Accounting Reforms: Determinants of Local Governments' Choices

Abstract

The introduction of accrual accounting in Italian Local Governments has been mandated in a way that permits, and in fact encourages, a merely formal compliance. Local Governments must produce accrual‐based financial statements, but double‐entry bookkeeping is not mandatory, nor may traditional budgetary accounting be abandoned. Why, then, should they bother to introduce an integrated system of budgetary and accrual accounting? In this paper, we empirically investigate the determinants of Local Government's choices of accounting innovation. According to our results, ‘rational’ elements such as complexity, types of activities performed, presence of surpluses, and access to capital markets are seemingly unhelpful in explaining why a Local Government decides to introduce accrual accounting. What counts are ‘institutional’ and cultural explanations, such as the perceptions of CFOs and the North‐South divide.

A Taxonomy of the Perceived Benefits of Accrual Accounting and Budgeting: Evidence From German States

“…It is possible that the horizontal financial equalization scheme among the Länder in Germany produces such a result by generally reassuring creditors and thereby indirectly removing some of the importance placed on creditor information. This effect, which is rooted in assuming governments to be a going concern because of their taxing authority, has similarly been documented in extant literature (e.g., Jones and Puglisi, 1997; and Anessi‐Pessina et al, 2008). Another possible explanation for this could be the fact that in much of the literature accrual accounting is seen as ‘sector neutral’ (Carlin, 2005).…”

“…228‐29). Further, central government users have been excluded in this study, as the reporting to the central government by Hamburg and Hesse has not yet been set up using AOBB principles (similarly to the Italian and Australian context, see Anessi‐Pessina et al, 2008 and Kober et al, 2010, respectively). Not surveying these three user groups limits the conclusions that can be drawn from our study since these may have articulated further benefits or that the three unconfirmed benefits are important to them.…”

“…Their analysis has resulted in lively debate surrounding the benefits stemming from the reform, with a number of recent studies controversially identifying drawbacks in it. Anessi‐Pessina et al (2008, p. 323), for example, observe that a substantial number of scholars see the reform in a negative light and state that ‘an increasing body of literature has criticised the adoption of accrual[s] accounting by public organizations on both theoretical grounds […] and practical considerations’.…”

Accounting basis adjustments and deficit reliability: Evidence from southern European countries

“…budget preparation and reporting of budgetary performance still remains came to happen: Portugal is under external financial support since 2011 and Spain and Italy are struggling with serious economic conditions (high levels of public debt and deficits) that have led to austerity policies as those implemented in Portugal under the agreement with the creditors. cash or modified cash-based (Anessi-Pessina & Steccolini, 2007;Anessi-Pessina, Nasi, & Steccolini, 2008;Bastida & Benito, 2007;Benito & Bastida, 2009;Lüder & Jones, 2003;Sterck, 2007;Sterck, Conings, & Bouckaert, 2006). Only very few countries, like Australia, New Zealand and United Kingdom, have introduced full accrual basis in both subsystems (Martí, 2006;Montesinos & Brusca, 2009;Sterck et al, 2006), making them to be considered the leaders for the convergence between the two reporting systems, GA and NA (Broadbent & Guthrie, 2008).…”

The Diversity of Accrual Policies in Local Government Financial Reporting: An Examination of Infrastructure, Art and Heritage Assets in Germany, Italy and the Uk

“…However, in financial reporting in particular, it required local governments to publish an accrual‐based financial statement consisting of an operating statement and a balance sheet. This did not require the introduction of double‐entry bookkeeping, which is not mandatory (though each local government can choose to implement it): a local government can derive its operating statement and balance sheet from its modified cash accounting statements through a complex system of year‐end adjustments (Mussari, 2005; and Anessi‐Pessina et al, 2007).…”