ACCRUALS AND STANDARD BASED GOVERNMENT ACCOUNTING: DO WE NEED A NEW THEORETICAL BASIS?

In Government Accounting, arguably the biggest current disruptive innovation is the implementation of standard based accrual accounting. According to PwC (2013), major progress in the implementation of accrual accounting can... [ view full abstract ]

In Government Accounting, arguably the biggest current disruptive innovation is the implementation of standard based accrual accounting. According to PwC (2013), major progress in the implementation of accrual accounting can be observed, but the implementation of IPSAS is still lagging behind. OECD (2016) confirmed some progress, but largely confirmed the findings of PwC three years earlier. But what are the effects of the implementation of standard based accrual accounting by government entities? Unlike private sector corporations, governments are not issuing shares at financial markets and bonds, while being issued, are much less volatile. Therefore, the research approach taken in private sector accounting, going back to Ball & Brown (1968) or Fama etal (1969), to look at effects of accounting information on stock markets, is not feasible for governments. Furthermore, government financial statements have a wider user base, or stakeholder group, with the main users usually defined as legislative bodies and citizens (IPSASB, 2014). This also leads to a high relevancy of reports other than the traditional general purpose financial statements, such as general-purpose financial reports (e.g. service or performance reports), audit reports or the Government Finance Statistics (GFS). Although this in itself is still a controversial debate, there might also be a stronger focus on revenues and expenses, rather than assets and liabilities.

Nevertheless, the number of scholarly articles on the adoption of IPSAS/EPSAS, or more generally standard based accrual accounting, as well as the use(fulness) of public sector accounting information has increased tremendously over the last five years. Many studies however seem to struggle identifying an appropriate theoretical basis. Jacobs (2016) identifies four theoretical bases used by public sector accounting studies: Accountability theory, New Public Management Theory, Critical theory and New Institutional theory. All four theories, while well know and widely recognized, have some significant limitations when it comes to applying them to studies on IPSAS/EPSAS adoption and the use(fulness) of public sector accounting information. This leads to the question, what a more feasible theory on public sector accounting might look like. Much more likely is the development of a public sector accounting out of an existing theory, such as the accountability theory, but reflecting the in the meantime strengthened conceptual basis of public sector accounting. As Steccolini in her 2016 APIRA keynote speech puts it, such a public sector accounting theory needs to be problem oriented, interdisciplinary, engaging with publicness but exploring the positive side of accounting. A possible starting point is the IPSAS Conceptual Framework, since this ties into to the publicness as a key feature.