Abstract
Despite its benefits, municipalities frequently struggle to take advantage of accrual accounting as a basis for managerial decisions. We assume that the reason for this is that municipalities technically implement accrual accounting but sometimes keep it decoupled from daily decision making. To identify factors that facilitate a more sophisticated usage of accrual accounting in German public administrations, we examined the influence of the municipality’s contextual situation, organizational structure, and resource provision on the degree of sophistication in the use of accrual accounting. We found that the most relevant driver for a more sophisticated use of accrual accounting is the contextual situation in which the municipality is embedded. In our research model, a municipality’s contextual situation consists of fiscal stress, its political competition and culture, and the relevant legal system. Another important factor is the adequate provision of resources, such as an IT system that delivers easily accessible and accurate accounting information. Notably, the specific organizational structure of the municipality, which is often regarded as highly bureaucratic and the main obstruction to reforms, is not significant.
Highlights
The search for managerialism and professionalism in the financial management of municipalities continues in European countries (Pollitt 2016; Hyndman and Lapsley 2016; Hood 1995)
Implementing new information systems and using accrual accounting information are integral for effective public financial management
We have explored which factors drive the use of accrual accounting in German municipalities
Summary
The search for managerialism and professionalism in the financial management of municipalities continues in European countries (Pollitt 2016; Hyndman and Lapsley 2016; Hood 1995) In this context, the implementation of accrual accounting is considered a cornerstone for achieving a higher level of managerial orientation by presenting a wider range of fiscal information beyond cash flows (Christiaens et al 2010; Ridder et al 2006; Hyndman et al 2018). In contrast to other European countries, Germany can be considered a late adopter of accrual accounting, as municipalities were decreed to implement accrual accounting in twelve of the sixteen federal states beginning in late 2009 (Hirsch et al 2015).
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