Accruals Accounting in Italian Local Governments: Is It Working? Can It Work?

Abstract

Since 1995 Italian Local Governments have been required to publish an accrual-based report. However, traditional cameralistic budgeting and reporting remain mandatory. The purpose of this paper was to study the actual implementation of accrual reporting. To this end, an analysis was carried out on a sample of LGs' financial reports. Results were not encouraging. Although the cameralistic [bottom line] (current surplus) and its accruals counterpart (net income) were not particularly correlated, the reliability of many statements was seriously jeopardised by large errors and the difference between current surplus and net income was often largely explained by unexpected items. Moreover, 'typical' accrual-accounting items were often set to nil and disclosure, if any, was usually minimal. Practical and technical problems are likely to explain some of such results. However, for the future, user needs are the crucial issue. As long as cameralistic accounting remains the LG's main accounting system, dominates budgeting, provides the information required by the most important external users while all other potential users remain rather indifferent, accruals accounting is likely to remain marginalised and the solution of technical and practical problems to produce very little benefits.