening process
was completed on company law, but also that no new legislation on accounting or
auditing had been adopted since the 1997 judgement. It was observed that Latvian
legislation required some amendment to be fully in line with the acquis. The
alignment process was nevertheless considered to be quite far advanced and it was
recommended that attention be paid to ensuring effective implementation and
enforcement of legislation. In 2000 detailed negotiations were opened on the
company law chapter of the acquis and various reforms were noted in the Regular
Report of that year but with the qualification that these reforms still left internal
incompatibilities with other domestic laws regulating accounting and gaps
remained. Further work was necessary to achieve alignment with the 8th Directive,
without which other laws on accounting would not be effective. Administrative
capability was considered lacking. Progress in these areas was reported in the 2001
Regular Report and overall, alignment with the accounting and auditing acquis was
by then considered good. The 2002 Regular Report noted that the company law
chapter of the acquis was provisionally closed and concluded that accounting and
auditing legislation appeared to be broadly in line with the acquis. No transitional
arrangements were requested. The Comprehensive Monitoring Report of 2003
concluded that Latvia was in a position to comply with the accounting and auditing
acquis and no particular concerns were mentioned.
Lithuanias relations with the EU began formally in 1991 and in 1995 Lithuania
applied for membership, with a favourable opinion coming in 1997. The opinion
noted that the basic framework for the accounts of companies was contained in the
Law of Principles of Accounting 1992 and in other decrees. Professional
requirements for auditors were issued by the Ministry of Finance, and an Institute
of Auditing and Accounting had been set up in 1996. It was noted that most of the
requirements of the 4th Directive had been met, but that certain revisions would be
necessary, and that planned legislation to implement the 7th Directive had yet to be
finalised. No plans were in place to revise laws on auditing to comply with the 8th
Directive. A shortage of qualified accountants and auditors was identified as a
practical problem to be remedied in order to enable effective implementation of the
acquis. Overall, the conclusion was that no major problems were expected in
adoption of the acquis on accounting, though practical implementation was another
issue; and that evidence on auditing was insufficient to assess conformity, or the
prospect of conformity, with the acquis. The Regular Report 1998 noted a lack of
major developments on company law and in particular with auditing. The Regular
Report 1999 noted that the acquis screening process was complete for company law
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and, again, no new developments in accounting were reported. Some gaps were
noted. A new law on audit had been introduced in 1999 which raised qualification
and professional requirements for applicants to the audit profession. A professional
body, the Chamber of Auditors, was proposed and it was also proposed to separate
the two functions of oversight of performance and training. The 2000 Regular
Report reported no further progress in accounting, but that the proposed Chamber of
Auditors had been established and had approved a code of ethics for professional
auditors. The overall assessment was that although basic requirements of the acquis
were largely met, there were gaps, necessary institutional structures needed to be
established, and improvements to qualifications were needed. The Regular Report
2001 noted that negotiations on the company law chapter of the acquis were
provisionally closed. No particular legislative developments were reported in
accounting and auditing and it was noted that further revision to existing legislation
on auditing was needed and that legislation on accounting, in particular consolidated
accounts, needed strengthening. The institutional framework for both accounting
and auditing required more attention. For accounting, clarification as to which
institution would exercise the formal power to set accounting standards was needed
and for auditing current supervision mechanisms were not considered adequate. The
Regular Report 2002 had much progress to note. Further alignment on accounting
had been made via the adoption of a Law on Consolidated Financial Accounts, a
Law on Financial Statements, and a Law on Financial Accounting. In auditing, the
amended Law on Audit had been adopted. Concerning administrative capacity, the
establishment of a Register of Legal Entities, the reorganisation of the Institute of
Audit, Accounting and Property Valuation, and creation of the Institute of
Accounting as a public institution with responsibility for preparing and publishing
accounting standards, were developments. Alignment with the acquis was
considered to be fair although questions remained as to ability to put legislation
into practical effect. The 2003 Comprehensive Monitoring Report commented that
for accounting, Lithuania had met the majority of acquis commitments but that
national audit law remained to be further aligned, particularly on the scope of audits
and practical training, though amendments were in preparation. Overall, administrative capacity was assessed as adequate. It was expected that Lithuania would be
in a position to comply fully with the acquis in this area by accession.
Poland presented its application for membership in 1994 and received a
favourable opinion in 1997. The opinion noted Polands Act on Accounting 1995,
and its Act on Auditors, and that other ordinances and regulations relating to
accounting had been issued, and the existence of a National Council on Qualified
Auditors. Legislation had been prepared on the basis of EU Directives, and IASs. It
was concluded that at that time no further major changes were foreseen, although
there might be transitional problems of implementation, including a shortage of
qualified accountants and auditors. The Accession Partnership thus did not
specifically mention accounting or auditing as areas for concern. The process of
acquis screening began in April 1998, with Poland submitting its first NPAA (but
termed the National Programme for the Preparation of Membership in Poland).
Initial screening was completed in 1999 and no transition arrangements were
sought. The first Regular Report in 1998 referred again to problems of shortage of
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qualified auditors, but noted that existing accounting laws were broadly in line with
the acquis, stressing implementation as the main issue. By the 1999 Regular Report
the acquis screening process had been largely concluded. The report noted that an
accounting standards setting body had been established and that new accounting
standards would be based more on IASs. It was also noted that existing legislation
covered the requirements of the 4th Directive. Statutory auditors were assessed and
authorised by the National Chamber of Statutory Auditing in a process that was
considered consistent with the 8th Directive. Overall, it was concluded that the
system of accounting and statutory audits was satisfactory, and that it would
guarantee reliability and transparency of information about companies. Nevertheless, reservations about the adequacy of supply and quality of qualified auditors and
accountants were still expressed. In the 2000 Regular Report no progress in
accounting was reported but in the 2001 Regular Report it was noted that a
comprehensive amendment to the Law on Accounting had been adopted which
made important changes to 1995 version. Among other changes the consolidation
provisions of the 7th Directive were dealt with, and the issue of transparency of
financial reports was also addressed. The report stated that the acquis chapter on
company law was provisionally closed (confirmed in the 2002 report), although the
parts on accounting and auditing had been effectively concluded earlier. No
legislative developments were reported on accounting but it was noted that a new
Control Commission had been established to oversee the work of auditors. Despite
the generally satisfactory state of potential compliance with the acquis, there were
still outstanding issues. The final Regular Report of 2003 noted that for accounting
and auditing legislative alignment was almost complete, although some areas of the
Law on Statutory Auditors still needed to be fully aligned with the 8th Directive.
Administrative structures were judged as adequate. Overall, compliance with the
acquis on accounting and auditing was not considered to be a problem, and no areas
of serious concern were identified.
The Slovak Republic, as part of the then unified state, was party to the
Czechoslovakia Association Agreement of 1991 discussed above. This was
subsequently replaced by separate agreements following the dissolution of
Czechoslovakia. Slovakia presented its own application for membership in 1995.
The 1997 report on this application concluded that Slovakia did not fulfil the
political conditions set out by the European Council in Copenhagen but that
economic criteria could be satisfied, and that Slovakia had demonstrated commitment to adoption of the acquis. It was therefore recommended that negotiations
should commence once sufficient progress towards the Copenhagen criteria had
been made. In regard to accounting it was noted that the 1991 Act on Accountancy
provided the basic framework for the annual accounts of companies and a 1993
regulation from the Ministry of Finance provided for the drawing up of consolidated
accounts, but concern was expressed at the lack of clarity on how accounting
standards were set. The role of the 1992 Act on Auditors in establishing a Chamber
of Auditors to regulate the position and activities of auditors was noted. It was
observed that amendments to the Act on Accountancy and the Act on Auditors were
anticipated for the first quarter of 1998, with further amendments intended to bring
about full conformity with the 4th, 7th and 8th Directives. Certain transitional
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problems were noted relating to the practical implementation of legislation,

including a shortage of qualified accountants and auditors, and it was observed that
major efforts would be required if these problems were to be solved in the medium
term. It was concluded that the information available to the Commission on
accounting and auditing matters did not provide a sufficient basis on which to make
a detailed assessment of the countrys then conformity with the acquis, or indeed
Slovakias prospects of achieving conformity, although the timetable for reform
seemed reasonable. The Regular Report 1998 reported no progress in accounting
and auditing, together with general concerns about the lack of institutional and
administrative capacity for the adoption of the acquis. The NPAA was found
lacking in proper understanding of the acquis in many areas. However, the 1999
Regular Report noted that in accounting law, the Commercial Code had been
amended to incorporate elements of the acquis. It was also considered that the
political elements of the Copenhagen criteria were now being met, and that the
countrys NPAA had improved. The 2000 Regular Report stated that in accounting
law more progress had been achieved, bringing about partial alignment with the 4th,
7th and 8th Directives. It was also commented that the NPAA still required
improvement, including more realistic target dates for achievement of alignment
with the acquis. The 2001 Regular Report noted that negotiations on the company
law chapter of the acquis had now been provisionally closed. It was further reported
that accounting law was now largely in line with the acquis, although further
amendments to the 4th and 7th Directives were still required. The Regular Report
2002 noted further accounting and auditing legislative developments due to be in
force in January 2003. Full alignment with the acquis in this area as well as with
IAS was expected when these laws became effective. The Comprehensive
Monitoring Report of 2003 noted for accounting that Slovakias commitments
had been met and it was expected to be in a position to implement the acquis from
the date of accession. Administrative capacity was said to be adequate.
The EU officially recognised Slovenia as an independent state in January 1992
(although there had been a trade and cooperation agreement from 1980) and in 1996
the country applied for EU membership. The Commission opinion on application
was given in 1997 and Slovenia started membership negotiations in March 1998.
The 1997 opinion noted that accounting was regulated by Chapter 7 of the Law on
Commercial Companies 1993, that there was a Law on Audit 1993, and that the
Slovenian Institute of Auditors was authorised to adopt accounting standards and to
issue practicing certificates to auditors. Furthermore, most requirements of the 4th,
7th and 8th Directives appeared to have been implemented. Certain transitional
problems were evidenced relating to practical implementation of new legislation,
including a shortage of qualified accountants and auditors, but these were not
considered to be a problem in the medium term. The 1998 Regular Report added
little to this judgement, except to note that fine-tuning of the 1993 Law on Audit was
still necessary to make it fully consistent with the 8th Directive. Implementation of
existing legislation was still noted as an issue, particularly with regard to a shortage
of qualified auditors. The 1999 Regular Report noted that a new Law on
Accountancy had been adopted in March 1999. This report also contained comment
on the latest revision to the NPAA, reporting that whilst the revised NPAA extended
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the scope of its acquis coverage, in areas such as accounting and auditing there was
no acquis-related text, only a section on administrative capacity. Nevertheless the
2000 Regular Report stated that the chapter of the acquis on company law had
provisionally been closed. The Auditing Act, intended to bring Slovenian legislation
on auditing in line with the 8th Directive, was still going through parliamentary
procedure. The Regular Report 2001 noted further progress, in particular citing the
introduction in January 2001 of the final implementing regulations arising from the
Accountancy Act and the Auditing Act. No further legislative amendments were
considered to be required, except for detailed standards on auditing and accounting
to be laid down by the Slovenian Institute of Auditors after approval by the Ministry
of Finance. No further developments in accounting and auditing were reported in
the Regular Report 2002 and it was noted that Slovenias legislation was to a very
large extent in line with the acquis on accounting. On administrative capacity in
company law and accounting, Slovenia was considered to have the necessary
institutions already in place, although some minor changes were recommended. In
the Comprehensive Monitoring Report of 2003 it was reported that for accounting
Slovenias commitments had essentially been met. The administrative structures
were considered adequate, although minor adjustments were still needed to ensure
that the Institute of Auditors was sufficiently prepared to produce accounting
standards in accordance with the Act on Accounting. Alignment of Slovenian
accounting standards with the acquis remained to be confirmed.
Having reviewed data for the ten new member states we now consider the
hypotheses to be tested. H1 concerned the expectation that the two emerging market
economies of Cyprus and Malta would exhibit smoother accession trajectories than
the eight transition economies. The above analysis of data on comparative
institutional development tends to support this hypothesis. The evidence suggests
that Cyprus and Malta entered the accession process with significantly more
compatible institutional legacies than the eight transition economies and therefore
had relatively smaller initial institutional gaps and that this contributed to a
relatively smoother process of accession. A key indicator of this relative smoothness
of trajectory is the observation that both Cyprus and Malta did not have accession
partnerships in place until 2000 compared to 1998 which was when all eight
transition economies entered accession partnerships with the EU. Further evidence
to support acceptance of H1 emerges from the relative performances on alignment
with the acquis. This is not to say that Cyprus and Maltas trajectories were without
problems. Rather, the problems which these two new member states experienced
were specific to them (e.g. unwillingness to give up accepted practices and the need
to update already market economy-focused legislation) and different from those of
the transition economies (for example there was little evidence of capacity shortages
in the accountancy and auditing professions or in relevant administration in Cyprus
and Malta). This evidence adds support to H2 that Cyprus and Malta would exhibit
broadly similar trajectories but a definitively clear picture in relation to this is
difficult to see. The initial institutional gap (at 1993) appears greater for Malta than
Cyprus and by 2000 Cyprus was considered to have been to a large extent in
accordance with the acquis whilst it took Malta until 2002 to be in this position.
Thereafter progress appeared to slow in Cyprus and accelerate for Malta so that by
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2003 the latter had met its commitments and was in line to implement the acquis
fully on accession whilst for Cyprus new concerns in relation to the acquis were
raised in that year. We conclude that Cyprus began the accession process better but
finished it less well than Malta and that the accession trajectories were different but
whether these differences were sufficiently great to allow rejection of H2 must await
further analysis.
H3 relates to the presence of an observable early-mover advantage amongst
transition economies which, if it translates from other areas of economic activity to
accounting and auditing, suggests that Hungary, Poland, and the Czech Republic
might be expected to exhibit a smoother accession trajectory than the other five
transition economies. We argue that the evidence presented above provides some
support for this hypothesis. The non-early-mover five succeeded in satisfying the
accession criteria of the acquis in order to join the EU simultaneously with the
early-mover three (and without transition derogations) but the evidence indicates
that relatively larger initial institutional gaps were present in the early stages of
accession for them when compared with those of the early-mover three and that
significant progress had to be made relatively late in the accession process in order
to meet the deadline of the 1st May 2004. This implies steeper trajectories for the
non-early-mover five. Moreover, progress to accession was not always smooth.
H4 and H5 are concerned with whether the overall quality of a countrys
institutions and the effectiveness of policy-makers responses to the need for
institutional improvement and change determines the speed and smoothness of the
accession trajectory. We hypothesise that the weaker are institutions (and greater the
initial institutional gaps) and the more problematic are policy-makers responses,
the less smooth will be accession trajectories. Specifically we hypothesise several
relative trajectories within the eight transition economies. Thus, in H5 we argue that
the Slovak Republic was expected to experience a less smooth trajectory than
Slovenia and this is supported by the evidence offered. It may be that the
performances of Slovenia and Slovakia were strongly influenced by the relative
sizes of the initial institutional gaps, Slovenia started from a (surprisingly) high
base, necessitating a rapid catching-up process from Slovakia. In H4 we hypothesise
that the three Baltic States were expected to experience a less smooth trajectory than
Slovenia and we cannot reject this hypothesis. What emerges from the detailed
analysis of the official EU assessment data is the strong relative performance of
Slovenia generally and the different performances within the group of three Baltic
States.
Underlying the five hypotheses considered in this paper is the argument that
cultural and historical factors and other aspects of institutional legacy have an
observable influence on the accession trajectories of all ten new member states. This
is a quite general argument which is not easy to test conclusively from the data and
presents challenges to the methodology of qualitative analysis employed in the
paper. However, whilst a formal hypothesis based on this argument was not put
forward there are sufficient indicators in the data to support such a view and to
warrant further investigation. Thus, for example, the relative accession performances of Slovenia and Slovakia may be linked to deep seated institutional
characteristics. Slovenia has had strong geographic and cultural links to Austria,
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Germany, and Italy and emerged unscathed and relatively prosperous from the
break-up of Yugoslavia whilst Slovakia exhibited a generally troubled transition in
economic and political terms which may be linked to persistent institutional issues
(on aspects of the latter, see Day et al. 2001). Zukowskis (2004) demonstration of
the impact of long-term persistent interregional disparities on performance in
transition to a market economy in Poland adds weight to this view. Zukowski argues
that such influences may be traced to a distant past and are associated with inter alia
different historic levels of economic development and endowments of social capital.
The observed differences in trajectories relating to H1 and H3 may also be
influenced by such factors21 as may the differences observed between the
trajectories of the three Baltic States.
4 Conclusions
In this paper we have presented a comparative analysis of the trajectories of
accounting and auditing institutional development in the ten member states whose
accession to the EU in May 2004 represented the largest enlargement of the EU
since its inception. This group of ten is interesting in containing both transition
economies and emerging market economies and, amongst the transition economies,
member states with different experiences during the pre- and immediate posttransition periods. All these differences imply both variety in institutional legacies
and the potential for variation in trajectories of institutional development towards
accession. In order to test five hypotheses we have analysed detailed qualitative data
on institutional development in the ten new member states which was generated by
administrative staff of the European Commission as part of the official evaluation of
membership applications. On the basis of this analysis we argue that different
trajectories of institutional development are observable in the ten new member
states.
We consider the research reported in this paper to be significant for several
reasons. We would argue that it adds a new dimension to the academic record of the
transition to market structures and institutions of the eight former communist
countries which joined the EU in 2004 as well as assisting in our understanding of
the accounting development of the two emerging economies which already had
democratic and market institutions. The paper also informs understanding of the
accession process which is presently under way for other countries which are
currently candidates for membership and which are now at various stages on the
road to accession.
We accept that the analysis reported in this paper has the potential for
development in a number of respects. We report a series of highly path-dependent
trajectories of institutional development which are presented as driven by the
specific institutional requirements of EU membership. The analysis is in effect a
21
For example, organised professional accountancy has a history of over a century in Poland. Whilst the
Accountants Association in Poland was founded in 1926 it originated as the Bookkeepers Association in
Warsaw founded on June 9 1907.
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series of national case studies viewed through the lens of European Commission
annual reports. This imparts a partial and comparative static character to the analysis
of what are actually much more dynamic processes affected by many factors.
Further analysis should reflect this greater complexity. We hint at but do not
examine questions of how micro-level institutional interaction generates the
aggregate patterns of institutional change which we report. Complementary research
is available which provides insights into the micro-processes associated with
institutional change. For example, analysis using institutional theory, particularly
neo-institutionalism, has been applied to the study of the transformation and transfer
of management practice (see Sahlin-Andersson and Engwall 2002) and of regulation
(see for example Djelic and Sahlin-Andersson 2006) which is applicable to the
development of accounting and auditing institutions and which would inform our
analysis.
The qualitative mode of analysis, whilst providing useful insights, can be
supplemented by more quantitative representations of institutional change and
development. Thus, indices representing the reform of economic institutions have
been developed by de Melo et al. (1996) and the World Bank (2002) and have been
used in various studies measuring the extent of economic reforms to market
institutions; numerically based estimates of institutional change have been used in
research on commercial law institutions (EBRD 2001; Ramasastry et al. 2000); La
Porta et al. (1997, 1998), Pistor (2000) and Pistor et al. (2000) have developed
indices to assess developments in corporate governance institutions in relation to
shareholder and creditor rights. Similar methodologies can be applied to the data
reported in this paper to provide an alternative representation and analysis of
relative institutional trajectories.
Acknowledgments We gratefully acknowledge the helpful comments of the reviewers and editors at
the Journal of Management and Governance and participants at the EIASM Workshop on Accounting and
Regulation, Universita di Siena, 20th22nd September 2007, where an earlier version of this paper was
presented.
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Author Biographies
Judy Day is Professorial Fellow in Accounting at Manchester Business School. She is a member of the
Institute of Chartered Accountants in England and Wales (FCA). She has held senior academic
appointments at the London School of Economics and the Open University. Current research interests
include debt contracting and corporate governance, the determinants of financial covenants in loan
contracts and aspects of debt contracting, and national and international accounting institutional and
regulatory change.
Peter Taylor is Emeritus Professor of Accounting at the University of Liverpool and Visiting Professor at
Manchester Business School and at Solvay Business School, Universite Libre de Bruxelles. He has also
held appointments in the University of Sheffield and University of Wales. His research interests include
financial contracting, financial reporting and financial markets in emerging economies, and national and
international accounting institutional and regulatory change.
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J Manag Gov (2010) 14:313350

Trajectories of accounting and auditing development

Published online: 16 July 2009

Abstract This paper presents comparative qualitative analysis of the development

J. Day (&) P. Taylor

Furthermore, it informs understanding of processes under way for other EU

EU enlargement Accounting transition Regulatory change

Namely, Albania, Bosnia and Herzegovina, Montenegro, and Serbia.

Trajectories of accounting and auditing development

prior to a decision on EU membership; secondly how applicants have developed

candidates for EU membership and transition and emerging countries more

2 Literature review and development of hypotheses

Trajectories of accounting and auditing development

uniformity over flexibility in accounting regulation, conservatism over optimism in

Trajectories of accounting and auditing development

Source: World Bank (2002),

Trajectories of accounting and auditing development

3 Data, analysis, and discussion

Trajectories of accounting and auditing development

problematic. Accession is not prima facie evidence of the absence of a residual

1990 (Former Czechoslovakia)

1980, Suspended 1991. New

1991 (In force 1993)

1992 (In force 1993)

1971 (Effectively an association

1994 (In force 1995)

1990 (Former Czechoslovakia)

Trade and cooperation agreement

Interim agreement in force 1997

1991 Czechoslovakia; then 1993 (in force 1995)

1991 (in force 1994)

1995 (In force 1998)

1995 (In force 1998)

1991 (In force 1994)

1995 (In force 1998)

1991 Czechoslovakia; then 1993 (in force 1995)

1972; Also customs union protocol concluded in 1987

Table 2 Key Dates in the accession process of the ten countries

1995; Not fully

1990/1993 But suspended

Application for membership/

Trajectories of accounting and auditing development

The second source of data relates to accession trajectory and is contained in a

Company law already

Table 3 Accession trajectory of Cyprus

1993 and updated 1999

1990 but suspended 1996

Now largely in line Commitments on

Table 4 Accession trajectory of Malta

Trajectories of accounting and auditing development

New Act on auditors

New Act on Auditors

Accounting Act and

Table 5 Accession trajectory of Czech Republic

Noted that training

Recent and planned

Table 6 Accession trajectory of Estonia

Trajectories of accounting and auditing development

Country had basic

Table 7 Accession trajectory of Hungary

Now provision for

Very nearly fully