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Reaping the Benefits of Two Worlds: An Exploratory Study of the Cash and the
Accrual Accounting Information Roles in Local Government

Article in Journal of Applied Accounting Research · August 2009

DOI: 10.1108/09675421311291900

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 Reaping the benefits of two worlds: An exploratory study of the cash and the
accrual accounting information roles in local government

Sandra Cohen, Nikolaos Kaimenakis and George Venieris

Athens University of Economics and Business

Paper to be presented in the EGPA Conference 2009

Study Group on Public Sector Financial Management
Malta, 2-5 September 2009

Correspondence address
Sandra Cohen
Assistant Professor of Accounting
Athens University of Economics and Business
76, Patission St.
Athens 10434
Greece
Tel: +30 210 8203168
Fax: +30 210 8203164
E-mail: scohen@aueb.gr

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 Sandra Cohen, Nikolaos Kaimenakis and George Venieris
Department of Accounting and Finance, Athens University of Economics and
Business

Reaping the benefits of two worlds: An exploratory study of the cash and the
accrual accounting information roles in local government

Abstract
One of the most significant recent actions that has been undertaken by the Greek
central government towards reforming the financial functions of subsidized local
government organizations was the introduction of accrual accounting. However, this
accounting reform resulted in a system where cash accounting was not abolished in
favor of accrual accounting. Within this new system cash and accrual accounting
coexist, operating simultaneously but independently from each other. This
coexistence raises an interesting question: what is the usefulness of reforming the
public sector accounting system by introducing businesslike accruals that are
expected to enhance decision making, while maintaining the institutionalized cash
accounting system that has traditionally been used for the same purpose? The
current research study explores this rather rare situation through the investigation of
the roles that the two accounting systems fulfill with reference to Greek municipalities
by following the framework developed by Ansari and Euske (1987). More specifically,
we assess, for each accounting system individually, whether the accounting data
provided performs: a) a technical-rational role – that is, whether it is used to measure
efficiency and enhance decision-making, b) a socio-political role – that is, whether it
is used as an “ammunition machine” in order to rationalize the organization’s actions
to its members and gain negotiating advantages and c) an institutional role – that is,
whether it legitimizes the organization to its external constituencies. Our survey
results are based on the answers of 106 municipalities financial departments
principals on a structured questionnaire. We provide supportive evidence that the
roles performed (the technical-rational role, the socio-political role and the
institutional role) by the two accounting regimes share similarities as well as
differences in the municipalities context. More specifically, the analysis we conducted
revealed the primacy or the equal importance of cash accounting in a setting where
the supposedly superior accrual accounting was introduced. It appears that cash
accounting still dominates in the major function of decision making, while accrual
accounting follows. Moreover, we provide evidence that the use of accrual
accounting information within a public sector organization setting influences its
management’s attitude towards cost in the sense of cost consciousness as
developed by Schields and Young (1994).

Keywords: Accrual Accounting, Cost Consciousness, Cash Accounting,

Municipalities, Roles of Accounting Information.

Acknowledgements: The authors would like to thank the participants of the 5th
International Conference on Accounting, Auditing & Management in Public Sector
Reforms in Amsterdam for comments on an earlier version of the paper.

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1. Introduction

The decline of the traditional public administration framework and the ensuing
emergence of the new public management techniques and practices in the early
1980s, were accompanied by the abandonment of the traditional cash accounting
systems in favor of businesslike accrual accounting ones. This change was brought
about due to the lack of faith towards the traditional public sector management
techniques and the increasing trust in the superiority of private sector management
instruments (Robinson, 1998). Accrual accounting that was developed and used by
private sector firms was perceived in this sense to be superior to the budgetary cash
accounting systems that were traditionally used to record the financial operations of
public sector organizations. Proponents of these accounting reforms state that
accrual accounting manages to provide a vast array of important financial information
that is unavailable through the traditional cash accounting systems (Guthrie, 1998).
Since accounting information serves a key role in decision-making (Pettersen, 2001),
the use of the more relevant information produced by accrual accounting by public
sector management could potentially improve the appropriation of taxpayers’ funds.
Even though many concerns have been expressed in relation to the applicability of
private sector management techniques in the context of the public sector that is a
fundamentally different one, accrual accounting reforms still serve a key role in the
worldwide application of new public management.
In this spirit, the Greek central government initiated about a decade ago a reform
process of its subsidized local government organizations accounting systems. This
reform process sought the evolution of the municipal traditional single-entry
budgetary accounting systems to double-entry accounting systems that combined
cash and accrual information. Within this dual system cash accounting and accrual
accounting would operate simultaneously but independently from each other. The
public sector entities involved in the project were to issue businesslike end-of-the-
year statements based on the accrual concept. Independent external audit firms
would review these statements; thus, reliability to the accounting figures would be
provided. However the implementation of the new system exhibited considerable
delay that was the outcome of several shortcomings (see Cohen et al. 2007 and
Cohen, 2008 for more details).
This coexistence of accrual and cash accounting poses a challenge to the validity of
the reform process in Greek municipalities: Why introduce accruals in a context
where cash accounting still operates in the same traditional manner? This situation
becomes even more problematic due to the lack of incentives for the municipalities’
elected officials to use accruals for decision-making purposes.
The scope of the study is twofold. Firstly, we seek to examine the function that the
accrual and the cash accounting systems serve with reference to Greek
municipalities. The analysis is conducted according to the theoretical
conceptualization of Ansari and Euske (1987). Secondly, we investigate how the
elected municipal management’s attitude towards cost in terms of cost
consciousness is affected by the way these accounting systems are used in practice.
The effect of the use of the accounting information on cost consciousness provides a
comprehensive view of the usefulness of each accounting system in the context of
Greek municipalities. Our empirical work lies in the stream of literature that examines
the adoption of accrual accounting systems in a setting where cash accounting is still
existent (Jones and Pendlebury, 1991; Christiaens, 1999; Christiaens, 2000;
Christiaens and Van Peteghem, 2007). Bearing in mind that in most cases
throughout the world the accrual accounting systems have actually replaced the cash
accounting ones, this coexistence of the two accounting systems is not common.
Thus, our study offers an opportunity to observe the usage of accrual accounting
information in a setting where the institutionalized cash accounting system is
3
expected to operate in the same traditional manner. Moreover, our research tests the
common notion that accrual accounting can lead to better financial management in
the public sector (Evans, 1995).
The paper is structured as follows: the next section comprises the literature review
regarding accrual accounting in the public sector, as well as the roles it serves. The
third section describes the methodology we employed as well as the hypotheses we
tested, while the fourth and fifth sections describe respectively the statistical results
and the conclusions of the study.

2. Literature Review
Accounting reforms in the public sector aim at the improvement of the information
that is provided to decision makers and to stakeholders; this improvement is a
necessary condition for the enhancement of public sector organizations
accountability and performance in view of the key role accounting information plays
in decision making in organizations (Pettersen, 2001). Along these lines, the
traditional cash budgetary accounting systems that exclusively focus on inputs are
transformed to output orientated accrual accounting systems that closely resemble
those of the private sector. This change constitutes a shift from accountability in
terms of process accountability to results accountability (Hood, 1995). Even though
the strict adoption of accruals in public sector entities is not advisable due to
measurement problems, lack of theoretical support and increased subjectivity (Chan,
2003), the expected benefits are overwhelmingly more significant in comparison to
the drawbacks and thus, an increasing number of governments initiate such
accounting reforms (Guthrie, 1998).

2. 1 Expected Benefits and Criticism on Accruals in the Public Sector

Taking into account the stressed financial conditions that local governments face on
a worldwide basis, the expected benefits of the accounting change are quite
appealing. Accrual accounting offers an improved depiction of public sector
organizations’ financial condition (Chan, 2003; Guthrie, 1998) which leads to
enhanced fiscal transparency and accountability (Chan, 2003; Gillibrand and Hilton,
1998; Guthrie, 1998; Hodges and Mellett, 2003; Perrin, 1998; Ryan, 1998). Through
enhanced transparency, improved performance can be achieved in the public sector
(Christiaens and de Wielemaker, 2003; Likierman, 2000; Perrin, 1998); transparency
leads to better quality decision making in relation to the allocation of available
resources (Gillibrand and Hilton, 1998; Goldman and Brashares, 1991; Hoque and
Moll, 2001; Pallot, 1997; Ryan, 1998). Also, accrual accounting makes it possible to
accurately measure the performance of public sector entities (Goldman and
Brashares, 1991; Guthrie, 1998; Hodges and Mellett, 2003; Hoque and Moll, 2001).
Also, management is able to determine the costs of the services provided (Guthrie,
1998; Pallot, 2001), which in turn leads to improved performance and resource
allocation (Evans, 1995).
The acceptance of accrual accounting in the public sector has not been unanimous;
serious doubts have been cast upon the applicability of techniques that have been
specifically designed to cater the needs of private sector firms. More specifically, this
criticism has been based on the fundamental differences between the public and
private sectors (Blöndal, 2003), which make it difficult to apply the accounting
equation principle effectively (Chan, 2003). Moreover, the performance measure that
accrual accounting provides through the annual profit figures is irrelevant in the
public sector realm where social objectives are pursued (Carnegie and West, 2003).
In addition to that, Mulgan (2000) points out the diverse nature of accountability in the
public sector and its private counterpart; private sector managers are judged
according to their ability to create profits for their shareholders, whereas managers of
4
public sector organizations face an entirely different set of criteria which relates to
their adherence to procedures and their capacity in achieving social goals. Moreover,
Monsen (2002) argues that cash accounting contributes to increased control of public
money within the core budget-linked public administration and satisfies its information
needs in relation to money management, budgetary control and current dues/actual
control.
Moreover, when accrual accounting is implemented valuation related issues arise
especially for public sector specific assets such as infrastructure and heritage assets
(Carnegie and West, 2003; Christiaens, 2001; Christiaens and de Wielemaker, 2003;
Hepworth, 2003; Jones and Puglisi, 1997; McCrae and Aiken, 2000; Pallot, 1997).
Finally, accrual accounting is criticized for offering a narrow short-term perspective of
performance, which in turn is associated with poor decision-making as regards
distributional issues in the public sector (McCrae and Aiken, 2000).
Despite the criticism expressed concerning the adoption of accruals in the context of
public sector organizations, governments throughout the world aim at substituting
their traditional cash accounting systems with businesslike accruals.

2.2 The Roles of Accounting Information

The use of accounting information in the organizational context, according to the
orthodox theorists, aims at the facilitation of decision making as well as at the
behavioral control of the organization’s members (Zimmerman, 2008). In this view,
accounting serves as a tool to minimize complexity and uncertainty in decision
making. However, this perspective on accounting is based on the rational choice
models whose validity is under question in the literature (see for example Lane, 2000
p. 77). Conceptual models regarding decision making in organizations, such as the
“garbage can model” by Cohen et al. (1972) have exhibited that in several cases it is
not rationality that determines management’s course of action. Moreover, as Burchell
et al. (1980) note the notion that the use of accounting systems precedes decision
making is an assumption the validity of which has rarely been explored in practice.
Literature offers evidence that in a number of cases accounting is not utilized as a
decision making tool; instead it fulfils roles that have little to do with rationality in
organizational action (see for example Baxter and Chua, 2003). According to Hoque
and Hopper (1994) despite what is widely accepted, managers use a variety of
social/informal control mechanisms to cope with complexity and uncertainty, whereas
formal controls (such as accounting systems) are maintained to comply with formal
requirements of external stakeholders.
The realization that accounting and rationality in decision making do not necessarily
go together hand-in-hand, becomes even more important in the process of
determining the roles of accounting information in the public sector realm.
Institutionalized norms and procedures that play a dominant role in public sector
organizations maintain a strong grip on the patterns of organizational action. Hoque
and Hopper (1994) argue that formal accounting controls will play a minor role in
organizations if they fail to reflect the tradition, culture, economic and political factors
that managers confront. Thus, in such contexts, a public sector reform aiming at the
introduction of accruals probably produces accounting systems that do not contribute
in the organizational processes. It is therefore likely, that these systems will be
loosely coupled from the organizations’ core processes in a way that they maintain
the prescribed appearances without compromising its actual operations (Carruthers,
1995).
Ansari and Euske (1987) introduced an integrated conceptualization of the roles
accounting serves in the context of an organization in their research study on US
army depots. The four uses of accounting that were identified can be viewed on the
matrix depicted in Table 1
“TAKE IN TABLE 1”
5
These uses can be summarized into three distinct roles of accounting information.
More specifically, accounting, according to Ansari and Euske (1987) can serve:
(a) A Technical-Rational role – that is, whether accounting information is used to
measure efficiency and to enhance decision-making.
(b) A Socio-Political role – that is, whether accounting information is used in
order to rationalize the organization’s actions to its members and gain
negotiating advantages as an “ammunition machine” (Burchell et al. 1980).
(c) An Institutional role – that is, whether accounting information legitimizes the
organization to its external constituencies.
The technical-rational role constitutes the traditional mainstream approach on the use
of accounting data in organizations; it provides the means to improve the basis for
decision making and reduce uncertainty faced by managers. This information may be
directed towards the needs of external as well as internal stakeholders. The socio-
political and the institutional roles of accounting represent the “natural” uses of
information which emphasize “…the way in which people in organizations are
influenced by and in turn attempt to influence information systems” (Ansari and
Euske, 1987 p. 552). Within natural models, managers are viewed as “responsible
agents that interact symbolically and thus create their social reality and give meaning
to their ongoing stream of experience” (Boland and Pondy, 1983 p. 223). The socio-
political role indicates the extent to which accounting is used to rationalize and justify
actions to members and influence the attitudes and beliefs of participants to gain
negotiating advantages. In the institutional role’s perspective, accounting serves as a
rationalizing and legitimizing tool for the organization to support its decisions and
maintain its profile towards external constituents. This particular role draws heavily
on New Institutional Sociology and the theory of loose coupling, according to which,
peer pressure and the need to maintain activities without damaging appearances
influences the actions of an organization (DiMaggio and Powell, 1983; Carruthers,
1995).

2.3 Measuring Managers’ Cost Consciousness

According to Considine (1988), new public management constitutes a move of

emphasis from the control of inputs towards the identification and efficient production
of outputs. This could imply an increased focus of management on cost related
issues. Undoubtedly, it is difficult for a public sector entity to drastically alter its
operations in order to reduce its costs. However, even though the reduction of costs
per se might not be a proper measure of success towards cost related issues, the
extent to which management directs its attention on the organization’s costs might be
so. Schields and Young (1994) have developed a survey instrument that has
previously been used in accounting literature (see for example: Abernethy and
Vagnoni, 2003), and portrays the level to which managers are concerned with the
cost consequences of their decisions.

3. Research Questions – Development of Hypotheses

The accounting change in the setting of Greek municipalities has created a rare
situation: the institutionalized cash accounting system which has been embedded in
the organizational processes continues to operate almost in the same manner as it
traditionally has used to, while accrual accounting has been introduced so as to
provide the vast array of expected benefits without any attempt though, to change
existing management routines. Burns and Scapens (2000) based on the theoretical
framework of old institutional economics, analyze the classifications of the different
types of change processes. Formal change is the introduction of new rules in the
organization, while informal is the change that occurs at a more tacit level (e.g.
routines). As Burns and Scapens (2000) note, the former change process is easier to
6
achieve in comparison to the latter; it is thus much easier to impose new rules than
modify the way the organizational members think. If formal change lags behind the
informal one, it will probably lead to the failure of its implementation. This distinction
between formal and informal change has implications for accounting change in the
public sector: if the introduction of an accounting reform lacks the support of a
simultaneous establishment of informal processes and procedures, there is a strong
possibility of failure. Blöndal (2003) notes the importance of introducing public sector
accounting reforms along with other managerial reforms so as to improve decision
making in the government; however this is not the case in Greek municipalities.
Furthermore, the highly political character of these organizations coupled with the
short time lapse of the elected management’s tenure and the absence of any
external incentives make it highly unlikely that accrual accounting information is
going to be significantly utilized for the expected purposes. In addition, since accruals
require specialized accounting training that is not needed in the case of cash
accounting, it is even less likely that the new accounting system will be used by
management as well as by a given municipality’s external constituencies. Moreover,
the accrual accounting introduction in Greek municipalities was not accompanied by
an informal change. Thus, a question arises whether the expected benefits from the
new system can prevail while informal change has not been promoted. Nor-Aziah
and Scapens (2007) note that the impacts of public sector reform are both socially
and institutionally constrained and can potentially vary significantly from one context
to another. Therefore, it is possible that an accounting reform may not deliver the
expected benefits.
Taking into account the distinction between formal and informal change, as well as
the difficulties that arise when the latter lags behind the former, it is under question
whether the expected benefits from the implementation will be materialized. Cash
accounting can therefore be expected to keep being heavily utilized in the municipal
context, while accruals are not expected to be used in a manner that is aligned with
their presupposed role.
As already discussed, the aim of our research is the investigation of the uses of cash
and accrual accounting information in the context of Greek municipalities. We also
examine the relationships among the roles of the two systems under Ansari and
Euske’s (1987) categorization, as well as the effects of each role on elected
management’s cost consciousness. Thus, we aim at clarifying the roles each
accounting system performs in a setting where accruals have been introduced
without any serious attempt to embed them in the tacit organizational processes,
while we seek to determine whether the way accounting information is utilized
changes the perceptions of managers regarding the operating costs of their
organization.
RQ1: What roles do the two accounting systems perform in the context of Greek
municipalities and what differences (if any) can be identified?
Our first research question aims at determining the way each accounting system is
utilized in the organizational context of Greek municipalities. In addition to this, we
seek to verify whether the roles performed by cash accounting system are more
dominant compared to those performed by the newly installed accrual accounting
system. Hence, we test the hypothesis:
H1: Cash accounting is more dominant in the municipal context as signified by the
roles it performs compared to those of the accrual accounting system.

RQ2: How are the roles of each accounting system related?

Through our second research question we seek to determine whether the natural and
rational perspectives of accounting use in organizations are related and to what
extent (Boland and Pondy, 1983). In this sense we investigate the extent up to which
the uses of each accounting system are related amongst each other, while we also
7
examine whether such relationships exist within cash and accrual accounting. We
test the hypothesis that the natural and rational perspectives are negatively
correlated. Therefore,
H2: The rational and natural perspectives of accounting use in the municipal context
are negatively correlated.

RQ3: What is the effect of each accounting syste’s role on the elected management’s
cost consciousness?
The third research question relates to cost consciousness. The major premise behind
the accounting change is the improvement of Greek municipalities’ financial
management. Through cost consciousness it is possible to determine the extent to
which the elected management is interested in managing the organization’s costs in
order to achieve better performance. Thus, we test whether the manner in which
accounting is used influences the managers’ cost consciousness.
H3: The technical -rational role of accounting under the accrual convention is
expected to have a positive impact on management’s cost consciousness

4. Methodology

In order to assess the roles of the two accounting systems, as well as the cost
conscious behavior of the municipalities’ managers, we conducted a survey study in
Greek municipalities that have adopted the dual accounting system. A questionnaire
was addressed during the spring of 2008 to the principals of the financial
departments of 228 municipalities that have already implemented the dual
accounting system. The survey instrument that was administered, requested the
respondents to express on a Likert scale the extent of their agreement (where 5
corresponded to totally agree) or disagreement (where 1 corresponded to totally
disagree) on forty five (45) statements (presented in the appendix) that referred to
the way that the elected management uses accounting information, as well as its
concern with the dimension of cost consequences in their decisions. The statements
concerning the different accounting roles where scattered in the questionnaire. The
recommendations stated by Fowler (2002) were used in the design of the survey
instrument. A total of 106 municipalities participated in the survey by returning
completed questionnaires to the researchers. Thus, the response rate of our
research study was 46%.
The answers that we received were grouped together so as to create indices
(variables) for each role served by the two accounting systems as described in the
conceptualization developed by Ansari and Euske (1987). Also, an index was created
in relation to the managers’ cost conscious behavior. Thus, a total of seven variables
(indices) were developed: six that correspond to the uses of accrual and cash
accounting information and a variable that corresponds to the cost consciousness of
the municipalities’ elected management.

5. Statistical Results
Respondents’ profile
The participants in our study are highly ranked municipal employees with an average
of 6.4 years of experience in their current positions and 11.8 years of service in the
municipality they are currently employed. Thus, the responses obtained can be
considered of high quality and informative as far as the use of accounting in the
municipalities of our sample is concerned.
Descriptive statistics regarding the municipalities’ population are presented in table 2.
“TAKE IN TABLE 2”

8
Significance of accounting roles
Cronbach-Alpha tests were performed on the items that comprise each accounting
role in the questionnaire so as to test the validity of the survey instrument. Table 3
summarizes the results.

“TAKE IN TABLE 3”
The Cronbach-Alpha results confirm the validity of the survey instrument that was
used in our research since all test values were above 0.6 (Bagozzi, 1994).
The table below presents the descriptive statistics regarding the roles each
accounting system performs in the context of the municipalities of our sample.
“TAKE IN TABLE 4”
The analysis of Table 4 above indicates that the technical-rational role has the
greatest significance in the cash accounting system (cash1, mean = 3.739), while the
socio-political (cash2, mean = 3.561) and the institutional roles (cash3, mean =
2.853) follow in terms of significance. In the case of accrual accounting though, the
socio-political role (acc2, mean = 3.531) is the primary function followed by the
technical-rational (acc1, mean = 3.280) and institutional role (acc3, mean = 2.981)
respectively.
A series of t-tests were performed so as to determine if the results regarding the
accounting roles and the managers’ cost consciousness were significantly different
from the value of 3 (which was the average score in the items of the questionnaire).
The findings are presented in Table 5.
“TAKE IN TABLE 5”
The t-test results in Table 5 indicate that all roles apart from the institutional one are
significantly different from the value 3 at 1% significance level. The institutional role
of accounting either under the accrual or the cash paradigm seems to be considered
in the context of Greek municipalities rather a neutral dimension.
Moreover, we performed a series of paired sample t-tests in order to verify that the
differences exhibited between the various roles of accounting within any given
accounting convention (accrual or cash) are valid. The test results in Table 6 indicate
that each accounting role accounting is distinct from the others at 1% significance
level. However, even though the three roles of accounting can be distinguished from
one another, the t-test results (last part of Table 6) indicate that only the technical-
rational role is statistically significantly different when considered under the two
accounting conventions. It appears that the elected management uses the
accounting information for the natural functions (sociopolitical and institutional) in
both cash and accrual accounting in a similar manner.
“TAKE IN TABLE 6”

We performed Pearson and Spearman correlation analyses in order to determine the

extent to which the different functions performed by the two accounting systems are
related. The results are presented in table 7:
“TAKE IN TABLE 7”
The correlation results indicate that the technical-rational role and the socio-political
role of cash accounting exhibit a significant positive relation (r=0.414, p< .001). This
means that the use of accounting data for decision-making purposes is related to the
tendency of the elected management to use this data in order to influence the
attitudes of a given municipality’s external and internal constituents. On the contrary,
the technical-rational role and the institutional function of cash accounting exhibit a
significant negative relationship (r=- .339, p<.001). The two natural uses of cash
accounting exhibit a non-significant small negative relationship. Thus they seem not
to be related, which in other words implies that the degree to which the elected
management influences the perceptions of the municipality’s stakeholders is not
related to the extent this information is directed towards the maintenance of
9
appearances. In the case of accrual accounting, the technical-rational role and the
sociopolitical function exhibit a significantly positive relationship (r= .660, p< .001).
The institutional role is not significantly statistically related with the other two accrual
accounting role dimensions.
As for the relationships among the roles performed by the two accounting systems, it
is worth mentioning that the technical-rational role of cash accounting and the
technical-rational and sociopolitical roles of accrual accounting appear to be
significantly positively correlated (r= .362, p< .001 and r= .219, p= .05 respectively).
In other words, the use of accrual accounting for decision making purposes and for
the influence of attitudes is positively related to the extent to which cash accounting
is used for decision making purposes. It was also found that the sociopolitical role of
cash accounting and all three roles performed by accrual accounting exhibit
significant positive correlations. Finally, the institutional role of cash accounting is
negatively correlated with the technical-rational role (r=-.427, p< .001) and the
sociopolitical role (r= -.217, p= .05) of accrual accounting, but is positively correlated
with its institutional role(r= .407, p< .001). In this case it appears that the more the
cash accounting helps the organization to maintain its external appearance the
higher the underutilization of accrual accounting for decision-making and policy
issues pursuit.

Effects on cost consciousness

Finally, in order to assess he effect of the manner in which accounting is used, we
ran a multivariate linear regression with the elected managers’ cost consciousness
as the dependent variable and the roles of accounting under both accrual and cash
basis as the independent ones. The OLS results are presented in table 8.

Our results indicate that the technical-rational function both of cash accounting and of
accrual accounting has a positive influence on the elected management’s cost
consciousness. On the contrary, the sociopolitical and institutional roles of only cash
accounting have a negative effect (even though less significant) on the dependent
variable. The latter roles under the accrual accounting paradigm do not exhibit a
statistically significant influence. Moreover, the statistical results indicate that the
coefficient of technical-rational role of cash accounting has a higher beta value
compared to the respective accrual accounting one. This finding leads us to conclude
that this particular role in terms of cash accounting has a greater effect on cost
consciousness than in terms of accrual accounting. Nevertheless, as accrual
accounting technical-rational function has a statistically significant coefficient it
increases management’s cost consciousness over and above the cash accounting
technical-rational role effect.
“TAKE IN TABLE 8”

6. Discussion-Conclusions

In the current research study we reviewed the different roles of cash and accrual
accounting performed in the context of Greek municipalities. The application of this
dual accounting system and its effects provide an interesting situation for the public
sector accounting literature, since it is possible to determine whether accrual
accounting can challenge the primacy of cash accounting even if no significant
changes on the organizational processes have been performed in parallel to the
accounting reform. Our results describe an interesting situation: cash accounting is
still dominant in the organizational context of Greek municipalities; nonetheless, it
seems that accrual accounting does indeed perform a role even though it is less
significant.

10
Our first research question concentrated on the roles that the two accounting
systems perform with reference to the Greek municipalities as well as the
identification of any differences among them. According to our empirical evidence in
terms of cash accounting, its technical-rational role appears to be dominant in Greek
municipalities, followed by its sociopolitical role. Such a result is expected since cash
accounting has been embedded in the organizational processes, while it constitutes
a convenient means to influence the perceptions of third-parties since cash figures
are straightforward to constituents who lack accounting expertise. As for accrual
accounting, its sociopolitical role appears to be the dominant function in the municipal
context, followed by the technical-rational and the institutional roles. Such a result
indicates that the elected management uses accrual accounting figures as an
ammunition machine so as to presumably gain negotiating advantages, but it does
not utilize accrual information for decision-making purposes to the same extend.
Furthermore, its institutional role seems to be neutral probably due to the central
government’s unwillingness to follow-up the reform results.
Our second research question referred to the analysis of the relations among the
cash and the accrual accounting systems. Our empirical evidence revealed that the
technical rational role of cash accounting exhibits a significant positive relation with
its socio-political role, but a significantly negative relationship with its institutional
function. The positive relationship is probably due to the nature of cash figures that
easily allow municipalities’ management to alter the perceptions of its constituents.
However, the negative relationship with the institutional role may indicate that when
accounting cash information is used to maintain appearance with external parties, it
is possible that management is less inclined to improve its performance and it is
more heavily focused on external stakeholders satisfaction. In terms of accrual
accounting, the only relationship that was found significant was that between its
technical-rational role and its sociopolitical one; probably influencing other parties’
perceptions can be achieved only by simultaneously attaining familiarization with the
accrual concept.
Moreover, the roles performed by the two accounting systems exhibit statistical
significant relationships. The technical-rational role of cash accounting is significantly
positively correlated with the technical-rational role and the sociopolitical role of
accrual accounting. If management strives to achieve higher performance it will
probably attempt to utilize all accounting information available, both accrual and
cash, as to achieve better results. Moreover, in such a setting, probably the external
and internal constituents have obtained a degree of familiarization with accrual
accounting; thus, it becomes easier to utilize accrual accounting information so as to
alter perceptions. Also, it was found that the sociopolitical role of cash accounting
exhibits significant positive correlations with all three roles performed by accrual
accounting. Finally, the institutional role of cash accounting is negatively correlated
with the technical-rational and sociopolitical roles of accrual accounting, but it is
positively correlated with its institutional role. This may signify that if a local
government uses cash information to legitimate itself the less it is going to get
familiarized with the new concepts for both decision making and decision
rationalization. On the other hand, when accounting information is used for
legitimating purposes both accounting conventions could be employed towards this
aim.
Our final research questione related to the effect of both cash and accrual accounting
systems’ roles on the elected management’s cost consciousness. According to our
empirical evidence, the technical-rational function of cash accounting improves the
elected management’s cost consciousness, which means that the utilization of
accounting figures for the improvement of an organization’s performance leads the
elected managers towards obtaining a better understanding of the operational costs
of their municipality. However, the finding that the sociopolitical and institutional roles
11
have a negative effect on cost consciousness leads us to conclude that when the
drive for efficiency is not the primary goal, but those of influencing attitudes and
maintaining a façade for external constituencies are, managers will be less inclined to
maintain a grip on the organization’s costs. Accrual accounting on the other hand,
has an effect on cost consciousness only through its technical-rational role. Its effect,
albeit of less strong magnitude, appears to contribute to management’s cost
consciousness over and above the effect of the technical-rational role of cash
accounting. Thus, it is probably due to the lack of institutionalization of accrual
accounting in municipalities that accrual accounting is not dominant in the decision
making process.
As an epilogue we could argue that the analysis we conducted revealed the primacy
or the equal importance of cash accounting in a setting where the supposedly
superior accrual accounting was introduced, without though seriously attempting to
embed it in the organizational processes. In this case, it appears that cash
accounting still dominates in the major function of decision making, while accrual
accounting follows. Under these circumstances, it is evident that the expected
benefits of accrual accounting cannot be achieved. Serious attempts must be
conducted so as to achieve informal as well as formal change that will ultimately lead
to a situation where the well cited in the literature accrual accounting benefits can be
derived.

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14
Table 1: Uses of Accounting Information according to Ansari and Euske (1987)
User Group Location:
Focus of Organizational Internal External
Process
Technical-rational Measuring Technical Resource Allocations
Efficiency
Natural Behavior Changes; Gaining Legitimacy
Politics

Table 2: Descriptive statistics for the sample municipalities’ population on the

basis of 2001 census
Std.
N Minimum Maximum Mean Deviation
Population
In inhabitants 106 2,429 789,166 31,978 81,561

Table 3: Cronbach-Alpha results for the research constructs

Number
of Items Alpha
Cash Accounting
Technical-Rational (Cash1) 7 0.6435
Socio-Political (Cash2) 7 0.7373
Institutional (Cash3) 5 0.6331
Accrual Accounting
Technical-Rational (Acc1) 7 0.7705
Socio-Political (Acc2) 7 0.6923
Institutional (Acc3) 5 0.6107

Cost Consciousness 7 0.8560

15
 Table 4: Descriptive statistics for the research constructs
Std.
N Minimum Maximum Mean Deviation
Cash Accounting
Technical-Rational (Cash1) 106 1.286 4.714 3.739 0.605
Socio-Political (Cash2) 106 1.571 5.000 3.561 0.641
Institutional (Cash3) 106 1.000 4.400 2.853 0.790
Accrual Accounting
Technical-Rational (Acc1) 106 1.286 5.000 3.280 0.700
Socio-Political (Acc2) 106 2.000 5.000 3.531 0.608
Institutional (Acc3) 106 1.400 4.600 2.981 0.701

Cost Consciousness 104 1.570 5.000 3.603 0.731

Valid N (listwise) 106
Note: The variable values are calculated as the sum of the answers given on all
statements included in the variable in the range 1 to 5 (where 1 is totally disagree and
5 is totally agree) divided by the number of statements per variable.
The mean of each variable can range from the value of 1 (where 1 means that
accounting information does not serve this particular function) to the value of 5 (where
5 means that accounting is heavily used for the particular function that is examined by
the corresponding variable)

Table 5: T-tests for difference of means of the constructs from the value 3
Mean Sig.
Mean Difference t (2-tailed)

Cash Accounting
Technical-Rational
(Cash1) 3.739 0.739 12.576 0.000
Socio-Political (Cash2) 3.561 0.561 9.002 0.000
Institutional (Cash3) 2.853 -0.147 -1.918 0.058
Accrual Accounting
Technical-Rational
(Acc1) 3.280 0.280 4.121 0.000
Socio-Political (Acc2) 3.531 0.531 8.988 0.000
Institutional (Acc3) 2.981 -0.019 -0.277 0.782

Cost Consciousness 3.603 0.603 8.414 0.000

16
 Table 6: T-tests for the roles of accounting
Sig.
Paired Differences t (2-tailed)
Std.
Mean Deviation
Tests for the roles of Cash Accounting
Pair 1 CASH1 – CASH2 0.178 0.675 2.713 0.008
Pair 2 CASH1 – CASH3 0.886 1.146 7.955 0.000
Pair 3 CASH2 – CASH3 0.708 1.031 7.070 0.000
Tests for the roles of Accrual Accounting
Pair 4 ACC1 – ACC2 -0.251 0.546 -4.724 0.000
Pair 5 ACC1 – ACC3 0.299 1.051 2.931 0.004
Pair 6 ACC2 – ACC3 0.550 0.885 6.395 0.000
Tests between the roles of Cash and Accrual Accounting
Pair 7 CASH1 – ACC1 0.458 0.742 6.362 0.000
Pair 8 CASH2 – ACC2 0.030 0.777 0.393 0.695
Pair 9 CASH3 – ACC3 -0.128 0.815 -1.620 0.108

where:
Cash1: Technical-Rational role of Cash Accounting
Cash2: Socio-Political role of Cash Accounting
Cash3: Institutional role of Cash Accounting
Acc1: Technical-Rational role of Accrual Accounting
Acc2: Socio-Political role of Accrual Accounting
Acc3: Institutional role of Accrual Accounting

17
 Table 7: Correlations for the roles of accounting information
CASH1 CASH2 CASH3 ACC1 ACC2 ACC3
CASH1 1 0.414*** -0.339*** 0.362*** 0.219** -0.082
CASH2 0.440*** 1 -0.027 0.182* 0.227** 0.266***
CASH3 -0.323*** -0.014 1 -0.427*** -0.217** 0.407***
ACC1 0.402*** 0.202** -0.437*** 1 0.660*** -0.126
ACC2 0.240** 0.250*** -0.222** 0.662*** 1 0.091
ACC3 -0.061 0.324*** 0.389*** -0.156 0.083 1
N = 106
The correlations above the diagonal correspond to Pearson correlations. The correlations below
the diagonal correspond to Spearman correlations
*** Correlation is significant at the 0.01 level (2-tailed).
** Correlation is significant at the 0.05 level (2-tailed).
* Correlation is significant at the 0.10 level (2-tailed).
Where:
Cash1: Technical-Rational role of Cash Accounting
Cash2: Socio-Political role of Cash Accounting
Cash3: Institutional role of Cash Accounting
Acc1: Technical-Rational role of Accrual Accounting
Acc2: Socio-Political role of Accrual Accounting
Acc3: Institutional role of Accrual Accounting

18
 Table 8: OLS regression results for all six accounting functions
CC = a + b1 Cash1 + b2 Cash2 + b3 Cash3 + b4 Acc1 + b5 Acc2 + b6 Acc3 +
e

Constant 1.930***
(3.210)
b1 0.550***
(4.910)
b2 -0.248**
(-2.424)
b3 -0.195**
(-2.226)
b4 0.282**
(2.383)
b5 -0.044
(-0.348)
b6 0.096
(1.024)
F 11.848***
Adjusted R-square 0.387
t-values in brackets
*** Significant at the 0.01 level (2-tailed).
** Significant at the 0.05 level (2-tailed).
* Significant at the 0.10 level (2-tailed).
Where:
Cc: Cost consciousness
Acc1: Technical-Rational role of Accrual Accounting
Acc2: Socio-Political role of Accrual Accounting
Acc3: Institutional role of Accrual Accounting
Cash1: Technical-Rational role of Cash Accounting
Cash2: Socio-Political role of Cash Accounting
Cash3: Institutional role of Cash Accounting

19
Appendix: Questionnaire
The following forty-five statements were included, albeit ungrouped, in the questionnaire. The answers were ranked in as scale form 1 to 5 where 1 = totally
disagree to 5 = totally agree. The answers were subsequently grouped as follows in order to construct the seven survey variables (Cash1, Cash2, Cash3,
Acc1, Acc2, Acc3 and CC).

Technical-Rational role of Cash Accounting (Cash1) Mean St.

deviation
1. When an expenditure decision is made, decision makers take into consideration budgetary accounting data 4,21 0,98
2. Accounting data included in the actual report (actual budget amounts) offer a good indication of municipality’s financial
4,19 1,08
management quality
3. Subsidies given by the Ministry are highly dependent on municipality’s financial performance as assessed with reference to
2,20 1,08
the budget execution
4. During the year we monitor expenditures in order to safeguard that we will not go beyond the budgeted amounts 4,45 0,86
5. The accounting procedure of budget follow up helps the compliance with the legislative procedures within the municipality 4,28 0,98
6. When we contract bank loans, we are asked budget related financial data 3,31 1,30
7. I believe that budgetary financial data significantly contribute towards optimum decision making with the lowest cost
3,53 1,15
possible
Socio-Political role of Cash Accounting (Cash2) Mean St.
deviation
1. Municipality’s management uses budget data in order to support decisions towards third parties (e.g. political opposition,
3,75 0,97
trade unions, citizens, etc.)
2. The financial amounts depicted in the budget shape the perceptions of people within the organization (e.g. employees)
3,21 1,00
regarding municipality’s financial health
3. The representation of different political parties that participate in the municipal council call upon budgetary financial data in
3,90 0,95
order to support their positions.
4. The amounts presented in the budget shape the perceptions of the supervising authorities regarding municipality’s
3,51 1,05
financial health
5. The elected management uses budget financial data in order to persuade citizens that “work is done” in the municipality. 3,85 1,08
6. In case municipality’s management and the ministry are negotiating for the amount of subsidies that the former is to be
3,47 1,08
given, the financial data derived from the budget follow up system are used in order to support their arguments
7. I believe that municipality’s management uses budgetary data in order to justify decisions that have already been made. 3,24 1,06

20
 Institutional role of Cash Accounting (Cash3) Mean St.
deviation
1. I believe that municipality management treats budget as a typical commitment towards the State 3,19 1,37
2. I believe that municipality management bases financial decisions exclusively on other criteria (e.g. political criteria) without
2,92 1,17
being interested on budget information
3. The financial data included in the budget are not related with the municipality economic reality 2,54 1,29
4. The subsidy amounts that a municipality receives would be decreased in case the budget execution would not be made
2,76 1,13
correctly
5. The financial data that come from the budget execution system are not used by the municipality management in order for
2,85 1,24
the financial robustness of the decisions to be assessed
Technical-Rational role of Accrual Accounting (Acc1) Mean St.
deviation
1. The subsidies Ministry allocates to a municipality are based to a significant extend on the municipality’s performance as
2,21 1,07
shown in its yearly financial statements (Balance Sheet and Income statement)
2. When management makes investment decisions takes into consideration the financial structure of the municipality as
3,10 1,25
presented in the Balance Sheet
3. When management makes decisions related to loan issuance takes into consideration the financial structure of the
3,55 1,16
municipality as presented in the Balance Sheet
4. I consider that the information that comes from the accrual accounting system (revenues, expenses, surplus or deficit)
4,32 0,72
constitute a proper indication of municipality’s financial performance
5. During the loan negotiation process, banks exclusively ask for accrual accounting financial information 3,59 1,13
6. Information retrieved from the accrual accounting system is considerably used in order to decide on how to finance specific
3,02 1,09
municipality services
7. Municipality management makes decision on the basis of retaining or improving municipality’s financial condition as
3,17 1,06
depicted in its yearly financial statements

21
 Socio-Political role of Accrual Accounting (Acc2) Mean St.
deviation
1. The financial information that comes from the accrual accounting system influences to a significant extend the perceptions
3,05 1,10
of citizens, employees, etc. regarding municipality’s financial health
2. In case there are disagreements regarding decisions made by municipality’s management, information retrieved by the
3,44 1,10
accrual accounting system (i.e. revenues, expenses, receivables, payables, etc) are used in order to deal with them
3. Municipality’s management uses accrual accounting financial data in order to show the desirable, according to the
3,18 1,19
circumstances, municipality financial status to third parties (i.e. government, banks, etc.)
4. Accrual accounting introduction contributed towards a complete writing down of the property and the liabilities of the
4,46 0,71
municipality.
5. I believe that accrual accounting introduction contributed towards changing managers’ mentality in relation to property
3,90 1,02
assets management whose value was not presented in the budget (i.e. buildings)
6. I consider that accrual accounting introduction permitted municipality management to conceive the real financial status of
3,79 0,95
the municipality
7. I believe that municipality’s management uses accrual accounting data in order to justify decisions that have already been
2,90 1,04
made and were based on non financial criteria
Institutional role of Accrual Accounting (Acc3) Mean St.
deviation
1. I believe that the non issuance of accrual accounting financial statements, when most municipalities do, would constitute a
4,35 0,78
negative indication regarding the quality of municipality management
2. I believe that accrual accounting adoption in the municipality where I belong was only made in order for the municipality
3,39 1,25
management to comply with legislation
3. The financial data coming from the accrual accounting system are not related with the municipality economic reality 1,93 1,00
4. I consider that a reason for accrual accounting adoption was to avoid financial penalties imposed by the Ministry such as a
2,76 1,28
decrease in the amount of subsidies given.
5. A reason for accrual accounting adoption was that financial institutions that were lending money to the municipality were
2,47 1,21
asking for accrual accounting data

22
 Cost consciousness (CC) Mean St.
deviation
1. I believe that municipality management takes into consideration the total budget when making decisions 3,70 1,01
2. Municipality management is informed about the way budget is executed 3,96 0,90
3. I consider that those who make decisions that involve expenses, know precisely the amount of money they can spend 3,51 1,05
4. I believe that municipality management is in position to effectively manage municipality expenses 3,59 0,95
5. Management acts towards lowering municipality expenses 3,25 1,04
6. Management is extremely conscious regarding the relation between the acquisition cost and the available resources for any
3,62 1,00
given expense category when a decision in relation to property or inventory acquisition is made
7. Management pays much attention to the benefit that property or inventory acquisition will offer in relation to its total cost 3,60 1,02

23

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