Accounting, Auditing & Accountability JournalThe actual implementation of accruals accounting: Caveats from a case within the UKpublic sectorCiaran Connolly Noel Hyndman

Article information:To cite this document:Ciaran Connolly Noel Hyndman, (2006),"The actual implementation of accruals accounting", Accounting,Auditing & Accountability Journal, Vol. 19 Iss 2 pp. 272 - 290Permanent link to this document:http://dx.doi.org/10.1108/09513570610656123

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The actual implementation ofaccruals accounting

Caveats from a case within theUK public sector

Ciaran ConnollyUniversity of Ulster at Jordanstown, Newtownabbey,

Northern Ireland, UK, and

Noel HyndmanQueen’s University, Belfast, Northern Ireland, UK

Abstract

Purpose – To ascertain the principal benefits and drawbacks that have been experienced inimplementing accruals-based resource accounting in the UK public sector.

Design/methodology/approach – In a unique study, which presents case research of the NorthernIreland experience within the wider UK context, semi-structured interviews were held with key actorsinvolved in the implementation, maintenance or oversight of resource accounting in Northern Ireland.This paper looks at the operation of a newly introduced system through the eyes of those who are in aposition to understand and evaluate the impacts (accountants).

Findings – It finds that the actual implementation of accruals accounting is very different, in effect,in cost and in terms of timing, to that presented in pre-implementation government publications. Theresult is a complex, expensive system that has provided few benefits to date. What is found is a storyof overoptimistic claims and obfuscation of costs. The very best that could be suggested from thisresearch is that a lengthy continuum of accounting change is underway.

Research limitations/implications – This research is a case study within the wider UK publicsector and therefore any generalizing of the conclusions beyond the Northern Ireland context should beundertaken with care. However, although Northern Ireland departments are relatively small comparedwith Westminster departments, there are significant similarities between the modes of operation of alldepartments within the UK (whether in Westminster, Scotland or Wales). Furthermore, both theimplementation of resource accounting and the challenges that it presents are common to all publicsector bodies in the UK.

Originality/value – Gives some thought-provoking arguments into the benefits and drawbacks ofimplementing accruals-based resource accounting in the UK public sector which will provide interestto those in the field.

Keywords Accounting, Public sector accounting, Northern Ireland, United Kingdom

Paper type Research paper

Accruals accounting and the UKAccruals accounting is a method of recording expenses as they are incurred andincome as it is earned during an accounting period (in contrast to cash accounting

The current issue and full text archive of this journal is available at

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The authors gratefully acknowledge the Certified Accountants Educational Trust for thefinancial and research support of this project, and thank participants at the annual conference ofthe Irish Accounting and Finance Association in Belfast (May 2004) and the two anonymousreferees for comments on earlier versions of this paper.

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Accounting, Auditing &Accountability JournalVol. 19 No. 2, 2006pp. 272-290q Emerald Group Publishing Limited0951-3574DOI 10.1108/09513570610656123

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which records cash payments and receipts when they are made or received). A majoraspect of accruals accounting is that there is much greater emphasis placed on the useand recording of capital assets. Although accruals accounting was introduced for UKlocal authority accounts as early as the mid-nineteenth century (Coombs and Edwards,1996), and, with the major reforms of the early 1990s, accounting on an accruals basiswas adopted to facilitate the internal market in the National Health Service, it was onlyin 1993 that it was proposed that it be adopted, under the title resource accounting(RA), for central government (by the then Chancellor of the Exchequer, KennethClarke). This was quickly followed by a Green (discussion) Paper (HM Treasury, 1994)and a UK Treasury White (policy) Paper (HM Treasury, 1995a).

RA is a term of art covering a set of accruals accounting techniques for reporting onthe expenditure of UK central government and a framework for analyzing expenditureby departmental objectives, related to outputs wherever possible. In the mid-1990s, theannouncement of its introduction, as part of a wider resource accounting andbudgeting (RAB) agenda, was proclaimed as an epoch in the UK public sectoraccounting framework. As Kenneth Clarke stated, when launching the White Paper(HM Treasury, 1995b, p. 1), “people will find other ways of celebrating the millenniumbut few will be more important. This is one of those highly significant events”. Theimpact of the change was similarly emphasized by Wright (1995, p. 580), “not since the1960s has a change of such magnitude been introduced unprovoked by either afinancial or economic crisis”.

RA is predicated on the presumption that the production and use of this newinformation would lead to decisions being made that would support effective andefficient operations, as well as providing a better basis for the discharging ofaccountability. The White Paper (HM Treasury, 1995a), as well as containing the broadstrategy for managing the transition from cash-based Appropriation Accounts (AAs)to accruals-based Resource Accounts, presented a timetable of providing “live”Resource Accounts by 2001/2002, with the parallel running of AAs and ResourceAccounts in advance of this. Such a timetable was to be used in all parts of the UK(England, Northern Ireland (NI), Scotland and Wales), and remained largely unchangeddespite the establishment of devolved governments/assemblies in NI, Scotland andWales in 1999.

Despite many advantages claimed for RA in advance of its introduction (mainly byHM Government), there is a paucity of up-to-date information with regard to it in use.Indeed, despite the vigour with which the potential benefits of RA have beenarticulated by HM Government sources, a number of commentators have remainedunconvinced. Many of the supportive claims relating to the use of accruals accountingin the public sector, and indeed many of its perceived drawbacks, are based onnormative arguments (Potter, 1999). It is therefore difficult to assess with any degree ofcertainty whether the aspired-for benefits of RA have accrued or will accrue, and whatthe extent of any drawbacks and associated costs have been or will be. The researchincluded in this paper, which constitutes a case study within the wider UK publicsector and is the first investigation of its type in the UK, seeks to redress this situationby providing field research. Using a series of semi-structured interviews with keyactors (accountants involved with implementing RA in departments, or accountantsinvolved with overseeing the implementation of RA in departments) in NI, its mainobjective is to ascertain the principal benefits and drawbacks that have beenexperienced in implementing RA. The main research questions explored are: how wasRA implemented; how is the new information used; what are the benefits of RA; whatare the drawbacks and costs associated with its use; and did devolution in NI impact on

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its introduction? It is a study of actual implementation, something viewed by Carlin(2004) as particularly useful.

NI has a population of 1.7 million, with the NI Civil Service (NICS) having some32,000 civil servants, approximately equalling a medium-sized department inWhitehall. As Carmichael and Knox (2003) remark, the public administration systemin NI has undergone major upheavals in recent times, as a result of the introduction of anew devolved Assembly in December 1999, in line with the provisions of the Belfast (orGood Friday) Agreement in 1998 (NI Office, 1998). This has resulted in major changesin the departmental configuration of the NI Government (as it has done in bothScotland and Wales). Prior to devolution in 1999, there were six departments; withdevolution, these six departments were replaced by 11. RA affected all NI governmentdepartments (NI Assembly, 2002) and went “live” in NI at the same time as the rest ofthe UK, although because of the protracted devolution process in NI (see Ezzamel et al.,2005a, b), the periods of actual parallel running were shorter than in the rest of the UK.

The paper is structured in the following manner. A brief outline of the perceivedrationality of RA and its linkages to New Public Management (NPM) is presented. Thisis followed by a review of both the case for RA, mainly encapsulated in HMGovernment-related publications, and the criticisms of the use of accruals-basedaccounting technologies in the public sector. These are presented as a basis for theempirical work that is subsequently reported and discussed.

NPM, rational accounting and accruals accountingOver the last 25 years or so, numerous changes have occurred in the public sector in theUK. Collectively, these adjustments have been referred to as NPM and are viewed asways of improving planning, controlling, transparency and accountability in the publicsector. NPM reforms, which were particularly prevalent during the 1980s and 1990s,have had major impacts in many western governments (Guthrie et al., 1999; Hood,1991; Pollitt and Bouckaert, 2000). Within the UK, this focus on new managementpractices is seen in a range of changes in health, education, central government andlocal government. For example, the language of NPM provides a major thrust in thewhole Next Steps Initiative programme (HM Treasury, 1992; HM Government, 2000),and its rhetoric is peppered throughout the Modernising Government (HMGovernment, 1999) White Paper. NPM reforms typically have evolved around sixdimensions: privatization, marketization, decentralization, output orientation, qualitysystems, and intensity of implementation. Minogue (2000) argues that the NPMapproach to public sector financial management is based upon the view that: largestate bureaucracies are inherently defective and wasteful; the free market is the mostefficient method of allocating scarce resources; private sector management techniquesare a suitable model for the public sector; and if the preferred approach of privatizationis not considered to be appropriate then commercialization or pseudo-markets shouldbe introduced as the second best alternative.

In tandem with NPM reforms, a number of governments have moved from cash toaccruals accounting principles. Indeed, it is argued that without such movement someof the NPM changes would be weakened (Chan, 2003; Likierman, 2003). In HMGovernment publications, and in much of the traditional literature, accounting istypically conceptualized as a tool intended to furnish rational decision makers withappropriate information. Accounting is treated as a neutral technology, and hence inthe hands of rational decision makers it is deployed to generate and draw attention toinformation that guides decision makers in making informed decisions. Such atraditional view of accounting is premised on a more general view of the organization,

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as one with well-defined, clearly-ordered goals and objectives that are relentlesslypursued by senior managers or decision makers. It is assumed that the preferences ofdecision makers map (or can be made to map) perfectly onto organizationalpreferences, and that these preferences provide the basis upon which accountingsystems are designed and developed. Such has been the main thrust of the HMGovernment arguments in proposing the implementation of RA, and more widelyRAB, in central government since the early 1990s.

The introduction of RA in the UK is part of an international trend in which centralgovernment accounting has moved from its traditional cash-based accounting toaccruals accounting. The shift towards a comprehensive accruals oriented publicsector accounting and financial reporting structure began to take place in the late1980s, most notably in Australia and New Zealand. For a full description of thechanges see Funnel and Cooper (1998), Ball et al. (1999), Christensen (2002) and Pallot(2002). By 2002, it was estimated that half of Organisation for Economic Co-operationand Development (OECD) member countries were using some form of accrualsaccounting in their financial reporting (Matheson, 2002), although, on a worldwidebasis, cash rather than accruals accounting was still the mainstay of public sectoraccounting and financial reporting (OECD, 2002). Cash accounting has as its dominantfinancial statement a budget out-turn report that shows cash spent against budgetedspend. However, critics of cash accounting argue that this does not: give a accuratepicture of all the costs; show use made of capital assets; and provide a complete recordof what is owed and what is due. As a result, the information is incomplete and oftenundermines the ability of decision makers to make decisions that result in effective andefficient outcomes. The arguments for using accruals accounting, in place of cashaccounting, often resonate with ideas relating to such issues as better information fordecision making and more accurate costs

A central aspect of RA is the production of Departmental Resource Accounts andthese form the principal financial reports, providing a series of interrelated statementsreporting on the resources, financing requirements, financial position and aims andobjectives of departments. The core of RA involves applying “best” commercialaccounting and reporting practices to central government, although two of the fiveprimary schedules of Departmental Resource Accounts (Schedule 1 Summary ofResource Outturn and Schedule 5 Statement of Resources by Departmental Aims andObjectives) are unique to the public sector. Many of the benefits that are purported toarise from the introduction of RA, and more widely RAB, are driven by the belief that itwill produce new and, arguably, better information, which should enhance controlwithin government, and accountability by government. Key benefits articulated byHM Government include improved resource allocation, improved capital investmentdecisions and improved accountability and control (HM Treasury, 1994, 1995a).

It is suggested that the introduction of accruals accounting, the heart of RA, helps toimprove the “quality and consistency of the information provided to decision makers”in the public sector (US Government Accounting Office, 2000, p. 207). In particular, byproviding more relevant information to inform resource allocation, it is argued that RAallows a more strategic approach to public expenditure, enabling departments to costthe resources that they use and match them with the outputs they deliver (Likierman,1997a). Consequently, using Departmental Resource Accounts to underpin resourceallocation decisions at the aggregate level enables allocations among competingpriorities to be made in conjunction with full cost information (Evans, 1995; HMTreasury, 2001a). Such views suggest accurate, true, rational information being used tosupport rational, objective-focused decision making.

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In a cash-based system, it is claimed that there is an inbuilt bias against rationalcapital investment (HM Treasury, 2001b) and it is asserted that the informationprovided through RA enables better-informed decisions on the balance betweencurrent and capital expenditure, taking into account the opportunity cost of capital andits consumption over time (Bevins, 1994; HM Treasury, 1994; Mellet, 1996). In addition,it is suggested that the requirement for each department to identify, in its ResourceAccounts, its assets and liabilities, has provided a framework for departments, forexample, to take responsibility for properly managing their fixed assets, whichincludes full asset recording and maintaining up-to-date records (Likierman, 2003). Themore effective use of assets was an important part of both the 1998 ComprehensiveSpending Review and the 2000 Spending Review, and it is contended that theemergence of resource-based information now plays an important part in decisionmaking, especially as departments have to prepare Departmental InvestmentStrategies (HM Treasury, 2001b).

It has also been asserted that the provision of better and more focussedinformation as a consequence of RA has resulted in enhanced accountability toParliament and better control by operational managers (HM Treasury, 2001a). Oneaspect of this is that it has facilitated comparisons of the costs of departmentalactivities both with previous time periods and with external providers (Likierman,1997b; Carlin, 2002). Similarly, it is suggested that the increased volume andquality of information resulting from RA concerning what is spent and how it isspent, together with the greater transparency of the accounts, which iscomplemented by the work of the Financial Reporting Advisory Board, hasassisted Parliamentary scrutiny (HM Treasury, 2001b).

Despite the articulated benefits of RA, many potential problems have beenhighlighted (for a more comprehensive coverage of these than is possible in this paper,see Carlin, 2004). Some doubt the quality of the new information provided by RA andthe incentives associated with its use, and the view is expressed that the introduction ofboth RA and RAB is the possible source of new difficulties. Sceptics particularly pointto RA’s cost and complexity, the validity of information provided by RA and barriersto effective accountability and control.

It is argued that cash-based accounting has the virtues of simplicity and objectivity,and has served many countries well over at least the last 200 years (Dorgan, 1996).Indeed, even Likierman (1992, p. 23), the individual who was later responsible forguiding the introduction of RAB in the UK central government, once opined that cashaccounts “despite their crudeness, have a degree of transparency that accrual accountscannot give and that many private sector financial reports do not seek to offer”.Moreover, it has been claimed that standard setting affecting the public sector, whichprovides a basis for RA, may be heavily influenced by political processes, therebyundermining its objectivity (Hodges and Mellett, 2002).

In addition, it is suggested that the changes that RA requires may be difficult tojustify in cost-benefit terms, particularly for small departments (NAO, 2003a). It is ofnote that no cost benefit study was conducted prior to the publication of the WhitePaper (HM Treasury, 1995a) (Hansard, 1996) that heralded the introduction of RA, andthere has been no compliance cost assessment since its introduction despite thesignificant costs involved (Chow and Humphrey, 2003). And even when costs areignored, it is argued that many of the claimed benefits on which the case for RA isbased may not materialize (Mellett, 1997, 2002).

Heald and Georgiou (1995) question RA’s espousal of basically private sectoraccounting principles by suggesting that it results in the neglect of genuine differences

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between the public and private sectors. In a similar vein, Guthrie (1998), in reviewingthe Australian experience of accruals accounting in government, advises that moreresearch in this area should be conducted before such codes are applied generally in thepublic sector. Recent private sector financial reporting failures, which call into questionthe reliability of private sector accounting practices (for example, Polly Peck, Enron,WorldCom), are presented as evidence to support prudence in terms of transportingsuch practices into the public sector. Furthermore, critics question the seeming naivetythat allows governments to believe that the public sector will not face the ambiguitiesand choices in accruals accounting that made these failures possible (Guthrie, 1998;Mellett, 2002).

It has been claimed that the potential for misunderstanding and manipulation of RAinformation has made Parliamentary committees apprehensive that understandingwill be reduced and Parliamentary oversight weakened. Parliamentary staff and NAOofficials are concerned that the increased complexity of the accruals-based system mayhave negative implications for Parliamentary accountability and control (Jones, 1996);concerns which are intensified due to the heavy reliance on professional judgementthat is associated with accruals-based measurement (US Government AccountingOffice, 2000). Both Jones (1996) and Pollitt (2002) express further concerns that RA isbased upon the assumption that private sector methods are superior, and assert thatgovernment departments are not business organizations and the requirements relatingto accountability and control are different. For example, Guthrie (1998, p. 5) arguesthat, unlike the private sector, the public sector is “not interested in notions ofprofitability or financial position”.

MethodologyArguments in favour of RA articulated by the UK Government, often in advance of theimplementation of RA, claimed that it would improve decision making within thepublic sector, supporting managers in making more effective and efficient decisions,and that it would lead to greater accountability. However, many of these assertionswere based on views of how things ought to be rather than how things actually were.The overall objective of the paper is to ascertain the principal benefits and drawbacksthat have been experienced in implementing RA in NI. Semi-structured interviews wereheld with key actors involved in the implementation, maintenance or oversight of RAsystems in NI. The questions included in the interview guide emanated from the mainthemes identified in both the academic (often more critical) and the “official”government (often descriptive and optimistic) literatures relating to RA (reviewed inthe previous section) and were broad in scope (a copy of the interview guide used isavailable from the authors on request). The reason for collecting qualitative data byinformal semi-structured interview is based on the interactionist’s premise that whenthe aim of the research is to understand a complex process where those involved havedifferent perspectives on the matter in question, it makes sense to adopt a researchstrategy which allows these perspectives to be understood in the same terms in whichthe participants understand them (Blumer, 1969).

Staff from ten NI Government departments, that is all departments with theexception of the Office of the First Minister and Deputy First Minister (OFMDFM)(which, although it operates as a department, is mainly concerned with administrativefunctions), a senior member of the NI Audit Office (NIAO), and a consultant who hashad substantial involvement in a number of departments were interviewed. In total, 15interviews were conducted, although on a number of occasions more than one person

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from the same organization participated in the interview and therefore the views andresponses of a total of 20 interviewees are reported in this paper.

The interviewees, all of whom were accountants (the vast majority of whom wereprofessionally qualified), were chosen because of their seniority, assumed detailedtechnical knowledge and awareness of the broader issues surrounding theimplementation of RA in NI. Furthermore, all of the participants had extensivepublic-sector experience and significant experience in their present roles. Given theirknowledge of the changes taking place, and their position relating to the changes, thisgroup was well situated to comment on the implementation and operation of RA. Assuggested previously, accounting techniques have an aura of logic, objectivity andaccuracy, a leitmotif throughout a wide range of HM Government publicationssupporting the implementation of RA. However, it has been claimed that such animpression holds particularly strongly among those who are not technically equippedto deconstruct accounting numbers (Knights and Collinson, 1987; Ezzamel, 1994). Withthis possibly the case, and given the fact that the RA changes could be perceived asbeing especially complex, it was considered that accountants were in a unique positionto provide realistic and well-informed views on what was happening.

Typically, an interview lasted between one and two hours, with all interviews beingrecorded and transcribed. Given the potential sensitivities of the matters beingdiscussed and the desire for participants to be as candid as possible, interviewees wereinformed that interviews would be reported in a manner where specific statementscould not be attributed to particular individuals. To reflect the different focus ofinterviewees, they are classified as either “Overseer” participants (interviewees fromthe Department of Finance and Personnel (DFP) with responsibility for theimplementation of RA in NI government departments, together with the intervieweefrom the NIAO; interviews 1 to 3) or “Operational Accountant” respondents (thoseresponsible for the implementation and/or maintenance of RA in individualdepartments; interviews 4 to 15).

ResultsThe results are presented in relation to the main research questions: how was RAimplemented; how is the new information used; what are the benefits of RA; what arethe drawbacks and costs associated with its use; and did devolution in NI impact on itsintroduction?

How was RA implemented?The strategy, in both Britain (England, Scotland and Wales) and NI, for managing thetransition from cash-based AAs to accruals-based Resource Accounts was based upona phased “trigger point implementation strategy”, involving close collaborationbetween departments and their auditors to ensure that the various components of thenew Resource Accounts were being put into place on time and to acceptable standards(DFP, 2002a). The impression presented in official HM Treasury and DFPpronouncements (for example: HM Treasury, 2001a; DFP, 2002b) was that triggerpoint dates were firm, and effective systems would be operating by the target dates.Such an articulation of the implementation strategy suggested that accounting changecould be introduced relatively rapidly, at low (or no) cost and to strict deadlines(presumably after any problems relating to its introduction have been sorted). Giventhis, participants were asked questions relating to their experiences of implementation.

“Overseer” participants indicated that their perception was that initial steps toimplement RA had been slow, even though there was knowledge of the proposed

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changes since the mid-1990s. Progress in individual departments was perceived asbeing quite variable (often related to the priority afforded to RA within thedepartment). “Operational Accountant” participants often related the extent to whichRA had been implemented to whether or not their department was newly created(following devolution) and whether they had the manpower and systems in place.Almost all of the “Operational Accountant” participants expressed views that theprocess was rushed, and that parallel runs were limited (particularly in comparisonwith Britain). In addition, several of the “Operational Accountant” participantsexpressed disappointment at a lack of engagement of the NIAO with their departmentfollowing the dry run year (and consequent lack of learning on the part of thedepartment). For example:

Because of the timetable, the whole thing has been “ramstammed” in and we had one dry runyear. In that dry run year, we produced a set of accounts that we thought, by and large,conformed with department yellow in the manual. But we never actually got any feedbackfrom the audit office about them. . . So when we came to do the first year, we didn’t actuallyknow really what their view was (Interview 8).

Staff shortages and incomplete asset registers were highlighted as obstacles to efficientimplementation, problems that were particularly acute in newly created departments.

Both “Overseer” and “Operational Accountant” participants revealed a number ofdifferent sources of support that were available to help implement RA. The NorthernIreland Resource Accounting Manual (NIRAM), the auditors, DFP, Dear AccountingOfficer (DAO) letters, external consultants and informal networks were all mentionedas providing assistance; although the extent to which “Operational Accountants” werepositive about such support was mixed. For example, although NIRAM (supplementedby DAO letters) was viewed by one “Operational Accountant” as the “Bible” (Interview4), difficulties in understanding and applying its contents, and the lateness of itsprovision, were viewed as major problems by several others. Furthermore, althoughboth DFP and the NIAO were important points of contact for advice, the perceivedbenefit of such contact varied greatly. For example:

As with most of the stuff that comes from DFP, all [a person in DFP] and his crew do, in allhonesty, is take the Treasury version, stick DFP on the top of it and send it out. In most cases,they don’t understand it. . . They [referring to the NIAO] are a bloody nuisance, to be quiteblunt. A lot of it is down to the individuals concerned (Interview 8).

It was clear from the interviews with “Operational Accountants” that informalinter-departmental networks were fairly strong (outside of DFP and NIAO) in aidingthe implementation of RA, and these were often used to support learning. Thesecontacts were viewed as valuable because of the knowledge of the contact and theexpectation that confidences would be respected. Often, these links were based onparticipants’ experiences from working in other organizations. For example, oneinterviewee explained that when an issue arose he/she would frequently contactanother department in which he/she had previously worked because:

You don’t want to ring somebody you don’t know and sound thick! It’s better with someoneyou know (Interview 4).

All “Overseer” and most “Operational Accountant” participants stated that externalconsultants were often used to support the RA implementation process because of,among other things, skills shortages, staff shortages, very tight deadlines and peaks ofactivity. For example:

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The people who were in post, particularly in finance positions, didn’t have that skill, first ofall to prepare accounts, and secondly to interpret them. Consultancy firms would haveprovided a lot of assistance. . . And there are sort of peaks and troughs as well (Interview 5).

However, both the “Overseer” and “Operational Accountant” participantsacknowledged the possible drawbacks of having too much, and often inappropriate,reliance on external consultants, whose detailed knowledge of public sectoraccounting, and RA in particular, was sometimes limited. A number of participantsarticulated the importance of having enough expertise in-house so as not to be overlydependent on consultants (although it was acknowledged that this was not thesituation in most departments at the time of the interviews).

How is the new information used?The change to RA was predicated on the belief that such information would improveplanning and control within, and accountability by, government departments. Giventhat HM Government publications clearly stated that the production of accruals-basedinformation would lead to its utilization, interviewees were therefore asked about suchuse.

Rather than comment directly on use, “Overseer” participants tended to remarkgenerally on the benefits of RA, although no statements were particularly expansive. Inaddition, they typically expressed the view that RA was still in the early stages of itsdevelopment. In cases when “Overseers” referred to the use of RA information, it wasoften alluded to as being employed in discussions at high level in departments, ratherthan in the context of operational managers utilizing it to influence decisions (“It’ssomething you’re sensing at a very high level”. Interview 3).

In contrast, “Operational Accountant” participants were almost unanimous in theirview that RA information was either not used or had limited use at present. One of themost negative comments reflected a view that the process was too complicated andsuggested a pretence that this information is produced, understood and used, where inreality there is little understanding and use.

What is produced is not worth doing because, frankly, the accounts themselves are socomplicated that nobody understands them. . . They are just totally incomprehensible. . . Icould sit here and tell you that yes it is [being used] and there will be individual branches thatdo [use it], but the bulk of the people out there frankly don’t. They pay lip service to it(Interview 8).

However, several “Operational Accountant” participants, in a more positive tone, didindicate that there was some use being made of the information and suggested that,through time and with more training, this may increase. For example, one participantsuggested that there was some evidence of RA information beginning to trickle downfrom central finance functions into the departments (albeit that the first “live” year ofRA had been 2001/2002 and the interviews on which this research is based wereconducted in 2003/2004) and was now starting to have an impact (Interview 5).

What are the benefits of RA?RA is presented, particularly in HM Government publications, as a technology that canbe applied in order to provide accounting information that is both rational andobjective. Many of the benefits that are purported to arise from its introduction aredriven by the belief that it will produce new and, debatably, better information as thebasis for decision making and reporting. Proponents of RA argue that it will provide

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advantages for government departments, central government, Parliament, the publicsector and the economy as a whole. These include improved resource allocation,improved capital investment decisions and improved accountability and control.Participants were asked about the extent to which benefits had, or were likely, to arise

“Overseer” participants typically responded with statements that echoed many ofthe advantages of RA articulated in HM Government publications. However, whenprobed as to whether these were planned or actual benefits, it was clear that“Overseers” were of the opinion that while some of these benefits had already emerged,many of them had not. Perceptions of a slow evolving, phased process were expressed,rather than the decisive, orderly accounting change purported in HM Treasury andDFP publications. For example, one “Overseer”, when asked about whether thebenefits that he/she had expressed had been achieved, stated that there had been afocus on getting the system set up, and suggested that it would take time for the fullextent of the benefits to emerge (even though RA had been “live” for over two years atthe time of the interview). He/she commented:

No, it’s not fully achieved. It hasn’t been totally realized. We’re still in this transitionalphase. . . We’re still in that technical transition phase where people are grappling with, “Whatdoes this mean?” (Interview 2).

For “Operational Accountant” participants by far the most frequently quotedadvantage, although mentioned by a minority of participants, related to themanagement of fixed assets. While some stated that the existence of an asset registercould aid decision making, further discussion revealed that the information was notnecessarily influencing decisions yet. Two reasons suggested for this were lack of realcontrol by departments over assets and the fact that the incentives available in theprivate sector to motivate managers were not available in the public sector:

[. . .] in the private sector if you had an asset that could be sold and you could save money,then it would be sold and the office relocated somewhere cheaper. But we can’t think like that.The money generated in the public sector just goes back into the central pot. There is no greatmotivation for a budget manager to manage well (Interview 14).

Many “Operational Accountant” participants suggested that few advantages hadarisen from RA, with some expressing strong negative opinions on the purportedbenefits of the new system over cash accounting. For example:

Well there is the old mantra of being able to monitor your fixed assets better and providinginformation. To be quite honest, I can’t see, for this department, what the advantage is ofhaving Resource Accounts over appropriation accounts or cash accounts. I really can’t(Interview 11).

To me, the exercise had been more or less a waste of time (Interview 8).

However, some “Operational Accountant” participants (particularly Interviews 13 and14) suggested that, in time, as the information bedded down and appropriate trainingwas given, the provision of the information had the potential to yield benefits (albeitover the long term, something not particularly acknowledged by HM Treasury).

What are the drawbacks and costs associated with its use?Despite the articulated benefits of RA, a number of commentators, highlightingpotential problems, argue that it is not a panacea. Indeed, the view is expressed that theintroduction of RA is the possible source of new difficulties, with detractors pointing to

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its complexity, the validity of information provided and barriers to effectiveaccountability and control. In addition, the official government line that RA will notresult in additional costs has been challenged. Perceptions relating to both drawbacksand costs were elicited from interviewees.

Both “Overseer” and “Operational Accountant” participants identified a range ofdrawbacks. Particularly frequently mentioned were the complexity of the information,the length of time needed to produce the information, and the lack of understandingand use by potential users. In many cases, these issues surfaced in the same statement.Fairly typical comments were:

It’s very, very time-consuming because you go into such detail. . . And you’re producingexcruciating detail which you’re told is of help to the user, but then you say, “But who looks atthis stuff?” (Interview 4).

A lot of senior people within departments don’t have a full knowledge [of Resource Accounts].They are complex, those accounts are a nightmare (Interview 1).

Many participants also pointed to the lack of desire by senior managers, most of whomhad limited financial training, to learn and adapt. In addition, one participant alsostressed the linked problems of underdeveloped information systems and the tightdeadlines for “laying” the accounts (Interview 1). “Overseer” participants, in particular,opined that while there was a desire to embrace commercial practices in RA, there alsoappeared to be a wish to keep hold of the routines of parliamentary cash accounting,which led to significant intricacy and compounded the complexity problem.

With respect to cost, all of the “Overseer” participants challenged the viewsexpressed by HM Treasury that the implementation of RA would be cost neutral (i.e. ifany additional costs were incurred they would be offset by savings from using RAinformation). For example:

Originally, when the White Paper came out, they [HM Treasury] talked about how this shouldbe done at no extra cost; which is pie in the sky. It has cost (Interview 1).

In addition, while acknowledging that departments had budgets for their accountingfunctions, they expressed no knowledge that any department had budgetedspecifically and separately for any additional costs relating to the implementation ofRA. Given this, perhaps unsurprisingly a view was expressed (Interview 1) thatdepartments were unlikely to be able to identify the actual costs associated with RA.This apparent tension between the official position of the introduction of RA being costneutral and the perception of key actors that it was always likely to lead to more costs(and in fact had led to more costs) was expressed in the context of the possibleunacceptability to politicians of admitting that RA would result in additional expense(Interview 2).

“Operational Accountants” were equally forthright when commenting on the claimthat the implementation of RA would be cost neutral:

Well, that’s the standard bullshit you get from DFP. Total nonsense (Interview 8).

I can think of a one-word answer to that. It is nonsense and speaking to people on themainland [Britain] it is nonsense there too (Interview 13).

While a range of additional outlays relating to the implementation of RA was cited (forexample, information systems costs and consultancy costs), by far the most referred towas the cost associated with staffing up with accountants. Most of the “OperationalAccountants” remarked on the number of additional posts created as a result of RA,

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with the median being about six or seven in each department (with one departmentclaiming that it had created 30 posts). For example:

Before RAB, we had two qualified accountants looking after the financial accounts. Now wehave six (Interview 14).

Given that many of the NI departments are fairly small in UK terms and, pre-RAB, hadfew accountants, this represented a considerable increase. The magnitude of thisenlargement as a result of RAB was summed up by one of the “Overseer” participants,who suggested a three-fold increase in accounting staff in many departments as aresult of RA, as follows:

An increase of the number of accountants from two to eight in a department would not beuncommon. Some departments had very few accountants at the beginning. The increase wassignificant and from a very low base (Interview 1).

In terms of annual staff costs alone, an array of subjective estimates for individualdepartments was given:

You could be talking about £500,000 (Interview 13).

You’re talking a couple of hundred grand a year (Interview 7).

It was clear from all of the participants’ responses that, while they had perceptions asto the elements of cost affected by RA, none had an accurate estimate of the actual costincurred. In addition, it was evident that these additional costs were not budgeted for interms of a programme to implement RA. Indeed, one “Operational Accountant”participant suggested that a cost-benefit evaluation would not be popular because thecosts are so high and the benefits so limited (Interview 13).

Given the perceived additional costs, and the fact that the official line was that noadditional resources were to be given to implement RA, the issue of what “gave” indepartments was explored. While participants were unsure of the specific impact ofsuch a diversion of resources, they did acknowledge that resources would have had tobe diverted from departmental services. For example, one interviewee (Interview 6)suggested that senior management within his/her department were supportive of RAand therefore decided to divert money from front-line services. Similarly, anotherparticipant (Interview 11) stated that the resources relating to unfilled posts in other,more direct, areas were redirected to the administration budget.

Did devolution in NI impact on its introduction?Under the terms of the Belfast (or Good Friday) Agreement (NI Office, 1998), thestructure of government in NI was changed from six to 10 departments plus anOFMDFM (effectively, 11 departments) in the run-up to the introduction of RA (for afuller explanation, see Ezzamel et al., 2005a, b). Interviewees were therefore askedwhether these fairly substantial changes to departmental and accounting boundaries,and the reconfiguration of existing accounting systems and allocation of accountingstaff, provided additional obstacles to the implementation of RA.

“Overseer” participants, individuals ideally positioned to identify what washappening across departments, concurred that devolution made the process difficult tomanage and demanding in terms of meeting deadlines. A variety of related reasons,contrary to the deliberate and systematic approach outlined in the pre-RA officialgovernment literature, were presented for this, including: the departmentalrestructuring resulting from devolution; the limited preparation, and consequent

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lack of parallel running, given the uncertainty and focus on broader politicalconsiderations; and the limited financial expertise that was available in the NICS.Additionally, it was stated that, compared with Britain, the departments had less time.For example:

So we had all this stuff [referring to changes brought about by devolution] right in the middleof our dry run experience. So we had to basically drop the dry runs, which meant that wewere limited in our preparation time. . . The bigger issue was departmental restructuringwhich fell out of devolution. . .that had real practical impact. (Interview 2)

Moreover, the same participant suggested that once devolution had been established, itwas unlikely, giving the dominance of bedding down the political processes in the newAssembly, that the new ministers would see RA as a high priority.

The views of “Operational Accountant” participants tended to be influenced heavilyby the extent to which the restructuring had impacted on their particular department,and the degree to which its accounting function was left intact. In some cases, the newdepartments had no accounting system and had to rely on another department toprovide accounting services. However, those departments that got off “lightly” in therestructuring appreciated what they saw as their good fortune:

Any department whose activities were split and therefore the infrastructure had to be split, itcreated problems for (Interview 12).

Overall, all “Operational Accountant” participants were aware of the potentialcombined impact of devolution and RAB occurring over the same period of time,regardless of the actual impact on their own department. This was summed up mostvividly as follows:

The whole of the Northern Ireland Civil Service was reeling under devolution and the financeguys were being hit with RAB as well. There was an old colleague of mine who used to saythat the only person who likes change is a wet baby! And change on the scale of those twowas quite difficult to bear at times (Interview 6).

Discussion and analysisMany of the structural reforms of government in the UK over the last 25 years can beseen as aspects of NPM, which, collectively, may be viewed as ways of improvingaccountability and control in the public sector. Often changes associated with NPMand RA are presented as technologies that can be implemented in an organized andcoherent manner, resulting in knowledgeable managers making rational decisionsbased on maximizing the performance of their organization. This research, however,indicates a process of accounting change that is at odds with the seamless, decisive andlow (or no) cost process that is articulated in the official UK Government RA literature.

HM Treasury (2001a) intimated that the real benefits of RA would be whenlower-level managers understand and use such information. However, “OperationalAccountant” participants indicated that this was certainly not yet happening andpointed to continuing problems understanding the RA information, which wasperceived as being difficult to prepare, understand and use. Some participants believedthat this complexity merely served to undermine any potential that RA had to deliverits key objective of improving decision making in, and accountability by, the publicsector. In the few situations where mention was made of RA’s use, it was alluded to inthe context of high-level discussions in departments, rather than in terms of

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operational managers utilizing it to influence day-to-day decisions. This problem isanticipated by Shand (1998), who stressed a potential tendency for changes in thepublic sector to occur at a fairly high level and not impact on lower levels.

While the HM Treasury view was that the implementation of RA would be costneutral, all interviewees highlighted that this was not the case. The interviews revealedthat although no department had prepared a separate budget for the introduction ofRA, or kept records of actual costs, the costs were perceived as being substantial (inparticular, those relating to payroll). Given that the introduction of RA was alwaysliable to lead to increased costs (despite official denials), and that any benefits werelikely to be slow to emerge, perhaps this “fuzziness” was seen as necessary by thosechampioning this change, albeit an approach at odds with a rational approach toaccounting change. Indeed, some interviewees argued that the production of accuratecost information as part of an ex-post evaluation was unlikely to be welcomed by thosepromoting RA. This implies a process of understatement, official denial andobfuscation of cost had developed (perhaps deliberately), and this has possibly servedto reduce both transparency and informed debate regarding the appropriateness of RA.

Perhaps it is unsurprising that the benefits claimed for RA appear to have been(deliberately?) overstated and the costs understated. For example, Rubin (2000), incommenting on budget reforms, argues that often the only way reformers getproposals accepted is to make exaggerated claims. She suggests that governmentfrequently use a wide variety of strategies to get reform accepted, and that some ofthese strategies include producing difficult-to-substantiate arguments that there is aneed for the change and that there will be future economic benefits. Indeed, Rubinintimates that this can result in the presentation of figures of dubious accuracy and theconstruction of arguments that obscure rather than elucidate key decisions. As a result,she argues that the assessment of any change should arguably be made against thestatus quo rather than the exaggerated claims made by the proponents of the change.This said, the interview responses reported in this case research mostly take the statusquo (i.e. before the introduction of RAB) as their starting point.

At the same time as the major accounting change, devolution in NI led to substantialdepartmental restructuring, resulting in a number of departments being created thathad no, or inadequate, accounting systems. This created difficulties in meeting triggerpoint deadlines, and compressed the accounting change process in NI (compared withBritain), something that was not anticipated at the time RA was announced. Forexample, NI had only one year of parallel running prior to 2001/2002 (RA’s first “live”year) rather than three (as was the case in Britain). In addition, and perhapssurprisingly given the upheaval caused by devolution, DFP chose a much tighterdeadline than Britain for the production and laying of Resource Accounts (Ezzamelet al., 2005a, b). For example, at the time of the interviews NI Resource Accounts had tobe “laid” by 15 November, whereas the comparable date for Britain was the 31 Januaryin the following year. While this may demonstrate an enthusiasm by DFP to get RAestablished quickly in NI, the reaction to the tighter deadlines was not positive (as wasevidenced in the interviews).

These conditions meant that the timetable for implementing RA was always likelyto present challenges to departments; and so it proved. The interviews providedevidence that a number of departments were struggling to meet the trigger pointsbecause of, among other things, a lack of resources, a lack of necessary information anda lack of understanding of the concepts. Departments with little accounting systeminfrastructure prior to devolution were particularly ill prepared to implement RA. Forexample, a participant claimed that the development of an asset register, an important

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aspect of RA, was not commenced in one department until May 2001 (Interview 12), amonth after RA was intended to be “live”, even though parallel running was meant tohave taken place in the previous year. Although the reactions and experiences amongdepartments with respect to the implementation of RA were varied, in general theperception of interviewees was that the process was rushed, there was a lack ofappropriate systems in place and available resources (particularly experienced staffresources) were limited. Overall, both sets of participants highlighted that, while nodepartment was able to come near to meeting all the targets in the trigger pointstrategy, progress across departments was variable. Although the impression waspresented in official HM Treasury and DFP pronouncements (for example, HMTreasury, 2001a; DFP, 2002b) that trigger point dates were firm and effective systemswould be operating by the target dates, the actuality was quite different.

A number of DFP reports (DFP, 1997) highlighted major deficiencies in theaccounting skills available to departments in NI prior to RA. This lack of availablein-house skills continued during implementation (as was confirmed in the interviews),resulting in over reliance by some department on consultants. Although such skillsshortages were not unique to NI (similar problems had been identified in Britain (NAO,2003b), their magnitude, coupled with the impact of devolution-related restructuring,compounded the problem. Overall, these factors contributed to a rushed, confusing anduneven implementation process.

The research reported here indicates a process of accounting change that issignificantly different from the articulated view in pre-implementation HM Treasuryand DFP publications. Changes associated with RA are presented as technologies thatcan be applied crisply and cleanly, as a basis for rational decision making in the publicsector (resulting in knowledgeable managers making sound decisions based onmaximizing the performance of their organizations). However, the research presentedhere indicates that: the implementation of RA in NI to date is partial and uneven; RAinformation produced is rarely understood by the managers who were meant to beusing it for decision-making purposes; and adequate systems and personnel have notbeen available in many departments, leading to problems in implementation.

At best, the evidence here suggests a process of accounting change that features anintroduction stage (where systems are introduced and an initial framework forreporting developed), a development stage (where problems of application,understanding and use are resolved) and a maturity stage (where properly refinedsystems are operating and managers are using the information produced for a varietyof purposes), with this process in most NI departments being somewhere between theend of the first stage and the middle of the second stage. Many of the actorsinterviewed expressed a view that, eventually, a period of refinement, understandingand widespread use may be reached; although none suggested that this was any waynear being attained at present.

Conclusions and areas for further researchGovernment policy during the 1990s was to change from a cash-based to anaccruals-based accounting system, and many benefits anticipated from such a changewere articulated. While some limited positive claims regarding the impact of RAappeared through HM Treasury (2001b, 2002) channels, these were not based on anysystematic analysis of effect, and tended to provide ad hoc assertions of benefits whileunderplaying any emerging problems. While the evidence from Britain of overallpositive effect is partial and unconvincing, very little is known of the consequences ofthe transformation in NI.

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The implementation of RA, and more widely RAB, is still ongoing, and the processhas been very different to that presented in pre-implementation HM Treasury and DFPpublications. Whether RA will ever deliver the advantages claimed for it over acash-based accounting system is still unknown; but what is known is that it has notdelivered them as quickly as pre-implementation claims suggested. What has beenfound in NI is a complex, expensive system that has provided few benefits to date. Thevery best that could be suggested from this research is that a lengthy continuum ofaccounting change is underway that features introduction, development and maturitystages, with progress so far, in moving along this continuum, limited. Advocates of RAwill hope that, in due course, an embedded system of RA that leads to better decisionmaking and more appropriate accountability will emerge. Sceptics will sense thepossibility of a sledgehammer having been used to crack a nut, and will continue tocriticize what they perceive as collateral damage. Exaggerated pre-implementationclaims in terms of timing and effect may have provided an edge to a continuing debate(as well as, conceivably, being necessary inputs to the initial decision relating to thechange). Notwithstanding these issues, perhaps it is still far too early to draw firmconclusions.

Undoubtedly, devolution in NI has had a major impact (as it may also have had inboth Scotland and Wales). In addition, adequate systems and personnel were not inplace, and were known not to be in place, sufficiently early to achieve the trigger pointstrategy. RA information that has been produced appears to be rarely understood andused by the managers to whom it is directed. Costs associated with the introduction ofRA were considerable, although these were underplayed in official documentation and,post-implementation, no systematic attempt to measure them has been made.

This research is a case study within the wider UK public sector and therefore anygeneralizing of the conclusions beyond the NI context should be undertaken with care.However, although NI departments are relatively small compared with Westminsterdepartments, there are significant similarities between the modes of operation of alldepartments within the UK (whether in Westminster, Scotland or Wales). Furthermore,both the implementation of RA and the challenges that it presents are common to allpublic sector bodies. This research views the implementation of RA through the eyes oftechnically proficient and knowledgeable actors (accountants) who are ideallypositioned to understand the effect of what is being implemented. However, furtherresearch is needed to understand better the impact that RA has had on the publicsector. Studies, of a comparative nature, of the British public sector (be it Westminster,Scotland or Wales) would be particularly relevant, as they would help to ascertain theextent to which the NI experience is common within the wider UK (and complement therather anecdotal evidence emanating from official sources in Britain). In addition, thework could be accompanied by interviews with managers at various levels withindepartments in order to ascertain their understanding, use and perceptions of RA. Alarger study, possibly on a UK-wide basis, allowing a disaggregation of data into areasof service activity, or size of organization (where the question of whether “full RA”should be applied to small organizational units could be explored), may be beneficialand encourage the development of more appropriate, customized accounting systems.This could be expanded by the use of international comparisons with public sectors incountries that have embraced accruals-based accounting systems.

Overall, the arguments presented by various proponents of accruals accountingsystems in many countries often contain similar themes and claims. On the basis of thecase-based research presented here, it is suggested that these claims should be treatedwith caution. Whether accruals-based accounting systems, such as RA, can ever

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deliver major benefits is still unknown; but what is recognized from this case is that itis quite possible that the rhetoric of government about accruals accounting (often inadvance of implementation) can be very different from the reality of accruals-basedaccounting systems in actual use.

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Corresponding authorNoel Hyndman can be contacted at: n.hyndman@qub.ac.uk

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