Use Of Accrual Accounting Research Articles

Financial sustainability and earnings manipulation: Evidence from Spanish provincial councils

While earnings manipulation has a broad literature in the private sector, there is a lack of research on this topic in the public sector. This paper aims to explore the level of earnings management in Spanish provincial councils. The use of accrual accounting may be viewed negatively by stakeholders such as the central government, opposition parties, and citizens. The public choice theory highlights the conflicting interests of politicians seeking re-election and citizens aiming to maximize their welfare, leading to potential manipulation of earnings. Discretionary accruals are used as a proxy for earnings management in this study. Additionally, the impact of financial sustainability measures on earnings management is examined. The analysis covers the period from 2017 to 2020 and reveals how certain financial sustainability ratios and pre-election years can influence the extent of earnings manipulation. This paper contributes to the existing literature on earnings management in local governments by examining the connection between financial sustainability indicators and this behavior. Specifically, it focuses on the relationship between budget vulnerability and sustainability, and their influence on the magnitude of discretionary accruals.

The Changing Role of Accrual Accounting: International Evidence

ABSTRACTUnder the accrual accounting model, the timing role of accruals leads to a negative correlation between accruals and cash flows. Our study investigates the time-series trend of the timing role of accruals and finds a temporal decline in the magnitude of the correlation between accruals and cash flows in our sample of 51 countries over 1991–2019. This decline is primarily caused by increases in loss firms and operation volatility. Several accounting and economic factors, such as the use of accrual accounting, discretionary accruals, matching between revenues and expenses, IFRS adoption, and accounting connectedness, are positively associated with the strength of the accrual-cash flow relation and therefore decelerate the decline of the accrual timing role. Additional analysis suggests that the decline in accrual timing over time is present regardless of a country’s economic growth, legal tradition or institutions, and the extent of the use of accrual accounting.JEL Classifications: M41.

Determinants and quality of audits and reviews of small charities financial statements

Using a random sample of 500 Australian small charities, we first identified the determinants for the 56 charities disclosing audit/review reports (53 audits and three reviews) from the 110 voluntarily lodging annual reports. Sequential logistic regression showed that lodging charities are larger, rely more on government grants and use accrual accounting, while factors explaining the disclosure of audit/review reports are charities' deductible gift recipient status, organizational age, and again the use of accrual accounting. Second, for the 53 audit engagements identified, we examined audit quality using five measures and identified significant concerns, including only 34% fully complying with the reporting requirements of Australian/International Auditing Standard 700. Third, tracing the 500 charities from 2014 to 2018, plus 100 more of the largest public‐interest small charities, little change was identified in provision of audits versus reviews. The implications of our findings for charities, audit firms, regulators and standard‐setters were considered.

Is IPSAS Implementation Related to Fiscal Transparency and Accountability?

IPSAS implementation is usually seen as a step toward improving the quality of public financial information, accountability, and transparency. However, it is worrying that many governments around the world are involved in the process of implementing IPSAS and transitioning to accrual base without certainty about the reality of those desired outcomes. This paper contributes to the matter by studying quantitatively whether there is any association between the use of accrual accounting and IPSAS for financial reporting purposes and both fiscal transparency and accountability. Using a cross-sectional dataset that includes observations from more than 70 countries in 2018, we find that other variables such as the degree of citizens’ political participation and media freedom are more important for analyzing differences in fiscal transparency and accountability than the degree of IPSAS implementation.

Financial Management Process of Pesantren Nurul Muhibbin Tanah Laut

Pesantren Nurul Muhibbin Tanah Laut, which is classified as a new Islamic boarding school, was founded in 2018, and as such, it requires significant input and assistance in resolving issues, particularly those relating to financial management and accounting information systems. If an error is made, not only social sanctions are imposed, but also legal sanctions; this must be a bright spot in the pesantren's financial management. This research employs a qualitative approach in the hope of identifying financial phenomena that can be used as material for joint evaluation. The study examines financial planning, implementation, supervision, and reporting phenomena. This financial process will be visualized as a flowchart in the hope that the relationship between the various components is obvious. Several of the findings in this study indicate that financial planning has been successful in terms of implementing a priority scale, deliberatively forming APBPP, and developing plans to strengthen pesantren financial management. The implementation process has not perfectly implemented the principle of accountability and generally continues to make ineffective cash payments, the supervisory process continues to violate the principles of organizational adjustment and responsibility, and the management accounting process and reporting continue to have numerous shortcomings, such as conventional accounting processes and the use of accrual accounting. The pesantren currently lacks a flow chart that adequately depicts the financial management process.

The Influence of the Organizational Structure, Environment, and Resource Provision on the Use of Accrual Accounting in Municipalities

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.

Institutionalizing accrual budgeting and accounting through a uniform legislation:Une expérience á la Camerounaise

AbstractThis paper traces the use of accrual accounting in a tradition where a uniform code-based accounting chart is imposed on all levels of government. Operating within a hybrid of Franco-German and Anglo-Saxon accounting heritage, local government in Cameroon experienced some hurdles in practicing accrual accounting for over a decade. It becomes therefore pertinent to examine the motivation towards the move to accrual accounting and the extent to which accrual data is used for financial reporting and decision-making. The study is hinged on a triangulation in qualitative research, with a case study, interviews and documentary analysis. New Public Management and the institutional theories are used as a framework to broaden the understanding of the practice of accrual as an accounting choice underpinning reforms in the Cameroon public sector. It was revealed in this study that the normative and coercive isomorphic pressures influenced the adoption and practice of accruals in councils. In order to appear legitimate and for fear of being sanctioned, council authorities had to produce some accrual-based financial reports at all cost, even though these reports were hardly used for management decisions making.

The Influence of Organizational Structure, Environment, and Resource Provision on the Use of Accrual Accounting in Municipalities: An Institutional View

Despite its benefits, municipalities frequently struggle to take advantage of accrual accounting as a basis for managerial decisions. We assume that the reason is that municipalities implement accrual accounting in a symbolic way for legitimacy purposes. To identify factors enhancing a more sophisticated usage of accrual accounting, we examined the influence of the specific municipality context, the 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 specific context in which the municipality is embedded. 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.

Towards a Higher Sophisticated Use of Accrual Accounting in Municipalities

Even though the promised advantages, municipalities often struggle when applying accrual accounting in their daily business. To identify factors of a successful use of accrual accounting in local p...

Accrual Accounting in Public Sectors: Possible Contextual and Application Gaps for Future Research Agenda

This paper analyses the possible contextual and application gaps derived from the utilisation of van Helden and Northcott’s (2010) method of study for classifying themes in published public sector’s accrual accounting papers according to their research objectives. As a result, our theme categorisation refers to the following research objectives: a) proposing new financial/management accounting techniques/approaches for public sector accrual accounting systems (e.g. accrual output-based budgeting, performance management and costing); b) examining the effectiveness of accrual accounting techniques/approaches; c) identifying the conditions for the successful/failure of the implementation of accrual accounting techniques/approaches; and d) knowledge-building in understanding, explaining and critiquing the adoption and use of accrual accounting techniques/approaches, both theoretically and practically. Through the process of populating and establishing the themes (based on research objectives), we were able to identify which areas of study have received less attention and which areas have room for further exploration.

International Evidence on the Matching Between Revenues and Expenses

AbstractThis study investigates the time‐series trend and determinants of matching between revenues and expenses in a sample of 42 countries. We find that the decline in matching documented by Dichev and Tang () is not unique to the United States, but is a worldwide phenomenon. Our results show that matching is weaker in countries with (i) wider use of accrual accounting; (ii) a larger proportion of firms reporting significant special items; (iii) slower economic growth; (iv) more research and development activities; (v) larger service sectors; and (vi) stronger investor protection. We find no evidence that mandatory adoption of International Financial Reporting Standards affects matching. Changes in accounting and economic factors collectively explain the downward trend in matching. Overall, the results suggest that both accounting and economic factors are important determinants of matching over time and across countries.

Accrual accounting and performance measurement: Empirical evidences from two Italian municipalities

In the last years, the introduction of advanced management systems in local governments, through a substantial renewal process of these entities, has generated a new debate in literature in reference to the effects produced by the implementation of such management tools typically applied to the private sector. In particular, this paper aims to explore the way in which the use of accrual accounting supports performance measurement tools used by local governments, adopting the Resource-based view approach. Considered the debate on the effects related to the introduction of the accrual accounting system and the role of accounting information to measure performance in the local governments, it has been conducted a comparative analysis of two Italian municipalities in order to identify the relationship between these two management tools. Case analysis highlighted the fact that accrual accounting system does not always support a more complete process of performance measurement and competences and organization’s resources in the use of accounting data and information affect this process. Results also show that the introduction and use of managerial systems require a profound change of organizational culture which should be accepted by most of the members of the organization.

Harnessing Financial Information in Investors Decissions: Accrual Accounting versus Cash Accounting

Abstract This study aims to analyze the influence of the value added of the information developed according on the two main accounting systems for investment decision making, with direct impact on the market capitalization of the listed companies. To obtain the research results, in the study were analyzed specific financial information, collected for a sample of 65 Romanian listed companies on the Bucharest Stock Exchange, between 2011 and 2013. For data analysis were used econometric models from the literature, based on the multiple regression analysis and adapted to the research objectives. At the level of the study, there was estimated and tested the influence of the information attained based on the use of cash accounting (quantified through the cash flow from operations, cash flow from investing and cash flow from financing) and based on the use of accrual accounting (quantified through the variation of the operating and net income) on the capital gains yield of listed companies. Research results show a growth of the value relevance of the information obtained based on the use of accrual accounting compared to the ones obtained as a result of cash accounting use, in the case of Romanian listed companies.

Alternative information sources and information asymmetry reduction: Evidence from small business debt

We examine whether more sophisticated accounting methods (in the form of accrual accounting) interact with other information sources to reduce information asymmetries between small business borrowers and lenders, thereby lowering borrowers׳ probability of loan denial and cost of debt. We find that higher third party credit scores, but not the use of accrual accounting, decrease the likelihood of loan denial. However, firms using accrual accounting exhibit statistically lower interest rates after controlling for many factors associated with the cost of debt. Further, the interest rate benefits from accrual accounting are greatest when the borrower׳s credit score is low and/or the length of its banking relationship with the lender is short. This evidence indicates that accrual accounting can benefit small business borrowers, but that the information contained in third-party credit scores and obtained through ongoing banking relationships can substitute for the incremental information provided by accrual accounting.

The Use of Accrual Accounting in New Zealand’s Central Government: Second Thoughts

AbstractBusiness-style accrual accounting for governmental budgeting and financial reporting is widely promoted as appropriate for governments and promoted as successful in the countries that have already adopted it. There are, however, both constitutional and democratic reasons for close attention to their implications and effects. Accounting has a power of its own and, matters that “appear on the surface to be technical … can be found to be intimately tied up with political, behavioural and constitutional concerns” (

Cash to accrual accounting: Does it mean more control for the public sector? The case of revenue from non-exchange transactions

Within the New Public Management, a fundamental role is played by changes in accounting measurement and recognition systems (in this case, the literature speaks specifically of New Public Financial Management). It has been substantially characterized by a gradual shift from cash to accrual accounting. In light of it, this paper aims to analyze some of the most significant conceptual and practical implications associated with the use of accrual accounting in the public sector – such as Italy’s, where most entities still use cash accounting – by looking closely at that full-accrual standard that seem to best show the system’s innovative reach: IPSAS 23 – Revenue from Non-Exchange Transactions (Taxes and Transfers). The switch-over broadens the scope of the accounting system, thereby leading to the recognition and consequent valuation of all the resources of any public-sector entity in its financial statements. As is often the case, though, greater utility implies greater complexity and innumerable elements of uncertainty are evidently still present.

Developing a government's balance sheet—does it improve performance?

The increasing use of accrual accounting by governments around the world has led to the appearance of public sector balance sheet information both at a wholeof-government level and at the level of an individual public sector entity. However , this new information can only be useful if it actually gets used. This article explores some of the barriers that have become evident in attempting to use balance sheet information for decision-making and accountability purposes. These barriers are not insubstantial and require acknowledgement and a reformulation of the value of balance sheet information by those promoting its benefits. Such a reformulation is suggested.

Why Governments Should Use the Government Finance Statistics Accounting System

In May 2008, the Australian government presented its budget to parliament solely in terms of the IMF Government Finance Statistics (GFS) accounting system; and in December 2008 it announced that all outcome financial statements were also to be GFS based.These two decisions brought to an end a long and arduous controversy over the use of accrual accounting by governments in Australia since their adoption the early 1990s. Initially, the Australian Accounting Standards (AAS) business‐based system was adopted, with a few modest extensions covering the public sector. However, there was much controversy over the displacement of cash accounting and budgeting systems by accrual accounting; and secondly whether the AAS system was appropriate for the public sector.In May 1999, the Australian government introduced accrual budgeting in place of cash budgets. However two sets of accrual budgets were presented to parliament—an AAS‐based one and a GFS‐based one. The two budgets presented substantially different results, causing endless confusion in parliament. Furthermore, departments and the whole of government continued to present only AAS outcome financial statements.In this paper, the above history is traced out together with the reasons for the decisions. The final decision to adopt the GFS system, covering both cash and accrual accounting systems, is explained in terms of the roles and operating environments of governments. These determine the financial information needs of government, and they are shown to be fundamentally different from those of business. Finally, the structure and concepts used in the GFS system are explained.

Accounting's chaotic margins

Purpose – The purpose of this paper is to explore the circumstances and implications of an episode of accounting change arising from the extended use of accrual accounting within the Australian public sector. The matter under scrutiny is the reporting of the library collections of Australia's public universities as assets in general purpose financial reports.Design/methodology/approach – A survey is undertaken of the annual reports of Australia's 36 public universities for the period 2002 to 2006. The analysis of the findings is informed by new institutional sociology (NIS), with a focus on mimetic processes, and the concept of “accounting's margins”.Findings – The survey reveals considerable diversity and subjectivity in the accounting practices adopted, as well as instances of sudden and dramatic changes in carrying values. The financial reporting of library collections is depicted as a “chaotic margin” of accounting, and the technical propriety of attempting to express and account for these non‐financi...

Alternative Information Sources and Information Asymmetry Reduction: Evidence from Small Business Debt

We examine whether more sophisticated accounting methods (in the form of accrual accounting) interacts with other information sources and the pledging of collateral to reduce information asymmetries between small business borrowers and lenders, thereby lowering borrowers’ probability of loan denial and cost of debt. We find that higher third party credit scores, but not the use of accrual accounting, decrease the likelihood of loan denial. However, firms using accrual accounting exhibit statistically lower interest rates after controlling for many factors associated with the cost of debt. Further, third-party credit scores and information obtained through ongoing banking relationships appear to substitute for the incremental information from accrual accounting, with the benefits from accruals decreasing in the firm’s credit score and relationship length. We find little evidence that any of the alternative information sources influence loan decisions when collateral is pledged, consistent with theories that collateral provides an alternative means for addressing information asymmetry problems. Finally, our results indicate that borrower characteristics such as the firm's age and legal liability further moderate the relations between the various information sources and interest rates.