Accruals accounting in the
public sector: a road not
always taken
Ciaran Connolly
&
Noel Hyndman
Queen’s University Belfast
The Road not Taken by Robert Frost
Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;
Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,
And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and II took the one less traveled by,
And that has made all the difference.
Introduction
• New Public Management
• Research Objective
To investigate the actions of the public
sectors in NI, as part of the UK, and the
RoI with respect to their accounting
choice regarding accruals and cash
accounting
Format
1. NPM, Accruals Accounting and
Institutional Theory
2. Trajectories of Change
3. Research Method
4. Results of Empirical Research
5. Discussion, Analysis and Conclusions
NPM, Accruals Accounting
and Institutional Theory
• NPM Reforms – variability of
adoption
• Institutional Theory – other factors
Intensity of adoption of NPM
Country
High
Australia
Canada
New Zealand
Sweden
UK
Medium
Austria
Denmark
Finland
France
Republic of Ireland
Italy
Netherlands
Norway
Portugal
USA
Low
Greece
Germany
Japan
Spain
Switzerland
Turkey
The UK – From Cash to
Accruals Accounting
1. UK - four separate countries within one main
2.
3.
4.
political unit
Devolution 1999
Traditional accounting model = cash
Resource Accounting and Budgeting:
 Announced 1994
 RA dry run 98/99, 99/00, 00/01 – live 01/02
 RB dry run 99/00 – live 03/04
 Mandatory central plan
The RoI – From Cash to
Cash with Some Accrual
Notes
1. Traditional accounting model = cash
2. 1991 – Joint Working Group of the Department
3.
of Finance and the Office of the Comptroller
and Auditor General was established to
examine improvements to government
accounting procedures
1994 – Strategic Management Initiative (SMI) –
rolling programme of modernisation and
change initiatives in the Irish Civil Service
4. March 1995 – SMI Co-ordinating Group of
5.
6.
Secretaries of Departments (now called
Implementation Group of Secretaries General)
to review existing systems, including financial
management systems – resulted in DBG 1996
1995 – DPE pilot project re. accruals-based
accounts
1995 – On basis of joint working group (1991)
the Department of Finance introduced a
number of changes (in circulars 1/95 and 1/96)
requiring departments to compile a fixed asset
register and to present some accruals-based
information for the annual 1994 and 1995 AAs
onwards
7. 1996 – Delivering Better Government (DBG) –
advocated the development of accruals-based
accounts (in addition to cash accounts) –
within five years
8. 1997 – Public Services Management Act –
specific legislative backing given to the
preparation and publication of strategy
statements
9. 1999 – Approval to develop a Management
Information Framework (MIF) – separately for
each department
10. 1999 – Financial Management in a Reformed
Public Service – pro accruals accounting but
suggested that there could be local variations
11. 2002 – Report of the Management Accounting
Working Group to the Consultative Committee
on the Evaluation of the Appropriation
Accounts and Department of Public Enterprise
Pilot Project by Capita Consulting - pro
accruals accounting; highlighted performance
information as well
12. 2002 – Evaluation of the Progress of the
Strategic Management Initiative / Delivering
Better Government Modernisation Programme
– significant changes required; MIF considered
by senior managers as ‘just about accruals
accounting’; little evidence that senior
managers in departments/offices were
convinced that the MIF would significantly
enhance decision making
Research Method
• Semi-structured interviews
• 35 interviewees (13 NI; 22 RoI)
• 22 organisations (11 NI; 11 RoI)
Interviews
Jurisdiction
UK
RoI
Departmental Operational Accountant
9
11
Overseer/Commentator
4
11
13
22
Central Government Department
8
7
Overseer/Commentator Organisation
3
4
11
11
Interviewee:
Organisation:
The NI Story:
The Accruals Road
• Understandability, Use and Complexity of
RAB
• Cost-benefit Issues
• Availability of Budgetary Control Reports
for Department Boards
Understandability, Use and
Complexity of RAB
I do not know if it’s being used… but I would be sceptical. .... I am not
sure how many people out there in a department or a branch really use
it to manage their budget… I am not sure how many working decisions
are taken from the accounting information. I am just not sure. It is
complex.... Even I don’t fully understand it. UKO/C3
I have no idea if they understand; they ask how much has been spent
in the last five years on whatever, and you just give them the figures. I
have no idea whether they understand what they are looking at but
you never get any questions back again. UKA3
The concept is wonderful, this idea of matching things… But I don’t
really believe it has made any great difference to the way we manage
our finances. Also, it’s a great puzzle to me – I don’t get the difference
between budgets and estimates and the actual benefit from reconciling
our outturn with our estimates and budgets. UKA3
Cost-benefit Issues
In reality I am not sure if it hasn’t just introduced a lot of unnecessary
complications. There are additional complexities that don’t add very
much value at all. The biggest benefit is probably on capital...
Unfortunately I don’t think the usage of assets has changed because
the accounting treatment has changed. UKA3
There might be benefits but just look at the number of accountants…
the number of staff, qualified staff, now working on the accounting
side of things… the cost must have been horrendous and are things
really that much better? UKA8
The level of accounting expertise has certainly improved in recent
years. There are many more accountants… But I wonder how many of
them are just churning out figures that maybe they don’t really
understand, and I guess many of the people who are getting these
reports don’t have the background to understand them either. UKO/C3
Availability of Budgetary Control
Reports for Department Boards
Reporting to the board is now in place in most departments about the
financial position. This was not something that was common even
three or four years ago. Our view of it is that most of the departments
now produce information, whether it is monthly or quarterly, about the
accounts position. That must have a direct consequence. UKO/C2
Most departments have started to do quarterly, and even monthly,
reports. Although I have supervised some that are struggling to get
quarterly or even half-yearly reports out. I don’t think some of the
people preparing it actually understand it. On the boards, while all
Directors of Finance are supposed to be qualified, apart from them, I
am not sure how many others would have a clear understanding of
Resource Accounting. UKO/C3
The RoI Story:
The Sceptic’s Road
• Initial Enthusiasm and Influences from
Elsewhere
• RoI Pragmatism vs UK Dogmatism
• The Outcome
Initial Enthusiasm and
Influences from Elsewhere
The first objective was to improve the quality and efficiency of financial
reporting. It was certainly felt that there were significant gaps in financial
reports in the civil service. RoIO/C1
The genesis for SMI was this MSc group of Assistant Secretaries that visited
New Zealand and Australia. They were influenced by what they saw there.
When they came back, one of the things on the agenda was accruals
accounting. They saw this as a better way of doing things. RoIO/C4
I do not feel the UK influence was strong at all. We brought some guys over
who had been involved in rolling out accruals accounting in the UK. I think we
totally frustrated them because we were just concerned with having good
management information systems and they couldn’t convince us that moving to
accruals for reporting and budgeting was inherently better. My own experience
is that the UK had very little influence. We looked at what others did and at the
end of the day we did our own thing. RoIA2
RoI Pragmatism vs UK
Dogmatism
The way we do things is to take things a piece at a time then stop and
say ‘is this what we want to do?’ There is very little of that in the UK.
RoIA5
My view is that we are not ideologically driven. I don’t think you would
meet an Irish politician who would say we’ve got to follow New Public
Management as a way of changing how the country is managed. …You
wouldn’t find people here ever describing a government’s policies as
‘Thatcherite’ or ‘Blairite’ as a way of defining their policies. RoIO/C2
We did a pilot it and it resulted in a report. But nobody seemed to be
convinced and it didn’t light any light bulbs for anyone. RoIA3
The Outcome
The big disadvantage of accruals accounting is that there would be a big
resource issue for departments, not only in terms of the staff needed but also
building up the skills to do it. People who are not of a financial reporting
background generally feel there is not any point in carrying out accruals
accounting. They don’t believe there is a need for it. RoIA1
From my own perspective the objective of going to accruals accounting has
just faded away. … At a senior level inter-departmental committee I can recall
a senior official in the Department of Finance saying that when it comes to
accruals accounting I would advise you to make haste slowly. RoIA5
There is a difference in the UK and Ireland and the way these things happen.
In the UK it is mandated and everyone does it. … We [RoI] find a lot of change
is bottom up or more consensual. You do find things that evolve into a middle
ground and I suspect that’s one way of looking at the accruals issue. … You
didn’t get a middle ground forming in which several parties are suddenly saying
we need to have this and we should be doing this. When you get that then it
becomes diffused and fades. RoIO/C4
Discussion and Analysis
• Different trajectories – unsurprising in
•
•
•
•
•
•
terms of NPM adoption (fits with
variability in intensity of NPM literature)
Cost-benefit issues discouraged RoI
RoI intially committed but little happened
– influence of ‘MSc’ group
Coercive isomorphism in UK – bottom-up
approach in RoI
Political, ideological and cultural rationale
Success in UK??
The better way?
The Road not Taken by Robert Frost
Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;
Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,
And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and II took the one less traveled by,
And that has made all the difference.
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Accrual Accounting Presentation 18 November 2010