WHY ARE GOVERNMENTS STILL USING CASH-BASED BUDGETING AFTER MOVING TO ACCRUAL-BASED REPORTING?

This paper discusses the phenomenon that governments in many Western countries have transferred their cash-based systems into accrual-based systems for reporting purposes during the last decades, while still retaining... [ view full abstract ]

This paper discusses the phenomenon that governments in many Western countries have transferred their cash-based systems into accrual-based systems for reporting purposes during the last decades, while still retaining cash-based budgeting systems. The main aim of the paper is to draw an empirical picture of selected European countries with regard to the budgeting mode, to assess important divergences between cash and accrual budgets, to reflect on important arguments in favour and against cash budgeting and finally to explore substantial reasons why governments prefer cash above accruals for budgeting. Our paper is the result of a comprehensive literature review. At first glance, using accruals for both budgeting and reporting seems to be preferable above combining cash for budgeting and accruals for reporting: there is consistency between the budgeting and reporting logic, and accrual information is richer than cash information. However, we are in favour of a more nuanced perspective. . The budgeting logic is coherent with long standing traditions of expenditure planning and control, and in addition, it requires relatively low accounting expertise from its main users, i.e., politicians and public sector managers. We argue that the ultimate transfer from cash to accruals in budgeting needs to be based on a solid assessment of its added value to the various users of a budget and not due to pressures of accounting experts.