Application of Accrual Accounting to Government

Citra Dewi

, Prima Aprilyani Rambe

, Iskandar Muda

and Syafruddin Ginting

Student Postgraduate, Faculty Economic and Business, University of North Sumatra, Medan Indonesia

Lecture Faculty Economic and Business, University of North Sumatra, Medan Indonesia

Keywords: Accrual Accounting, Accrual Basis, Public Financial Management, Local Government

Abstract: Accounting has a broader potential for the government, so the failure of accounting practices of a country or

region is blamed as a cause of corruption and worsening financial, socio-economic and political conditions.

Another phenomenon, financial statements as outputs of accounting practices have not been used by

stakeholders. The research answers the question of the criteria that financial statements can be used by

stakeholders, can accounting reduce corruption and what basis is ideal for use in government budgeting and

accounting? The research also illustrates the phenomenon of accrual basis implementation in the last ten years

in several countries. Researchers used the library analysis method for the last ten years, namely 2008 to 2018.

Conclusions and results of the research found that the application of a combination of cash basis and accrual

basis managed to meet the criteria so that it could be used by stakeholders, accrual accounting improved

administration, especially those related to fixed asset management. receivables and liabilities. Accounting has

not been able to detect corruption even through an accounting approach, accounting can be a tool for

corruption. In addition to the accounting system, the culture and integrity of accounting actors in budgeting

are also factors that influence corruption behaviour. For governance, researchers should recommend a

combination of cash and accrual basis in budgeting and accounting.

1 INTRODUCTION

The research describes the criteria for financial

statements so that they can be utilized by stakeholders

and the phenomena of implementing accrual basis in

the last ten years in several countries. The general

purpose of preparing financial statements is to be able

to present financial information that is useful for users

in making and evaluating decisions regarding the

allocation of resources. General purpose financial

statements also have predictive and prospective roles,

providing information that is useful for predicting the

number of resources needed for sustainable

operations, resources resulting from ongoing

operations, and associated risks and uncertainties.

Specifically, the purpose of government financial

reporting is to present information that is useful for

decision making and to show the accountability of

reporting entities for the resources entrusted to it

(Indonesia, 2010).

Public sector accounting reforms and budgeting

for decades have tried to adopt accrual accounting

into the government accounting system in order to

overcome the information constraints of the cash-

based budgeting and reporting system. The aim is to

promote greater fiscal responsibility and

sustainability in public spending and managing public

resources. However, despite 30 years of discussion,

questions about the usefulness and usefulness of

accounting information and financial reports by all

levels of public management (public officials) and

political structures/politicians remain unanswered.

Do people who prepare financial information in the

public sector understand and respond to the needs and

demands of users of information? Can users of

information better recognize the nature and quality of

accounting information provided to them? How can

we reduce the gap between the production of financial

/ accounting information and the use of financial /

accounting information? (Ferry & Eckersley, 2018).

2 LITERATURE REVIEW

The characteristics of the information itself can be the

main cause of information overload, so the use of

938

Dewi, C., Rambe, P., Muda, I. and Ginting, S.

Application of Accrual Accounting to Government.

DOI: 10.5220/0009494309380942

In Proceedings of the 1st Unimed International Conference on Economics Education and Social Science (UNICEES 2018), pages 938-942

ISBN: 978-989-758-432-9

financial statements for decision making. politicians

refer to financial data for their decision making, but

not for data presented in financial statements. Apart

from the professional background of politicians, the

data in financial statements are considered

incomplete and obsolete. (Christensen, et al., 2018).

Qualitative characteristics that determine the benefits

of information in financial statements. Financial

statements are mainly used to determine the value of

economic resources that are used to carry out

government operational activities, assess financial

conditions, evaluate the effectiveness and efficiency

of a reporting entity, and help determine compliance

with laws and regulations. Government financial

reporting should present information that is useful for

users in assessing accountability and making

decisions both economic, social, and political

decisions. The qualitative characteristics of financial

statements are normative measures that need to be

realized in accounting information so that they can

fulfill their objectives. The following four

characteristics are normative prerequisites that are

needed so that government financial reports can meet

the desired quality: (a) Relevant; (b) Reliable; (c) Can

be compared; and (d) Understandable. The financial

statements resulting from the application of Accrual-

Based SAP are intended to provide better benefits to

stakeholders, both users, and government financial

report examiners, compared to the costs incurred.

This is in line with one of the accounting principles,

namely that the costs incurred are proportional to the

benefits obtained (Indonesia, 2010).

Often there is a mismatch between the

information needed accounting and performance

measurement for internal and external needs assessed

on the basis of on-site administrative systems and

accounting and performance information regardless

of identified incompatibility, our results provide

evidence that accounting reforms against accruals

have been adopted without informing the related

system with administration, accountability, everyday

decisions and judgments from the supervisory

authority. Unless this situation changes, limited use

of accruals should not be surprising (Cohen et al.,

2018). The financial statements resulting from the

application of Accrual-Based SAP are intended to

provide better benefits to stakeholders, both users,

and government financial report examiners,

compared to costs incurred. This is in line with one of

the accounting principles, namely that the costs

incurred are proportional to the benefits obtained

(Indonesia, 2010).

Although accrual accounting systems in

government and public sector entities are introduced

in Europe, cash or cash toward (Reichard and van

Helden, 2016) play an important role in political

decisions at both local and national levels (Cohen et

al., 2018). Therefore, although accrual accounting

provides a tool that can offer a large amount of useful

information for decision making and control, not all

local governments exploit it because decision making

is sometimes based on other forms of information (eg

cash information). Despite the introduction of accrual

accounting systems in government and public sector

entities, for example, cash information). As a result,

local administrators may not be interested in accrual

accounting information because their performance

assessments are carried out on the basis of

quantitative or qualitative measures. From this

perspective, the lack of demand for accrual

accounting data can be explained by the regulatory

requirements of a country. As a result, local

administrators may not be interested in accrual

accounting information because their performance

assessments are carried out on the basis of other

quantitative or qualitative measures. (van Helden et

al., 2016).

Bad conditions in a government are often seen

as a result of weak accounting practices. Public

corruption, which is experienced by many developing

countries, has been arguably exacerbated by weak

government accounting practices (Ríos et al., 2018) .

Critics of government accounting from failure to

address user needs. For example, unable to detect

fraudulent activities, and in hiding corruption

scandals (Neu et al., 2013). Effective public sector

governance encourages better availability of

information for long-term decision making and the

efficient use of resources. This strengthens

accountability for managing these resources. Good

governance is characterized by strong supervision,

which places important pressure on improving public

sector performance and tackling corruption. (Ace,

2014) . Accounting plays a role in preserving

corruption, this is done through an accounting

approach that is aligned with intentional abuse by the

government, market and social/intellectual us by

hegemonic interests that change visible and invisible

forces while denouncing 'corruption' by individuals

and demanding 'transparency (Lehman and Thorne,

2015).

If the stakeholder aims to find out the full cost

of the output to be purchased or to make another

decision, then accrual accounting information is

needed and useful. No doubt, this type of

management accounting information presents

government management but differs from financial

accounting information disclosed in financial

Application of Accrual Accounting to Government

939

statements. However, government organizations that

do not have business activities, do not have to adopt

accrual accounting. An analysis from Belgium and

the Flemish accrual accounting experience show

different problems with regard to adoption and

implementation. Although local governments have

been faced with a number of reforms since the late

1980s, these reforms have proven to be very

inconsistent. Previous research has noted the

technical nature of accrual accounting for financial

management in public sector organizations in

Belgium (Christiaens and Rommel, 2008). decision

and accountability, research at Switzerland

(Laughlin, 2012). Accounting can be said to have

broader governance potential (Ahrens, Ferry and

Khalifa, 2018). The low compliance with the accrual

accounting system and budgeting system is a result of

the lack of accrual accounting culture in the Italian

public sector (Gigli and Mariani, 2018).

Oraphan Nakmahachalasint and Kanogporn

Narktabtee evaluated the results of the

implementation of accrual accounting in the central

government of Thailand. A new conceptual

framework is used to research the obstacles to their

transitions and effects. Transparency and financial

accountability have been shown to have improved.

Significant barriers to transition to accrual accounting

include lack of incentives, management culture, lack

of accounting manuals, and failure to understand

accrual information (Nakmahachalasint and

Narktabtee, 2018).

The limited use of accounting information and

accrual performance in practice has been linked to

several factors, such as: the gap between

requirements and implementation in Spain (Brusca,

Montesinos and Chow, 2013); the complexity of

accrual accounting information so that it is

complicated and difficult to understand by accounting

actors in the UK (Hyndman, 2016) ; or the complexity

of the organization itself (Bracci et al., 2015); in Italy

there is still resistance from government accountants

to change their routines. lack of a blueprint for the

adoption of accrual accounting and the experimental

nature of its ementation, providing new information

about the controversy of accrual accounting in the

extant literature (Bruno and Lapsley, 2018).

The budget as a statement of public policy,

fiscal targets and control tools. Budget functions in

the government environment in Indonesia have an

important influence in financial accounting and

reporting, among others because (a) The budget is a

statement of public policy, (b) The budget is a fiscal

target that describes the balance between expenditure,

income, and desired financing, (c) Budget becomes

the basis of control that has legal consequences, (d)

Budget provides a basis for evaluating government

performance, (e) The results of budget

implementation are stated in government financial

statements as statements of government

accountability to the public (Indonesia, 2010).

The effect of the level of budget transparency in

the Spanish city foresees deviations in current tax and

expenditure revenues. On the one hand, cities are less

transparent in overestimating their income, which

allows them to provide more general services without

a direct increase in taxes. On the other hand, local

governments, which are aware of their excessive

income, may spend less than the budget. Meanwhile,

cities that are more transparent, seem wiser in

estimating their income, because they underestimate

their income, meaning they can spend more than

projected. The Behavior of politicians is influenced

by the phase of the election cycle in which they find

themselves, with politicians overestimating

expenditure in the year before the election (Ríos et al.,

2018).

Research in Germany in 2018 by Eulner and

Waldbauer concluded that accrual accounting

facilitates information making because it presents all

relevant information, rather than being limited to

information that is 100% reliable, this paves the way

for more effective and efficient public administration

and provides transparency to whom even those who

are familiar with accrual-based balance sheets. A

single database eliminates the need for citizens to

refer to several (accounting and statistics) reporting

frameworks consisting of hundreds of pages. Accrual

accounting is at the heart of democracy, as citizens as

taxpayers and voters have access to the same

information (aggregate) as politicians. With modern

accounting, the government no longer gives the

impression that they have something to hide, and they

are transparent about the intergenerational impacts of

their decisions and policies. Modern financial

reporting will continue to international comparisons

(Eulner and Waldbauer, 2018).

3 RESEARCH METHOD

This research is a qualitative method and uses

descriptive techniques by analyzing research on the

implementation of accrual accounting in various

countries from 2008 to 2018 and Indonesian

government regulations on government accounting

standards. This method is not to test the hypothesis

but produces a hypothesis that will be tested later.

UNICEES 2018 - Unimed International Conference on Economics Education and Social Science

940

4 RESULT AND DISCUSSION

There is still much debate about whether or not the

application of accrual-based accounting is necessary,

the debate revolves around the costs and benefits of

applying accrual accounting. Given that investment is

not small and the benefits have not been felt in several

countries. Politicians as part of stakeholders have not

used financial statements as a basis for decision

making. Financial statements are not used by

stakeholders because the information presented is not

relevant to information needs for decision making,

meaning that financial statements do not provide the

information they need. The information presented is

only limited to the mutation of the number of

accounts presented on the face of the financial

statements, because adequate indicators have not

been understood by the financial report compilers

themselves. To be able to present accrual-based

financial statements, it must be prepared not only

human resources, roadmap or blueprint

implementation, investment budgeting information

and provide human resources and applications,

accounting policies and systems and administrative

procedures, but from planning, basic budgeting

transparency is demanded, the demand for

transparency changes the working patterns of the

parties involved. Accrual financial statements are still

considered complicated, therefore there is still

resistance to these changes among local government

accountants. The financial statements are prepared

and presented only to fulfill the obligation to present

financial statements. The preparation is only aimed at

obtaining a good opinion. The low compliance with

accrual accounting systems and budgeting systems in

Italy also occurs in other countries and regions,

besides because culture is also due to the human

integrity involved in the system.

Government financial statements should be able

to predict and project the number of resources needed

for sustainable operations, resources resulting from

ongoing operations, and associated risks and

uncertainties. Predictive and projective

characteristics are commonly encountered in

management reports, not financial statements,

therefore it is more appropriate if the report becomes

a supporting report or an attachment of financial

statements but becomes an inseparable part of the

financial statements themselves. Accrual basis

requires local government to organize its

administration, especially balance sheet accounts

such as assets and liabilities. The government

regulates accrual accounting practices in Indonesia as

outlined in Government Regulations and derivative

rules. Accounting has not been able to detect

corruption even through an accounting approach,

accounting can be a tool for corruption. Accrual-

based budgeting is based on data or potential income

in budgeting income so that it is more transparent and

does not occur in the practice of incremental

budgeting which is lately implemented in the regional

government. From incremental budgeting

implementation, the government often determines

expenditure and income without sufficient

calculation and basis, changes in the budget are based

solely on inflation/deflation and population, so that

there is often over-income only to offset spending.

Efficient budgeting is a public demand, and the

budgeting efficiency theory applies in Japan and is a

challenge for future researchers whether this

efficiency of budgeting theory is also effective in

central and regional governments in other countries?

For the advantages and disadvantages of the

accounting system and cash budgeting and accrual

basis, the combination of the two is still more

important than choosing one of them.

5 CONCLUSION

The conclusion is that the application of accrual basis

is successful if the financial statements meet the

criteria so that they can be utilized by stakeholders.

Accrual accounting practices in the Government

guide parties related to government financial

management to behave accruals to support financial

accounting. The application of basic accruals

improves administration because to obtain

information needed when preparing accrual-based

financial statements, especially regarding the

management of fixed assets, accounts receivable and

liabilities must be corrected. Accounting has not been

able to detect corruption even through an accounting

approach, accounting can be a tool for corruption. In

addition to the accounting system, the culture and

integrity of accounting and budgeting actors are also

factors that influence corruption behavior. The

combination of cash systems and accrual basis for

both budgeting and accounting is better.

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