Decision Usefulness of Cash and Accrual Information: Public

Sector Managers Perceptions

Yeny Andriani, Ralph Kober & Juliana Ng

ccrual accounting was phased into the State and

Commonwealth public sectors in the 1990s as
part of the public sector financial management
reforms in Australia. Cash-based financial reporting
information was viewed as inadequate to support the
aims of the public sector financial management reforms,1
and AAS 29 Financial Reporting by Government
Departments (AARF 1993) was issued, requiring all
Australian government departments to adopt accrual
accounting, effective as of 31 December 1996. As Jones
and Puglisi (1997) noted, AAS 29 reflected the paradigm
shift that was occurring with the implementation of
the public sector reforms that focused on moving from
issues of fiscal compliance to the broader concept of
performance evaluation. AAS 29 acknowledged that
government departments should be accountable for the:

This study examines the usefulness of accrual accounting

information for internal decision-making contexts in the
Western Australian public sector. Based on questionnaire
responses of public sector managers, it was found that
accrual accounting is perceived to be more useful than
cash accounting in 16 of the 19 decision situations. These
results suggest that the perceived usefulness of the accrual
accounting system has improved with the passage of time.
It may well be that perceptions of the usefulness of
information derived from an accounting system will
change over time as users gain familiarity and experience
with a system.

1 efficiency and effectiveness with which they deliver

services and use resources
2 achievement of operating objectives (the cost of
services provided and the recovery of costs)
3 resources they control
4 liabilities they incur
5 compliance with spending mandates (AARF 1993
Preface; AARF 1998 paragraphs 6.3.1, 6.3.2, 6.3.4,
6.3.7, 6.3.9, Main Features of the Standard; Jones and
Puglisi 1997).
AAS 29 argued that accrual accounting would aid
in achieving these accountabilities by providing information that would be useful to the management
of government departments for administrative and
decision making purposes (AARF 1998, Main Features
of the Standard). However, although more than a decade
has passed since its introduction, there is still much
contention over the usefulness and applicability of
accrual accounting to the public sector (for example,
Carnegie and Wolnizer 1995; 1997; 1999; 2002; Guthrie
et al. 2003; Carlin 2005; Christensen 2007).
Much of the debate surrounding cash accounting
versus accrual accounting in the public sector has centred
on normative arguments. While not downplaying
the importance of normative perspectives, there is
144

Australian Accounting Review No. 53 Vol. 20 Issue 2 2010

Correspondence
Associate Professor Ralph Kober, Department of Accounting &
Finance, Monash University, PO Box 197, Caulfield East, Victoria
3145, Australia. Tel: +61 3 9903 4541; fax: + 61 3 9903 2422;
email: ralph.kober@buseco.monash.edu.au
doi: 10.1111/j.1835-2561.2010.00087.x

Public Sector Managers Perceptions

a need for empirical evidence to substantiate these

claims. For example, on the issue of the usefulness
of accrual accounting for public sector managerial
decision-making, it is relevant to deliberate how
informative accrual accounting is for internal decisionmaking, but it is also necessary to corroborate this
by seeking input from those actively involved in the
decision-making processes. As Christensen (2007, p. 59)
acknowledged, while we know accrual accounting in
the public sector has been expensive, non-trivial and
confusing, closely interconnected with other reforms,
and controversial . . . we do not know if it has had an
impact on managers decisions.
This study contributes to the empirical literature on
the usefulness of accrual accounting in the public sector
by seeking input from public sector managers on their
perceptions of the usefulness of both accrual accounting
information and cash accounting information for
19 internal decision-making situations. Jones and
Puglisi (1997) also examined the usefulness of accrual
accounting in specific decision contexts, but their study
was conducted in the period 19931994, which was prior
to the adoption of accrual accounting in many Australian
jurisdictions. Thus, their study may have been too early
to provide meaningful insights into the usefulness of
accrual accounting for managerial decision-making. Our
study was conducted in Western Australia during 2003.
The introduction of accrual accounting into the Western
Australian public sector was done in stages during the
1990s. Hence, we considered the timing of our study as
appropriate since it allowed for a settling-in period, and
we expected that public sector managers would be able
to make more informed assessments of the usefulness
of accrual accounting for their decision-making as a
consequence. Based on the responses of 62 Western
Australian public sector managers, our results suggest
that accrual accounting information was perceived to
be more useful that cash accounting information for
the majority of the internal decision-making situations.
We found that cash accounting information was only
perceived to be more useful in three situations and,
not unexpectedly, two of these situations related to
decisions pertaining to cash flows. Although the study
was conducted in 2003, we believe that the results are
still relevant today since, as noted above, there has
been no such published analysis to our knowledge since
the widespread adoption of accrual accounting. It is
therefore warranted that this study become part of the
public data set so as to inform current and future debate
on the direction of public sector accounting standards.
Literature Review
Accrual accounting and its applicability to public sector
entities in Australia has been widely debated from a

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Y. Andriani, R. Kober & J. Ng

normative standpoint.2 It has been argued that the

definition of an asset, based on private sector meanings,
creates distortions in meanings and as such is of limited
use in decision-making in the public sector (for example,
Carnegie and Wolnizer 1995; 1997; 1999; 2002; Barton
2002; 2004; 2005; Carlin 2005). For example Carnegie
and Wolnizer (1995; 1997; 1999; 2002) argue strongly
against the recognition of cultural and heritage assets
in the financial statements of public sector agencies,
specifically noting the unreliability and irrelevance for
financial decision making of the accounting numbers
assigned to collections under the SAC4 definition
(Carnegie and Wolnizer 2002, p. 46). Barton (2002; 2005)
notes the differences between public and private goods,
and also the market in which the business sector and
public sector operate. He comments on the difficulty
in assigning a value to public goods and argues that,
given the differences between public goods and private
goods, financial valuations are not relevant for the good
management of these [public] assets . . . nor are they
relevant for measures of the managing entitys financial
performance and position (Barton 2002, p. 44).
Barton (2004) further explores the differences
between the public sector and private sector, and
the implications of these differences on accounting
information and reporting systems, with specific
reference to the 2001/02 financial statements of the
Department of Defence, which on the basis of their
financial statements appear to be the most profitable
enterprise in Australia. Barton (2004) argues that this
highlights how the business model of accrual accounting
has been misapplied to the public sector, resulting
in misleading financial information with little use in
relation to decision-making. Barton (2004; 2005), while
acknowledging the need for accrual accounting in the
public sector, argues for a modified version that reflects
the differences between the public and private sectors.
Such a system, Barton (2004) argues, would provide
useful information to management and parliament for
decision-making.
Rowles (2002) provides a counter opinion to the above
arguments. He argues that the implementation of accrual
accounting in the public sector requiring recognition of
all assets, liabilities, revenues, and expenses has resulted
in comprehensive information being available about
the financial performance and position of all public
sector entities, resulting in increased efficiency within
the public sector, especially with regard to asset usage.
Rowles (2002) argues this opinion with reference to
heritage and cultural assets and how a financial valuation
of these assets may provide additional information that
could aid in the provision of these public goods. For
example, he makes reference to the understanding of
the financial value of a collection held in store as being
useful in arguing for extra resources from government
to extend exhibition facilities.
Australian Accounting Review

145

Y. Andriani, R. Kober & J. Ng

Carlin (2005) found a greater use of current

replacement costs in the Victorian public sector, which
resulted in an upwards bias to the assessed total cost
function of government departments (Carlin 2005,
p. 328). He argues that this upward bias of government
cost functions diminishes the usefulness of the accounting information, especially with regard to comparisons
with the private sector.
Despite the extensive literature relating to normative
arguments, empirical studies on the decision usefulness
of accrual accounting in the Australian public sector are
limited (Christensen 2007), and there have been very
few studies that have directly canvassed public sector
managers for their perceptions on the usefulness of
accrual accounting information.
Jones and Puglisi (1997) surveyed 298 State and
Commonwealth government department managers to
ascertain their opinions on the usefulness of accrual
accounting for 19 internal decision-making contexts.
Based on the responses of 172 managers, Jones and
Puglisi (1997) reported that accrual accounting was
perceived to be relevant for performance evaluation
situations, but concluded that, overall, the relevance of
accrual accounting information for internal decisionmaking was fairly modest. While the Jones and Puglisi
(1997) study was comprehensive, it was conducted in
19931994, a time period prior to the full adoption
of accrual accounting across Australia. Hence, and as
acknowledged by the authors, their results may reflect
some degree of unfamiliarity with the accrual accounting
system.
Since then, however, there has been no comprehensive
examination of public sector managers perceptions
on the usefulness of accrual accounting for decisionmaking. Rather, the reported literature has focused
on seeking public sector managers opinions on the
usefulness of accrual accounting either in general terms
(CPA Australia 2000) or for very specific issues, like
accounting for roads (for example, Rowles et al. 1998).
Rowles et al. (1998) surveyed financial managers in
local governments across Australia for their opinions
on the usefulness of financial disclosures of land under
roads. Their study revealed that many of the respondents
viewed the asset recognition requirements as being
a pointless exercise. One of the reasons claimed by
respondents was that the measurement exercise would
serve no useful purpose for either decision making or
performance measurement (Rowles et al. 1998, p. 47).
Rowles et al. (1998) concluded that financial managers
did not understand the usefulness of the information.
In a similar vein, Pilcher (2000) conducted interviews
across 26 local government councils in New South Wales
on the issue of accounting for roads. Pilcher (2000)
reported there was general confusion and inconsistencies
that hampered the possibility of comparative analysis.
She suggested that an educational program may assist
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Public Sector Managers Perceptions

users in understanding the implications of the accrual

basis of accounting . . . (Pilcher 2000, p. 56).
In 2000, CPA Australia commissioned a benchmarking survey on financial management practices in the
Australian public sector. The study surveyed the CEOs
and CFOs of 25 organisations (23 of these were local,
state or federal public sector agencies, one was a New
Zealand public sector organisation, and one was a
private organisation in Australia) on a range of issues
including questions pertaining to day-to-day accounting
functions, accountability frameworks and finance skills
within the public sector (CPA Australia 2000). The
results of this study were released in the Beyond Bean
Counting 2000 Report (henceforth referred to as the
Report). The Report also compared the 2000 results with
an earlier study conducted in 1997 by the Management
Advisory Board of the Commonwealth public sector.3
Of particular interest to this paper are the responses
related to the use of accrual accounting. The Report
suggested that, compared to 1997, there was wider
acceptance by CEOs that accrual accounting provided
useful information for decision-making. The results of
their survey revealed that 95% of CEOs who used accrual
accounting information considered it reasonably or
extremely useful (CPA Australia 2000, p. 12). The
Report also provided evidence of the spread of accrual
accounting in the public sector. The study found that
17% of the organisations received budget appropriations
on a cash basis compared to 78% in 1997. However, the
Report also suggested there was some hesitancy to shift
completely to an accrual system. Specifically, the Report
indicated that 26% of organisations allocated budgets
internally using a combination of cash accounting
and accrual accounting, while 57% of organisations
generated reports used both cash accounting and accrual
accounting, and 39% reported both cash and accrual
information for internal purposes.
It may well be that, with the passage of time, the
acceptance of accrual accounting within the public
sector is changing and, in conjunction with that change,
perceptions of the usefulness of accrual accounting for
decision-making may also change (Jones and Puglisi
1997). The preceding review provides some indication
that this may be the case. Our study extends the
literature by examining the state of play in 2003.4 Like
Jones and Puglisi (1997), our study seeks opinions
on the usefulness of accrual accounting for specific
decision-making contexts, thus enabling us to identify
the extent to which accrual accounting is considered
useful across a range of internal decision-making
situations. Furthermore, we depart from prior literature
by seeking separate responses for the usefulness of
accrual accounting and of cash accounting for each of
the decision contexts.5 By seeking two responses for each
decision, we can more meaningfully compare the relative
usefulness of the two systems of accounting.

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Public Sector Managers Perceptions

Y. Andriani, R. Kober & J. Ng

Table 1 Government departments surveyed

Table 2 Survey questions

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

Item

17.
18.
19.
20.
21.
22.
23.
24.

Department for Community Development

Department for Planning and Infrastructure
Department of Agriculture
Department of Conservation and Land Management
Department of Consumer and Employment Protection
Department of Culture and the Arts
Department of Education
Department of Education Services
Department of Environmental Protection
Department of Fisheries
Department of Health
Department of Housing and Works
Department of Industry and Technology
Department of Justice
Department of Land Administration
Department of Local Government and Regional
Development
Department of Mineral and Petroleum Resources
Department of Racing, Gaming and Liquor
Department of Sport and Recreation
Department of the Premier and Cabinet
Department of the Registrar, Western Australian
Industrial Relations Commissions
Department of Training
Department of Transport
Department of Treasury and Finance

A. The 19 internal decision situationsa

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

Research Method

17.
18.

A postal survey was utilised for this study. Questionnaires

were distributed to all directors-general and senior and
middle-level managers of 24 of the 25 government
departments in Western Australia in existence in 2003.
Table 1 lists the 24 government departments surveyed.
Details as to departmental structures, managers names,
and position titles were obtained from either the
departments web page or their annual reports. One
department was excluded, as the required information
was not listed on its web page or in their annual report.
The opinions of directors-general, senior and middlelevel managers were sought, as it was felt that these
levels of management had the greatest exposure to
accrual reports and would be involved in making internal
decisions concerning their government department.
Surveying all senior and middle-level managers in the
24 government departments listed in Table 1 meant
that unequal numbers of questionnaires were sent to
the different departments, which was reflective of the
varying sizes of the different departments. This approach
of surveying all managers was adopted to maximise
the number of potential respondents. In total, 268
questionnaires were distributed.
The questionnaire comprised two sections. The
first asked respondents about the adoption and usage
of accrual accounting and cash accounting in their
department. The central focus of this section was


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Decision situation

19.

To assess your departments performance

To assess a programs performance
To assess managerial performance
To assess your departments effectiveness in the
delivery of goods and/or services
To assess your departments efficiency in the delivery
of goods and/or services
To assist in ensuring your department is accountable
for all its assets and liabilities
To assist in discharging your departments
accountability obligations
To assess the cash flow needs of your department
To assess your departments ability to generate cash
flows
As an input to your departments internal budget
preparation
For making major investment decisions
For making decisions about the allocation of resources
For evaluating decisions about the allocation of
resources
To assess the level of resources that your department
may need in the future
To assess whether resources are being used in the
manner intended
To identify the cost of goods and/or services provided
by your department
To assess your departments capacity to continue to
provide goods and/or services into the future
To measure the extent to which your departments
goals and objectives have been achieved
To assess the appropriateness of existing goals and
objectives

B. Maintenance of accounting systemb

1a.
1b.
2a.
2b.

Accrual accounting system for budgeting purposes

Accrual accounting system for internal management
reporting purposes
Cash accounting system for budgeting purposes
Cash accounting system for the internal management
reporting purposes

a. For each of the 19 internal decision situations, respondents

were asked to separately rate the usefulness of accrual accounting
information and cash accounting information on a scale of [1] not
useful to [5] very useful.
b. For each of these questions respondents were asked to tick
the appropriate box (yesno) as to whether the department they
worked for maintained this type of accounting system. Hence,
for example, it was possible for a respondent to indicate that
the department they worked for maintained both an accrual
accounting system and a cash accounting system for budgeting
purposes.

to determine whether respondents perceived accrual

accounting information or cash accounting information
to be more useful for 19 internal decision-making
situations. The 19 situations (listed in Table 2) were
representative of the types of internal decisions made
by managers of public sector government departments

Australian Accounting Review

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Y. Andriani, R. Kober & J. Ng

Public Sector Managers Perceptions

and were obtained from a review of Jones and

Puglisi (1997), AAS 27 Financial Reporting by Local
Governments (AARF 1996), AAS 29 Financial Reporting
by Government Departments (AARF 1993), and various
financial accounting textbooks.6 For each of the 19 situations, respondents were asked to rate the usefulness
of: (1) accrual accounting information and (2) cash
accounting information. Usefulness was rated on a scale
of [1] not useful [5] very useful. Since it was possible
that some of the decision situations may not have
applied to all government departments, a not applicable
option was also included for each decision situation.
The questionnaire also asked whether the respondents
departments maintained a cash accounting system
and/or an accrual accounting system for budgeting
purposes and for internal management reporting (see
Table 2).
The second section of the questionnaire focused
on obtaining background information about the
respondents, including their gender, qualifications, a
self-rating of their knowledge of accrual accounting, the
number of years of public sector experience and whether
they had any private sector experience.

Table 3 Demographics and descriptive statistics

Results and Discussion

Note: Summing responses for individual questions does not

always equal 62, as not everyone responded to each question.

Scale: [1] low [5] high. In this table, low represents those who
responded either 1 or 2 on the response scale; high represents
those who responded either 4 or 5 on the scale.

Demographics
Responses were received from 62 managers, representing
a 23% response rate. Fifty-seven (93%) of the
respondents were male, and the highest qualification
achieved by 24 (39%) respondents was an undergraduate
degree, while 27 (44%) held postgraduate degrees.
Respondents had, on average, been in the public sector
for 23 years and had an average of 14 years of public
sector management experience. Thirty-two per cent of
respondents also had private sector experience, ranging
from one to 25 years. When asked to rate their knowledge
of accrual accounting, most respondents rated their
knowledge highly, with mean rating across respondents
of 3.73 (on a 5-point scale, where [1] low [5]
high). Table 3 provides a summary of these descriptive
statistics.7
Accounting system usage
As can be seen from Table 4, which reports the use of
accrual and cash accounting systems, a large number of
respondents indicated that their department continued
to use a cash accounting system for budgeting and
internal management. In relation to budgeting, 3 (5%)
respondents indicated that their department still used
only a cash accounting system and 38 (66%) indicated
that their department used both accrual accounting
and cash accounting systems. In relation to internal
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Australian Accounting Review

Gender:

Female
Male

4 (6.6%)
57 (93.4%)

Age:

35 to 39 years
40 to 44 years
45 to 49 years
50 to 54 years
55 to 59 years
60 years and above

4
9
22
16
9
2

(6.5%)
(14.5%)
(35.5%)
(25.8%)
(14.5%)
(3.2%)

Highest
qualification:

High School Certificate

Diploma
Undergraduate Degree
Postgraduate Degree

1
9
24
27

(1.6%)
(14.8%)
(38.7%)
(43.5%)

Years working in
the public sector:

Mean (std dev.)

Range

22.9 (8.3)
3 to 37

Years of
public sector
management
experience:

Mean (std dev.)

Range

13.8 (6.6)
3 to 30

Private sector
management
experience:

No
42 (67.7%)
Yes
20 (32.3%)
If yes, mean years (std dev.) 8.2 (7.4)
Range in years
1 to 25

Knowledge of
accrual
accounting:

Low
High
Mean (std dev.)

8 (14.5%)
39 (62.9%)
3.7 (1.0)

Table 4 Use of accrual accounting and cash accounting systems

Accounting system

Budgeting

Internal
management

Accrual accounting only

Cash accounting only
Both accrual and cash
accounting

17 (29.3%)
3 (5.2%)
38 (65.5%)

18 (30.0%)
11 (18.3%)
31 (51.7%)

management, 11 (18%) respondents indicated that

their department still used only a cash accounting
system and 31 (52%) indicated that their department
used both accrual accounting and cash accounting
systems. Budgeting and internal management both had
relatively few respondents (17 (29%) and 18 (30%),
respectively), indicating that their departments used
exclusively accrual accounting information. This high
rate of respondents who indicated that their departments
maintained dual accounting systems is consistent with
the findings of CPA Australia (2000). In fact, we find a
higher rate of respondents indicating the maintenance
of dual accounting systems (CPA Australia (2000)
reported 57% for budgeting and 39% for internal
management).
Given that the maintenance of two accounting systems
is a costly exercise, it is presumed that the users

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Public Sector Managers Perceptions

Y. Andriani, R. Kober & J. Ng

Table 5 The usefulness of accrual accounting and cash accounting information for various decision situations
Accrual accounting information

Decision situation

Cash accounting information

Not
Not
No. of
useful Useful Mean
No. of
useful Useful Mean
responses (%)
(%)
(SD) Median responses (%)
(%)
(SD) Median

1. Assess department performance

57

14.0

82.5

2. Assess program performance

59

25.4

69.5

3. Assess managerial performance

53

22.6

54.7

4. Assess departments
effectiveness in delivery of
goods/services
5. Assess departments efficiency in
delivery of goods/services
6. To assist in ensuring the
department is accountable
7. To assist in discharging the
departments accountability
obligations
8. To assess the cash flow needs of
the department
9. To assess the departments ability
to generate cash flows
10. Input to the departments
internal budget preparation
11. Making major investment
decisions
12. For resource allocation
decisions
13. For evaluating resource
allocation decisions
14. To assess future departmental
resource needs
15. To assess whether resources are
being used in the intended manner
16. To identify departmental costs
for goods/services provided
17. To assess departments capacity
to continue providing
goods/services in the future
18. To measure the extent of
achievement of the departments
goals and objectives
19. To assess the appropriateness of
existing goals and objective

55

12.7

65.5

54

9.3

72.2

57

1.8

89.5

57

8.8

91.2

57

42.1

42.1

52

32.7

50.0

59

23.7

55.9

47

6.4

80.9

59

22.0

64.4

59

16.9

67.8

56

10.7

73.2

57

22.8

63.2

60

11.7

81.7

58

10.3

74.1

56

19.6

60.7

53

30.2

47.2

4.0
(1.2)
3.7
(1.4)
3.5
(1.4)
3.8
(1.3)

4.0

58

31.0

37.9

4.0

60

33.3

38.3

4.0

54

35.2

40.7

4.0

56

51.8

21.4

3.9
(4.0)
4.5
(0.8)
4.3
(1.1)

4.0

56

41.1

30.4

5.0

58

65.5

22.4

5.0

58

46.6

37.9

3.0
(1.4)
3.3
(1.4)
3.5
(1.3)
4.1
(1.0)
3.6
(1.3)
3.7
(1.2)
4.0
(1.1)
3.5
(1.3)
4.1
(1.2)
3.9
(1.1)

3.0

58

12.1

79.3

3.5

52

17.3

61.5

4.0

60

15.0

58.3

4.0

48

25.0

39.4

4.0

60

21.7

50.0

4.0

60

33.3

35.0

4.0

57

45.6

36.8

4.0

56

39.3

33.9

4.0

60

51.7

30.0

4.0

59

44.1

35.6

3.5
(1.3)

4.0

57

47.4

24.6

3.2
(1.4)

3.0

54

51.9

27.8

3.2
(1.2)
3.1
(1.2)
3.0
(1.1)
2.5
(1.2)

Sig.

3.0

0.00

3.0

0.03

3.0

0.04

2.0

0.00

2.8
(1.3)
2.3
(1.2)
3.0
(1.3)

3.0

0.00

2.0

0.00

3.0

0.00

4.1
(1.1)
3.7
(1.2)
3.7
(1.1)
3.3
(1.1)
3.4
(1.1)
3.1
(1.2)
2.9
(1.3)
2.9
(1.2)
2.7
(1.2)
3.0
(1.3)

4.0

0.00

4.0

ns

4.0

ns

3.0

0.00

3.5

ns

3.0

0.01

3.0

0.00

3.0

0.02

2.0

0.00

3.0

0.00

2.7
(1.3)

3.0

0.00

2.6
(1.3)

2.0

0.00

Abbreviations: Sig. = significance of the Wilcoxon signed ranks test; ns = no significant difference.
Scale: [1] not useful [5] very useful. In this table, not useful represents those who responded either 1 or 2 on the response scale;
useful represents those who responded either 4 or 5 on the scale.

of this information must perceive some additional

benefits from receiving cash accounting information
in addition to accrual accounting information. The
high number of respondents who reported working in
departments that maintained dual accounting systems
lends support for Bartons (2007, p. 38) argument that
cash accounting provides necessary information for
public sector managers and that it should be reintroduced as an integral subset of an accrual accounting
system.

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Usefulness of accrual and cash accounting

information for various decisions
Table 5 presents the percentage of respondents who
believed information presented under each of the
two accounting systems (accrual accounting and cash
accounting) to be either not useful or useful for
each of the 19 decisions listed in Table 2. Not useful
represents the percentage of people who responded
either 1 or 2 on the 5-point response scale ([1] not
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Y. Andriani, R. Kober & J. Ng

useful [5] useful), and useful represents the percentage

of people who responded either 4 or 5. The mean
scores, median scores, standard deviations and the
significance levels of Wilcoxon signed ranks tests8 are
also presented in Table 5. Reviewing the descriptive
statistics in Table 5, it can be seen that in all but three
situations the usefulness percentage score, mean and
median for accrual accounting information was higher
than the usefulness percentage score, mean and median
for cash accounting information. These three situations
were: (1) the assessment of a departments cash flow
needs (item 8); (2) the assessment of a departments
ability to generate cash flows (item 9); and (3) the
input to a departments internal budget preparations
(item 10). It is not surprising that for the first two of
these situations cash accounting information received
higher scores, given that both items relate to cash flows.
The fact that the median scores for cash accounting
information and accrual accounting information for the
preparation of internal budgets are equal may relate to
the relatively high continued usage of cash accounting
systems discussed above. Wilcoxon signed ranks tests
revealed that with the exception of the above three
situations and that of resource allocation decisions
(item 12), accrual accounting information was consistently rated as being statistically significantly more
useful than cash accounting information (p < 0.05). Not
surprisingly, in relation to assessing the cash flow needs
of the department (item 8), cash accounting information
was considered to be statistically significantly more
useful than accrual accounting information (p < 0.01).
AAS 29 paragraph 3.1.1 (AARF 1998) recognises the
need for information that is useful for accountability and
for decision-making. In terms of meeting accountability
obligations, accrual accounting was perceived to be more
useful than cash accounting information (items 6 and 7;
p < 0.01). In fact, across all the decision situations, these
two items received the highest median rating for the
usefulness of accrual accounting (median of 5 for both
items).
Items 12, 13 and 14 focused on resource allocation
decisions. For each of these situations, respondents
accrual accounting information had a higher median
score than cash accounting information. However, the
difference was only statistically significant for evaluating
resource allocation decisions (item 13, p < 0.05) and
to assess future departmental resource needs (item 14,
p < 0.01). These findings on the usefulness of accrual
accounting for making decisions on resource allocation
is in line with AAS 29 paragraphs 6.3.4 and 6.3.7 (AARF
1998), which notes that accrual accounting information
can be used as an input to the decisions about the
allocation of scarce resources in the future that will
support the departments future operations.
Accrual accounting information was also statistically
significantly more useful (p < 0.05) for assessing
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department, program and managerial performance

(items 1, 2 and 3 respectively). This is consistent
with the sentiments of AAS 29 paragraph 6.3.4 and
the Main Features of the Standard (AARF 1998) that
accrual accounting information contained in operating
statements is relevant to the assessment of a departments
performance, but also highlights that respondents found
accrual accounting information to be useful at even lower
levels of aggregation in terms of assessing program and
managerial performance. Similarly, in line with AAS
29 paragraph 6.3.4 (AARF 1998), we found accrual
accounting was viewed to be statistically significantly
more useful than cash accounting for assessing and
evaluating departments goals and objectives (items 18
and 19, with p < 0.01 for both items).
We also asked questions pertaining to the delivery
of goods and services. In particular, we sought
perceptions on the usefulness of accrual accounting
information and cash accounting information in: (1)
assessing the departments effectiveness in the delivery
of goods/services (item 4); (2) assessing the departments
efficiency in the delivery of goods/services (item 5);
(3) identifying departmental costs for goods/services
provided (item 16); and (4) assessing the departments
capacity to continue providing goods/services in the
future (item 17). In each of these situations, accrual
accounting information was statistically significantly
more useful than cash accounting information (p <
0.01). Thus, managers perceived accrual accounting
to be more useful in assessing and evaluating their
departments provision of goods and services and
providing support for AAS 29 paragraphs 6.3.4 and 7.1.1
(AARF 1998), which state that accrual accounting would
be useful for such decisions.

Effect of individual characteristics on responses

We performed additional analysis to determine whether
the respondents knowledge of accrual accounting
or their private sector experience impacted on their
perceptions of the usefulness of accrual accounting.9
Mann Whitney U tests revealed three instances (out of
19) when there was a statistically significant difference
between levels of knowledge and the perceived usefulness
of accrual accounting. These related to the discharging
of a departments accountability obligations (item 7), as
an input to a departments internal budget preparation
(item 10), and to measure the extent to which a
department has achieved its objectives (item 18). For
each of these three situations, respondents who rated
their knowledge of accrual accounting highly perceived
accrual accounting to be more useful than those
respondents who rated their knowledge levels as being
low (p < 0.044 1-tailed, p < 0.041 1-tailed, p < 0.025
1-tailed, respectively).10

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Public Sector Managers Perceptions

Similarly, Mann Whitney U tests revealed only one

instance (out of 19) when there was a statistically
significant difference between private sector experience
and the perceived usefulness of accrual accounting.
Specifically, this related to the identification of the cost of
goods and/or services (item 16), with managers who had
private sector experience perceiving accrual accounting
to be less useful than those managers who had no private
sector experience (p < 0.037).
Overall results
Overall, the results presented in Table 5 suggest that for
the 19 decision situations presented in the questionnaire,
accrual accounting information is meeting public
sector managers needs, in that for 16 of the 19
decision situations the managers perceive the accounting
numbers derived from accrual accounting as being
more useful for decision-making than the equivalent
numbers derived from cash accounting. These findings
are contrary to the arguments presented in the literature
that accrual accounting does not meet public sector
managers information needs (for example, Carnegie
and Wolnizer 1995; 1997; 1999; 2002; Barton 2002; 2004;
2005; Carlin 2005), and also to the findings of Jones
and Puglisi (1997), but are consistent with AAS 29,
Main Features of the Standard (AARF 1998), that accrual
accounting information would be useful to managers of
government departments for decision-making purposes.
A possible explanation for the fact that we find
accrual accounting information to be useful in decisionmaking, whereas others have not, is that by the time
our research was conducted (in 2003), managers had
become familiar with accrual accounting information.
Jones and Puglisi (1997), who concluded that accrual
accounting information was only of modest relevance,
undertook their research during 199394, prior to the
widespread adoption of accrual accounting in the public
sector. It is possible that it took public sector managers
time to become familiar with a new method of recording
and presenting financial information, and it is only
through exposure for a period of time that these users
and preparers come to understand the usefulness of the
new accounting method, which is consistent with Jones
and Puglisi (1997).
Given our reported results of the number of
respondents whose departments maintain both accrual
and cash accounting systems, it may be considered
surprising that we found such a strong result for accrual
accounting information being rated as more useful
for decision-making than cash accounting information.
However, these results may suggest that public sector
managers still consider cash accounting information
to be an important secondary source of information.
This would support the assertions of Barton (2007),
that though accrual accounting and cash accounting

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Y. Andriani, R. Kober & J. Ng

provide different information, both sets of information

are necessary to public sector users.
Conclusion
Our study found that Western Australian public sector
managers considered accrual accounting information
more useful than cash accounting information in the
majority of the decision situations that we examined.
Consistent with the sentiments of AAS 29 (AARF
1998), accrual accounting was perceived to be more
useful for discharging accountability obligations, for
assessing performance, and for assessing the effectiveness
and efficiency of the provision of goods/services. Cash
accounting information was perceived to be more
useful in three situations; two of which pertained
to cash flow assessments. The general perception
that accrual accounting was more useful than cash
accounting differed to the findings of Jones and Puglisi
(1997). However, their study was conducted before
the widespread adoption of accrual accounting. The
differences in our findings could suggest that perceptions
of decision usefulness might require an adjustment
period, in that public sector managers required time
to understand, and appreciate, the benefits of accrual
accounting information. Hence, it is possible that the
perceived usefulness of different accounting systems may
be a function of familiarity and experience.
Our study also found a large number of respondents
indicating that their departments maintained dual
accounting systems. This high percentage might indicate
that, as suggested by Barton (2007), cash accounting
provides necessary information, and supports his
argument for the reintroduction of cash accounting as
part of a modified accrual accounting system for the
public sector.
While this study provides interesting insights, some
limitations must be noted. First, this was a small sample
and it was from one geographical location. Also, there
were differences in the replies from respondents who
answered earlier than those who answered later. The first
group appeared to be less in favour of accrual accounting.
Hence, care should be taken when generalising these
results. A limitation of anonymous survey research is
that we are unable to collect identifying information
from respondents, and as such we do not know
which department respondents were employed in. This
inability to assess from which departments respondents
came could introduce a potential bias in our results
in that some departments may be over-represented.
Furthermore, it is acknowledged that there may be
systematic differences between different government
departments, which is reflected in the decision to
maintain only an accrual accounting or cash accounting
system, or to maintain both systems concurrently.
Given that we were unable to collect any identifying
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Y. Andriani, R. Kober & J. Ng

information from respondents, we are unable to make

any inferences as to whether the perceived usefulness of
accrual accounting versus cash accounting is a function
of the nature of a government departments operations.
This would be a fruitful area for future research.
Future research could also examine broader samples
and geographic dispersion to confirm the results of
our study. There are also other issues pertaining to
the decision usefulness debate that warrant future
research. Barton (2007, p. 38) recommended the
reintroduction of the cash basis as an integral subset
of an accrual accounting system, and our study revealed
that the majority of respondents reported working in
government departments that were maintaining both
cash and accrual systems. Hence, future research should
examine whether the reintroduction of the cash basis
would provide users with a more comprehensive system
that facilitates improved decision-making.
Yeny Andriani is a former BCom honours student at The
University of Western Australia. Ralph Kober is in the Department
of Accounting & Finance, Monash University. Juliana Ng is in
the UWA Business School, The University of Western Australia.

Notes
1

152

In broad terms, these aims were to: (1) improve the performance
of the public sector by making it more responsive to the needs of
government; (2) increase the accountability of the public sector;
(3) promote efficiency and effectiveness in the allocation and use
of government resources; (4) introduce participative decisionmaking and to adopt a customer focus; (5) promote a more
competitive environment, both nationally and internationally;
and (6) allow a more comprehensive assessment of the economic
impact of government activity and the sustainability of fiscal
policy (McCulloch and Ball 1992; Ball 1994; McGregor 1999;
Hoque and Moll 2001).
Christensen (2007) summarises the arguments both for and
against the adoption of accrual accounting in the public sector.
As this paper focuses on the issue of decision usefulness, we limit
our discussion to arguments pertaining to the applicability of
accrual accounting to public sector decision usefulness (for a
review of the arguments both for and against the adoption of
accrual accounting, see Carlin (2005) and Christensen (2007)).
Bisman (2005) and CPA Australia (2000), however, cautioned
that comparisons and generalisations should be undertaken with
care because of differing sample sizes.
As mentioned earlier, since accrual accounting was introduced in
stages into the Western Australian public sector during the 1990s,
this provided for a time lag to allow public sector departments
to gain experience with accrual accounting.
Jones and Puglisi (1997) asked respondents to provide a single
response for each of their decision contexts. Hence, respondents
were asked if accrual accounting was a better measure than cash
accounting for each situation.
An accountant from a public sector government department was
also asked to review the list of situations for the suitability of the
contexts and wording of the contexts.
We tested for possible non-response bias by categorising
respondents into two groups (early and later respondents),
based on the median return date of the questionnaire. MannWhitney U tests revealed statistically significant differences in
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Public Sector Managers Perceptions

8
9

10

9 of the 19 decision situations for accrual accounting and 2

of the 19 decision situations for cash accounting. In each of
the accrual accounting instances, the early respondents rated
accrual accounting as less useful than later respondents. For
the two cash accounting instances, early respondents rated cash
accounting as more useful than later respondents. To the extent
that this analysis may be used to draw inferences about the
representativeness of the respondents to the wider population,
these results suggest a pattern in that early respondents seemed
less in favour of accrual accounting. Despite this potential
response bias of people favourably disposed to cash accounting,
we still find statistically significant results that indicate accrual
accounting is seen as being more useful in decision-making
than cash accounting for most decision situations. Consequently,
this potential bias in respondents is not seen as affecting the
conclusions made in this research.
Non-parametric tests were used in this study as the data were
non-normally distributed.
To examine the effect of knowledge levels on perceived usefulness,
we grouped those who rated their knowledge levels as 4 and 5
on the 5-point scale as having a high level of knowledge, and
those who rated their knowledge levels as 1 and 2 as having a
low level of knowledge.
One-tailed significance levels that are reported as tests for
statistical significance are directional. That is, we expected
that respondents who rated their knowledge of accounting
highly were more likely to perceive accrual accounting as more
useful than respondents who rated their knowledge of accrual
accounting as being low.

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