G:FIS\Contract\Hickling_Eng.
Financial Information Strategy:
Study of the Implementation of
Full Accrual Accounting in
Government Organizations
Lessons Learned
Prepared for:
Treasury Board of Canada, Secretariat
Prepared by:
Hickling Corporation
March, 1997
HICKLING Ref: 6615
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Table of Contents
Page
Executive Summary
iv
1. Background
1.1 Introduction
1.2 Financial Information Strategy
1.3 Concept of Accrual Accounting
Cash Accounting
Accrual Accounting and Reporting
1
1
1
2
2
3
2. The Study
2.1 Objectives of Study
2.2 Approach
2.3 Characteristics of the Organizations Included in the Sample
Organizations Included in the Sample
Their Status Regarding Conversion to Accrual Accounting
Reasons for Adopting Accrual Accounting
4
4
4
4
4
5
5
3 Summary of the Lessons Learned
3.1 Introduction
3.2 Central Direction and Accounting Policies and Procedures
The Big Picture
Accounting Standards
Accounting Procedures and Controls
Assets
Commitment Control
Managers and Budgeting
Particular Needs of New Approach to Accounting
3.3 Management, Staffing and Training
Change Management
Management Support
Staffing
Training
3.4 The Planning, Design and Implementation of New Systems
Planning
Capturing Experience in the Field
Selecting the System
Changing the Organization and Methods
Implementating
i
6
6
6
6
8
8
8
9
10
10
10
10
11
11
13
14
14
15
15
17
17
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Page
3.5 Costs and Benefits
Costs
Benefits
18
18
19
4 Conclusions and Recommendations
Recommendations Relating to Organizations Undergoing
the Transition
Recommendations Regarding the Central Role of the
Treasury Board
21
22
22
Appendices
List of Organizations and Personnel Contacted
List of References
ii
24
26
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Acknowledgements
The team would like to express its appreciation to all those who provided input to this study.
Appendix A contains a list of those who responded to the Interview Guide and to other inquiries.
The team would also like to express its appreciation for the positive and helpful suggestions from
members of the Financial Information Strategy Project Office of the Treasury Board of Canada,
Secretariat.
iii
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Executive Summary
The Financial Information Strategy (FIS) of the Government of Canada was established to
enhance the government’s decision-making and accountability, and to improve organizational
performance through the strategic use of financial information. It is to be fully implemented by
the year 2001, in order to do the following:
 better support program review, business planning, budgeting, expenditure management and
decision-making processes; and
 facilitate accountability for program and financial results by enabling improved estimates and
performance reporting to Parliament.
As part of this initiative under FIS, the Canadian government intends to change its basis of
accounting from the current modified accrual basis to full accrual accounting, including the
capitalization of fixed assets.
The purpose of this Study was to obtain “lessons learned” and best practices from government
organizations that have already converted to double entry full accrual accounting systems. These
lessons apply to the preparation of policies and guidelines, human resource planning and the
implementation of new, accrual-based, financial systems.
This study has identified some key “lessons learned” that are applicable to departments preparing
to respond to the FIS initiatives. These can be grouped under the following categories:
 Policies;
 People; and
 Systems.
Policies
The Study included a review of the experience of the Government of New South Wales,
Australia as they recently completed a similar process of converting to full accrual accounting.
The major concern with regard to the implementation of accrual accounting in New South Wales
was that they launched into such a significant change without taking what is normally considered
the first step—an analysis of the various options for implementation, followed by a strategic plan
for introducing the selected option, with full costs. There was insufficient planning and
development work done initially in linking accrual accounting back to the budgeting process, in
exploring and defining the likely problems and in developing options and solutions.
iv
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
A key lesson learned by Canadian organizations that have converted to full accrual accounting is
that much preparation should be done before embarking on the conversion, including:
 collect information on capital assets, and properly identify them, as early as possible;
 ensure that those who are to use the system, especially the accounting staff, have a sound
knowledge of accrual accounting principles, either through recruitment or extensive training;
 make organizational changes that may be necessary to ensure, wherever possible, that the
purchasing, asset management and accounting functions are integrated under the new system;
and
 ensure that there is some degree of commonality where computer systems interface.
Merging the financial and administrative organizations is key to implementing an efficient and
effective system.
It is also important that the “big picture” be conveyed early in the implementation. This includes
the purpose of the financial reform process; how accrual accounting and budgeting fits into the
reform process; and how the adoption of accrual information will help managers in their
day-to-day operations and decision-making. Full accrual accounting will also have implications
for the way the central agencies monitor and review financial performance.
There is a need for central direction on what changes in government policies, procedures and
controls should accompany the conversion to full accrual accounting. It is particularly import to
develop accounting standards that reflect the unique nature of the public sector, the services it
provides and the characteristics of its assets.
People
The implementation of the Financial Information Strategy is as much a process of change
management as it is the implementation of new accounting and financial policies, procedures and
systems. It was found that the resistance to change throughout the organization can be
underestimated.
The implementation of accrual-based accounting needs to receive a high profile and the
continued support of senior management. The changes involve not just the implementation of
new systems but also a significant cultural change in the way managers understand and use
financial information and how financial transactions are handled.
It is very important to have the appropriate skills available to implement and operate an accrual
accounting system. This means that the financial and accounting staff, through either extensive
training or through recruitment, need to have a strong knowledge and familiarity with accrual
accounting.
v
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
A significant component of the process is training both for the accounting staff and for the
managers and other users. It is almost impossible to overestimate the amount of training required
during implementation. More emphasis should be placed on having accounting staff and
management understand accrual accounting. The concept of “train the trainer” proved to be very
effective.
Systems
Clearly identify the system requirements from the start. As far as possible, however, select an
off-the-shelf system, since system modifications can be costly and time consuming.
Although financial statements can be prepared on an accrual accounting basis without having the
accounting systems on an accrual accounting basis, the message was clear that the systems
should be in place before implementing full accrual accounting concepts.
Organizations surveyed generally found that they had underestimated the resources required for
planning and implementing full accrual policies and systems.
Costs and Benefits
Canadian organizations that have gone through the conversion generally found that system
software costs were kept on target and the system procurement was well controlled. In more than
one case, however, they underestimated the extent of internal staff support required.
In New South Wales, the full costs of the conversion were not known. The total cost had been
estimated at $50 million but the Public Accounts Committee estimated that it was closer to $100
million. The agencies’ records were not suitable for determining the total figure.
There were significant benefits, both in direct savings and indirectly through improved
procedures and improved management information. Accrual-based accounting information and
increased automation of the accounting system resulted in:
 more efficient use of staff;
 faster transactions and more opportunities to take advantage of early payment discounts;
 better controls; and
 better management information for improving the cost effectiveness of operations, including
the identification of any excessive overheads.
Recommendations
This study’s main recommendations are as follows.
vi
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
 Departments about to convert to accrual accounting should do the following:
 ensure that senior management is involved and committed throughout the process;
 provide departmental employees with a sound understanding of the forthcoming changes
and of the new way of understanding and using financial information;
 ensure there is sufficient knowledge and experience in accrual accounting in place before
embarking on the conversion to accrual accounting;
 identify system requirements, make sure the system selected will meet the key
requirements; and, as far as possible, select an off-the-shelf system;
 do as much preparation as possible before embarking on full implementation; and
 ensure there are sufficient resources for the transition and that the project manager and
the Steering Committee are empowered to make the necessary decisions;
 Treasury Board should continue to lead change management and in particular should do
the following:

Provide guidance on accounting policies prior to undertaking the transition process,
especially with regard to asset valuations;

assess the implications of presenting consolidated financial statements to Parliament on
a cash basis, on an accrual basis or providing both and determine what changes are
appropriate; and

encourage training for groups of departments on subjects such as accrual accounting in
government and, possibly, arrange a series of seminars to transfer knowledge from those
organizations that have converted to accrual accounting.
vii
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
1. Background
1.1 Introduction
There has been a general progression towards improved accountability over the provision of
government programs. A key component of this process is the presentation of the costs incurred
in the provision of government products and services so that they relate the costs to the outputs.
This is especially important where the government charges for those products and services.
In recent years a number of governments have recognized the value of accrual accounting for
collecting and presenting financial information. One of the first governments to convert to
accrual accounting was the Government of New South Wales, where 70 agencies did so between
1990 and 1994.
In Canada, the Crown corporations have been on an accrual accounting system for many years.
Many made the transition in the early 1980s. Those organizations that have established revolving
funds have also had to adopt accrual accounting.
1.2 Financial Information Strategy
The Financial Information Strategy (FIS) of the Government of Canada was established to
enhance the government’s decision-making and accountability, and to improve organizational
performance through the strategic use of financial information. It is to be fully implemented by
the year 2001, in order to do the following:
 better support program review, business planning, budgeting, expenditure management and
decision-making processes; and
 facilitate accountability for program and financial results by improving estimates and
performance reporting to Parliament.
The Financial Information Strategy will do this:
 by changing the basis of accounting from the current modified accrual basis to full accrual
accounting, including the capitalization of fixed assets;
 by implementing a new chart of accounts for government -wide reporting;
 by decentralizing accounting to departments, with the Receiver General continuing to
undertake the government’s treasury function and to produce the consolidated
government-wide financial statements;
 by allocating the responsibility for payment scheduling to departments;
1
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
 by modernizing the central accounting system by developing the Central Financial
Management Reporting System (CFMRS);
 by improving departmental systems to include integrated financial and materiel processes and
by taking advantage of new technology; and
 by fostering a learning environment in which managers steadily improve their ability to use
quality financial information for strategic purposes.
Thus, as part of FIS, the Canadian government intends to change its basis of accounting from the
current modified accrual basis to full accrual accounting, including the capitalization of fixed
assets.
As a result, departments must modify or acquire new financial systems, implement new policies,
and train personnel in using and operating the new systems.
1.3 Concept of Accrual Accounting
Cash Accounting
Traditionally, government departments have operated on an annual cash basis because
appropriations are voted by Parliament on proposed expenditures in the forthcoming fiscal year.
These expenditures include both operating and capital expenditures within that year.
Under cash accounting, however, cash receipts, payments and balances are recorded at the time
of the cash transactions, irrespective of when the related goods and services are produced or
received.
The government is using modified accrual accounting as it allows payables at year end (PAYE).
2
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Accrual Accounting and Reporting
Accrual accounting and reporting recognizes revenues and expenses in the accounting period in
which they have been earned or incurred, irrespective of when cash is received or paid.
All working capital elements (particularly loans, accounts receivable, inventories,
work-in-progress and accounts payable) are carefully adjusted at the end of each reporting period.
This matches the incurring of liabilities and the consumption of assets (such as inventory) to the
period in which they occur.
In accrual accounting, the cost of a physical asset is not added to the operating costs in the year it
is acquired. Instead, physical assets are depreciated over their useful lives and the annual amount
of depreciation is added to the operating costs as a cost for that year.
3
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
2. The Study
2.1 Objectives of Study
This study looked for lessons learned by, and the best practices of, government organizations that
have converted to double entry full accrual accounting systems. These lessons learned will apply
to the preparation of policies, guidelines and human resource planning.
2.2 Approach
In consultation with the FIS Project Office of the Treasury Board of Canada, Secretariat, the team
developed an Interview Guide.
The Interview Guide was sent to four organizations that are planning to implement accrual
accounting. The Guides were sent to get views on the usefulness of the questions in light of their
anticipated change process. Responses were obtained from two of these and interviews were
arranged with them. In one case, there were no additional suggestions, while the other
organization identified particular areas that were of greater interest.
We had identified many organizations as possible sources of lessons learned but many of these
proved to be unsuitable, either because their changes had occurred too long ago (as was the case
with many Crown corporations) or because we had been mistaken and they had not yet gone
through the full process of change.
We sent a fax to contacts within those organizations that were able to provide lessons learned.
This fax outlined the study and provided an Interview Guide. This guide was intended for
discussion purposes only. Some of the interviews were by phone and some were conducted face
to face.
2.3 Characteristics of the Organizations Included in the Sample
Organizations Included in the Sample
Eleven organizations were included in this study and responses from these organizations form the
basis of this report.
There is a mixture of organizational types.
 Two are state- or province-wide.
 Two are large departmental organizations.
4
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
 Two are small to medium-sized Crown corporations.
 Five are smaller organizations with revolving funds.
Their Status Regarding Conversion to Accrual Accounting
These organizations are at different stages of conversion to accrual accounting.
 Five have converted to full accrual accounting and have implemented, or are close to
implementing, new systems.
 One has changed its accounting systems but has not yet converted to full accrual accounting.
 Five have changed to accrual accounting, or have been on an accrual accounting structure for
some time, but have not yet fully implemented accounting systems to handle the needs of
accrual accounting.
Reason for Adopting Accrual Accounting
The main impetus for these organizations moving towards accrual accounting has been the need
for better financial information; in particular, information that matches costs to the period that
they are incurred. This is based upon the matching principle used throughout the private sector
and codified in the CICA Handbook.
5
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
3. Summary of the Lessons Learned
3.1 Introduction
The characteristics of the organizations in our sample varied considerably. The appropriateness
of the lessons learned for other organizations about to enter the process of converting to accrual
accounting will also vary considerably. The larger government departments, with diverse
business activities and many locations, can expect to meet greater challenges in implementing
their new systems.
Nevertheless, there are a set of common lessons learned that apply to all of the different
organizations.
3.2 Central Direction and Accounting Policies and Procedures
The Big Picture
In New South Wales, the major concern with regard to the implementation of accrual accounting
was that they launched into such a significant change without undertaking what is normally
considered the first step — an analysis of the various options for implementation, followed by a
strategic plan for introducing the selected option, with full costs. It was felt that there was
insufficient planning and development work done initially in linking accrual accounting back to
the budgeting process, in exploring and defining the likely problems and in developing options
and solutions.
The Public Accounts Committee in New South Wales1 found that essentially there are four
major issues which have arisen from the process, and which to date, have yet to be resolved:
 asset valuation;
 acceptance of responsibility for capital costs and capital charges;
 inadequate professional standards for particular public sector issues such as asset valuation;
and
 linkage of accrual accounting to the parliamentary budget and appropriation process.
In addition, the committee recommended that the Treasury explore the possibility of introducing
accrual-based budgeting and appropriations.
1
Pioneers - Progress but at What Price: Implementation of Accrual Accounting in the NSW Public Sector, June
1996.
6
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
A key lesson learned by Canadian organizations that have converted to full accrual accounting is
that much preparation should be done before embarking on the conversion. The organization
must select the accounting principles it will follow and then select the interpretation of those
principles that it will use (i.e. decide what asset acquisitions should be capitalized, what should
be depreciated and what method and rate should be used). As part of the preparation for
conversion, organizations should not only determine accounting principles, but should also
introduce organizational and procedural changes to simplify the subsequent process of
implementation. These initiatives include the following:
 collecting information on capital assets, and properly identifying them, as early as possible;
 ensuring that those who are to used the system, especially the accounting staff, have a sound
knowledge of accrual accounting principles, either through recruitment or extensive training;
 making any organizational changes that may be necessary to ensure, wherever possible, that
purchasing, asset management and accounting are integrated under the new system; and
 ensuring that there is some degree of commonality where computer systems interface.
Merging the financial and administrative organizations is key to implementing an efficient and
effective system.
It is important that the “big picture” be conveyed at an early stage of implementation. This
picture includes the following:
 the purpose of the financial reform process;
 how accrual accounting and budgeting fit into the reform process; and
 how the accrual information will help managers in their day-to-day operations and decision
making.
It is important that all financial reports (both internal and external) be in a similar format as early
as possible in the implementation process.
The way the central agency monitors financial performance should change in accordance with the
new accrual basis for presenting financial information. The duties suggested for Budget Officers
in New South Wales include the following:
 taking a more strategic view of their agencies’ financial situation, which includes
understanding the macro- and micro-economic, political and demographic influences on
the agency as well as its corporate plan (meaning its mission, objectives, strategies and
performance indicators);
7
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
 understanding the outputs and outcomes of the agency and analyzing the efficiency with
which the outputs are produced from the inputs provided; and
 analyzing the efficiency with which assets and working capital are managed as well as
compliance with the financial management best practices guidelines.
Accounting Standards
The main message here is that the accounting rules under accrual accounting should be in place
before starting the process. Many seemed quite comfortable with GAAP, although one manager
suggested that it is important to know if Treasury Board will have accounting standards that
differ from GAAP. Another organization was concerned that it might not be in compliance with
the Financial Information Strategy of the Treasury Board. Another concern was that Treasury
Board should have a policy on the valuation and depreciation of assets and feared that otherwise
inconsistent methods could render the consolidation of assets less meaningful.
There is a need for central direction on what changes in government policies, procedures and
controls will accompany the change to accrual accounting. Of particular importance is the
development of accounting standards that reflect the unique nature of the public sector, the
services it provides and the characteristics of its assets.
Accounting Procedures and Controls
In many cases Internal Audit was involved in overviewing the process of change. Another
approach, was to rely on finance staff to review the controls, with the assumption that, if the
product being purchasing was being used by a hundred to two hundred public companies
subject to external audits, the system would provide sufficient controls. It was concluded that
the system was well supplied with controls and that the controls were much stronger than before.
One large organization successfully made significant changes throughout the organization
including electronic authorization and decentralized data entry. Another organization looked at a
paperless system and decided that it was too much to attempt to implement. This organization
also found that decentralized data entry was causing input errors, because the users were not
sufficiently familiar with the procedures to do them correctly. The organization pulled back and
centralized some of the data entry.
Assets
Accounting for fixed assets under an accrual accounting system can be a challenge for most
departments. The valuation and assessment of assets acquired in the past requires the following:
 defining the method of valuation;
 cleaning up records;
8
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
 finding out how much was paid for them, or otherwise placing a value on them;
 determining their useful life; and
 locating them.
As noted above, there was concern that Treasury Board should have a policy on the valuation and
depreciation of assets to avoid inconsistent methods.
One must establish a reliable asset register before adopting accrual accounting. Respondents said
that those organizations converting to accrual accounting should immediately start collecting
information on assets. They should collect the cost and date of purchase of their assets, even if
this information is simply collected on a spread sheet.
One approach used to keep track of multiple expenditures for a single asset was to set up a
capital project. This project was a coding structure that tracks different costs against a project
that involves more than one contract.
More than one organization asked about how assets should be carried on the books, how they
should be charged against the services provided, and how they should be valued. The Treasury
Board of Canada, Secretariat has developed a draft policy to address these concerns.
Setting a value for certain government assets was also raised by the Public Accounts Committee
in New South Wales2 and it recommended that these issues be resolved.
Commitment Control
In some cases, such as revolving funds, organizations have maintained commitment control, even
though it was not required. Under full accrual accounting, there is proper matching of expenses
and revenues to the period in which they were incurred and so commitment control should not be
required.
As one manager remarked, commitment control is a by-product of cash controls. Concepts, such
as whether there are sufficient funds to discharge an obligation, have to be revisited. Under
accrual accounting, expenses include both cash and non-cash items and so managers need to
develop the ability to manage and control both.
There is obviously a need for central direction on this issue; perhaps abandoning commitment
accounting may be appropriate for some organizations but not for others.
Managers and Budgeting
2
Pioneers - Progress but at What Price: Implementation of Accrual Accounting in the NSW Public Sector, June
1996.
9
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Managers will have to learn new ways to manage their budgets because they will have to deal
with cash and non-cash expenses. Managers will need to understand how to read accrual-based
financial statements and learn how to incorporate the improved financial information into their
decisions.
Particular Needs of New Approach to Accounting
As part of the new approach to accounting, organizations identified a need to allocate as many
costs as possible, including overhead, down to the operations that generate the products and
services. This is an overriding principle. In some cases, time allocation systems were already in
place. In one organization, where they have allocated everything but labour, they were
implementing in April, 1997 a time allocation system and labour costing. This is indicative of
the need for detailed accounting information to realize the full benefits of Activity Based
Costing. Full accrual accounting is part of the equation to ensure the accuracy of matching costs
to activities.
Thus, although Activity Based Accounting has not generally been implemented, the accounting
system changes have included allocating costs and overheads to different parts of the
organization. Some commented on how expensive Activity Based Accounting is to implement.
One respondent said that it is a costly exercise to perform on a regular basis and suggested that it
may be more useful when considering downsizing, inefficient overheads and rate-setting.
3.3 Management, Staffing and Training
Change Management
The implementation of the Financial Information Strategy is as much a process of change
management as it is the implementation of new policies, procedures and systems. It was found
that the resistance to change throughout the organization can be underestimated.
For example, some managers were reluctant to adopt an electronic system of approvals. In one
organization, the finance area stopped sending out monthly reports on paper, on the assumption
that managers were using their desk top computers. They found, however, that the managers were
not using their computers to get reports from the system and were resorting to “black books.”
Changes not only involve implementing new systems but also a significant cultural change in the
way managers understand and use financial information and in how financial transactions are
handled. Management of the conversion should include a strong component of change
management.
Management Support
The implementation of accrual-based accounting needs to receive a high profile and to have the
continued support of senior management. This was not always the case.
10
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Support also needs to come from managers responsible for implementing and operating the
system, from managers who have to interface with the financial system, and from all functional
managers involved in managing their budgets.
Even where each branch of an organization was represented on a steering committee, problems in
communications were encountered. In one case it was stated that there was considerable
confusion because managers were not involved in training and implementation.
Not only do managers need to be involved, but those in the field also have to be involved in the
process or else the changes can be seen as something imposed from the center and therefore
resisted in the field.
Everyone should be involved and committed. Even where the implementation had strong support
from the senior managers, some organizations had problems in getting regional managers to
participate fully. Part of this problem in communications with the regional managers stemmed
from the high workload of these managers, who could not spend enough time on the project.
This, along with insufficient co-operation, were the two main problems in implementing the
change. The insufficient direction and commitment, in some cases, resulted in wasted time and
money.
In conclusion, there should be strong leadership from senior management and finance. There
should also be a steering committee with input and commitment from managers of those areas
where there will be significant impact and change.
Staffing
On the staffing side, the keys to successful implementation of accrual accounting identified by
respondents are as follows:
 have the best people for the job, and ensure that they have enough time to implement the
project;
 appoint a manager with clear authority and accountability for the project;
 have personnel experienced in accrual accounting involved in planning, developing and
implementing the changes and in training staff; and
 do not underestimate the resources required.
It is important that the best people be assigned to the task of implementing the changes and that
these people not have conflicting responsibilities that can take them away from their duties on the
project. As one manager commented, having the system put in place properly is more important
than ongoing accounting responsibilities. Problems encountered now will be small compared to
future problems if the system is not working well.
11
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Also, the manager assigned to the project must have the power to make decisions. Respondents
noted that different decisions on modifications might have been made if the project manager had
had more authority to make decisions.
It is very important to have the appropriate accounting skills available to implement and operate
an accrual accounting system. One respondent commented that finance and administrative staff
who have been in the government for some time have less knowledge of accrual accounting than
was expected. This potential shortage of experienced staff should be taken into account when
planning and implementing the conversion and in determining training needs.
If internal staff cannot be found with accrual accounting knowledge and experience, one may
have to recruit from the private sector, supplement internal resources with consulting support, or
do both.
In New South Wales, there was an initial shortage of accrual accounting skills in some agencies.
The problem was overcome by the short-term use of consultants selected from a register of
approximately 80 accredited consultants. This register was distributed to all agencies.
It was noted that many of those involved in Canada in implementing the new approach had had
private sector experience. Generally, there had been extensive turnover in staff and the current
personnel, who were most successful in adopting the change, had private sector experience.
A key “lesson learned” was not to underestimate the resources required to plan and implement
full accrual accounting. Most respondents felt that the extent of resources required to manage
and staff the implementation effort and to train staff was underestimated. It is more efficient to
have the resources necessary from the start than it is to pay extensive overtime to the team.
Insufficient staff can also lead to burn-out. In addition, resources to support implementation are
still needed during the first year of operations.
Training
Staff training is a major effort that is almost impossible to over-estimate. A strong emphasis
should be placed on the understanding of accrual accounting both for accounting staff and for
management.
Many of the organizations took the “train the trainer” approach and found it very effective for the
following reasons:
 it was less costly than using consultants;
 their own people understood the process;.
12
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
 the staff were more receptive to being trained by colleagues;
 it was easier to find bilingual staff to train in both official languages; and
 the departmental trainers become expert resources for the department and are useful long
after the department has converted to accrual accounting.
Training is best when using actual data because it is more meaningful to personnel being trained.
In one case, an organization had people from Finance, Informatics and Procurement at the same
training sessions so that they could discuss what each did and how they interfaced. Similarly, it
was found that an integrated training approach was superior. One of the system suppliers treated
each module as a separate area for training, whereas the government organization wanted training
for an integrated understanding of the system.
In some cases, private training sessions had to be given because some people were learning at a
slower pace than others.
The timing of training is important. If it is too early, staff forget what they learned and need
refresher courses. Train staff no more than 30 days before the start-up.
The organization has to anticipate staff turnover during implementation, since this increases the
burden on training and could delay project implementation.
3.4 The Planning, Design and Implementation of New Systems
One can provide financial statements on an accrual accounting basis can be provided without
having an accrual accounting system in place. For example, financial statements have been
produced by the Province of Alberta in an accrual format for many years even though they have
not had all systems on an accrual accounting basis. Currently, however, they are converting all
departments to full accrual accounting systems.
Some organizations with revolving funds converted to accrual accounting financial statements
before they had in place a system capable of providing accrual accounts. However, the
experience of financial managers in these organizations clearly suggests that the systems be in
place before changing the accounting concepts.
There were two key elements to implementing a cost-effective accrual accounting system.
1) Buy off the shelf and avoid costly tailor-made changes.
2) Integrate procurement with the financial system.
Planning
13
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Implementation of changes to the accounting systems, or accounting principles, have been
introduced in relatively short time-frames; many of them ranging from six to eight months.
When short time frames have been used, many staff have complained about having insufficient
time to plan and implement the changes, although others have commented that one can over plan
implementation.
There is always a balance between taking too long to make the changes, thus losing momentum,
and being too rushed. At one point, the project manager in one of the organizations suggested
that they should delay implementation, but all his team members argued for continuing on time.
He agreed that it was probably better to meet the deadline because if the team had missed this
target, they could still be pressured to meet a later target.
The most appropriate time to make the change-over is at year-end. One organization delayed the
introduction by a few months and then needed time taken to catch up with data entry, which
resulted in delays in paying bills.
A lesson learned is that you have to have all your preparation done before implementing the
changes. Also, it is important to use the experience and knowledge of the staff to plan the
implementation.
The following describes how one organization went about planning the implementation of an
off-the-shelf system.
During the first two months, the main activity was to train the staff. Next they defined the
business processes. After that, two months were spent configuring the system from a conceptual
perspective with the supplier. The key questions were:
 where are the purchasing controls?
 who can do what?
 what dollar limits should be placed on the authorization controls?
 what are the business rules and procedures?
In some cases these were forced by the system, while in other cases there was flexibility to
choose.
The next three months were devoted to the implementation: training core staff; implementing
payables and purchasing; and getting management up to speed on how to produce and use
reports, handle requisitions, and so forth.
14
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
The introduction of accounting changes is proceeding at a time when there are many other
changes going on in the federal government environment, as noted below.
 “It is difficult to introduce changes to the financial system when there are so many other
changes occurring and staff are insecure.”
 “They have created the new organization in a very difficult environment.”
 “Should we have been going ahead during the downsizing?”
Capturing Experience in the Field
There was a concern that personnel in the field were not consulted enough. Principles underlying
new policies should be first discussed with operations and financial staff to make sure they make
sense. Lack of discussions can cause a lot of confusion and impact on morale. In another
situation, they had a Revolving Fund Guide but decisions on what to do at the site level were
made very much on an ad hoc basis.
Selecting the System
There should be a clear definition of everything that has to be addressed by the system, although
not necessarily specifying how. One organization found that they had overlooked the fact that
the system they selected did not have an asset management component.
Most respondents favoured the acquisition of an off-the-shelf system, but this principle was not
always followed to the same extent. In one case, the system was completely off-the-shelf. In
another case, modifications and customizations were made to the basic system, even though their
first preference was not to modify the standard product.
This study found two fundamentally different approaches..
1) Accept that the system would be able to meet the organization’s needs and then concentrate
on other key considerations in selecting the system.
2) Define precisely what the system has to do and then seek a contractor that can best meet those
requirements at the least cost.
Case 1: In the first case, the basic approach was to assume that the systems could provide
standard accounting functions because they were used by a large number of companies. Thus
instead of checking against a large number of requirements to meet, and because all the products
are fairly similar in what they could do, they focused on:
 Ease of use;
 Costs; and
15
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
 How quickly the system could be implemented.
These organizations did not want to specify what the product had to do, or the way it had to do it,
because the program would have had to be modified at a significant cost. Thus the approach to
planning and implementing the new accounting system was focus on the functions and how to
adapt to the system, rather than on specifying details.
Case 2: In the second case, considerable effort was focused on defining detailed system
requirements which were then translated into a detailed set of criteria used in evaluating
alternative proposals.
The lesson learned in this case was that they were not specific enough in the questions they
asked. Also, they should not have included “and/or” because they did not always get what they
wanted. Some of the compliance was provided through manual adjustments rather than
contained within the capabilities of the system.
These organizations should have spent more effort assessing systems capability, but then they
would have had to fund the development of demos, which would have been too costly and would
have taken too long.
They felt that rather than awarding one large fixed-price contract, they should have contracted for
smaller chunks and proceeded in stages. This way they could have more easily developed and
implemented a new system and could have decided on the most appropriate way of proceeding at
each stage.
The size and complexity of the organization probably influenced how it chose between the two
philosophies. In the second case, the organization that chose to modify the system to meet their
requirements was larger and much more diversified than the first. Both organizations, however,
recognized the advantage of going with an off-the-shelf system and the second organization tried
to limit customization as far as possible.
There should be a word of warning when it comes to implementing an off-the-shelf system. The
system should have had extensive use in Canada because a system that has been designed for use
in the US may not necessarily fully meet Canadian requirements, particularly with regard to
accounting for payroll, inventories and assets.
Changing the Organization and Methods
To get the full benefit of introducing a modern accounting system, integrate purchasing,
accounting and, as far as possible, asset management. This will have significant organizational
impact on some of the larger organizations and sweeping organizational changes should be
considered when implementing the new system. It could be preferable to implement these
changes before the accounting systems are designed (or selected) and implemented.
Mainly, the re-engineering of business processes was done concurrently with the planning and
implementation of the new systems.
16
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
One organization encountered problems when the existing systems and hardware were so
incompatible that the organization could not acquire interfacing networks. Thus, there should be
some degree of commonality across the organization before implementing the system.
Implementing
The greatest challenge in converting to accrual accounting is the handling of capital assets.
Respondents advised departments to start collecting reliable information on assets as soon as
possible. As mentioned above, the information on date of acquisition and the cost should be set
up as soon as possible, on a spreadsheet if necessary.
Communication during planning and implementation is very important. A respondent
commented that their communications plan was not as good as it should have been.
One approach suggested was to begin implementation in the location or region that was
anticipated to have the most problems because the full resources of the team would be available
to deal with the problems as they arose.
The use of a pilot location to test the new system was considered important by both those
organizations who undertook a pilot and those who did not.
In all cases, organizations implemented overnight. They did not maintain a parallel system
because it would have been difficult to reconcile the differences between the two accounting
systems.
One organization developed useful implementation controls, including:
 A “Murphy Matrix”: a set of actions to be taken for a set of predefined situations, specifying
when they would stop the implementation and when they would keep going.

 checklists of what had to be done and of protocols to be followed, although at times the
organization had trouble getting contract personnel to comply.
Where one is changing systems configurations, one should first have in place an ISO quality
assurance document control and systems control capability, or another quality assurance control
capability. This must then be followed. One organization modified system configurations, but
found instances where the wrong version was implemented. This occurred even though the
Request For Proposal had specified that a quality assurance system be in place.
3.5 Costs and Benefits
Costs
17
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Canadians organizations that have converted have generally found that the system software costs
were on target and that the system procurement was well controlled. But in more than one case
they underestimated the internal staff support required.
The following is an example:
At first they did not anticipate the need for team members to be 100 per cent involved. They
only identified the need for full-time involvement in August, for an April 1 implementation date,
so they had to hire from outside at an additional cost of $300,000. Furthermore, they had
underestimated the cost of on-going support during the first year of implementation.
This is typical of the problems encountered. The need for internal resources during planning
and implementation was underestimated and insufficient resources were identified for support
during the first year of operations. It is also evident that, in the current environment, systems will
change every five years or so; the resources for this, both human and financial, have to be
identified.
In New South Wales, the full costs of the conversion were not known. The total cost had been
identified at $52 million but the Public Accounts Committee estimated that it was closer to $100
million. The agencies’ records were not suitable for determining the total figure.
Benefits
There were significant benefits, both in direct savings and indirectly through improved
procedures and improved management information. Accrual-based accounting information and
increased automation of the accounting system resulted in:
 better management information for improving the cost-effectiveness of operations, including
the identification of excessive overheads;
 better cost controls;
 faster transactions and more opportunities to take advantage of early payment discounts;
 reduction in the number of systems; and
 reduced staffing.
In New South Wales there were substantial benefits: better information on assets, liabilities,
revenues and expenditures; the revealing of costs that had previously been hidden; and sounder
decisions on resource allocation and use.
Better Information and Improved Cost Control: The systems have produced all kinds of
useful information. Identifying costs, particularly overheads, has helped management focus on
some of these costs. As a result, managers have reduced costs and made better decisions on
18
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
resource allocations. Some managers were surprised by the level of overhead costs resulting from
full costing and are now challenging these overheads.
More timely and accurate financial reports have been produced as a result of the new systems;
fewer audit concerns were raised by the attest auditors at year end.
For example:
A yearly forecast is produced, broken down by service and by month. Controls are through the
setting of spending limits, set as a percent of revenues. This is the approach that has been taken
by the Alberta government, which is just beginning to see benefits from this approach.
Comparison with the Private Sector: One important advantage is that accrual accounting
enables managers to compare their performance with the private sector. This is particularly
important when there are similar operations in both sectors. The government sector can then use
the comparisons to support their management decisions.
Reduction in the Number of Systems: In one organization, the previous in-house systems, of
which there were more than 40, are now going to be replaced with one. This will reduce the cost
of in-house Informatics services although at this stage the external costs of servicing the new
system are not known. Another organization replaced all but one of its 40 to 50 purchasing
forms.
Reduction in the Number of Staff: In one case, the organization was downsizing the staff in
Finance. It achieved reduction targets by implementing the new system.
Another organization cut finance staff costs by 30 per cent by automating accounts receivable,
accounts payable and report preparation. In another case, annual savings realized over a
three-year period through reduction in staff were equivalent to the cost of implementing the new
system.
One organization has eliminated delays caused by moving paper from floor to floor by adopting
the electronic transfer of information. The time saved has allowed them to take advantage of
early payment discounts. Annual savings from early payments of their billings amounted to 10
per cent of the total system implementation cost.
19
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
4. Conclusions and Recommendations
Considerable dedication and effort has accompanied the substantial changes that are being
planned and implemented in government accounting and financial management.
The conversion to accrual accounting is an opportunity to convert to modern accounting systems.
These changes can include electronic systems of control, with automated matching of documents
and electronic authorization. Modern accounting methods can also provide faster and more
efficient processing of data and provision of financial reports.
The transition from cash to accrual accounting was considered beneficial and successful but was
accomplished generally with more difficulty and effort than had been anticipated.
Do not underestimate the knowledge and resources these changes require.
This is what successful transition requires:
 strong central management support for the transition process;
 a transition team comprised of strong managers with the necessary decision-making powers
and appropriate project management and accrual accounting skills;
 clear definition of accrual policies and well defined system requirements and the selection of
a system that can meet those requirements;
 more resources, time and effort than might at first be expected; and
 substantial training of accounting, finance and operations staff and management before,
during and after implementation of the changes.
These key benefits can take time to materialize:
 reduced accounting and finance costs (sometimes as much as 30 per cent less);
 increased efficiencies resulting from the re-engineering of processes, such as procurement;
and
 more effective and cost-conscious management decisions.
These changes involve a cultural change and require the support and commitment of managers
across the government. The need for continued support and direction from the Treasury Board of
Canada, Secretariat should be emphasized.
20
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Recommendations Relating to Organizations Undergoing the Transition:
 Departments about to convert to accrual accounting should do the following:
 ensure senior management is involved and committed throughout the process;
 provide departmental employees with a sound understanding of the forthcoming changes
and of the new way of understanding and using financial information;
 identify system requirements, make sure the system selected will meet the key
requirements and, as far as possible, select an off-the-shelf system;
 Ensure there are sufficient resources provided for the transition and that the project
manager and the Steering Committee are empowered to make the necessary decisions;
 make sure people on the transition team have enough time to devote to the transition
process;
 Allow an appropriate amount of time to properly plan and implement the transition
process;
 Anticipate what could go wrong (contingencies) and plan what to do in advance;
 carefully identify training needs at all levels well in advance and do not underestimate the
time and amount of training required on accrual accounting principles and on detailed
procedures before, during and after implementation;
 use internal staff as much as possible for training and consider shared training
opportunities; and
 require ISO-quality assurance or similar documentation controls for any system
implementations that change systems configurations.
Recommendations Regarding the Central Role of the Treasury Board
 Treasury Board should continue to provide a leadership role in change management and
in particular should do the following:
 provide guidance on accounting policies prior to undertaking the transition process,
especially with regard to asset valuations;

assess the implications of presenting consolidated financial statements to Parliament on
a cash basis, on an accrual basis or providing both and determine what changes are
appropriate; and
21
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
22
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
APPENDIX A
LIST OF ORGANIZATIONS AND PERSONNEL CONTACTED
The following organizations were covered in the study. In the case of the revolving funds in
Parks Canada, some of the personnel with whom we spoke were not with the organization but
provided information regarding the accounting changes implemented in those organizations.
Canadian Museum of Civilization
David Loye
Consulting and Audit Canada
Rick Sudac
Environment Canada
Henry Murphy
Fisheries & Oceans
Pat Eagen
Geomatics Canada
Rejan L’Anglais
Government of Alberta
Peter Cheung
Government of New South Wales: State Treasury
John Chan-Sew, Dianne McHugh
National Capital Commission
Daniel Gosselin
Parks Canada - Communities Revolving Fund
Stéphane Marmai, Jean Lovin
Parks Canada - Enterprise Units Revolving Fund: Hot Springs
Garth Klassen
Parks Canada - Enterprise Units Revolving Fund: Cape Breton Golf Course
Jim Reynolds, Gordie Callan, Pauline Middleton, Glen Malay
Parks Canada - Ottawa
Bill Boland, Joe Laroque
23
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
Transport Canada
Deloranda Walton, Kevin Collins
24
HICKLING
Financial Information Strategy: Study of Implementation of Full Accrual Accounting
APPENDIX B
List of References
Government of New South Wales
Financial Reporting by Government Departments (Australian Accounting Standard - AAS 29,
October 1996).
Pioneers — Progress but at What Price: Implementation of Accrual Accounting in the NSW
Public Sector, Public Accounts Committee, June 1996. This document includes the following
papers:
 Policy Guidelines for Valuation of Physical Non-Current Assets in NSW Public Sector, New
South Wales Treasury Technical Paper, September 1990.
 Guidelines for the Valuation of Land and Heritage Assets in the NSW Public Sector, NSW
Treasury, May 1995.
Submission to the Public Accounts Committee on its Inquiry into Accrual Accounting, NSW
Treasury, December 1994.
Commonwealth of Australia
Accrual Accounting — A Cultural Change, The Parliament of the Commonwealth of Australia
Joint Committee of the Public Accounts Report 338, August 1995
Organization for Economic Cooperation and Development (OECD)
Accounting for What? The Value of Accrual Accounting to the Public Sector, June 1993
25
HICKLING