Public Sector Governance and Accountability Series: Budgeting and ...

188 Paul Boothe
Accrual accounting poses some significant challenges to public sector
managers because it requires estimation of the value of assets that have no
market and of the current effect of programs that may make payments far
into the future. Blöndal (2003) notes that the valuation of so-called heritage
assets (museums, national monuments, and so forth); military assets; and
public infrastructure (such as transportation and health care facilities) is
likely to be contentious. Programs like public pensions that make uncertain
payments far into the future are also difficult to value. The required judgment
by public servants in these cases leaves them open to political pressure
and more difficult to hold accountable.
As a result of these concerns, some experts have urged caution in the
move to accrual accounting in the public sector. For example, in a recent piece
in a respected accounting journal, Hepworth (2003: 37) writes,“One purpose
of this article is to urge caution on those who are contemplating or encouraging
the change to accrual accounting in central government, unless the
conditions are absolutely right.
Wynne (2004: 3) focuses on the gap between the theoretical benefits
claimed for accrual accounting and the experience to date:
A wide range of benefits [is] often claimed to arise from making this fundamental
change to financial accounting in the public sector. These include
improved accountability, management of assets, and generally increased
efficiency. These advantages have yet to be clearly demonstrated in practice, but
the costs of such reforms are clear and significant.
Accounting Regimes and Incentives for Policy Makers
Over the past couple of decades, scholars have invested a good deal of effort in
studying the economic, political, and institutional determinants of fiscal
policy. 2 Part of that literature has focused on fiscal rules: commitments by
political leaders to certain norms of fiscal behavior. The creation of the
European Monetary Union and the related Stability and Growth Pact
provided strong motivation to examine all aspects of fiscal rules and their
effects on fiscal policy in Europe. However, this literature has focused on other
OECD countries and developing countries as well.
With the economic effects of various fiscal rules now relatively well
understood and the political determinants of fiscal policy extensively studied,
attention has turned to the effect of budget institutions on fiscal policy outcomes
(for example, see Poterba and von Hagen 1999). This section looks at this
emerging literature to examine the interaction of accounting regimes and
fiscal rules. 3 The particular focus is the incentives for policy makers that are