Debating the impact of accrual accounting and reporting in the public sector

Given the breadth and depth of extant literature on the subject, scepticism on the part of the reader as to the capacity of yet another paper on the subject to make a meaningful contribution to the literature would be entirely natural. However, gaps do exist in our understanding of the implications of the decision, on the part of many jurisdictions, to transform accounting, reporting and financial management processes from cash to an accrual footing. In particular, little attention has been paid to the impact wrought by the implementation within the public sector of accrual accounting and financial reporting in the context of other related public financial management reforms, for example capital charging, the adoption of a purchaser – provider model of government and the implementation of accrual output based budgeting (Carlin and Guthrie 2001a; Carlin 2003a; Heald and Dowdall 1999; and Robinson 1998b). The remainder of the paper proceeds as follows. The next section reviews international patterns of adoption of accrual accounting and reporting in the public sector. This part of the paper provides broad background context to the subject matter of the paper. The third section demonstrates the motivation for the paper by critically analysing the existing literature on accrual accounting and financialreporting in the public sector and demonstrating that, as asserted above, despite the significant bulk of the literature on this subject, material knowledge gaps do exist. Following on from this, the fourth section of the paper describes an alternative theoretical lens through which public sector accrual accounting and financial reporting may be viewed, with particular emphasis placed on the need to contemplate the impact of public sector applications of accrual accounting and reporting in the context of other related public financial management reforms. This discussion gives rise to propositions capable of being tested against empirical data, and in consequence the fifth section contains a case study focusing on the impact of accrual accounting and reporting as implemented in the public sector of the Australian state of Victoria. The paper’s conclusions are set out in the final section.