Debating the Impact of Accrual Accounting and Reporting in the Public Sector – Article Example
Debating the Impact of Accrual Accounting and Reporting In the Public Sector Tyronem Carlin’s article, “debating the impact of accrual accounting and reporting in the public sector” explores the knowledge gaps in the conceptualization of jurisdictional decisions to change reporting, financial management, and accounting processes in accrual accounting from cash. The journal also discusses the patterns of international adoption of accrual reporting and accounting in the public sector. The paper also conducts literature review on financial reporting and accrual accounting in the public sector. Carlin also provides lens through which accrual accounting and reporting in the public sector can be viewed in context of reforms in the public financial management. The propositions obtained from the study are indicated to empirically verifiable as illustrated through the case study of the public sector of the Australian State of Victoria.
Carlin postulates that despite to the contrary appearances of accrual based accounting and financial reporting as an entirely new phenomenon in the public sector, the truth is that it is not. He notes that cash have predominantly been used in the public sector’s accounting and financial reporting across the world. He notes that comprehensive accrual accounting and financial reporting in the public sector started to be embraced in the late 1980s, especially in New Zealand and Australia. He notes that among sovereign nations, New Zealand’s jurisdiction was the first to fully adopt accrual accounting in both its agency and national levels.
Carlin notes that modifications to the broader infrastructure accountability in terms of its redesigning to establish a new legal framework that guided the relationship between ministers and departmental heads was significant in making Ministers or departmental heads to be accountable in terms of their performance and that of the departments that they operate in. He notes that the modifications in the broader accountability infrastructure were provisioned in the New Zealand’s Public Finance Act of 1989. This Act had the provisions that the whole of government levels and agency levels had to be provided with audited accrual financial reports.
The article also explicates how Australia also later adopted the techniques of accrual accounting in its public sector. Other early adopters of accrual accounting techniques included the Commonwealth and the State of New South Wales. United Kingdom is also noted to have adopted accrual accounting techniques in 1993. United States and Canada however, adopted the accrual accounting techniques in 1960s.
In addition, Carlin analyses various debates by various authors on the adoption of the accrual accounting and financial accounting throughout the world. He notes that some literature relates the adoption of accrual accounting techniques to its evangelism feature; others claim that it was adopted due to its inevitability; others claim that accrual accounting and financial reporting techniques were more superior to the alternative systems. He therefore, pointed out that these texts failed to provide empirical feature of accrual accounting and financial reporting, rather the texts glorified the accrual accounting as “a good thing in public management” (Carlin 314).
He seeks to provide an alternative theoretical lens through which accrual accounting and financial reporting can be viewed in this article. He emphasizes that accrual accounting should be viewed from the perspective of “an overall composite reform architecture,” (Carlin 319). He notes that earlier literature insisted on the inappropriateness in the use of accrual technology in the public sector because of the disharmony in the objectives set by the public sector and the private sector. Carlin however, states that this barrier can be broken through the adoption of similar accrual technologies in all sectors of the economy. He notes that the utilization of same accrual accounting and financial reporting technology in both the private and public sectors is a significant rhetorical tool prone to confusion and suboptimal results.
As an opinion, Carlin advices that accrual accounting and financial reporting techniques cannot work in isolation, rather, they are part of the much needed reforms in the public financial management system that work best in the interconnected chain of reforms. Carlin classified the changes in the public sector financial management into three categories namely, the precursor reforms that consists of the accrual measurement and reporting, the hub reforms that consist of recording and reporting apparatus. He notes that the hub technique is embodied in the contemporary public financial management environment because it features a number of activities that the public sector agencies carry out in the production of measurable outputs in terms of their financial and physical dimensions.
Moreover, Carlin notes that the “hub” reforms in accrual accounting and financial reporting in the public sector have brought in new perspectives into products of public sector agencies. This is through provision of outputs that can be defined through cost functions that are known, and then transmit such data to the consequent layer of financial management reforms in public sector, the quasi markets and markets where the trading of the outputs are carried out. He notes that this harmonizes the differences that existed in the private and public sector by creating competitive neutrality, like is the case with the Australian government’s national competition policy.
Consequently, Carlin posits that it is absurd to draw an assumption that the accrual based accounting and financial reporting in public sector can be compared directly with the private sector organization’s financial dimensions. He refutes this notion through comparing a case study of Victorian public sector agencies financial reporting and Australian based corporations. Carlin indicates that more than an introspective and techno-centric level of analysis should be carried out in the adoption of the accrual accounting and financial reporting in public sector. This is because of the inherent consequential changes in the reporting content and format in the various financial management techniques in the public sector.
Carlin Tyrone M. “Debating the Impact of Accrual Accounting and Reporting in the Public Sector.” Financial Accountability & Management, 21(3), August 2005, 0267-4424.