Accrual Basis Research Articles

The translation of accrual accounting and budgeting and the reconfiguration of public sector accountants’ identities

Under the umbrella of New Public Management (NPM) and managerialism, the last three decades have seen a widespread transformation of public sector accounting and budgeting from a cash to an accrual basis. Much of the ensuing research, however, has focused more on technical evaluations of these programmes and less on informing our knowledge of the interaction between such programmes and accountants. As public sector accountants (PSAs) are central entities in such programmes, the purpose of this paper is to focus on the reconfiguration of their identities. Using the theoretical lens of Actor-Network-Theory (ANT) and its concept of translation, this study seeks to explain how PSAs’ identities were transformed through the introduction of Accrual Output-Based Budgeting (AOBB) in two German states. Our analysis shows that the change of accounting regime was not a straightforward one, but rather involved that accountants faced particular challenges responding to several interessement devices that were used to enrol them into the new practices. We link this behaviour to a Weberian facet of the PSAs’ identity, which prevented serious project stagnancy and ‘strategies of total resistance’, but also precluded many accountants from enrolling easily into AOBB, or even developing enthusiasm. The paper suggests that several groups of accountants, rather than one, experienced different challenges in aligning with AOBB and that each assumed their compromises and investments in developing with accrual accounting.

Governmental Accounting and Austerity Policies: Accounting Representations of Public Debt and Deficit in Europe and Abroad

This article provides a theoretical view on European Public Sector Accounting Standards (EPSAS), focusing on overarching accounting principles and models, as well as their consequences on the working and the very existence of public service activity. Our analysis applies to illustrative cases concerning: meaning of public deficit on accruals basis with a view to nature and use of public debt for redistribution purpose; the strange case of taxation on public sector employees’ remunerations and benefits; accounting for employees benefits provisioning; and measurement of public debt and deficit following European Union supervision of Member States. This analysis develops a framework to assess the consistency of accounting models with non-lucrative missions of general interest that belong to public administration. It shows how budgetary accounting does (and should) complement accruals-based accounting in public sector accounting systems, asking to embed public sector accountability in a public service institutional order that is specific to public administration.A revised published version is available at DOI: dx.doi.org/10.1016/j.accfor.2016.05.003

Hyman Minsky’s Financial Instability Hypothesis and the Accounting Structure of Economy

Hyman Minsky’s view of the accounting structure of economy is essentially based upon ownership of wealth, cash flows and financial instruments as entitlements to both. Further accounting notions are introduced here that improve on Minsky’s financial analysis. From the accounting viewpoint, revenues and expenses, assets and liabilities are organized through economic entities that frame and shape cash transfers through an accruals basis of accounting. Including these ongoing entities and their accruals upgrades Minsky’s frame of analysis from both heuristic and theoretical viewpoints. Current international and US accounting standards and practices provide examples concerning leases, repos, special purpose entities, goodwill, depreciation and liquidation values, and mark-to-market valuation of corporate liabilities. Notably, banking and government agencies can then be understood as dynamic holistic connections that layer upon ownership of wealth and entitlements to it, generating a credit-debt economy that fundamentally differs from a “capitalist” economy. Among others, Schumpeter and Keynes originate this collective dynamic understanding of bank borrowing and government borrowing, respectively. Both borrowings can be and have been employed to generate investment, production and consumption that could not have been generated without them. Some implications for economic theory and analysis of financial stability, banking and money are developed.

From Servant to Master? On the evolving relationship between accounting and budgeting in the public sector

This paper addresses the evolving relationship between accounting and budgeting in the public sector. At the lowest stage, accounting has no influence over budgeting, it then tracks the flow of budgetary resources, and furthermore compares actual with expected performance, dutifully following budget rules all the time. But the nature of the relationship changes when accrual accounting acquires the confidence to challenge budgeting rules, necessitating an explanation of their differences, and possibly ending up converting budgeting to the accrual basis as well. This has happened only in a few countries so far. Whether the “servant” will become the “master” globally remains to be seen.

Cyclical Distortion of FRBM Fiscal Indicators Due to Telecom Auctions

Section 4(1) of the Fiscal Responsibility and Budget Management Act 2003 requires the Central Government to eliminate revenue deficit and thereafter generate revenue surplus. In 2010-2011, unexpectedly high receipts from auction of spectrum in the 2100 MHz and 2300 MHz bands accounted for 55% of the non-tax revenue, allowing the Central Government to edge towards its revenue deficit targets without tightening its revenue expenditure. Similarly, the scheduled auctions of the 800 and 1800 MHz bands in 2012-2013, the 900 MHz band in 2013-2014 and the 700 MHz band in 2014-2015 are expected to contribute a majority of the Central Government’s non-tax revenue in the forthcoming years thus easing the pressure off the Government. Given that a winner of the auctions is granted a 20 years license to use the spectrum in return for a substantial upfront one-time payment in addition to yearly fees, the cash basis of accounting in India gives a skewed perspective of the Government’s revenues allowing the Government of the day to loosen its noose around fiscal measures. These auctions will repeat themselves once every 20 years resulting in cyclical dilution (and distortion) of fiscal indicators under the FRBM Act. The current fiscal indicators (including the newly defined effective revenue deficit as a percentage of GDP) create an illusion of meeting targets caused by the cyclical increase in non-tax revenue whereas the actual need of the hour, i.e. controlling expenditures, remains ignored. Though the shortcomings of the cash basis of accounting in comparison to the accrual basis of accounting are well known, this paper highlights the need to reframe the fiscal indicators of the FRBM Act in light of the fact that spectrum auctions contribute a substantial chunk of the Government’s revenue unmatched by any other entry.

Accounting and the state – an introduction

This special double issue of Accounting History presents 10 articles that were presented as conference papers at the sixth Accounting History International Conference (6AHIC) held in Wellington, New Zealand during 18–20 August 2010. The choice of a conference theme is often based on a connection with the location of the conference and/or acknowledged gaps in the literature. For the 6AHIC, both were the case. The conference venue was only a few minutes away from the heart of New Zealand government, and as noted in Nola Buhr’s plenary presentation and the article included in this special issue, the New Zealand government was the first government to adopt accrual accounting for whole of government reporting. Yet more importantly the relationship between the state and accounting is under-represented in the accounting history literature (Funnell, 2007). The 10 articles in this issue of Accounting History reflect aspects of the diversity of the interaction between accounting and the state, as well as the diversity of approaches to accounting history (see Gaffikin, 2011). The articles cover topics from both the technical and the contextual perspectives. They introduce research from nine jurisdictions: Australia, Canada, Fiji, France, Italy, New Zealand, Spain, the United Kingdom, and the USA, and span seven centuries. The leading issue for public sector financial reporting has been the choice of the basis of reporting, specifically cash or accrual, or a modified form of either. Buhr (2012) uses a comparative international history approach to understand how and why five Anglo-American governments sought to introduce accrual accounting in various manners for financial reporting. The author locates the change within the broader understanding of the New Public Management (NPM) reforms beginning in the early 1980s. Buhr also looks back before this time period to earlier calls for the introduction of an accrual basis, reminding us of the futility of the search for origins in accounting history. The changes introduced to accounting, such as the accrual basis, the increased availability and use of accounting information, and the implications of such changes, are fertile areas for research in accounting history. Narayan (2012) and Sharma, Lawrence and Fowler (2012) investigate the impact of the use of accounting technology, including the accrual basis of accounting as a part of NPM. Narayan traces attempts at the commercialization of academic research in universities and the impact of accounting on those attempts. Tracking the changes over a period of 30 years, Narayan illustrates how accounting technology is not neutral in the implementation of government policy, but rather is implicated in the outcomes. In this particular case, Narayan shows how accounting can be an aid in the drive for the commercialization of academic research. Sharma et al. (2012) 448323 ACH173-410.1177/1032373212448323Colquhoun and ParkerAccounting History 2012

The Media of Information Supply and Share Informativeness: Evidence from Real Time Webcast During Earnings Announcement

Financial statement information is useful for investors to predict the future investment returns, in turn the fact that capital markets corresponds with such financial information, accordingly (Merton, 1987). Regardless of the current good news or bad news of a company extracted from financial statements, it can also assist investors to anticipate future firm financial and market performance. Financial statements are highly informative surrogate and also regarded as the most transparent, accurate, and persistent disclosure vehicle outside. It can therefore convey a lot of information to decision makers. Furthermore, financial statement is still useful information even though it does not directly provide cash flow information (Kim and Kross, 2005; Ball and Shivakumar, 2006), implying that those guys realise income statement and balance sheet information can delivery certain important message to external investors. The difference between the net income and operating cash flow is the accrual. Financial statements are provided in accrual basis which seemingly is useful for decision makers. Dechow (1994) provides consistent evidence that the net income is more explaining the share movement than operating cash flow and net cash flow. Decision makers would update their subjective investment return predictions when new information releases (SFAC 1; IASB Framework; CICA handbook). The extent of informativeness of the financial statements depends on mainly both relevance and reliability drivers (SFAC 2), both of which are critical factors for the capital markets operating in a more efficiently and effectively manner.

Should Business and Non-Business Accounting be Different? A Comparative Perspective Applied to the French Central Government Accounting Standards

The French General Law of Finances of 2001 introduced a set of accounting standards including an explicit conceptual framework reconciling accrual basis accounting with the specific aspects of accounting for central government activities. This article analyzes this French set of accounting standards from a dualistic perspective that compares both business and non-business accounting. Three different views of accounting for business enterprises are addressed: the wealth-basis (static), the cash-basis, and the accrual-basis (dynamic). A dynamic view of the accrual basis is adapted to the specificities of non-business entities, including governments. The accounting representation is used here to explore further the nature and role of public sector activities within the economic system and their economic and monetary significance.

Significant Accounting Policies of Major Telecom Operators in India - A Comparative Study (June 2012)

Presentation of Financial Statements has to conform to the Generally Accepted Accounting Principles or more commonly known as the Indian GAAP. The Indian GAAP is a set of promulgations and pronouncements issued by the Regulatory Authorities in India. All the Regulatory Authorities are guided by the Indian Companies Act 1956, which among other things mandates that (a) books of Accounts shall be maintained on accrual basis (b) All registered companies shall comply with the Accounting standards as approved by the National Advisory Committee on Accounting Standards (NACAS), (c) companies shall present the statements in the format prescribed in Schedule VI of the Act (d) Depreciation rates prescribed under Schedule XIV of the Act shall be adopted etc.. Regulators in each area of business have further mandated modifications and formats for sectors such as Insurance and Banking. The Institute of Chartered Accountants of India (ICAI) has played a key role in the formulation of Accounting Standards (AS) in India, and has issued Guidance notes for areas not specifically covered by the Standards. The present paper aims at comparing the accounting policies of Major Telecommunications Operators in India. It is hoped that this will not only bring out the differences in the policies, but more importantly throw light on the basic assumptions that the operators have about the nature of the business they are in. It will also demonstrate that the strategy of accounting is in fact an effective tool in financial performance management. We would like to argue that 'the value system' as declared in the public statements of the business in fact a mirror to the culture of the organization. The policies followed within the company actualize at the transaction at the employee level, and affects the behavioral patterns and interrelationships both within and outside the company. Our confidence in this process is somewhat strengthened by the preliminary results of this study. The remarkable differences in performance levels of the four operators studied here are partly explained by the divergence in policies followed by them.

GHARAR DALAM AKUNTANSI AKRUAL

Some authors agreed that accrual basis concept is in line with the objectives of Islamic accounting. The ones who’s agreed applying acrrual basis of accounting believes that the primary objective of Islamic Accounting information is to facilitate the users in computing his or her zakah obligation. The ones who’s not agreed applying accrual basis believes that recognizing noncash and circumstances as they occur is contain gharar. They also believes in computing zakah obligation cannot apply accrual accounting because zakah must compute base on wealth which has been receive its benefit. Definition of accrual accounting also allow earning management to occur. Debate of the cash basis and the accrual basis has been long discussion, for financial statement of Islamic bank and financial institution need modified accrual and cash basis in order to fulfills Islamic Shari’a. Key word: Gharar, Akuntansi Akrual, Akuntansi Kas, Laporan Keuangan Entitas Syariah.

Summaries of Papers in This Issue

Summaries of Papers in This Issue

Pension Expenditure Projections, Pension Liabilities and European Union Fiscal Rules

The 2005 reform of the Stability and Growth Pact has amplified the role of government debt and long-term fiscal sustainability in the surveillance of budgetary positions in the European Union (EU). Some aspects of the reform are still to be fully defined, including the role of implicit liabilities. This paper explores two main possibilities for accounting for such liabilities: using long-term expenditure projections and referring to estimates of the amount of pension liabilities. With reference to the former, the paper examines the pension expenditure projections available for EU countries and their use in the assessment of fiscal sustainability. While acknowledging the progress in the availability and quality of projections, the paper notes that their comparability is still unsatisfactory. Any mechanical use of existing pension expenditure projections should therefore be avoided. As to pension liabilities, the paper examines the main definitions and their potential role in the EU fiscal framework. It argues that pension liabilities may bring a clearer understanding of the impact of fiscal policies, may provide a measure of the cost of terminating pay-as-you-go pension schemes and may be useful for the measurement of deficits computed on an accrual basis. However, the level of pension liabilities does not provide indications concerning the sustainability of pension schemes and their effects on public budgets. Therefore, pension liabilities should not be added to conventional debt. Overall, the paper argues that both pension expenditure projections and estimates of pension liabilities can complement the current deficit and debt indicators. The paper concludes by pointing to the need to improve some technical and organizational aspects concerning age-related expenditure projections, such as the independence of forecasters, the transparency of projections and the degree of homogeneity in methods.

A Study on the Cost Management System for the Practical Use of the Government Accounting System Based on Accrual Basis

A Study on the Cost Management System for the Practical Use of the Government Accounting System Based on Accrual Basis

Assessing Accrual Accounting Reform in Greek Public Hospitals: An Empirical Investigation

During the last decades, several countries worldwide have introduced financial management reforms, as an important part of the New Public Management (NPM) initiative at one or more levels of government sector, by either replacing or transforming their traditional budgetary cash accounting systems towards a business-like accrual accounting concept. Following the example of this upcoming managerial trend, the Greek government introduced in 2003 the accrual basis accounting into public hospitals, as the hospital sector is one of the areas where NPM reforms have been introduced in search of higher efficiency, effectiveness and economy in service production. The purpose of this paper is twofold. The first goal is to provide an overview of the government sector reform initiatives in Greece and to present empirical evidence regarding the adoption level of the accrual basis accounting standards in the Greek public Health sector. The second goal of the research is to investigate the impact of a range of potentially contingent factors on hospitals compliance with the accrual financial and cost accounting reform. The present analysis is based on the results of an empirical survey that took place during 2009. For the purposes of this survey, a structured questionnaire was prepared and sent to the Chief Financial Officers (CFOs) of 132 Greek public hospitals. In particular, a linear regression model analysis was used to examine the cross-sectional differences on a number of explanatory and implementation factors of the accounting reform adoption level. The empirical evidence reveals that the level of accrual and especially cost accounting adoption in Greek public hospitals is realized only to a limited extent. In particular, results show that the level of reform adoption is positively related to IT quality, reform related training, education level of accounting staff, and professional consultants’ support. However, no significant relationship was found between the level of reform adoption and hospital size, reform implementation cost, CEO educational background, experience effect, and absence of management-physicians conflict relationship. The main contribution of this study is the empirical evidence it provides on the approaches and processes used by the Government of Greece to implement accrual financial and cost accounting systems in the Greek National Health System (GNHS) and the role certain human, organizational and situational factors played in such implementations for enhancing researchers’ and managers’ understanding of major implementation processes and challenges as well as helping them refine models of effective implementation process and improve systems and processes on similar future projects

Is There a Specific Accrual Basis Standard for the Public Sector? Theoretical Analysis and Harmonization of Italian Government Accounting

This paper aims to analyse the principle of accrual accounting when applied to non-business-oriented companies, including most general government bodies. The analysis is carried out by referring to concepts that are well-established and firmly anchored to the “history” of accounting and which, today, allow us to define the principle of accrual accounting for “non-business” activities differently to that applicable to profitoriented companies. This also gives rise to a different interpretation of the economic result. This work subsequently provides a “fieldwork” analysis of how accrual accounting has been introduced in the Italian public sector through an on-going accounting harmonization project. Finally, this paper offers a critical examination of the current accrual basis recognised by the International Public Sector Accounting Standards (IPSAS), as compared to its theoretical definition. The conclusions of this paper support the theory that the IPSAS can contribute to the current harmonization of Italian government accounting, but also reverse.

The influence of the nature of government accounting and reporting in decision-making: evidence from Switzerland

A key objective of government accounting and reporting has been to achieve accountability and its use in that respect has been well documented, however its use for decision-making has had less coverage. This article addresses the latter issue, providing evidence from Switzerland that the accounting basis used (accrual versus cash) influences decision-making. This is the result of the effect that the different approaches have on the nature of the information used for decision-making. Switzerland was among the first western democracies to adopt accrual accounting at both state (canton) and local levels of government in the 1980s. The Swiss federal government followed in 2007. The main examples of the use of accrual information in decision-making are: the focus on self-financing of investments in order to control borrowing, as well as the fiscal policy targets of debt reduction and maintenance of capital. All three require accrual basis information. Therefore accrual basis information is key in fiscal decision-making in Switzerland.

The Effect of Accounting Information on Taxpayers' Acceptance of Tax Reform

ABSTRACT The United States faces exceptionally large budget deficits over the foreseeable future that threaten the nation's financial stability (Bernanke 2010). A large portion of these deficits is due to the Social Security and Medicare programs. Thus, given the likely need to reform these programs, we use a model of rational choice proposed by Margolis (1981, 1984) and conduct an experiment to determine if the accounting information provided about the Social Security system affects taxpayers' acceptance of reform. We find that participants who receive accrual basis financial information are more concerned about the sustainability of the system and, most important, are willing to accept a greater share of the burden of reforming the Social Security system than participants receiving cash basis financial information and participants in the control condition. However, through supplemental analyses we also find that if the survival of the Social Security system is placed into question, the willingness to sacrifice begins to decline. Data Availability: Data are available from the authors on request.

Public-Sector Accounting and E-Governance in Developing Countries: Case of Sri Lanka

This article analyzes how new public financial management system should address the efficiency and effectiveness of the public sector and the emerging accrual basis accounting with e-governance for greater e-transparency on public-sector accounting in Sri Lanka. Despite the setting up of e-framework in 1983, the Sri Lankan public-sector accountancy environment during the last two decades raises concerns about efficiency, effectiveness, and accountability of the e-framework. The findings provide evidence of the importance of the economy and efficiency in the usage of public funds to provide more convenient access to government accounting information for citizens in Sri Lanka.

Adoção do regime de competência no setor público brasileiro sob a perspectiva das normas brasileiras e internacionais de contabilidade

This paper aims to analyze the adoption of accrual basis of accounting in the Brazilian government from the perspective of the Brazilian standards and the international accounting standards. This essay is based on the literature review and documentary that examined the provisions of the Brazilian and international standards about the subject, comparing also the legal aspects from the perspective of the National Treasury Secretariat (STN), Court of Auditors (TCU) and Attorney General of the National Treasury (PGFN). The rationale for the study is the perception that the accounts must be the basis for planning of government action and should reflect the substance of transactions and nor merely their legal form. The innovation consists in considering the budget and the accounts must have the same basis of accounting for comparison purposes and to bring the adoption of full accrual basis of accounting from the perspective of the IFAC’s study 14. It concludes that among the expected results with the adoption of full accrual basis of the Brazilian public accounting is the accounting transactions register when there is the occurrence of a triggering event and not at the time of payment or receipt, making with the information that has not integrated the public accounts can be registered and recognized in the accounting statements at the time in which they related.

The effects of intangible investments on future OCF

PurposeThe main purpose of this study is to investigate the relationship between intangible investments (R&D, advertising, training, software acquisitions and quality) and the ability of firms to generate future OCF (hereafter cash‐flow from operations).Design/methodology/approachThe authors developed dynamic panel models to estimate the relationship between intangible investments and three subsequent periods cash flows. These models are estimated using generalized method of moments (GMM), on a panel of 300 observations related to 50 Tunisian manufacturing firms and six years of data (2001‐2006).FindingsThe findings show a positive and significant effect of intangible investments on future operating cash flows. First, this result confirms the main hypothesis of resource based view (RBV). Second, it is found that investments in R&D, quality, and advertising have significant effects on future cash flows from operations. While the effect of R&D activities and quality persists until the third lagged period, the effect of advertising expenditures is rapid and temporary.Practical implicationsThe investigation provides an empirical validation on the role of intangible investment in generating and sustaining competitive advantage. The significant effect of R&D and quality expenses indicates the role of these activities in adding value to the firm product, and hence in the creation of competitive advantage which allows the firm to manage the components of its operating cycle, especially cash received from customers, resulting in superior future cash flows from operations.Originality/valueFirst, the use of cash‐flow basis, as an alternative approach to accrual basis, for intangibles valuation avoids the shortcomings of accrual‐based performance measures in forecasting future operating cash flows because of earnings management practices. Second, the majority of the research dealing with the valuation of intangibles has been conducted in the context of developed countries, therefore in terms of the relevance of intangible investments significantly less is known about emerging economies. The choice of Tunisia, in this regard, is a particularly important contribution to the research on emerging economies.