Creative Accrual Accounting in the Public Sector: ‘Milking’ Water Utilities to Balance Municipal Budgets and Accounts

Abstract

Traditionally, the financial balance of public sector economic entities has been determined by balanced budgets and cash‐based or modified cash‐based budgetary accounting. Since the 1990s the superiority of accrual accounting in the public sector context has been emphasized by both practitioners and academics. This paper demonstrates that accrual accounting also offers opportunities for the use of creative accounting, or earnings management, in the public sector, at least as long as accounting is performed in accordance with diverse national norms instead of internationally acceptable accounting standards.

Näkökulmia tilintarkastukseen ja arviointiin

“…Ks. kuitenkin myös Vinnari & Näsi 2008;Näsi & Leppänen 2015). Tuloksen manipulointia ja tuloksen järjestelyä on tarkasteltu meillä useissa laskentatoimen ja rahoituksen pro gradu -tutkielmissa mutta myös julkaistuissa artikkeleissa (ks.…”

Financial Reporting Dilemmas for the Maltese Local Government

“…However, they argued that the application of accrual-based accounting in the public sector does not guarantee intergenerational equity, transparency or accountability. Unless a proper institutional framework and independent regulation is in place, accrual accounting presents opportunities for "creative accounting" that was not possible under the traditional cameralistic accounting (Vinnari & Näsi, 2008). "Dubious accounting practices cannot be blamed on a specific accounting model but rather on how it is used" (Vinnari & Näsi, 2008, p. 112).…”

“…Such assets are fixed, part of a system or network, specialized in nature and without alternative uses, and subject to constraints on disposal. Alternative market approaches to valuation are only theoretical options because a market for such assets is practically non-existent, making it very difficult to establish a reliable valuation based on an arm's length transaction (Vinnari & Näsi, 2008).…”

“…According to Vinnari and Näsi (2008), uniform standards based on generally accepted accounting principles are needed to regulate accrual accounting in the public sector. However, they argued that the application of accrual-based accounting in the public sector does not guarantee intergenerational equity, transparency or accountability.…”

Municipal accountability : should regulations similar to the Sarbanes-Oxley Act apply to the local sector?

“…The importation of business-like accounting practices and reporting into the gove ent sectors, herein referred to as a Convergence Model (CM), has received substantial coverage in the literature (Christiaens & Rommel, 2008). The CM plays a central role in the New Public Management (NPM) and has led to what some view as a new era of fmancial management under the rubric of the New Public Financial Management (NPFM) (Vinnari and Nasi, 2008).…”