Debating the Impact of Accrual Accounting and Reporting in the Public Sector

Abstract

Debates about the adoption of accrual accounting and financial reporting techniques by the public sector have been so widespread over the last decade that they may be labelled, without risk of inaccuracy, peripatetic. Questions as to whether accrual based techniques should be adopted by public sector entities are largely passe in the antipodes where they have penetrated every layer of the public sector over the past decade, making the question moot (Pallot, 1994; Shand, 1995; and English et al., 2000). However, these same issues are still being pondered by interested parties in jurisdictions which have only recently adopted comprehensive sector wide accrual based financial management and reporting frameworks, for example the UK (Likierman, 2000), or which are at the stage of announcing future moves to accrual based reporting and management frameworks, for example Hong Kong (Awty, 2002). Given the breadth and depth of extant literature on the subject, scepticism on the part of the reader as to the capacity of yet another paper on the subject to make a meaningful contribution to the literature would be entirely natural. However, gaps do exist in our understanding of the implications of the decision, on the part of many jurisdictions, to transform accounting, reporting and financial management processes from cash to an accrual footing. In particular, little attention has been paid to the impact wrought by the implementation within the public sector of accrual accounting and financial reporting in the context of other related public financial management reforms, for example capital charging, the adoption of a purchaser – provider model of government and the implementation of accrual output based budgeting (Carlin and Guthrie 2001a; Carlin 2003a; Heald and Dowdall 1999; and Robinson 1998b). The remainder of the paper proceeds as follows. The next section reviews international patterns of adoption of accrual accounting and reporting in the public sector. This part of the paper provides broad background context to the subject matter of the paper. The third section demonstrates the motivation for the paper by critically analysing the existing literature on accrual accounting and financial