Public Sector Accounting Reforms in Sri Lanka

Public Sector Accounting Reforms in Sri Lanka: Key Points

Abstract

  • Purpose: To explore challenges and influential factors in developing public sector accounting reforms in Sri Lanka.
  • Methodology: Qualitative analysis using primary data (interviews) and secondary data (reports, literature).
  • Findings: Technological and cultural factors influence accounting reforms. Politicization, bureaucracy, and attitudes towards costs hinder implementation.
  • Limitation: Small sample size limits generalization.
  • Originality/Value: Fills a gap in literature on public sector accounting reforms in less developed countries (LDCs).

Introduction to New Public Management (NPM)

  • NPM emphasizes customer significance and accountability.
  • Rationales for NPM: cost-cutting, labor disciplines, flexibility in decision making.
  • Reforms have given accounting a central role.
  • Resistance to change is inevitable when implementing NPM.

Research Methodology

  • Exploratory and qualitative, involving interviews, observations, and document analysis.
  • Expert purposive sampling used to select respondents with accounting expertise.
  • Primary data collected through face-to-face interviews.
  • Secondary data includes literature, reports, and articles.

Theoretical Background

  • Neo-institutional theory and isomorphism explain public sector accounting reforms.
  • Institutional isomorphism includes competitive and institutional aspects.
  • Legitimacy is vital for the success of public sector accounting reforms.
  • Three types of institutional isomorphism: mimetic, coercive, and normative.

Types of Institutional Isomorphism

  • Mimetic Isomorphism: Organizations mimic successful entities due to uncertainties.
  • Normative Isomorphism: Organizations adopt systems disseminated by professional bodies.
  • Coercive Isomorphism: Pressures from other public sector organizations and cultural dependencies influence lower-level organizations.

Historical Periods of Public Sector Accounting Reforms in Sri Lanka

  • Pre-Colonial Period (815-1801): Accounting reforms aimed at transparency.
  • Colonial Period (1802-1947): Accounting standards based on British legislation.
  • Post-Colonial Period (1948-2009): Shift to a westernized accounting system.
  • Recent Period (2009-Present): Focus on modern accounting practices like accrual accounting.

Pre-Colonial Period Accounting (815-1801)

  • Evidences of accounting and accountability practices in ancient Sri Lanka.
  • Rules for daily financial control, recording, and financial statements.
  • Prohibited relationships that could cause improper bookkeeping.
  • Tax collectors and accountants were prohibited from obtaining bribes.

Colonial and Post-Colonial Periods

  • Institute for Chartered Accountants (ICA) established in 1959.
  • Financial regulations and standards based on British legislations until 1970.
  • Sri Lanka Accounting and Auditing Standards Act 1995 established the Sri Lanka Accounting and Auditing Standards Monitoring Board.
  • Adoption of Planning, Programming, and Budgeting (PPB) approach in the 1970s.

Recent Period (From 2009)

  • Focus on accrual accounting.
  • Full accrual accounting framework is not yet successfully implemented in many countries.
  • Adoption of accrual-based accounting systems to reform public sector organizations since 2003 (ICASL, 2009).
  • Commitment towards adopting accrual-basis IPSAS for accounting and budgeting.
  • Sri Lanka's State Accounts Department (SAD) made accounting reports more transparent by providing them online.

Findings and Analysis

  • Institutional isomorphism pressures organizations to perform to conform to the outside world.
  • Technological backwardness, lack of political leadership, high fiscal deficit, and skill problems are identified.
  • Mimetic isomorphism is driven by initiatives to increase well-trained public sector staff.
  • Sluggish attitude towards costing influences public sector accounting reforms.

Summary and Conclusion

  • Technological and cultural factors, politicization, bureaucracy, and attitudes towards costing are barriers to reform implementation.
  • Recommends a change of attitude on the part of public sector staff.
  • Institutional isomorphism is vital for legitimacy and fitness.