The diffusion of accounting reform in Sri Lanka: an analysis of two layers of diffusion among three levels of government

Abstract

PurposeThe purpose of this study is to evaluate the implementation of accrual accounting among two layers of government in Sri Lanka. This study examines the process of diffusion and application among and between provincial governments and local governments to assess the barriers and enablers on the implementation of accrual accounting.Design/methodology/approachThe study relies on data collected through interviews with 30 accounting and finance personnel from all levels of government active in the diffusion process. Interviews were conducted to gather and assess their insights and perceptions on the diffusion of accrual accounting. The data are examined initially using Rogers (1995) “diffusion of innovation” theory to explain the factors influencing the diffusion and adoption of accrual accounting at two levels of government but the analysed primarily by comparing the perspectives of respondents between the different layers of government.FindingsThe findings show that the adoption of accrual accounting was more effective among local governments compared with provincial governments. The lack of effective communication and engagement from the leaders of the innovation failed to persuade provincial government adopters of the true value of the accounting reform. This is contrasted with local governments who openly adopted accrual accounting but not in response to pressure from provincial government, who have oversight responsibility for local governments, but in response to funding protocols initiated by the central government to account for grant funding.Research limitations/implicationsThe findings of the study should be interpreted with caution as the data are obtained from the narrow cohort of accounting and finance professionals and may not reflect the views or experience of all stakeholders involved in the diffusion of accrual accounting.Originality/valueThe paper contributes to the diffusion of accounting innovation literature by examining the role of key players in different layers of government, particularly visible among provincial governments where the lack of engagement delayed its commitment to the implementation of accrual accounting.

The role of the professional association in the translation of accrual accounting in the Sri Lankan public sector

“…This CA Sri Lanka public sector wing provides qualification to public sector financial managers. (G3) Interestingly, the motivation for the formation of APFASL arose from the criticisms of PGs as potential adopters of SLPSAS, who claimed that ICASL was predominantly a body serving the interests of private sector accountants with limited understanding of the complexities of public sector governance (Dissanayake et al, 2021). The data in the present study support this finding, questioning the relevance of ICASL to develop and disseminate SLPSAS.…”

“…Under pressure from many fronts, including international donor agencies such as the World Bank who sought enhanced financial accountability, the CG decided to adopt full accrual accounting by developing SLPSAS. Despite the acceptance of the CG to adopt accrual accounting, its dissemination and implementation across public sector organisations was challenged by adopters and remains controversial (Dissanayake et al, 2019(Dissanayake et al, , 2021. In 2008, the Public Sector Accounting Standard Committee (PSASC) was established as part of co-regulatory exercise between the ICASL, the Auditor General (AG) and the Ministry of Finance and Planning (MOFP).…”

“…ICASL responded to this call for leadership and strengthened public sector financial reporting in Sri Lanka by formulating public sector accounting standards. However, research by Dissanayake et al (2021) reported that provincial government CFOs resisted the involvement of ICASL in the promotion and development of accrual accounting in Sri Lanka. ICASL was viewed by central and provincial government CFOs as a professional body serving its members who were predominantly serving the interests of the private sector.…”

“…They may overcome resistance and speed up this process by providing information, support, and guidance to those who are planning to implement new accounting practice. (G2) However, the evidence in Dissanayake et al (2021) suggests that SLPSAS lacked acceptance, particularly among provincial government adopters because of a lack of meaningful communication and exchange, ultimately failing to persuade PGs of the true value of the accounting reform. Furthermore, enrolment was constrained by the challenges in receiving and coordinating the views of relevant parties when the institutional framework lacked formal inter-governmental and inter-organisational mechanisms for policy coordination, dialogue and decision-making on public finance (USAID, 2005).…”

“…ICASL responded to this call for leadership and strengthened public sector financial reporting in Sri Lanka by formulating public sector accounting standards. However, research by Dissanayake et al. (2021) reported that provincial government CFOs resisted the involvement of ICASL in the promotion and development of accrual accounting in Sri Lanka.…”