The institutionalisation of accrual accounting : exploratory evidence from the Malaysian public sector

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Abstract

Motivated by unresolved debates on the appropriateness of accrual accounting in the public sector context and limited empirical support justifying its suitability within developing countries, this research seeks to fill such important knowledge gap. It expands the ongoing interest in the development of public sector accounting by focusing on an in-depth exploration of contextual interactions between institutions and processes of accounting change in one of the developing countries, Malaysia. As Malaysia is currently undertaking a radical accounting reform at the federal level, the research explored how it becomes institutionally embedded within political and administrative structures. By applying Critical Realism and Institutional Theory as theoretical lenses, this research employed qualitative strategies for primary and secondary data collected at lead agencies and three selected ministries. These include a thorough review of government documents, interviews with key actors and observations of their responses towards reform activities. The analyses revealed how the ultimate institutionalisation of accrual accounting approach, was constrained by the key actors’ limited capacity for action along with unaccommodating power dependencies. Moreover, the tension that arose between multiple expectations and the inherent attributes and culture of the public organisations that were strongly embedded in social welfare logics heavily influenced their interests and commitments in applying the efficiency logics prescription which underpin accrual accounting. The data also revealed the difficulties in complying with the International Public Sector Accounting Standards requirements, especially by organisations with distinctive assets where the relevant government policies still appear ambiguous. Consequently, there is heterogeneity in organisational responses and the quality of accounting information produced proved to be below expectations. The new financial information indicating the government’s financial position has imposed some political risks that have caused political support for the project to fluctuate. Therefore, rather than functioning as a management tool, accrual accounting has become a political tool. If these issues remain unresolved, the research implies that the Malaysian government will not be able to realise the value promised by accrual accounting, of which, may result in significant consequences in its effort to become a developed nation.

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