How Accrual Accounting was Implemented in New South Wales (Australia) and in France

Posted by Tej Prakash 

What is the coalition needed for introducing accrual accounting reforms? Have Ministries of Finance generally been resistant to introduction of these reforms? A paper on Accounting for Changed Accounting:  A Translation View Comparing Accrual Accounting Implementation in France and Australia, presented at the 12th Comparative Intergovernmental Accounting Research Conference in Modena (May 2009), by Mark Christensen and Sebastien Rocher, touches on these issues and traces in detail the move to an accrual based accounting system in France and New South Wales (NSW) in Australia. The research question posed by the authors is: what were the similarities and differences of NSW and France in their move from cash-based accounting? The paper uses the Actor Network Theory (ANT) approach to describe the process. ANT is based on the idea that for any institutional innovation to take place the interests of many actors interested in change have to converge. This convergence goes through different stages of identifying the problem, creating awareness, enrollment and mobilization of the actors. In the case of move to accrual accounting these actors were politicians and parliamentarians, bureaucrats and technicians, auditor generals and the news media.  


The decision to introduce accrual accounting was made in 1988 and the first accrual based budgets and set of accounts were produced in 1992-93. Prior to 1988, accrual accounting was not seen as critical to public sector reforms. One of the most vocal advocates of moving to accruals was the then Auditor General of NSW. He found support when private accounting firms began advocating accrual accounting as an essential part of the ‘New Public Management’ paradigm. This also coincided with the renewed interest of the public sector accounting firms in business opportunities in the government. A seminar in NSW in 1988 advocating accrual accounting coincided with the elections and the leader of the opposition made an election promise to introduce accrual accounting if his party won—and they did. As a result senior civil servants and the Treasury came on board to support the reforms. As accrual accounting was seen as critical to public sector reforms, media interest was also generated and there were a number of newspaper stories about accrual accounting and its promise. At the same time, through a number of presentations analysts made the point of demonstrating, by comparing cash based information with accrual information, how cash based information could be wrong or inadequate in certain circumstances. The new government at the same time commissioned Arthur Anderson to prepare a report in support of accrual accounting. This report claimed many advantages of accrual accounting, some of which seem questionable today (such as it ‘would help governments avoid financial crises'). However, this report and the support of the Auditor General ensured that the NSW government was fully committed to accrual accounting. In the transition process, accounting firms and consultants played an important role. There were full time consultants in government departments, and the government prepared a roster of 80 consultants whose service could be hired without any further tender or evaluation. Every department employed consultants to move to accrual accounting. At the same time, a Treasurer’s Accounting Advisory Panel (TAAP) was formed to advice the Treasurer on ‘accounting issues affecting the public sector’. This became a powerful advisory body to support the Treasury in the move to accrual accounting.


In France, the decision to introduce accrual accounting was taken in 2001 and by 2006 general accounts were prepared on an accrual basis. The French accounting system was prescribed by an ordinance from 1959 according to which the budget was to be based on cash transaction. However, another decree of 1962 (no. 62-1587) underscored the principle that public sector accounting should be closer to private sector accounting and utilize accrual accounting principles. It led to a dual system of cash based budgeting and modified cash based accounting. French parliamentarians supported cash based budget systems since they understood this system better. The Supreme Audit Court, however, was in favor of accounting reforms. In 1996 an European Council regulation relating to European system of national accounts mandated calculation of government financing needs on an accrual basis. This required reform in the compte général de l’administration des finances (CGAF). Many elements of accrual based accounting were introduced in the CGAF in 1999.

In 1999, the then President of the French National Assembly, Laurent Fabius, set up a parliamentary group to study accounting reforms. One of the main recommendations of this group was to move to accrual accounting. A breakthrough came in 2000 when the same Laurent Fabius became Finance Minister. The momentum for introducing accrual accounting was building in the meantime with the Court of Audit pushing the reforms. In October of 2000, a report by A. Lambert, president of the financial committee of the Senate argued for the need to reform the 1959 ordinance. As a result of all this and with the agreement of all politicians a New Organic Bylaw was approved in 2001. This law modified the accounting framework, although the budget remained on a cash basis since the parliamentarians better understood cash based budgets. These reforms were further consolidated with the creation of the Committee for Public Accounting Standards in 2002. In 2004, this committee published a  first set of 13 accounting standards based for the French government sector based on International Public Sector Accounting Standards (IPSAS). One of the distinguishing features of the French system is the development of a conceptual framework for the public sector accounting, which is largely absent in many other countries.

The Two Cases Compared

Accrual accounting reforms in both countries were driven by a coalition of stakeholders.  The main drivers of the move to accrual accounting in NSW were public oversight bodies (the Auditor General and parliamentarians, private accounting firms, and later the newspapers which helped build a political support for it. The Treasury was initially against the reforms, but changed its position only after it gauged the support of the politicians. Support of consultants was also crucial to the process.

In France, the Court of Audit was one of the main motivators of the reforms, while also here the Treasury was in favor of cash based systems. As in NSW, support of politicians tilted the balance in favor of move to accrual accounting. European Union pressures helped the process. Finally, it was a motivated Finance Minister who was critical for the reforms.  

Download Accounting For Changed Accounting A Translation View Comparing Accrual Accounting Implementations In France And Australia

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