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Financial Accountability & Management, 27(2), May 2011, 0267-4424
A TAXONOMY OF THE PERCEIVED BENEFITS OFACCRUAL ACCOUNTING AND BUDGETING: EVIDENCE
FROM GERMAN STATES
TOBIAS JAGALLA, SEBASTIAN D. BECKER AND JURGEN WEBER
INTRODUCTION
The question of which accounting style is the best one for public administration andstate-owned enterprises has often been subjected to prior practical considerationsand theoretical analyses. Like many times before and after World War I, today the
costs and benefits of cash accounting and accrual accounting are once again beinganalysed.1
Like so many current research papers in the field of public sector accounting,
this analysis could start with the introductory words of a text published more
than 60 years ago (as indeed it does). Amazingly, that early publication still
clearly states one of the focal points of the current debate. Although we may
only speculate as to why this issue has been so difficult to resolve, we can
claim with some confidence that any comprehensive overview of the benefits
of the reform2 would provide a valuable contribution to the ongoing discussion.
Supporting our claim is the surprising fact that, to date, no empirically grounded
structuring of benefits has been the primary focus of any research in this
field. Most publications only lay out the benefits of Accrual Output-Based
Budgeting (AOBB) as loose lists. Hence, any such exploratory benefit analysis
the very purpose of this paper furthers our fundamental understanding of the
field.
This paper is organized into six sections. In the following section, we review
how the field of AOBB research has emerged over recent decades and how the
benefits of AOBB are dealt with in the extant literature. The third section sets
out our rationale for selecting empirical data and discusses the research methods
The authors are all from the Institute of Management Accounting and Control (IMC) atWHU Otto Beisheim School of Management. Previous versions of this paper were presentedat the 2009 CLVS workshop at the University of St. Gallen and the May 2009 session ofthe CIGAR conference in Modena. The authors thank participants in these events as wellas the anonymous referees for their valuable feedback. This publication enjoyed fundingby Interdisziplinare Studien zu Politik, Recht, Administration und Technologie (ISPRAT)e.V. Sebastian D. Becker gratefully acknowledges the financial support of the Hanns Seidel
Foundation. Address for correspondence: Jurgen Weber, Institute of Management Accounting andControl (IMC), WHU Otto Beisheim School of Management, Burgplatz 2, D-56179Vallendar, Germany.e-mail: [email protected]
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Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, MA 02148, USA. 134
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BENEFITS OF ACCRUAL ACCOUNTING AND BUDGETING 135
we employed to produce the findings we present in the fourth section. Here, our
main contribution is to draw up a taxonomy of the benefits of AOBB along with
a prioritization of its main categories. The fifth section applies this taxonomy to
past research, reinterpreting it and suggesting managerial ramifications. After
some discussion of the papers limitations and suggestions for further research,a final section concludes the paper.
LITERATURE
AOBB Research and Review of Benefits
Over the past 25 years, researchers have studied the benefits of AOBB from a
normative or conceptual as well as from an empirical viewpoint (Jones, 1992; and
Christiaens and Rommel, 2008). With a few exceptions (e.g., the contingency
model by Luder, 1992), early research from the mid-1980s onwards was mainly
focused on the normative/conceptual view, whereas empirical approaches have
come to dominate more recent research contributions (Lapsley and Pallot,
2000).3 While early normative publications mostly concentrated on questions
such as the general transferability of private sector accounting frameworks
to public sector settings and the benefits they could bring (Carlin, 2005), a
pivotal role for the development of new public sector accounting and budgeting
techniques was played by conceptual frameworks (e.g., CICA, 1980; FASB, 1980;
and Drebin et al., 1981). With decision usefulness at their heart (Jones, 1992),
these studies broadly identified the relevant user groups for public accounting
data and derived common as well as user-specific information requirements.
Building on these findings, this literature went on to propose better, more user-
friendly frameworks for public financial management (e.g., Mayston, 1992; and
Jones and Puglisi, 1997). Among other methods, AOBB has been specifically
advanced as one technique that meets such user needs more effectively (Anessi-
Pessina and Steccolini, 2007).
Alongside the growing recognition of user needs, the seed of the concepts
developed by normative/conceptual research (and by practitioners) in the 1980s
and early 1990s would bear fruit. Irrigated by the rising tide of New Public
Management pledging the benefits of private sector instruments for the public
sector, public entities around the world although mainly from Anglo-Saxon
countries at the outset committed large amounts of resources to introducing
AOBB (Budaus et al., 2003; and Carlin, 2005), and will probably continue to do so
in the coming years (Luder and Jones, 2003). Unable to resist the temptation to
study the reform process in the field, researchers established a strong empirical
research stream from the mid-1990s onwards. Their analysis has resulted in
lively debate surrounding the benefits stemming from the reform, with a number
of recent studies controversially identifying drawbacks in it. Anessi-Pessina
et al. (2008, p. 323), for example, observe that a substantial number of scholars
see the reform in a negative light and state that an increasing body of literature
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136 JAGALLA, BECKER AND WEBER
has criticised the adoption of accrual[s] accounting by public organizations on
both theoretical grounds [. . .] and practical considerations.
As a case in point, some of this literature points out that AOBB is far
more complex than any cash-based accounting and budgeting system. This, it
is argued, leads to increased susceptibility to misunderstanding, obfuscation,or manipulation by users and thus actually decreases transparency as well
as accountability (Carnegie and West, 2003; Barton, 2004; Carlin, 2005; and
Connolly and Hyndman, 2006). Most of these studies conclude that, overall,
the reform has a negative cost/benefit ratio (e.g., Jones and Puglisi, 1997) and
entails various underestimated downsides and side effects such as poor quality
decision making (Johnstone, 1999). In general, these publications consistently
find that hopes of drawing benefit from new accounting and budgeting
techniques were raised too high (Connolly and Hyndman, 2006; and ter Bogt
and van Helden, 2000) and that, in most cases, these hopes have either onlypartially materialized or not materialized at all (Mellett, 1997 and 2002).
While ter Bogt (2008, pp. 233-34) does not see a clear case in favour of the
reform either, he sees small cracks of light breaking through the dark picture. In
his study of local government in the Netherlands, he highlights changes observed
in organizational culture yet finds less evidence for typically discussed and rather
technical benefits:
The research suggests that the actual effects of accounting changes on decision-makingand control differ between organizations, but in general are not quite so functional
and direct as they should be according to the ideals of the advocates of NPM [NewPublic Management] (see also Hoggett, 1996, pp. 20-24). However, it seems that theaccounting changes, even though they were not a success in a technical sense, didbring about some effects in organizational culture and individual behaviour that arein keeping with the ideas of NPM, i.e., a greater focus on performance, externalstakeholders, and a businesslike attitude.
Within other recent literature, Christiaens and van Peteghem (2007, p. 379)
observe that, in spite of all their criticisms, certain studies do identify benefits.
Like ter Bogt (2008), Christiaens and van Peteghem argue that these benefits
are more subtle and indirect, meaning that we should shift our focus on thereform towards a broader understanding of the impact of accounting and related
instruments on decision making and general management:
[I]t is necessary to stress that in recent years more and more studies [. . .] are devoted tothe more comprehensive management accounting reforms in the public sector. Thesestudies have to a lesser degree attention for the accounting reform but in an increasingdegree to the application of new administration tools and techniques in the publicsector to facilitate the decision making and the management of the organization. Theaccrual information system usually provides useful accounting information for thesetools and techniques (Venieris and Cohen, 2004).
Although much of the recent literature holds an essentially negative view
of the reform (e.g., Jones and Puglisi, 1997; ter Bogt and van Helden, 2000;
Carlin, 2005; and Connolly and Hyndman, 2006) and other studies only hint at
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BENEFITS OF ACCRUAL ACCOUNTING AND BUDGETING 137
less obvious benefits (e.g., ter Bogt, 2008; and Christiaens and van Peteghem,
2007), our intention here is to explore this issue in greater depth, thereby
providing a broader view and a better understanding of the potential benefits
of AOBB. To this end, we first reviewed and summarized the benefits of AOBB
put forward in the existing literature, and found that most recent studies, inone way or the other, mostly refer to two major issues (e.g., Carlin, 2005;
Ellwood and Wynne, 2005; and Groot and Budding, 2008).4 The first is improved
internal and external transparency. It is argued that greater transparency emerges
because the information supplied by an accrual-based system is deemed to be
more comprehensive (Guthrie, 1998) and of higher quality and consistency
(USGAO, 2000, p. 206) than information produced by a cash-based accounting
system, thus rais[ing] consciousness of a wider range of management issues
(Pollitt and Bouckaert, 2004, p. 71). More concretely, among the oft-mentioned
benefits of AOBB are improved visibility of long-term effects (Mellor, 1996; andMcGeough, 1998), a consolidated view of assets, liabilities, and cost (Likierman,
2000; and Anessi-Pessina and Steccolini, 2007), and recognition of resource use
(IFOA, 1997; and Evans, 1995). In the realm of better cost transparency benefits,
such as a view of working capital, a systematic recording of (full) fixed assets
and depreciation as well as a view of the cost of capital charges are often
put forward (Gosling, 1997; Robinson, 1998; and Mellett, 2002). Furthermore,
attributing costs to the appropriate time periods and events (Raupach and
Stangenberg, 2006)5 and comparing public sector service costs with external
providers both become possible (Carlin, 2004). The latter is especially trueif similar accounting standards are employed in both the public and private
sectors. As a consequence, increased transparency is said to augment the degree
of accountability (Likierman, 2000; and Connolly and Hyndman, 2006).
Above and beyond the various facets of transparency, the second issue of
the impact of AOBB on decision making is mentioned less frequently as an
accompaniment of the reform. For instance, Groot and Budding report
that accrual accounting helps to identify the full cost of activities, enabling improveddecision making in resource allocation, coordination and control (2008, p. 8, emphasis
added).
Groot and Buddings argument follows the typical reasoning that more trans-
parency (in the sense described above) ultimately leads to better operational
control and action by managers. For instance, transparency may lead to improved
resource allocation, better capital investment decisions and enhanced control by
and within government (Connolly and Hyndman, 2006). Discussion of the areas
where decision making is changed by AOBB goes into far less depth than it does for
the various domains oftransparency highlighted above. Accordingly, the literature
provides us with quite an extensive list of transparency-related benefits but witha significantly less comprehensive list relating to decision making.
In addition, very few prior publications allude to a third dimension. They
claim that a switch in perspective from inputs to outputs and outcomes and a
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138 JAGALLA, BECKER AND WEBER
more businesslike approach focusing on performance may also result (Carlin
and Guthrie, 2003; and ter Bogt, 2008).
Taken together, the benefits are also said to accumulate on an aggregate level,
providing for better control by parliament, increased compliance and reporting
discipline (Mellor, 1996), better management of public capital (Likierman,2003), better creditor information (ASB, 2003; and Luder et al., 1993), and
intergenerational fairness (Robinson, 1998; and Funnel and Cooper, 1998).
Ultimately, shifting to AOBB is said to drive greater organizational performance
(see Carlin, 2005, and the sources given therein).
As mentioned above, a related body of publications mainly focused on user
groups of public accounting data as well as their information needs. A review
by Mack and Ryan (2006) shows that this literature has also empirically aimed
to contribute evidence to the discussion initiated by the conceptual frameworks.
Next to a focus of identifying users, these studies have further researched (a) which information requirements (needs) these users have and (b) for which
purposes the users require information (Mack and Ryan, 2006). While the
studies on the information requirements mainly result in the finding that user
groups are interested in performance information, in the (full) cost of services
at low levels of aggregation, and in the knowledge of assets and liabilities (e.g.,
Jones et al., 1985; Hay and Antonio, 1990; Crain and Bean, 1998; and Kober
et al., 2010),6 there is limited and contrary evidence regarding the purposes
for which users require information (Mack and Ryan, 2006). A few of these
studies show that users require information that helps improve accountability,decision making, and resource management (Jones et al., 1985; Coy et al., 1997;
Mignot and Dolley, 2000; and Kober et al., 2010). Together with the findings
on the information requirements, this literature gives support in favour of the
introduction of accrual accounting techniques (Kober et al., 2010). However,
Jones and Puglisi (1997) find that the government departments surveyed in
their study only modestly perceive accrual accounting techniques to be relevant
to a wide range of users. In addition, Mack and Ryan (2006) find that accrual-
based financial reports were more used to satisfy accountability rather than for
economic decision making.When comparing the results from our review of the AOBB benefits literature
and the user and user needs literature, we find that both discourses identify
similar themes. The strength of the latter is to be more precise in considering
different user groups while the former is more detailed with respect to the
particular effects.
Deriving Our Research Objective
In his comprehensive overview of the literature, Carlin (2005) argues that themajority of extant research advocating the implementation of AOBB tends to
address the question of why organizations should adopt it rather than the
questions of how this can be done or what the effects might be. Only a handful
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BENEFITS OF ACCRUAL ACCOUNTING AND BUDGETING 139
of studies explicitly set out to focus on the latter, i.e., on what the benefits are
(a notable exception is Connolly and Hyndman, 2006) and [t]hus many issues
concerning the potential benefits of accrual accounting style reforms are still
unresolved (Guthrie, 1998, p. 15). Most conceptual studies only briefly mention
benefits in their introductory paragraphs and generally assume the superiority ofAOBB to cash-based accounting and budgeting. As a result, this has led some to
argue that the benefits are overstated (Anessi-Pessina and Steccolini, 2007) and
that a lot of unspecified fiction has been created (Carlin, 2005, p. 320; similarly
Mellett, 2002). We see this as problematic for any objective evaluation of the
benefits of actual AOBB implementation, both for research and for practice,
since the literature also suffers from a lack of empirical evidence put forward
to support [AOBBs] claims (Potter, 1999, p. 48; similarly Ellwood and Wynne,
2005; Christensen, 2006; and Connolly and Hyndman, 2006). What we found
in our above review of the academic literature was that, when mentioning thebenefits of AOBB, research often cites governmental publications (e.g., HM
Treasury, 1994 and 2001; Mellor, 1996; and USGAO, 2000). Yet, more often than
not, such works are published in advance of actual AOBB implementation and/or
appear to support (rather optimistically) these very projects, thereby eliciting
scepticism as to their validity (Guthrie, 1998; Rubin, 2000; and Connolly and
Hyndman, 2006).
Despite any underlying doubts regarding particular promises of the reform,
the insight that certain changes have nevertheless been observed in practice
encourages us to contribute to a more clear-cut and comprehensive picture ofthe benefits that can be expected from AOBB. Since no publication, to our
knowledge, focuses exhaustively on listing or even prioritizing the benefits, that
is precisely what we set out to do in this study. Thus, our main research objective
is to draw up a taxonomy of benefits for AOBB. Further, we also explore and
analyze those (benefit) categories that are of greatest importance since the prior
literature records benefits as the opportunities which arose and does not provide
any sense of priority.
Before moving on, we want to further support our research objective by
outlining three building blocks we identified in the literature and deemedimportant to our investigation. Firstly, the gap between what is normatively
expected from accounting change and its effects in practice (Guthrie, 1998; and
ter Bogt and van Helden, 2000) leads us to take a strongly empirical approach
to our investigation. This conclusion is also motivated by Scapens, who states:
It encourages us to take seriously the study of accounting as a practice, ratherthan comparing accounting practice with some ideal [. . .]. It also suggests thatan undue concern with the gap could cause us to ignore some important issues, asan overemphasis on the theoretical ideals could lead to failure to study closely the
practice of management accounting (1994, p. 303).
Secondly, we follow the literature that suggests that different AOBB
stakeholders could potentially have differing views on the benefits of AOBB
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140 JAGALLA, BECKER AND WEBER
(e.g., IFOA, 1997; Connolly and Hyndman, 2006; ter Bogt, 2008; and Kober
et al., 2010). Such thinking has mainly been advanced by the user and user
needs analysis on which most conceptual frameworks of accounting standard-
setting bodies are built (Jones, 1992; and Clark, 2010). This mostly normative
literature has produced several relatively similar lists proposing the variousrecipients of public financial information (Jones, 1992; and Mack and Ryan,
2006) and commonly sees at least seven different groups such as: (1) Voters,
tax-payers, and consumers of public goods, (2) representatives of group 1,
(3) policy-makers and their civil service and other advisers, (4) managers
within governmental organizations and public sector agencies, (5) employees
and professionals working in the public sector, (6) monitoring bodies, and (7)
creditors to public sector bodies (Mayston, 1992, pp. 228-29; similarly e.g.,
Anthony, 1978; CICA, 1980; and Drebin et al., 1981). The lesson we draw from
this is not to restrict ourselves to the core experts from the finance and budgetingfunctions and, instead, to engage a broader spectrum of experts also in non-
finance functions (e.g., politicians, line management of administrative units).
However, a full examination, especially of external user groups, is difficult to
carry out for pragmatic reasons (Jones and Puglisi, 1997). In this regard, we
acknowledge Lapsleys (1992, p. 284) comment, for example, that the general
public is the most difficult [user group] to identify, locate and ascertain the
views of its members. In addition, while the more normative user and user
needs literature typically emphasizes external users (Jones and Puglisi, 1997;
and Mack and Ryan, 2006), a number of empirical studies have found internalusers to be more active users of public financial information (e.g., Coy et al.,
1997; and Kober et al., 2010).7 We survey all external and internal groups with
the exception of group (1) voters, tax-payers, and consumers of public goods as
well as (7) creditors to public sector bodies.
Thirdly and lastly, we purposefully chose our research environment and, in
doing so, made two decisions. The first relates to the study of the implementation
projects we analyze. We aim to assess the benefits of AOBB relative to cash-
based accounting and budgeting. To this end, we could either compare two or
more public entities that are currently using these different accounting andbudgeting systems, or we could try to identify the changes within public entities
that transfer from one system to the other. A comparison of different entities,
however, would suffer unduly from difficulties in attributing the reasons for
observed discrepancies to the accounting and budgeting system (Pollitt and
Bouckaert, 2004). Guthrie supports this view, asserting that
the paradoxes associated with reforms and the differing context in which they areapplied make overall assessment difficult (1998, p. 15).
In order to avoid this complication, we follow the second approach, i.e., weanalyze the differences within one organization. In this way we can attribute
any observed changes to AOBB with greater precision. This then brings us
to choosing between two schools of thought. The first leans towards studying
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environments where the reform has been established (e.g., Carlin, 2006).
Relying on longstanding experience or a long observation horizon (Arnaboldi
and Lapsley, 2009) within the organization ensures maximum confidence in
fully discovering any effects AOBB may have. Clearly, such confidence comes
at the price of having some respondents leave the organization and increasedpotential for forgetfulness bias (ter Bogt, 2008) from respondents being asked to
compare the current system with a prior system in use several years ago (Malmi,
1999). An alternative view prefers to examine systems in transition (e.g., Heald,
2005; Caccia and Steccolini, 2006; and Connolly and Hyndman, 2006), meaning
projects that are currently being transformed or have recently been brought
to official closure. Although this approach mitigates potential biases caused
by retrospection, it could be argued that systems in transition do not reflect
changes to their full, materialized extent. We concluded that it was important
for us to study projects that were well under way or recently closed and situatedsomewhere between the two extremes outlined above in order to draw on sound
opinions of the new accounting system in practice.8
The second decision we made relates to placing our study in an organizational
setting. With our goal to establish a universal taxonomy for the benefits of
AOBB, we intended to choose an environment liable to bring a comprehensive
taxonomy of benefits to the surface. In our choice of a level of government, Ger-
man states (Lander) combine local and national (i.e., federal) level organizations
and may therefore be viewed as an intermediate structure representing different
elements from both levels. We therefore assume that studying the reform atGerman state level allows us to reveal the broadest set of AOBB benefits.
Furthermore, we deem such analysis particularly insightful because the level
of state accounting has been largely ignored in research to date (Broadbent
and Guthrie, 2008) and because further research in these settings has been
called for (Connolly and Hyndman, 2006). Similarly, responding to interest in
geographies that have not been placed in the limelight of debate (Guthrie et al.,
1999; and Carlin, 2005), our study makes a further contribution to the literature
by spotlighting a German setting a context rarely studied in the past (Hood,
1995). In addition, we shed light on a level of government that as mentionedabove does not suffer from retrospection bias and, instead, shows the effects of
actual implementation over several years. As we lay out below, German Lander
fulfil this requirement.
DATA AND RESEARCH METHOD
German State Accounting
German Lander in general, and our research sites Hesse and Hamburg
in particular, offer certain advantages for our research objective which we
would like to highlight, as we deem this information relevant for a deeper
understanding of our empirical data.
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142 JAGALLA, BECKER AND WEBER
Lander play an important role in the German administrative and legal setup
because they are members of the Federation yet [retain] sovereign state power
of their own (Rober, 1996, p. 170).9 Among other characteristics, they are
endowed with comparatively substantial autonomy: they have legislative power
in certain policy fields, such as education, police forces, or environmentalprotection, enjoy relative freedom to create and manage their own budgets, and
are in charge of substantial operational tasks, such as state road maintenance.
Although Lander enjoy relative autonomy, there is a horizontal financial
equalization scheme (Landerfinanzausgleich) that transfers subsidies from wealthy
states to poorer ones. Organizationally, local government10 is embedded in
the Lander. However, due to the concept of local self-administration (kommunale
Selbstverwaltung) in the territorial states i.e., in all Lander except the three city-
states of Berlin, Bremen and Hamburg local governments manage their own
budgets completely independently from their states budget. In the case of city-states, both these budgeting processes are integrated. This leads to a noteworthy
difference between city-states and territorial states. Because government at local
level provides less abstract goods (e.g., issuing ID-cards or building permits,
processing citizen registrations) than government at Lander level (a substantial
part of administrative activity is policy making), city-states tend to have a higher
share of businesslike operations than their territorial counterparts.11
In this environment, only a small number ofLander of the sixteen in total
have committed to introducing a full AOBB system.12 There are some notable
exceptions, however, and with a view to providing unique insights into this field,we opted to conduct our study in Hamburg and Hesse.
Hamburg and Hesse are two states that have pioneered the introduction of
AOBB in Germany. Other states have been less active or have publicly expressed
doubts about any favourable cost/benefit ratio from the reform (e.g., Fischer-
Heidelberger, 2007). Also, for AOBB implementations in both states, numerous
interviewees took a critical view either of how the reform process itself was
carried out in their organizations and/or of how useful the AOBB system itself
is when net benefits and costs are taken into account. Challenging or disruptive
implementation processes match reports in the literature from other contexts(e.g., ter Bogt, 2008).
As representative of a territorial state, Hesse first initiated the reform by
shifting its budgeting and cost accounting from a cash-based system to AOBB
instead of focusing on drawing up an opening balance sheet first (Hessisches
Ministerium der Finanzen, 1999). Compared to other German states, Hesse
today has a well-developed, output-oriented accrual accounting and budgeting
system and by the time of our interviews, almost all interviewees were using it.
Moreover, all major services provided by the administration were part of a state-
wide comprehensive product catalogue. In theory, units receive funding on thebasis of a logic ofproduct price multiplied bynumber of products provided. The reform
philosophy in Hesse appears to follow the we mock the market (interview)
approach. Following a one-size-fits-all approach (i.e., with scant customization
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BENEFITS OF ACCRUAL ACCOUNTING AND BUDGETING 143
to the specific needs of different units) with mandatory participation, the overall
change has penetrated the organization relatively well. In light of an unstable
political situation, the opening balance sheet was disclosed relatively late in
November 2009.13 Hesse took a comparatively meticulous approach, applying
the full set of business accounting rules currently used for accrual accountingin Germany (HGB) almost to the letter. According to consistent statements by
interviewees, the goal of the reform project management in Hesse is to foster
greater public acceptance of financial results, even though the cost of this reform
is said to be significantly higher.
In Hamburg, one of three German city-states, the trajectory for introducing
AOBB has been different in several ways. At the end of 2002, all political parties
were relatively unanimous in their decision to introduce AOBB (Burgerschaft
der Freien und Hansestadt Hamburg, 2003). Hamburg took a rather pragmatic
approach, choosing not to stick rigidly to one standard set of accounting rules.In contrast to Hesse, Hamburg focused first on creating an opening balance
sheet and then on making changes in the budgeting realm, as is currently the
case in several pilot areas where the AOBB system is already fully active (e.g.,
in its university). Hamburgs opening balance sheet (Stadt Hamburg, 2006) was
published in mid 2006 and had slight positive net equity. It is our hypothesis
that greater choice of what elements to implement has led to AOBBs slightly
slower penetration in the state. On the other hand, this approach seems to
have appeased many critics: overall, interviewees in Hamburg had more positive
opinions about the reform than those interviewed in Hesse.Even though we cannot be absolutely sure that there were no other reform
projects running in the states of Hamburg and Hesse, we are confident that
there was no crowding of the reform space (Carlin, 2005, p. 315) similar
to other empirical explorations such as devolution (Connolly and Hyndman,
2006) or capital charging (Heald and Dowdall, 1999; and Carlin, 2003). Equally,
and according to official sources, none of the states introducing AOBB intends
to apply internationally accepted accounting standards such as IPSAS. This
means that neither Hamburg nor Hesse were carrying out major public financial
management or any additional wider public management reforms (Pallot, 2001)in parallel to the introduction of AOBB. Nevertheless, throughout our study,
we remained cautious about assuming that we are not exploring the combined
effects of two or more simultaneous reforms.
Because the reform is a recent phenomenon in many contexts, most research
like ours has been conducted in settings where the new system has not been
used for long periods of time (e.g., Heald, 2005; and Paulsson, 2006). However,
since the sites we scrutinize represent two implementation projects that have
lasted a number of years at the time of our last interviews, six (Hamburg) and
nine years (Hesse) we can draw from experienced study participants. Theseparticipants were able to assess the new system in relation to the former, once
large parts of the reform went live in the respective settings. In the following
section, we present how we extracted our findings from our sites.
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Method
As we mention above, debate surrounding the benefits of AOBB has raged for
decades. The literature therefore provides numerous findings relating to various
benefits one might expect. As previously mentioned, we had doubts that the
literature had identified all main benefit categories currently deemed relevant
by practitioners and consequently feared that pursuing a survey-based procedure
might produce a mistaken perception of accuracy. Analyzing responses to the
closed-ended questions typically used in surveys would incur the risk of not being
able to understand and clarify these responses sufficiently. We sidestepped this
pitfall by asking open-ended questions in the field. Finally, we learnt from ter
Bogt (2008) to be sensitive to subtle clues pertaining to benefits, which, for
our objective, further rendered any survey design less effective. Motivated by
these considerations, we adopted an approach based on qualitative interview
data gathered at two research sites.
Before moving on, we would briefly like to comment on the role of the two
states in this paper. Since we investigate two sites in our study, such analysis is
typically called a multiple or a collective case study (Yin, 2003, p. 46; and Stake
2005, p. 445). But since our concrete interest in the data is what Stake (2005)
calls instrumental, the purpose of our examining these sites is, as opposed to
an intrinsic case study, mainly to further our understanding of the benefits of
introducing AOBB with the more external interest of drawing up a taxonomy.
While we do possess in-depth knowledge of the complex contextual natures of
both cases due to our access to the data, this information plays only supporting
roles in the resulting synthesis (Stake, 2005), since the cases themselves are of
only secondary interest.14 Nevertheless, to enable the reader to put our findings
into perspective, we provide detail from the sites whenever necessary.15
Basically following the procedure suggested by Eisenhardt (1989), we set out
our research in three phases. Phase 1 (January to Summer 2007) resembled
a pilot study to develop the research question. In total, we had face-to-face
meetings with ten individuals in seven German states. Phase 2 (Summer 2007)
consisted in carrying out four interviews in Hamburg and Hesse to enhance our
understanding of the situation in our two sample sites. Phase 3 (June 2008 to
February 2009) was the main data-gathering phase of our analysis in which we
interviewed 45 individuals in 38 face-to-face meetings.
Altogether, we draw our findings from face-to-face meetings with 49
individuals16 in 42 semi-structured interviews conducted in phases 2 and 3. We
selected our interviewees deliberately and purposefully, i.e., using organizational
charts from which we identified those we wanted to incorporate.
Almost all our chosen interviewees were persuaded to take part in our study.
We therefore expect only minimal distortion from response bias. The duration
of our interviews ranged from 45 minutes to more than two hours and we mostly
spoke to one interviewee at a time.17 As Figure 1 indicates, shares of interviews
were reasonably well balanced with about 20 interviews per state.
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Figure 1
Job Functions of Interviewees by Case
As suggested by qualitative research protocol, questions were adjusted and
customized to the interviewee if needed (Miles and Huberman, 1994). Armed
with written confidentiality agreements, we asked all interviewees for permission
to tape record the conversation and all but three interviewees agreed to this
procedure. In preparation for the coding and analysis process, all tape-recorded
conversations were transcribed and notes on the few unrecorded interviews
were digitized. Each interviewee was asked to show written material, which,
when provided, was also acknowledged. Whenever we needed any clarification
following an interview (e.g., doubts about what certain statements meant, follow-
up contact with specific persons), we contacted interviewees directly. All our
requests were answered and no open questions remain. We were therefore
confident that we had built a saturated and homogenous view of the data
presented in the following section.
RESULTS
Taxonomy of Benefits
As Colquitt and Zapata-Phelan (2007, p. 1283) state, the development of ataxonomy is a somewhat ambitious endeavour:
As with any taxonomy, ours can be accused of collapsing meaningful distinctions in theinterest of parsimony. After all, taxonomies like theories are attempts to eliminate
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146 JAGALLA, BECKER AND WEBER
some of the complexity found in the real world (Bacharach, 1989). Our intention wasnot to capture every nuance of theory building and theory testing, but rather to createa tool that could be used to chart trends in theoretical contributions over time.
Aware of this trade-off, we describe the procedure that led us to the suggested
taxonomy and discuss the issues we faced in building our taxonomy.During and after conducting and transcribing interviews, we used Atlas.ti to
code the content of the interviews and performed qualitative data analysis in line
with standard practice (Miles and Huberman, 1994; and Creswell, 2009). We
filtered all codes that contained an opinion about benefits relating to the reform
and grouped codes with similar content to one superior category. Over several
successive refinements of the coding scheme, the categories of the taxonomy
emerged.18
Aspiring to reconcile the trade-off alluded to above by building a taxonomy
that does not oversimplify a complex topic yet remains comprehensible, we wereglad to see the data fall relatively effortlessly into three top-level categories.
For the development of these top-level categories, we took account of numerous
interviewees who articulated thoughts along the following lines:
I think that the main benefit of the whole reform is that we are now aware of what weown . . . [it is] truly bizarre . . . The next logical step would be to work and calculate
with it (Operational Accountant in non-central unit).
Strong differentiation between changes in knowledge and changes in action
caused by the reform was a recurring theme and consequently led us to choosethese two items as top-level categories: Better knowledge and Better action. As we
do not want to assume that changes in thinking necessarily lead to changes
in action, we carved out a third category which collects all benefits other than
changes in knowledge and changes in action in the top-level category Mindset
changes. The following statement by a leading employee illustrates this in greater
detail:
We want to establish a system that is basically self-managed. In my view that is theonly way that we can cut costs in the long run. The reason is simple: control by
politicians cannot reach down to the operational level where the service is provided.Hence, we have to implement a system that creates incentives and mindset changes(State Secretary reporting directly to Finance Minister).
We feel comfortable with this choice as it suits the mental construction of the
actors in the AOBB context well and also falls in line with standard models of
behavioural science.19 This choice also means that we discarded other possible
top-level categories that at first sight might seem more convincing to some
readers. We assessed and dismissed alternative top-level categories such as
Benefits by stakeholder group (such as state-owned enterprises or central ministry
functions or the stakeholder groups suggested by the user-needs literature)and Type of government. We rejected the former because we feared significant
redundancy in benefits and the latter because we felt this would add one
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more level of complexity without generating any further insights. We also feel
comfortable with our top-level structure because it is applicable to every unit in
the public sector, i.e., every stakeholder in every public sector unit can determine
whether these benefits can be observed in his or her context or not.
Having identified the top-level categories, the choice of subordinate categoriesemerged from the data. In the top-level category Better knowledge, we observed
that the interviewees were in certain cases quite precise about the dimension
in which awareness improved, while in others they were rather non-specific.
Two illustrative statements follow. The first interviewee is rather vague about
transparency, while the second expresses his view much more precisely:
The accrual accounting-based year-end reporting we have now is a lot moresophisticated and transparent compared to what we had before. That is why I ama supporter of the reform in spite of all the problems we have (Head of Budgeting
at Ministry A).
We now have transparency regarding the yearly resource use. Especially in the contextof infrastructure, that is a big advantage. Before, we were always saying, we need thatmuch to repair the streets, but there was no substance to this claim. Now we havenumbers we can present. We have not yet received more money, but maybe that willbe the case in the future . . . (Head of Budgeting at Ministry B).
Therefore, we subdivided this top-level category into Enhanced unspecific trans-
parency and Enhanced specific transparency. In the top-level category Better action,
we observed that several interviewees mentioned the benefits of avoiding baddecisions. Thus, the split into Enhanced action and decisions and Avoided bad action
and decisions appeared to be a natural one. One quotation pointing to Enhanced
specific transparency but also alluding to the Enhanced action and decisions category
comments on the suitability of AOBB information for decision making:
We have a department that is in charge of the payroll statements for all stateemployees. The reform made transparent that the unit cost is way too high. Eventhe parliament debated what an adequate level should be based on private sector andcross-state benchmarks. That led to a commission being set up to investigate what
other more efficient states do and what can be done to bring the cost down in Hesse.This attention was very unpleasant for the payroll guys: they had to explain their badperformance. I am sure that going forward they will do everything to avoid standing inthat spotlight again (Leading Executive for Budgeting in Hesses Finance Ministry).
According to another interviewee, in some cases bad decisions may be avoided
through AOBB, which produces the category Avoided bad action and decisions:
I believe that certain transactions we have seen in the past will not happen again inthe future. Take for instance the drainage system, which is a sizable asset that wasfully paid for in past budgeting periods. This system was put into a separate legal
entity that paid a debt-financed dividend to the state worth about the full value ofthe drainage system. For the citizen, that transaction does not make a big difference.However, for the budget of the state, this cash inflow caused a balanced budget insteadof a negative one. In the accrual accounting world this transaction will not happen as itdoes not formally create value in such cases (Manager of Investment Administration).
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Figure 2
Taxonomy of Benefits
However, as in the case of the Better knowledge subcategories, the sole purpose of
these subcategories is to provide better organization within each category.
With the above structure in mind, we assessed our empirical data and
defined categories onto which we mapped the codes. After one coding cycle
for each hermeneutic unit, we looked for systematic differences between
Hesse and Hamburg and found that most categories (e.g., enhanced cost
transparency) were significantly similar. The few idiosyncratic categories for
each hermeneutic unit were turned into dummy categories for subsequent
evaluations of the material, ultimately yielding identical and robust categories.
With this procedure, we ensured that we did not overlook a structure in one
hermeneutic unit that we detected in the other. After this assessment we
decided to consolidate certain categories.20 In spite of the fact that the categories
Revenues, Bad investment decisions, and Creative accounting were not mentioned by a
sizable number of respondents, we decided to dedicate discrete categories to
them because we could not map them onto other categories with any precision.
As a result of this process, we produced the taxonomy that can be seen in
Figure 2.
Priority of Categories
Our research objective is not only to draw up a taxonomy but also to seek
to identify those categories practitioners deem most important. The scientific
debate surrounding AOBB has argued for decades about the benefits of the
reform sometimes with no empirical foundation at all, as Carlins (2005)
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review shows. Because of the lack of an extant body of research on this topic, our
rather exploratory prioritization contributes to scholarly debate. If, for instance,
future research sets out to analyze benefits using a confirmatory, large-sample
questionnaire methodology, our work establishes a valuable basis for the choice
of areas to explore. Moreover, we are able to show what practitioners i.e.,those who work with AOBB on a daily basis perceive to be its most important
benefits. This knowledge is valuable because it opens the door to perception-
focused investigations of the reform.
In the first step of our analysis, we had to choose how to identify the
importance or priority of a category. As we did not want to use our own
impressions as the only measure, we sought out more objective measures for
the relative importance of each benefit. We follow Miles and Huberman (1994,
p. 253) in noting that, when we say something is important or significant
or recurrent, we have to come to an estimate, in part, by making counts,comparisons, and weights. At the same time, we do not want to convey
the impression that our qualitative data was forced into a quantitative
mold (Miles and Huberman, 1994, p. 252). We thus illustrate the empirical
groundedness of our findings by drawing on a few selected quotations from our
data. Ultimately, we agree with Miles and Huberman (1994, p. 253) that the
hallmark of qualitative research is that it goes beyond how much there is of
something to tell us about its essential qualities. The quotations incorporated
in this section are designed to provide insights in this sense.
We are aware that, in some cases, the pure number of statements in a certaincategory might not provide us with a true impression of priority. For example,
certain benefits might be politically critical while others might require certain
specific knowledge or insight. Independently of their true priorities, this might
lead to high counts for some benefits and to low counts for others. We consider
this risk relatively small given that we can triangulate our findings with our
qualitative understanding of the data. Here, triangulation does not reveal any
inconsistencies.
By adding the number of mentions in each hermeneutic unit (Hamburg
and Hesse), we observe that the following categories are the most importantto practitioners: (1) Increased cost transparency (see taxonomy Better knowledge
Enhanced specific transparency Cost), (2) Improved general decision making (see
taxonomy Better action Enhanced actions and decisions Improved general decision
making and Cost for following benefit), (3) Improved cost management, (4) Increased
focus (on results) (see taxonomyMindset changes for this and the following benefit),
and (5) Adoption of businesslike thinking, procedures, and pragmatism. These results
fall in line with our own impressions from the interviews. The claims of
Increased cost transparency, Improved cost management and Mindset changes in its various
guises attracted most of our interviewees lively attention, as the following fourquotations indicate.
The first quotation is drawn from an accounting practitioner in a state-owned
company that has been using AOBB for a substantial amount of time. His
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150 JAGALLA, BECKER AND WEBER
organization is already fully penetrated by the reform and he is able to name
various changes in both thinking and behaviour. In the following quotation, he
emphasizes the effect of Improved cost transparency:
[The unit was established for servicing our own property.] We also sometimes providethe services externally. If we are asked to do so, we submit an offer. Before the reform,
we used a table with relatively generous terms. Now we have adjusted them to the fullcost rate, also charging overhead. This led to quite an increase in our rates (Head ofBudgeting for State-Owned Enterprise).
The second quotation comes from a top-tier finance ministry executive who
serves as a liaison between the political level and the administrative body. From
his perspective, the effect of Improved cost management is particularly relevant.
We hypothesize that daily exposure to large monetary figures leads him to the
conclusion that AOBB adds value by breaking numbers down to a meaningful
level:
I dont believe that public sector employees work harder or are lazier than theprivate sector ones. But I believe that the [cash accounting] system, with its lackof transparency, decreases how much people care about the cost bit by bit. It is similarto a firm car with a flat fuel rate. In this case, you not only drive more, but at some point
you stop caring about how much fuel costs. You simply ignore that part of your reality.The main point of the reform is that we bring the figures to a level that everyonecan relate to. If we only see the abstract numbers of multi-billion budgets, nobody canmentally capture that (State Secretary reporting directly to Finance Minister).
The last two quotations highlight the new mindset that AOBB is said to bringwith it. The first one is taken from a politician in a rural region of the state who
attempts to relate the introduction of AOBB to comparatively tangible effects
such as the one mentioned in the following quote. It describes how the users of
public goods appear to develop increased accountability:
We built some social housing some time ago for 300,000. Sad to say, the housingwill fall apart in 30 years. We now see how much the annual cost is, and the socialinstitution has to justify this charge yearly. This awareness has now entered ourthinking (Politician in a Conservative Party).
The last quotation comes from an individual who works in an organization with
a strong, data-driven management approach. He alludes to both changes in
mindsets as well as Improved cost management:
It is a great success that we have established cost sensitivity. We observe, for example,that someone in charge of an account says, This invoice is assigned to my account inerror. I will not carry the cost of it on my account. Nobody could imagine this kind ofbehaviour a couple of years back. Now department heads and people in charge of thebudget really care about their budgets (Budgeting Employee in the State Chancellery).
We conclude the presentation of our findings with this selection of quotations inorder to provide qualitative evidence to complement the essentially quantitative
findings presented in Figures 35. The following section discusses our findings
in the light of the existing literature.
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Figure 3
Number of Times Mentioned Better Knowledge
-
-
Figure 4
Number of Times Mentioned Better Action
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Figure 5
Number of Times Mentioned Mindset Changes
DISCUSSION
Findings and Managerial Implications
In this paper we present a comprehensive taxonomy of the perceived benefits
of AOBB as opposed to cash-based accounting and budgeting and identify its
most important subcategories. Our findings share some aspects in common with
the existing literature but also differ in other respects. To bring them to light,
we advance two arguments relating to the types of benefit observed and their
related antecedents.
First of all, in our literature review we present the claims made in the existing
literature regarding the benefits of AOBB and point to the fact that the resultingpicture was overly optimistic and mostly lacked grounding in empirical findings.
Using the results of our taxonomy, we set out to reinterpret this past prior
research by mapping any benefits mentioned onto our taxonomy. Every time
we were unable to establish such links, we checked to see if any interviewees
alluded to these claims as a further means of triangulation. For example, the
issues Performance or Accountability are not contained explicitly in our taxonomy.
However, some participants alluded to these topics during the interviews. We
therefore found support for these claims even though they were not salient or
relevant enough to be included in the taxonomy. In three instances we neitherfound a direct link nor implicit mentions:
Increased compliance and reporting discipline: One author who alludes to this benefit
dimension is Mellor (1996, p. 82). She states
that accrual reporting at the whole of government level is appropriate and necessaryas it [. . .] introduces discipline in financial reporting and therefore ensur[es] theintegrity of the reported information.
In our entire sample, not one interviewee mentions this effect. Rather, the
opposite appears to be true: Numerous respondents mention how little they
value the reporting, how little any of their superiors care about the reports,
and how many pages needed to be pointlessly filled out. This finding gains even
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more relevance when we interpret it in the light of the specific context. Given
that the literature traditionally views German administration as placing strong
cultural emphasis on compliance with rules (Pollitt and Bouckaert, 2004), the
implementation of AOBB as a discipline-enhancing system should go rather
unnoticed in this respect. Such disregard for reporting is thus evidence that, forAOBB implementations, this argument carries little relevance and perhaps its
opposite might even be true.
Increased intergenerational fairness: This very frequent claim (e.g., Blejer and Cheasty,
1991; and Funnel and Cooper, 1998) is not supported by our data either. It
might be argued that this matter does not play a significant role in day-to-day
administrative operations, which is why this claim was not mentioned by any
interviewees. Such an objection may be true for more operational interviewees.
However, since we also interviewed both top-tier administrative executives and
politicians, this risk appears limited. Somewhat related to intergenerational
fairness, some interviewees did mention the effects of AOBB implementation
on long term planning and on the amount of new debt. However, in our view,
such statements were too modest to be seen as an implicit intergenerational
fairness argument. When explicitly asked about this aspect towards the end
of conversations, interviewees generally took a critical view of this claim.
Altogether, our findings are consistent with conceptual dismissals asserting that
accrual accounting is just as irrelevant as cash accounting to the assessment of
intergenerational equity (Robinson, 1998, p. 33).
Provisioning of relevant information for creditors: No interviewee mentioned, either
explicitly or implicitly, any benefits for creditors that are widely seen as major
users of financial reports in the public sector (Mayston, 1992). This surprised
us since a number of prior publications allude to this effect (e.g., Ingram, 1983;
Luder et al., 1993; and Pallot, 2001). In our investigations, we find no grounds for
any such effects. It is possible that the horizontal financial equalization scheme
among the Lander in Germany produces such a result by generally reassuring
creditors and thereby indirectly removing some of the importance placed on
creditor information. This effect, which is rooted in assuming governmentsto be a going concern because of their taxing authority, has similarly been
documented in extant literature (e.g., Jones and Puglisi, 1997; and Anessi-
Pessina et al., 2008). Another possible explanation for this could be the fact that
in much of the literature accrual accounting is seen as sector neutral (Carlin,
2005). This might have lead to an influx of proposed benefits for the public
sector extrapolated from the private sector literature (Rutherford, 1992), where
creditor protection and investor needs are of paramount importance (Ellwood
and Wynne, 2005).
On closer examination, these three benefits are all less operational andrelate to the interaction of government bodies with its external stakeholders. As
such, it is important to emphasize here that we included politicians and senior
managers in our interviews, who act as a link between external and internal
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154 JAGALLA, BECKER AND WEBER
stakeholders and should therefore be able to assess the benefits of AOBB also
for less operational topics. Nobody from this group mentioned the benefits listed
above.
Our approach provides some evidence that, as asserted in the literature, much
fiction [on the benefits] has been created (Carlin, 2005, p. 320). The empiricalapproach we follow in our study has the notable advantage of directly addressing
the gaps between normative claims made in the literature and predominantly
by governments about the nature of the reform (Carlin and Guthrie, 2003; and
Connolly and Hyndman, 2006) and what organizations may realistically expect
from their reforms. With respect to user information requirements, we find that
the requirements mentioned by the extant literature (e.g., full cost information,
knowledge of assets and liabilities), appear to be better fulfilled by the AOBB
system compared to the prior cash-based system.
Further, our taxonomy enables us to contribute a deeper picture of thebenefits observed in practice to the literature in which, to date, they have mostly
been referred to in passing and on a level equating in our taxonomy to a top-
level category (for example, transparency). Generally speaking, as laid out in our
literature review above, two major benefits are typically given transparency
and better decision making. In our taxonomy, we show that these resonate well
empirically with our data and we call them Better knowledge and Better action,
respectively. Also at the top-level, we ascertain that benefits relating to Changes
in mindset have tended to be overlooked in the literature, yet we show, in both our
taxonomy and prioritization, that they are of practical relevance. We attributethis under-representation to the fact that the discussion to date has been rather
technical (ter Bogt, 2008), having only recently, and to a lesser extent, begun
to encompass less technical benefits. Taken as a whole, we would argue that in
the literature mindset changes have not yet received the attention they deserve.
Further research, of which some is currently emerging, that incorporates and
examines more closely these kinds of outcomes of AOBB implementation such
as changes in working methods, employee attitudes, or organizational culture
(e.g., ter Bogt, 2008) would therefore make a valuable contribution to the
literature. Further examples of mindset changes may include AOBB being usedin high-level discussions rather than its being applied solely in decision making
at the operational level (Connolly and Hyndman, 2006), a more businesslike
or citizen- and performance-oriented approach, or greater focus on output and
outcome (ter Bogt, 2008). Above and beyond simply structuring the benefits
of AOBB, our study also adds greater depth by providing both subordinate
categories and basic benefits to complement our top-level categories.
Our second point of discussion pertains to various antecedents of the benefits
that came to light because of our research design. As outlined above, we
conducted our research at two sites to obtain a broader perspective of ourfindings. On the whole, our resulting taxonomy shows reliable and conceptually
sound attributes across the two sites we studied. We do find, however, that some
of the underlying results seem to be contingent on the status of the reform and
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on the characteristics of its process and we were able to bring these to light
because of our specific research design.
Our first finding of this kind is the intuitive observation that the benefits
mentioned were less specific in the setting where the reform was slightly less
advanced i.e., in Hamburg and that, vice versa, concrete benefits such asenhanced cost management or more specific transparency in general were more
pronounced in Hesse. We summarize this as a greater tendency towards a more
precise perception of benefits the further the reform has advanced. Our results
thus add evidence to what has been termed an experience effect (Watts, 1995).
A number of studies have found evidence for such an increasing recognition of
the benefits of new information over time (e.g., Jones and Puglisi, 1997; and
Kober et al., 2010).
Secondly, we are aware that our analysis is based on perceptions expressed
by organizational participants gathered in interviews and not on hard data another limitation of our study. Our case findings show that such perceptions
may be driven by idiosyncratic communication within a given organization. This
tendency becomes manifest, for example, in the oft-repeated description of the
case of a police car in Hamburg:
About 13 years ago someone came up with an illustration of the current investmentpractice. In the old world one bought a police car in one year by issuing a creditthat provided the necessary liquidity. After five years that car was taken to the scrap
yard and a new car was bought. The credit remained unpaid. This way after 20 years
the state owned one used car but the credit worth four police cars remained. In thenew world this story looks a little different (Member of group responsible for the
AOBB-reform in State Audit Court).
We would therefore suggest that future research pay closer attention to such
issues of organization-internal folklore, since this may incur a bias. In our
study, the police-car argument was the only instance when organization-internal
folklore became apparent.
These findings corroborate the view that both the outcomes of the reform
and perceptions of it are influenced by the way the change process is managed
overall. Prior studies show that the parameters of the change process are oftendisregarded in research and in practice (ter Bogt and van Helden, 2000), so we
would encourage more research on this aspect. The literature refers to change
processes as trajectories of modernization and reform (Pollitt and Bouckaert,
2004, p. 67) or design styles (Bourmistrov, 2006, p. 13) and on this point
discusses a number of explanatory aspects or antecedents. In particular, reform
outcomes may be sensitive to trajectories that differ either according to their
what, i.e., to their scope and components (e.g., changing finance, personnel,
organization, or performance measurement systems), or according to their how,
i.e., their process. Thus, there exists a wide range of diverse trajectories that ajurisdiction introducing AOBB may pursue. At the same time, choosing one route
over another impacts the benefits pursuant to the reform (Pollitt and Bouckaert,
2004). In Hamburg, for instance, the opening balance sheet was presented in
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the first stage while the rollout of budgeting reforms only followed later. In our
view, this helped stabilize the reform and foster buy-in within the organization.
Similarly, Hesse started off with an ambitious set of reporting requirements that
were subsequently loosened. This practice led to more opposition and frustration
than in Hamburg where reporting was subsequently changed in comparativelysmall increments. Since we found evidence pointing to the importance of the
change trajectory itself, we would suggest further exploration of how it may
influence the outcomes i.e., the benefits and/or drawbacks of AOBB
implementations. Recent research drawn from the private sector has identified
employee participation and leadership style as influencing implementation
outcomes in management accounting change (Hoozee and Bruggeman, 2010).21
Not only do our findings contribute to existing research but we also see
managerial implications in two ways. First and foremost, politicians, policy
makers, and top-tier administrative employees may now have at their disposal astructured catalogue of benefits based on our findings when deciding
for or against the introduction of AOBB. Notably in the event that they
want to improve specific aspects in their respective organizations (e.g., lack
of cost transparency), our exploratory prioritization can provide them with clear
indications and address the improvement potential. Likewise, they could pay
special attention and increase resource allocation to those areas which they
want to improve but which benefit less from AOBB introduction and vice
versa. They will need to use their own judgment when applying the taxonomy
and deciding which of the presented benefits will materialize in their specificcontext and help address user needs. Although we see no evidence to refine
this taxonomy, we would nevertheless suggest testing whether or not it needs to
be customized to respective contexts. Since we only present the benefits of the
reform, assessing the (opportunity) costs of any decision to reform cannot rest on
this contribution alone. Here, we provide a structural basis for consideration, but
turn to practitioners to supply additional pieces of information. Secondly, this
papers findings could serve project managers in charge of the reform projects in
their attempts to shape implementations of the reform (Arnaboldi and Lapsley,
2009). As we present a weighted taxonomy of perceived benefits, our findingsare suitable for developing persuasive project communications. In such cases,
we suggest that project members engaged in these tasks select the benefits that
enjoy broad agreement from our interviewees.
Limitations and Further Research
In interpreting the results of this study, its limitations should be taken into
account. In general, a taxonomic classification like the one presented here
might be criticized for its reliance on the researchers judgement. By adopting athree-stage approach, incorporating a broad variety of practitioners perspectives
on AOBB benefits, and conducting a thorough coding procedure, however,
we attempted to objectify our impressions with the applied research method.
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Another possible limitation relates to the fact that the primary data we gathered
reflect the perceptions of interested parties whose views may reflect expectations
but not real benefits. Although, broadly speaking, hard data might be preferable
to soft data (Carlin, 2005) when evaluating the success (or the benefits) of
implementations, we do share the view that hard evidence is more difficultto obtain (Pallot, 2001). In some instances such as ours, however, we also see
advantages in conducting interviews and embracing perceptions derived from
them: for example, an impact on decisions and, in our case, the avoidance
of bad decisions, can be better understood than with quantified data. Such
understanding is important given that impact on decisions has, in a variety of
studies, often served as a proxy for the positive consequences of implementations
(e.g., Shields, 1995; Malmi, 1997; and Kober et al., 2010). In addition, we believe
that it is perceptions rather than hard data that are acted upon and that
decide the fate of AOBB, i.e., its use in practice, its adoption at the particularorganization, as well as its diffusion in general. Nevertheless, to mitigate any
potential bias resulting from the use of perceptions, we included a diverse set of
respondents in our analysis. In addition, by asking interviewees to give concrete
examples or to be more specific, we tried to make sure that benefits articulated
to us referred to the actual use of AOBB in practice and were not merely echoing
or parroting presumed benefits or expectations which interviewees had heard
from project management or government (Connolly and Hyndman, 2006).
Even though we set out to incorporate opinions of AOBB benefits from as
many knowledgeable users as possible, we did not include external users such as(1) voters, tax-payers, and consumers of public goods and (7) creditors (numbers
refer to stakeholder groups mentioned in the literature section according
to Mayston, 1992, pp. 228-29). Further, central government users have been
excluded in this study, as the reporting to the central government by Hamburg
and Hesse has not yet been set up using AOBB principles (similarly to the Italian
and Australian context, see Anessi-Pessina et al., 2008 and Kober et al., 2010,
respectively). Not surveying these three user groups limits the conclusions that
can be drawn from our study since these may have articulated further benefits or
that the three unconfirmed benefits are important to them. Another explanationcould be, however, that the finding of less external user-related benefits of AOBB
goes in parallel with findings of studies which show that internal users are more
active users of public accounting information (e.g., Coy et al., 1997). Through
its structuration along benefit categories and not according to user groups, the
taxonomy in this study has drawn a rather general picture. Future research
may determine with more precision whether and how internal and external
users benefit by having their information requirements met and purposes served
through AOBB (see e.g., Kober et al., 2010). For a more complete picture to
emerge, we suggest to include a broad sample of AOBB stakeholders to furtherresearch.
In a similar vein, the fact that, at the time of the interviews, Hamburg had
not yet fully completed its transformation and that Hesse had recently closed
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it by presenting its balance sheet, might raise some doubts as to whether the
benefits reported to us had actually materialized. As we were aware of this at
the outset and chose our research method accordingly, we see little reason to
assume that the results have been substantially distorted by this effect. This is
also because, due to opposing logics in the change trajectories at the two sites with Hessen starting with budgeting related reforms and ending with creating
an opening balance sheet and Hamburg proceeding in the opposite way
we have scrutinized the relevant parts of complete change from cash-based
accounting and budgeting to AOBB in the context of both businesslike and less
businesslike German Lander. Nevertheless, we see great worth in conducting
further longitudinal studies of AOBB implementations and believe that we have
generated valuable ideas for more of this kind of research in this paper. To
some extent, our findings are also applicable to settings outside Germany. Even
though previous studies have shown the implementation of reforms in the publicsector to depend on geographies and level of government (e.g., Hood, 1995; and
Olson et al., 1998), we find consistency in large parts of our taxonomy with
existing literature drawn from other settings.
One final caveat remains. Like many previous studies, this paper cannot
answer the question of whether the introduction of AOBB improves the net
performance of the public sector. It contributes to the literature by examining
the benefits of AOBB in depth but does not take into consideration aspects
of cost (Connolly and Hyndman, 2006). Therefore, the two pressing questions
of how qualitative benefits translate into increased output or outcome and ofwhat the flipside of the benefits the costs looks like, remain unanswered.
Taking account of costs would certainly be beneficial given that, for a specific
organization, an implementation will only prove of value if there is a positive
cost/benefit ratio. As Carlin (2006) shows, the costs of using AOBB are likely
to be significant. Further, it would be interesting to see whether AOBB has
relative disadvantages since the literature has failed to emphasise the innate
benefits of the cash basis of accounting (Ellwood and Wynne, 2005, p. 169).
Including the far end i.e., performance in the equation is, as we learn from
the literature, a difficult undertaking that has rarely been done to date (e.g.,Pallot, 2001). Not quite so far, the relationship between benefits in mindset and
more technical changes (i.e., tangible, direct improvements in an instrumental
sense) is another potentially fruitful area for further study. In this context, we
hypothesize that instrumental changes precede transformations of individual or
organizational mindsets, and we encourage scholars to follow this question.
CONCLUSION
The benefits of accrual accounting and full cost-based, output-oriented bud-geting in central governments have been intensely disputed among academics
and practitioners. In general, a more precise understanding of the benefits
adds to the decision of whether public entities should apply AOBB or not.
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While the normative, conceptual, or theory-based literature has made promising
claims regarding which benefits could be expected from reforms of government
accounting and budgeting, recent empirical research has found that at least some
of these expectations have been massively overstated. The observed gap between
promises and reality raises anew the question of what the true benefits are. Bycollecting practitioners judgements, the purpose of our paper was to draw up a
landscape of perceived benefits (taxonomy). We base our findings on analysis of
42 qualitative interviews conducted in the rather under-explored context of two
states in Germany. The derived taxonomy appears to be exhaustive, mutually
exclusive, and robust. Our analysis thus contributes both to the interpretation
of existing research and to the design of future research. In terms of the former,
while being consistent with existing research, it clearly and holistically structures
the benefits generally expected and articulated by practitioners implementing
AOBB.Mapping our results onto prior claims in the literature, we further reveal that
the practitioners interviewed do not see benefits in areas that previous research
deems important, while other areas, not previously emphasized, seem to be
more relevant in practice. Since interviewees in our sample did not mention
them at all, we suggest handling the following benefits with greater caution in
future debate: Increased compliance and reporting discipline, Increased intergenerational
fairness, and Provisioning of relevant information for creditors. In the latter case, the
field of AOBB research inherits contributions along two dimensions. Firstly,
our analysis brings to the fore various benefits of AOBB implementation interms of mindset changes. Secondly, building on quantitative analysis of our
interviews as well as on qualitative understanding of our data, we identify the
most important benefits: Increased cost awareness, Improved general decision making,
Improved cost management, Increased focus (on results), and Adoption of businesslike thinking,
procedures, and pragmatism. Providing guidance for future research, our framework
therefore points to a need to move beyond a purely technical focus and to
embrace less technical perspectives of such implementations. Facilitating the
design of future research, our exploratory analysis suggests ideas as to the
antecedents and priority levels relating to the benefits of AOBB.
APPENDIX
Themes investigated and covered during interviews:
Interviewees educational background; career positions held so far
Description of current position and main responsibilities
Perception of the reform process
General opinion of AOBB
Degree of exposure to AOBB reports and instruments
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Nature of AOBB information used
Role of AOBB in day-to-day work
Major benefits of AOBB compared to cash-based accounting and budget-
ing
Concrete examples of major benefits of AOBB
Impact of AOBB information on decision making.
NOTES
1 See Winckelmann (1949, p.1). All sources originally in a foreign language have been translatedby the authors.
2 In this paper, reform refers to the shift in government accounting from cash accounting
to accrual accounting (Christiaens and van Peteghem, 2007) combined with a reform of thebudgeting process (full accrual-based budgeting, product orientation) in public sector entities.
As a precursor data feeder system (Carlin, 2005, p. 321), accrual accounting, or similarlyresource accounting (RA, e.g., Connolly and Hyndman, 2006), supplies input data for publicsector agencies in order to plan, control, and classify public expenditures and sources ofrevenues with budgeting (Lee and Johnson, 1977). To refer to both these systems jointly, wefollow Carlin (2005) in employing the term accrual output-based budgeting (AOBB) whendenoting the target state of the reform.
3 Lapsley and Pallot (2000) observe that one stream focuses on the intent and the other on theconsequences of the new instruments.
4 Among the sources we reviewed were both publications that address reform-related topics without any intention to analyze benefits in more depth and studies that directly address
the benefits of reform. The latter also include recent studies with review sections, such asArnaboldi and Lapsley (2009), Anessi-Pessina and Steccolini (2007), Connolly and Hyndman(2006), and Carlin (2005).
5 In short, full accrual accounting is based on the businesslike principle that revenues and costshould be charged to the period in which they are earned and used (Arnaboldi and Lapsley,2009, p. 813).
6 Similarly, together with financial viability and fiscal compliance, also Anthony (1978) listsmanagement performance and cost of services provided as user needs.
7 We additionally refer the reader to studies such as Collins et al. (1991), Luder and Jones(2003), and Jones and Pendlebury (2004) who find that accounting data are not widely usedoutside of the respective authorities. One explanation for this may be that internal usersrequire greater detail because they actually manage and operate the entities affairs. [. . .]
internal users may need information at the most detailed level of each component activity ofa program (USGAO, 2000, pp. 20-21).
8 At this point, we would like to point to studies in management accounting that have raiseddoubts about the ontological and epistemological nature of (management) accounting systemsin change (Burns and Vaivio, 2001; Quattrone and Hopper, 2001; Busco et al., 2007; and Andonet al., 2007). These scholars are critical of linear conceptions of change processes and thereforequestion whether they should be seen as trajectories from one exact, distinct, and observablesteady state to another.
9 For a general description of this unique institutional culture, we refer the reader to Budauset al. (2003).
10 Local government in the German context includes counties (Kreise), non-county municipalities(kreisfreie Stadte), and municipalities (Gemeinden) (Pollitt and Bouckaert, 2004).
11 It is worth noting that Christiaens and Rommel (2008) make the proposition that accrualaccounting reforms work well only in businesslike (parts of) governments. This, however, doesnot mean that benefits do not result at all in less businesslike parts of governments.
12 This is especially true relative to Anglo-Saxon countries. Pollitt and Bouckaert (2004) arguethat in a Rechtsstaat such as Germany, reforms are generally stickier and slower than in public
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interest regimes because any reforms would require legal changes and an extensive trainingof senior Beamte with backgrounds predominantly in administrative law.
13 Out of a balance sheet total of about 89 billion, the negative equity of Hesse amounts toroughly58 billion.
14 This does not mean that we do not see the potential of intrinsic case studies as an important
way to gain understanding of particular phenomena (e.g., Flyvbjerg, 2007). Rather, such anapproach is just not compatible with the main objective of this study.15 For an oft-cited accounting literature study that analogously uses qualitative methods and
coding techniques with positivistic aims (see Malina and Selto, 2001).16 In addition to the 49 individuals who were met in an explicit research interview setting, 15
further individuals were met informally. The observations from these interactions have notbeen formally integrated into the codes but provide us with further reference for triangulationof our findings.
17 In one case three interviewees were present; in five cases we interviewed two individuals atonce.
18 Taking advantage of the structuring capabilities of such computer-based analysis, we createdtwo fully independent hermeneutic units with independent categories. Towards the end of
the procedure we compared the resulting taxonomies for each research site.19 The categories information (mental) model action are explicitly or implicitly used in severalpublications (e.g., Denzau and North, 1994).
20 For instance, we merged Transparency of risks, Impact on cost for new debt, Overall performanceimprovements, P&L data timeliness, Performance indicators into existing categories as they wereonly mentioned by a few respondents and fit well with the existing taxonomy.
21 For a management accounting study from the private sector, where this question has attractedequall