aobb in germania

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Financial Accountability & Management, 27(2), May 2011, 0267-4424

A TAXONOMY OF THE PERCEIVED BENEFITS OFACCRUAL ACCOUNTING AND BUDGETING: EVIDENCE

FROM GERMAN STATES

TOBIAS JAGALLA, SEBASTIAN D. BECKER AND JURGEN WEBER

INTRODUCTION

The question of which accounting style is the best one for public administration andstate-owned enterprises has often been subjected to prior practical considerationsand theoretical analyses. Like many times before and after World War I, today the

costs and benefits of cash accounting and accrual accounting are once again beinganalysed.1

Like so many current research papers in the field of public sector accounting,

this analysis could start with the introductory words of a text published more

than 60 years ago (as indeed it does). Amazingly, that early publication still

clearly states one of the focal points of the current debate. Although we may

only speculate as to why this issue has been so difficult to resolve, we can

claim with some confidence that any comprehensive overview of the benefits

of the reform2 would provide a valuable contribution to the ongoing discussion.

Supporting our claim is the surprising fact that, to date, no empirically grounded

structuring of benefits has been the primary focus of any research in this

field. Most publications only lay out the benefits of Accrual Output-Based

Budgeting (AOBB) as loose lists. Hence, any such exploratory benefit analysis

the very purpose of this paper furthers our fundamental understanding of the

field.

This paper is organized into six sections. In the following section, we review

how the field of AOBB research has emerged over recent decades and how the

benefits of AOBB are dealt with in the extant literature. The third section sets

out our rationale for selecting empirical data and discusses the research methods

The authors are all from the Institute of Management Accounting and Control (IMC) atWHU Otto Beisheim School of Management. Previous versions of this paper were presentedat the 2009 CLVS workshop at the University of St. Gallen and the May 2009 session ofthe CIGAR conference in Modena. The authors thank participants in these events as wellas the anonymous referees for their valuable feedback. This publication enjoyed fundingby Interdisziplinare Studien zu Politik, Recht, Administration und Technologie (ISPRAT)e.V. Sebastian D. Becker gratefully acknowledges the financial support of the Hanns Seidel

Foundation. Address for correspondence: Jurgen Weber, Institute of Management Accounting andControl (IMC), WHU Otto Beisheim School of Management, Burgplatz 2, D-56179Vallendar, Germany.e-mail: [email protected]

C 2011 Blackwell Publishing Ltd, 9600 Garsington Road,

Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, MA 02148, USA. 134


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BENEFITS OF ACCRUAL ACCOUNTING AND BUDGETING 135

we employed to produce the findings we present in the fourth section. Here, our

main contribution is to draw up a taxonomy of the benefits of AOBB along with

a prioritization of its main categories. The fifth section applies this taxonomy to

past research, reinterpreting it and suggesting managerial ramifications. After

some discussion of the papers limitations and suggestions for further research,a final section concludes the paper.

LITERATURE

AOBB Research and Review of Benefits

Over the past 25 years, researchers have studied the benefits of AOBB from a

normative or conceptual as well as from an empirical viewpoint (Jones, 1992; and

Christiaens and Rommel, 2008). With a few exceptions (e.g., the contingency

model by Luder, 1992), early research from the mid-1980s onwards was mainly

focused on the normative/conceptual view, whereas empirical approaches have

come to dominate more recent research contributions (Lapsley and Pallot,

2000).3 While early normative publications mostly concentrated on questions

such as the general transferability of private sector accounting frameworks

to public sector settings and the benefits they could bring (Carlin, 2005), a

pivotal role for the development of new public sector accounting and budgeting

techniques was played by conceptual frameworks (e.g., CICA, 1980; FASB, 1980;

and Drebin et al., 1981). With decision usefulness at their heart (Jones, 1992),

these studies broadly identified the relevant user groups for public accounting

data and derived common as well as user-specific information requirements.

Building on these findings, this literature went on to propose better, more user-

friendly frameworks for public financial management (e.g., Mayston, 1992; and

Jones and Puglisi, 1997). Among other methods, AOBB has been specifically

advanced as one technique that meets such user needs more effectively (Anessi-

Pessina and Steccolini, 2007).

Alongside the growing recognition of user needs, the seed of the concepts

developed by normative/conceptual research (and by practitioners) in the 1980s

and early 1990s would bear fruit. Irrigated by the rising tide of New Public

Management pledging the benefits of private sector instruments for the public

sector, public entities around the world although mainly from Anglo-Saxon

countries at the outset committed large amounts of resources to introducing

AOBB (Budaus et al., 2003; and Carlin, 2005), and will probably continue to do so

in the coming years (Luder and Jones, 2003). Unable to resist the temptation to

study the reform process in the field, researchers established a strong empirical

research stream from the mid-1990s onwards. Their analysis has resulted in

lively debate surrounding the benefits stemming from the reform, with a number

of recent studies controversially identifying drawbacks in it. Anessi-Pessina

et al. (2008, p. 323), for example, observe that a substantial number of scholars

see the reform in a negative light and state that an increasing body of literature

C 2011 Blackwell Publishing Ltd


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136 JAGALLA, BECKER AND WEBER

has criticised the adoption of accrual[s] accounting by public organizations on

both theoretical grounds [. . .] and practical considerations.

As a case in point, some of this literature points out that AOBB is far

more complex than any cash-based accounting and budgeting system. This, it

is argued, leads to increased susceptibility to misunderstanding, obfuscation,or manipulation by users and thus actually decreases transparency as well

as accountability (Carnegie and West, 2003; Barton, 2004; Carlin, 2005; and

Connolly and Hyndman, 2006). Most of these studies conclude that, overall,

the reform has a negative cost/benefit ratio (e.g., Jones and Puglisi, 1997) and

entails various underestimated downsides and side effects such as poor quality

decision making (Johnstone, 1999). In general, these publications consistently

find that hopes of drawing benefit from new accounting and budgeting

techniques were raised too high (Connolly and Hyndman, 2006; and ter Bogt

and van Helden, 2000) and that, in most cases, these hopes have either onlypartially materialized or not materialized at all (Mellett, 1997 and 2002).

While ter Bogt (2008, pp. 233-34) does not see a clear case in favour of the

reform either, he sees small cracks of light breaking through the dark picture. In

his study of local government in the Netherlands, he highlights changes observed

in organizational culture yet finds less evidence for typically discussed and rather

technical benefits:

The research suggests that the actual effects of accounting changes on decision-makingand control differ between organizations, but in general are not quite so functional

and direct as they should be according to the ideals of the advocates of NPM [NewPublic Management] (see also Hoggett, 1996, pp. 20-24). However, it seems that theaccounting changes, even though they were not a success in a technical sense, didbring about some effects in organizational culture and individual behaviour that arein keeping with the ideas of NPM, i.e., a greater focus on performance, externalstakeholders, and a businesslike attitude.

Within other recent literature, Christiaens and van Peteghem (2007, p. 379)

observe that, in spite of all their criticisms, certain studies do identify benefits.

Like ter Bogt (2008), Christiaens and van Peteghem argue that these benefits

are more subtle and indirect, meaning that we should shift our focus on thereform towards a broader understanding of the impact of accounting and related

instruments on decision making and general management:

[I]t is necessary to stress that in recent years more and more studies [. . .] are devoted tothe more comprehensive management accounting reforms in the public sector. Thesestudies have to a lesser degree attention for the accounting reform but in an increasingdegree to the application of new administration tools and techniques in the publicsector to facilitate the decision making and the management of the organization. Theaccrual information system usually provides useful accounting information for thesetools and techniques (Venieris and Cohen, 2004).

Although much of the recent literature holds an essentially negative view

of the reform (e.g., Jones and Puglisi, 1997; ter Bogt and van Helden, 2000;

Carlin, 2005; and Connolly and Hyndman, 2006) and other studies only hint at



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less obvious benefits (e.g., ter Bogt, 2008; and Christiaens and van Peteghem,

2007), our intention here is to explore this issue in greater depth, thereby

providing a broader view and a better understanding of the potential benefits

of AOBB. To this end, we first reviewed and summarized the benefits of AOBB

put forward in the existing literature, and found that most recent studies, inone way or the other, mostly refer to two major issues (e.g., Carlin, 2005;

Ellwood and Wynne, 2005; and Groot and Budding, 2008).4 The first is improved

internal and external transparency. It is argued that greater transparency emerges

because the information supplied by an accrual-based system is deemed to be

more comprehensive (Guthrie, 1998) and of higher quality and consistency

(USGAO, 2000, p. 206) than information produced by a cash-based accounting

system, thus rais[ing] consciousness of a wider range of management issues

(Pollitt and Bouckaert, 2004, p. 71). More concretely, among the oft-mentioned

benefits of AOBB are improved visibility of long-term effects (Mellor, 1996; andMcGeough, 1998), a consolidated view of assets, liabilities, and cost (Likierman,

2000; and Anessi-Pessina and Steccolini, 2007), and recognition of resource use

(IFOA, 1997; and Evans, 1995). In the realm of better cost transparency benefits,

such as a view of working capital, a systematic recording of (full) fixed assets

and depreciation as well as a view of the cost of capital charges are often

put forward (Gosling, 1997; Robinson, 1998; and Mellett, 2002). Furthermore,

attributing costs to the appropriate time periods and events (Raupach and

Stangenberg, 2006)5 and comparing public sector service costs with external

providers both become possible (Carlin, 2004). The latter is especially trueif similar accounting standards are employed in both the public and private

sectors. As a consequence, increased transparency is said to augment the degree

of accountability (Likierman, 2000; and Connolly and Hyndman, 2006).

Above and beyond the various facets of transparency, the second issue of

the impact of AOBB on decision making is mentioned less frequently as an

accompaniment of the reform. For instance, Groot and Budding report

that accrual accounting helps to identify the full cost of activities, enabling improveddecision making in resource allocation, coordination and control (2008, p. 8, emphasis

added).

Groot and Buddings argument follows the typical reasoning that more trans-

parency (in the sense described above) ultimately leads to better operational

control and action by managers. For instance, transparency may lead to improved

resource allocation, better capital investment decisions and enhanced control by

and within government (Connolly and Hyndman, 2006). Discussion of the areas

where decision making is changed by AOBB goes into far less depth than it does for

the various domains oftransparency highlighted above. Accordingly, the literature

provides us with quite an extensive list of transparency-related benefits but witha significantly less comprehensive list relating to decision making.

In addition, very few prior publications allude to a third dimension. They

claim that a switch in perspective from inputs to outputs and outcomes and a



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more businesslike approach focusing on performance may also result (Carlin

and Guthrie, 2003; and ter Bogt, 2008).

Taken together, the benefits are also said to accumulate on an aggregate level,

providing for better control by parliament, increased compliance and reporting

discipline (Mellor, 1996), better management of public capital (Likierman,2003), better creditor information (ASB, 2003; and Luder et al., 1993), and

intergenerational fairness (Robinson, 1998; and Funnel and Cooper, 1998).

Ultimately, shifting to AOBB is said to drive greater organizational performance

(see Carlin, 2005, and the sources given therein).

As mentioned above, a related body of publications mainly focused on user

groups of public accounting data as well as their information needs. A review

by Mack and Ryan (2006) shows that this literature has also empirically aimed

to contribute evidence to the discussion initiated by the conceptual frameworks.

Next to a focus of identifying users, these studies have further researched (a) which information requirements (needs) these users have and (b) for which

purposes the users require information (Mack and Ryan, 2006). While the

studies on the information requirements mainly result in the finding that user

groups are interested in performance information, in the (full) cost of services

at low levels of aggregation, and in the knowledge of assets and liabilities (e.g.,

Jones et al., 1985; Hay and Antonio, 1990; Crain and Bean, 1998; and Kober

et al., 2010),6 there is limited and contrary evidence regarding the purposes

for which users require information (Mack and Ryan, 2006). A few of these

studies show that users require information that helps improve accountability,decision making, and resource management (Jones et al., 1985; Coy et al., 1997;

Mignot and Dolley, 2000; and Kober et al., 2010). Together with the findings

on the information requirements, this literature gives support in favour of the

introduction of accrual accounting techniques (Kober et al., 2010). However,

Jones and Puglisi (1997) find that the government departments surveyed in

their study only modestly perceive accrual accounting techniques to be relevant

to a wide range of users. In addition, Mack and Ryan (2006) find that accrual-

based financial reports were more used to satisfy accountability rather than for

economic decision making.When comparing the results from our review of the AOBB benefits literature

and the user and user needs literature, we find that both discourses identify

similar themes. The strength of the latter is to be more precise in considering

different user groups while the former is more detailed with respect to the

particular effects.

Deriving Our Research Objective

In his comprehensive overview of the literature, Carlin (2005) argues that themajority of extant research advocating the implementation of AOBB tends to

address the question of why organizations should adopt it rather than the

questions of how this can be done or what the effects might be. Only a handful



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of studies explicitly set out to focus on the latter, i.e., on what the benefits are

(a notable exception is Connolly and Hyndman, 2006) and [t]hus many issues

concerning the potential benefits of accrual accounting style reforms are still

unresolved (Guthrie, 1998, p. 15). Most conceptual studies only briefly mention

benefits in their introductory paragraphs and generally assume the superiority ofAOBB to cash-based accounting and budgeting. As a result, this has led some to

argue that the benefits are overstated (Anessi-Pessina and Steccolini, 2007) and

that a lot of unspecified fiction has been created (Carlin, 2005, p. 320; similarly

Mellett, 2002). We see this as problematic for any objective evaluation of the

benefits of actual AOBB implementation, both for research and for practice,

since the literature also suffers from a lack of empirical evidence put forward

to support [AOBBs] claims (Potter, 1999, p. 48; similarly Ellwood and Wynne,

2005; Christensen, 2006; and Connolly and Hyndman, 2006). What we found

in our above review of the academic literature was that, when mentioning thebenefits of AOBB, research often cites governmental publications (e.g., HM

Treasury, 1994 and 2001; Mellor, 1996; and USGAO, 2000). Yet, more often than

not, such works are published in advance of actual AOBB implementation and/or

appear to support (rather optimistically) these very projects, thereby eliciting

scepticism as to their validity (Guthrie, 1998; Rubin, 2000; and Connolly and

Hyndman, 2006).

Despite any underlying doubts regarding particular promises of the reform,

the insight that certain changes have nevertheless been observed in practice

encourages us to contribute to a more clear-cut and comprehensive picture ofthe benefits that can be expected from AOBB. Since no publication, to our

knowledge, focuses exhaustively on listing or even prioritizing the benefits, that

is precisely what we set out to do in this study. Thus, our main research objective

is to draw up a taxonomy of benefits for AOBB. Further, we also explore and

analyze those (benefit) categories that are of greatest importance since the prior

literature records benefits as the opportunities which arose and does not provide

any sense of priority.

Before moving on, we want to further support our research objective by

outlining three building blocks we identified in the literature and deemedimportant to our investigation. Firstly, the gap between what is normatively

expected from accounting change and its effects in practice (Guthrie, 1998; and

ter Bogt and van Helden, 2000) leads us to take a strongly empirical approach

to our investigation. This conclusion is also motivated by Scapens, who states:

It encourages us to take seriously the study of accounting as a practice, ratherthan comparing accounting practice with some ideal [. . .]. It also suggests thatan undue concern with the gap could cause us to ignore some important issues, asan overemphasis on the theoretical ideals could lead to failure to study closely the

practice of management accounting (1994, p. 303).

Secondly, we follow the literature that suggests that different AOBB

stakeholders could potentially have differing views on the benefits of AOBB



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(e.g., IFOA, 1997; Connolly and Hyndman, 2006; ter Bogt, 2008; and Kober

et al., 2010). Such thinking has mainly been advanced by the user and user

needs analysis on which most conceptual frameworks of accounting standard-

setting bodies are built (Jones, 1992; and Clark, 2010). This mostly normative

literature has produced several relatively similar lists proposing the variousrecipients of public financial information (Jones, 1992; and Mack and Ryan,

2006) and commonly sees at least seven different groups such as: (1) Voters,

tax-payers, and consumers of public goods, (2) representatives of group 1,

(3) policy-makers and their civil service and other advisers, (4) managers

within governmental organizations and public sector agencies, (5) employees

and professionals working in the public sector, (6) monitoring bodies, and (7)

creditors to public sector bodies (Mayston, 1992, pp. 228-29; similarly e.g.,

Anthony, 1978; CICA, 1980; and Drebin et al., 1981). The lesson we draw from

this is not to restrict ourselves to the core experts from the finance and budgetingfunctions and, instead, to engage a broader spectrum of experts also in non-

finance functions (e.g., politicians, line management of administrative units).

However, a full examination, especially of external user groups, is difficult to

carry out for pragmatic reasons (Jones and Puglisi, 1997). In this regard, we

acknowledge Lapsleys (1992, p. 284) comment, for example, that the general

public is the most difficult [user group] to identify, locate and ascertain the

views of its members. In addition, while the more normative user and user

needs literature typically emphasizes external users (Jones and Puglisi, 1997;

and Mack and Ryan, 2006), a number of empirical studies have found internalusers to be more active users of public financial information (e.g., Coy et al.,

1997; and Kober et al., 2010).7 We survey all external and internal groups with

the exception of group (1) voters, tax-payers, and consumers of public goods as

well as (7) creditors to public sector bodies.

Thirdly and lastly, we purposefully chose our research environment and, in

doing so, made two decisions. The first relates to the study of the implementation

projects we analyze. We aim to assess the benefits of AOBB relative to cash-

based accounting and budgeting. To this end, we could either compare two or

more public entities that are currently using these different accounting andbudgeting systems, or we could try to identify the changes within public entities

that transfer from one system to the other. A comparison of different entities,

however, would suffer unduly from difficulties in attributing the reasons for

observed discrepancies to the accounting and budgeting system (Pollitt and

Bouckaert, 2004). Guthrie supports this view, asserting that

the paradoxes associated with reforms and the differing context in which they areapplied make overall assessment difficult (1998, p. 15).

In order to avoid this complication, we follow the second approach, i.e., weanalyze the differences within one organization. In this way we can attribute

any observed changes to AOBB with greater precision. This then brings us

to choosing between two schools of thought. The first leans towards studying



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environments where the reform has been established (e.g., Carlin, 2006).

Relying on longstanding experience or a long observation horizon (Arnaboldi

and Lapsley, 2009) within the organization ensures maximum confidence in

fully discovering any effects AOBB may have. Clearly, such confidence comes

at the price of having some respondents leave the organization and increasedpotential for forgetfulness bias (ter Bogt, 2008) from respondents being asked to

compare the current system with a prior system in use several years ago (Malmi,

1999). An alternative view prefers to examine systems in transition (e.g., Heald,

2005; Caccia and Steccolini, 2006; and Connolly and Hyndman, 2006), meaning

projects that are currently being transformed or have recently been brought

to official closure. Although this approach mitigates potential biases caused

by retrospection, it could be argued that systems in transition do not reflect

changes to their full, materialized extent. We concluded that it was important

for us to study projects that were well under way or recently closed and situatedsomewhere between the two extremes outlined above in order to draw on sound

opinions of the new accounting system in practice.8

The second decision we made relates to placing our study in an organizational

setting. With our goal to establish a universal taxonomy for the benefits of

AOBB, we intended to choose an environment liable to bring a comprehensive

taxonomy of benefits to the surface. In our choice of a level of government, Ger-

man states (Lander) combine local and national (i.e., federal) level organizations

and may therefore be viewed as an intermediate structure representing different

elements from both levels. We therefore assume that studying the reform atGerman state level allows us to reveal the broadest set of AOBB benefits.

Furthermore, we deem such analysis particularly insightful because the level

of state accounting has been largely ignored in research to date (Broadbent

and Guthrie, 2008) and because further research in these settings has been

called for (Connolly and Hyndman, 2006). Similarly, responding to interest in

geographies that have not been placed in the limelight of debate (Guthrie et al.,

1999; and Carlin, 2005), our study makes a further contribution to the literature

by spotlighting a German setting a context rarely studied in the past (Hood,

1995). In addition, we shed light on a level of government that as mentionedabove does not suffer from retrospection bias and, instead, shows the effects of

actual implementation over several years. As we lay out below, German Lander

fulfil this requirement.

DATA AND RESEARCH METHOD

German State Accounting

German Lander in general, and our research sites Hesse and Hamburg

in particular, offer certain advantages for our research objective which we

would like to highlight, as we deem this information relevant for a deeper

understanding of our empirical data.



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Lander play an important role in the German administrative and legal setup

because they are members of the Federation yet [retain] sovereign state power

of their own (Rober, 1996, p. 170).9 Among other characteristics, they are

endowed with comparatively substantial autonomy: they have legislative power

in certain policy fields, such as education, police forces, or environmentalprotection, enjoy relative freedom to create and manage their own budgets, and

are in charge of substantial operational tasks, such as state road maintenance.

Although Lander enjoy relative autonomy, there is a horizontal financial

equalization scheme (Landerfinanzausgleich) that transfers subsidies from wealthy

states to poorer ones. Organizationally, local government10 is embedded in

the Lander. However, due to the concept of local self-administration (kommunale

Selbstverwaltung) in the territorial states i.e., in all Lander except the three city-

states of Berlin, Bremen and Hamburg local governments manage their own

budgets completely independently from their states budget. In the case of city-states, both these budgeting processes are integrated. This leads to a noteworthy

difference between city-states and territorial states. Because government at local

level provides less abstract goods (e.g., issuing ID-cards or building permits,

processing citizen registrations) than government at Lander level (a substantial

part of administrative activity is policy making), city-states tend to have a higher

share of businesslike operations than their territorial counterparts.11

In this environment, only a small number ofLander of the sixteen in total

have committed to introducing a full AOBB system.12 There are some notable

exceptions, however, and with a view to providing unique insights into this field,we opted to conduct our study in Hamburg and Hesse.

Hamburg and Hesse are two states that have pioneered the introduction of

AOBB in Germany. Other states have been less active or have publicly expressed

doubts about any favourable cost/benefit ratio from the reform (e.g., Fischer-

Heidelberger, 2007). Also, for AOBB implementations in both states, numerous

interviewees took a critical view either of how the reform process itself was

carried out in their organizations and/or of how useful the AOBB system itself

is when net benefits and costs are taken into account. Challenging or disruptive

implementation processes match reports in the literature from other contexts(e.g., ter Bogt, 2008).

As representative of a territorial state, Hesse first initiated the reform by

shifting its budgeting and cost accounting from a cash-based system to AOBB

instead of focusing on drawing up an opening balance sheet first (Hessisches

Ministerium der Finanzen, 1999). Compared to other German states, Hesse

today has a well-developed, output-oriented accrual accounting and budgeting

system and by the time of our interviews, almost all interviewees were using it.

Moreover, all major services provided by the administration were part of a state-

wide comprehensive product catalogue. In theory, units receive funding on thebasis of a logic ofproduct price multiplied bynumber of products provided. The reform

philosophy in Hesse appears to follow the we mock the market (interview)

approach. Following a one-size-fits-all approach (i.e., with scant customization



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to the specific needs of different units) with mandatory participation, the overall

change has penetrated the organization relatively well. In light of an unstable

political situation, the opening balance sheet was disclosed relatively late in

November 2009.13 Hesse took a comparatively meticulous approach, applying

the full set of business accounting rules currently used for accrual accountingin Germany (HGB) almost to the letter. According to consistent statements by

interviewees, the goal of the reform project management in Hesse is to foster

greater public acceptance of financial results, even though the cost of this reform

is said to be significantly higher.

In Hamburg, one of three German city-states, the trajectory for introducing

AOBB has been different in several ways. At the end of 2002, all political parties

were relatively unanimous in their decision to introduce AOBB (Burgerschaft

der Freien und Hansestadt Hamburg, 2003). Hamburg took a rather pragmatic

approach, choosing not to stick rigidly to one standard set of accounting rules.In contrast to Hesse, Hamburg focused first on creating an opening balance

sheet and then on making changes in the budgeting realm, as is currently the

case in several pilot areas where the AOBB system is already fully active (e.g.,

in its university). Hamburgs opening balance sheet (Stadt Hamburg, 2006) was

published in mid 2006 and had slight positive net equity. It is our hypothesis

that greater choice of what elements to implement has led to AOBBs slightly

slower penetration in the state. On the other hand, this approach seems to

have appeased many critics: overall, interviewees in Hamburg had more positive

opinions about the reform than those interviewed in Hesse.Even though we cannot be absolutely sure that there were no other reform

projects running in the states of Hamburg and Hesse, we are confident that

there was no crowding of the reform space (Carlin, 2005, p. 315) similar

to other empirical explorations such as devolution (Connolly and Hyndman,

2006) or capital charging (Heald and Dowdall, 1999; and Carlin, 2003). Equally,

and according to official sources, none of the states introducing AOBB intends

to apply internationally accepted accounting standards such as IPSAS. This

means that neither Hamburg nor Hesse were carrying out major public financial

management or any additional wider public management reforms (Pallot, 2001)in parallel to the introduction of AOBB. Nevertheless, throughout our study,

we remained cautious about assuming that we are not exploring the combined

effects of two or more simultaneous reforms.

Because the reform is a recent phenomenon in many contexts, most research

like ours has been conducted in settings where the new system has not been

used for long periods of time (e.g., Heald, 2005; and Paulsson, 2006). However,

since the sites we scrutinize represent two implementation projects that have

lasted a number of years at the time of our last interviews, six (Hamburg) and

nine years (Hesse) we can draw from experienced study participants. Theseparticipants were able to assess the new system in relation to the former, once

large parts of the reform went live in the respective settings. In the following

section, we present how we extracted our findings from our sites.



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Method

As we mention above, debate surrounding the benefits of AOBB has raged for

decades. The literature therefore provides numerous findings relating to various

benefits one might expect. As previously mentioned, we had doubts that the

literature had identified all main benefit categories currently deemed relevant

by practitioners and consequently feared that pursuing a survey-based procedure

might produce a mistaken perception of accuracy. Analyzing responses to the

closed-ended questions typically used in surveys would incur the risk of not being

able to understand and clarify these responses sufficiently. We sidestepped this

pitfall by asking open-ended questions in the field. Finally, we learnt from ter

Bogt (2008) to be sensitive to subtle clues pertaining to benefits, which, for

our objective, further rendered any survey design less effective. Motivated by

these considerations, we adopted an approach based on qualitative interview

data gathered at two research sites.

Before moving on, we would briefly like to comment on the role of the two

states in this paper. Since we investigate two sites in our study, such analysis is

typically called a multiple or a collective case study (Yin, 2003, p. 46; and Stake

2005, p. 445). But since our concrete interest in the data is what Stake (2005)

calls instrumental, the purpose of our examining these sites is, as opposed to

an intrinsic case study, mainly to further our understanding of the benefits of

introducing AOBB with the more external interest of drawing up a taxonomy.

While we do possess in-depth knowledge of the complex contextual natures of

both cases due to our access to the data, this information plays only supporting

roles in the resulting synthesis (Stake, 2005), since the cases themselves are of

only secondary interest.14 Nevertheless, to enable the reader to put our findings

into perspective, we provide detail from the sites whenever necessary.15

Basically following the procedure suggested by Eisenhardt (1989), we set out

our research in three phases. Phase 1 (January to Summer 2007) resembled

a pilot study to develop the research question. In total, we had face-to-face

meetings with ten individuals in seven German states. Phase 2 (Summer 2007)

consisted in carrying out four interviews in Hamburg and Hesse to enhance our

understanding of the situation in our two sample sites. Phase 3 (June 2008 to

February 2009) was the main data-gathering phase of our analysis in which we

interviewed 45 individuals in 38 face-to-face meetings.

Altogether, we draw our findings from face-to-face meetings with 49

individuals16 in 42 semi-structured interviews conducted in phases 2 and 3. We

selected our interviewees deliberately and purposefully, i.e., using organizational

charts from which we identified those we wanted to incorporate.

Almost all our chosen interviewees were persuaded to take part in our study.

We therefore expect only minimal distortion from response bias. The duration

of our interviews ranged from 45 minutes to more than two hours and we mostly

spoke to one interviewee at a time.17 As Figure 1 indicates, shares of interviews

were reasonably well balanced with about 20 interviews per state.



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Figure 1

Job Functions of Interviewees by Case

As suggested by qualitative research protocol, questions were adjusted and

customized to the interviewee if needed (Miles and Huberman, 1994). Armed

with written confidentiality agreements, we asked all interviewees for permission

to tape record the conversation and all but three interviewees agreed to this

procedure. In preparation for the coding and analysis process, all tape-recorded

conversations were transcribed and notes on the few unrecorded interviews

were digitized. Each interviewee was asked to show written material, which,

when provided, was also acknowledged. Whenever we needed any clarification

following an interview (e.g., doubts about what certain statements meant, follow-

up contact with specific persons), we contacted interviewees directly. All our

requests were answered and no open questions remain. We were therefore

confident that we had built a saturated and homogenous view of the data

presented in the following section.

RESULTS

Taxonomy of Benefits

As Colquitt and Zapata-Phelan (2007, p. 1283) state, the development of ataxonomy is a somewhat ambitious endeavour:

As with any taxonomy, ours can be accused of collapsing meaningful distinctions in theinterest of parsimony. After all, taxonomies like theories are attempts to eliminate



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some of the complexity found in the real world (Bacharach, 1989). Our intention wasnot to capture every nuance of theory building and theory testing, but rather to createa tool that could be used to chart trends in theoretical contributions over time.

Aware of this trade-off, we describe the procedure that led us to the suggested

taxonomy and discuss the issues we faced in building our taxonomy.During and after conducting and transcribing interviews, we used Atlas.ti to

code the content of the interviews and performed qualitative data analysis in line

with standard practice (Miles and Huberman, 1994; and Creswell, 2009). We

filtered all codes that contained an opinion about benefits relating to the reform

and grouped codes with similar content to one superior category. Over several

successive refinements of the coding scheme, the categories of the taxonomy

emerged.18

Aspiring to reconcile the trade-off alluded to above by building a taxonomy

that does not oversimplify a complex topic yet remains comprehensible, we wereglad to see the data fall relatively effortlessly into three top-level categories.

For the development of these top-level categories, we took account of numerous

interviewees who articulated thoughts along the following lines:

I think that the main benefit of the whole reform is that we are now aware of what weown . . . [it is] truly bizarre . . . The next logical step would be to work and calculate

with it (Operational Accountant in non-central unit).

Strong differentiation between changes in knowledge and changes in action

caused by the reform was a recurring theme and consequently led us to choosethese two items as top-level categories: Better knowledge and Better action. As we

do not want to assume that changes in thinking necessarily lead to changes

in action, we carved out a third category which collects all benefits other than

changes in knowledge and changes in action in the top-level category Mindset

changes. The following statement by a leading employee illustrates this in greater

detail:

We want to establish a system that is basically self-managed. In my view that is theonly way that we can cut costs in the long run. The reason is simple: control by

politicians cannot reach down to the operational level where the service is provided.Hence, we have to implement a system that creates incentives and mindset changes(State Secretary reporting directly to Finance Minister).

We feel comfortable with this choice as it suits the mental construction of the

actors in the AOBB context well and also falls in line with standard models of

behavioural science.19 This choice also means that we discarded other possible

top-level categories that at first sight might seem more convincing to some

readers. We assessed and dismissed alternative top-level categories such as

Benefits by stakeholder group (such as state-owned enterprises or central ministry

functions or the stakeholder groups suggested by the user-needs literature)and Type of government. We rejected the former because we feared significant

redundancy in benefits and the latter because we felt this would add one



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more level of complexity without generating any further insights. We also feel

comfortable with our top-level structure because it is applicable to every unit in

the public sector, i.e., every stakeholder in every public sector unit can determine

whether these benefits can be observed in his or her context or not.

Having identified the top-level categories, the choice of subordinate categoriesemerged from the data. In the top-level category Better knowledge, we observed

that the interviewees were in certain cases quite precise about the dimension

in which awareness improved, while in others they were rather non-specific.

Two illustrative statements follow. The first interviewee is rather vague about

transparency, while the second expresses his view much more precisely:

The accrual accounting-based year-end reporting we have now is a lot moresophisticated and transparent compared to what we had before. That is why I ama supporter of the reform in spite of all the problems we have (Head of Budgeting

at Ministry A).

We now have transparency regarding the yearly resource use. Especially in the contextof infrastructure, that is a big advantage. Before, we were always saying, we need thatmuch to repair the streets, but there was no substance to this claim. Now we havenumbers we can present. We have not yet received more money, but maybe that willbe the case in the future . . . (Head of Budgeting at Ministry B).

Therefore, we subdivided this top-level category into Enhanced unspecific trans-

parency and Enhanced specific transparency. In the top-level category Better action,

we observed that several interviewees mentioned the benefits of avoiding baddecisions. Thus, the split into Enhanced action and decisions and Avoided bad action

and decisions appeared to be a natural one. One quotation pointing to Enhanced

specific transparency but also alluding to the Enhanced action and decisions category

comments on the suitability of AOBB information for decision making:

We have a department that is in charge of the payroll statements for all stateemployees. The reform made transparent that the unit cost is way too high. Eventhe parliament debated what an adequate level should be based on private sector andcross-state benchmarks. That led to a commission being set up to investigate what

other more efficient states do and what can be done to bring the cost down in Hesse.This attention was very unpleasant for the payroll guys: they had to explain their badperformance. I am sure that going forward they will do everything to avoid standing inthat spotlight again (Leading Executive for Budgeting in Hesses Finance Ministry).

According to another interviewee, in some cases bad decisions may be avoided

through AOBB, which produces the category Avoided bad action and decisions:

I believe that certain transactions we have seen in the past will not happen again inthe future. Take for instance the drainage system, which is a sizable asset that wasfully paid for in past budgeting periods. This system was put into a separate legal

entity that paid a debt-financed dividend to the state worth about the full value ofthe drainage system. For the citizen, that transaction does not make a big difference.However, for the budget of the state, this cash inflow caused a balanced budget insteadof a negative one. In the accrual accounting world this transaction will not happen as itdoes not formally create value in such cases (Manager of Investment Administration).



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Figure 2

Taxonomy of Benefits

However, as in the case of the Better knowledge subcategories, the sole purpose of

these subcategories is to provide better organization within each category.

With the above structure in mind, we assessed our empirical data and

defined categories onto which we mapped the codes. After one coding cycle

for each hermeneutic unit, we looked for systematic differences between

Hesse and Hamburg and found that most categories (e.g., enhanced cost

transparency) were significantly similar. The few idiosyncratic categories for

each hermeneutic unit were turned into dummy categories for subsequent

evaluations of the material, ultimately yielding identical and robust categories.

With this procedure, we ensured that we did not overlook a structure in one

hermeneutic unit that we detected in the other. After this assessment we

decided to consolidate certain categories.20 In spite of the fact that the categories

Revenues, Bad investment decisions, and Creative accounting were not mentioned by a

sizable number of respondents, we decided to dedicate discrete categories to

them because we could not map them onto other categories with any precision.

As a result of this process, we produced the taxonomy that can be seen in

Figure 2.

Priority of Categories

Our research objective is not only to draw up a taxonomy but also to seek

to identify those categories practitioners deem most important. The scientific

debate surrounding AOBB has argued for decades about the benefits of the

reform sometimes with no empirical foundation at all, as Carlins (2005)



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review shows. Because of the lack of an extant body of research on this topic, our

rather exploratory prioritization contributes to scholarly debate. If, for instance,

future research sets out to analyze benefits using a confirmatory, large-sample

questionnaire methodology, our work establishes a valuable basis for the choice

of areas to explore. Moreover, we are able to show what practitioners i.e.,those who work with AOBB on a daily basis perceive to be its most important

benefits. This knowledge is valuable because it opens the door to perception-

focused investigations of the reform.

In the first step of our analysis, we had to choose how to identify the

importance or priority of a category. As we did not want to use our own

impressions as the only measure, we sought out more objective measures for

the relative importance of each benefit. We follow Miles and Huberman (1994,

p. 253) in noting that, when we say something is important or significant

or recurrent, we have to come to an estimate, in part, by making counts,comparisons, and weights. At the same time, we do not want to convey

the impression that our qualitative data was forced into a quantitative

mold (Miles and Huberman, 1994, p. 252). We thus illustrate the empirical

groundedness of our findings by drawing on a few selected quotations from our

data. Ultimately, we agree with Miles and Huberman (1994, p. 253) that the

hallmark of qualitative research is that it goes beyond how much there is of

something to tell us about its essential qualities. The quotations incorporated

in this section are designed to provide insights in this sense.

We are aware that, in some cases, the pure number of statements in a certaincategory might not provide us with a true impression of priority. For example,

certain benefits might be politically critical while others might require certain

specific knowledge or insight. Independently of their true priorities, this might

lead to high counts for some benefits and to low counts for others. We consider

this risk relatively small given that we can triangulate our findings with our

qualitative understanding of the data. Here, triangulation does not reveal any

inconsistencies.

By adding the number of mentions in each hermeneutic unit (Hamburg

and Hesse), we observe that the following categories are the most importantto practitioners: (1) Increased cost transparency (see taxonomy Better knowledge

Enhanced specific transparency Cost), (2) Improved general decision making (see

taxonomy Better action Enhanced actions and decisions Improved general decision

making and Cost for following benefit), (3) Improved cost management, (4) Increased

focus (on results) (see taxonomyMindset changes for this and the following benefit),

and (5) Adoption of businesslike thinking, procedures, and pragmatism. These results

fall in line with our own impressions from the interviews. The claims of

Increased cost transparency, Improved cost management and Mindset changes in its various

guises attracted most of our interviewees lively attention, as the following fourquotations indicate.

The first quotation is drawn from an accounting practitioner in a state-owned

company that has been using AOBB for a substantial amount of time. His



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organization is already fully penetrated by the reform and he is able to name

various changes in both thinking and behaviour. In the following quotation, he

emphasizes the effect of Improved cost transparency:

[The unit was established for servicing our own property.] We also sometimes providethe services externally. If we are asked to do so, we submit an offer. Before the reform,

we used a table with relatively generous terms. Now we have adjusted them to the fullcost rate, also charging overhead. This led to quite an increase in our rates (Head ofBudgeting for State-Owned Enterprise).

The second quotation comes from a top-tier finance ministry executive who

serves as a liaison between the political level and the administrative body. From

his perspective, the effect of Improved cost management is particularly relevant.

We hypothesize that daily exposure to large monetary figures leads him to the

conclusion that AOBB adds value by breaking numbers down to a meaningful

level:

I dont believe that public sector employees work harder or are lazier than theprivate sector ones. But I believe that the [cash accounting] system, with its lackof transparency, decreases how much people care about the cost bit by bit. It is similarto a firm car with a flat fuel rate. In this case, you not only drive more, but at some point

you stop caring about how much fuel costs. You simply ignore that part of your reality.The main point of the reform is that we bring the figures to a level that everyonecan relate to. If we only see the abstract numbers of multi-billion budgets, nobody canmentally capture that (State Secretary reporting directly to Finance Minister).

The last two quotations highlight the new mindset that AOBB is said to bringwith it. The first one is taken from a politician in a rural region of the state who

attempts to relate the introduction of AOBB to comparatively tangible effects

such as the one mentioned in the following quote. It describes how the users of

public goods appear to develop increased accountability:

We built some social housing some time ago for 300,000. Sad to say, the housingwill fall apart in 30 years. We now see how much the annual cost is, and the socialinstitution has to justify this charge yearly. This awareness has now entered ourthinking (Politician in a Conservative Party).

The last quotation comes from an individual who works in an organization with

a strong, data-driven management approach. He alludes to both changes in

mindsets as well as Improved cost management:

It is a great success that we have established cost sensitivity. We observe, for example,that someone in charge of an account says, This invoice is assigned to my account inerror. I will not carry the cost of it on my account. Nobody could imagine this kind ofbehaviour a couple of years back. Now department heads and people in charge of thebudget really care about their budgets (Budgeting Employee in the State Chancellery).

We conclude the presentation of our findings with this selection of quotations inorder to provide qualitative evidence to complement the essentially quantitative

findings presented in Figures 35. The following section discusses our findings

in the light of the existing literature.



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Figure 3

Number of Times Mentioned Better Knowledge

-

-

Figure 4

Number of Times Mentioned Better Action



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Figure 5

Number of Times Mentioned Mindset Changes

DISCUSSION

Findings and Managerial Implications

In this paper we present a comprehensive taxonomy of the perceived benefits

of AOBB as opposed to cash-based accounting and budgeting and identify its

most important subcategories. Our findings share some aspects in common with

the existing literature but also differ in other respects. To bring them to light,

we advance two arguments relating to the types of benefit observed and their

related antecedents.

First of all, in our literature review we present the claims made in the existing

literature regarding the benefits of AOBB and point to the fact that the resultingpicture was overly optimistic and mostly lacked grounding in empirical findings.

Using the results of our taxonomy, we set out to reinterpret this past prior

research by mapping any benefits mentioned onto our taxonomy. Every time

we were unable to establish such links, we checked to see if any interviewees

alluded to these claims as a further means of triangulation. For example, the

issues Performance or Accountability are not contained explicitly in our taxonomy.

However, some participants alluded to these topics during the interviews. We

therefore found support for these claims even though they were not salient or

relevant enough to be included in the taxonomy. In three instances we neitherfound a direct link nor implicit mentions:

Increased compliance and reporting discipline: One author who alludes to this benefit

dimension is Mellor (1996, p. 82). She states

that accrual reporting at the whole of government level is appropriate and necessaryas it [. . .] introduces discipline in financial reporting and therefore ensur[es] theintegrity of the reported information.

In our entire sample, not one interviewee mentions this effect. Rather, the

opposite appears to be true: Numerous respondents mention how little they

value the reporting, how little any of their superiors care about the reports,

and how many pages needed to be pointlessly filled out. This finding gains even



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more relevance when we interpret it in the light of the specific context. Given

that the literature traditionally views German administration as placing strong

cultural emphasis on compliance with rules (Pollitt and Bouckaert, 2004), the

implementation of AOBB as a discipline-enhancing system should go rather

unnoticed in this respect. Such disregard for reporting is thus evidence that, forAOBB implementations, this argument carries little relevance and perhaps its

opposite might even be true.

Increased intergenerational fairness: This very frequent claim (e.g., Blejer and Cheasty,

1991; and Funnel and Cooper, 1998) is not supported by our data either. It

might be argued that this matter does not play a significant role in day-to-day

administrative operations, which is why this claim was not mentioned by any

interviewees. Such an objection may be true for more operational interviewees.

However, since we also interviewed both top-tier administrative executives and

politicians, this risk appears limited. Somewhat related to intergenerational

fairness, some interviewees did mention the effects of AOBB implementation

on long term planning and on the amount of new debt. However, in our view,

such statements were too modest to be seen as an implicit intergenerational

fairness argument. When explicitly asked about this aspect towards the end

of conversations, interviewees generally took a critical view of this claim.

Altogether, our findings are consistent with conceptual dismissals asserting that

accrual accounting is just as irrelevant as cash accounting to the assessment of

intergenerational equity (Robinson, 1998, p. 33).

Provisioning of relevant information for creditors: No interviewee mentioned, either

explicitly or implicitly, any benefits for creditors that are widely seen as major

users of financial reports in the public sector (Mayston, 1992). This surprised

us since a number of prior publications allude to this effect (e.g., Ingram, 1983;

Luder et al., 1993; and Pallot, 2001). In our investigations, we find no grounds for

any such effects. It is possible that the horizontal financial equalization scheme

among the Lander in Germany produces such a result by generally reassuring

creditors and thereby indirectly removing some of the importance placed on

creditor information. This effect, which is rooted in assuming governmentsto be a going concern because of their taxing authority, has similarly been

documented in extant literature (e.g., Jones and Puglisi, 1997; and Anessi-

Pessina et al., 2008). Another possible explanation for this could be the fact that

in much of the literature accrual accounting is seen as sector neutral (Carlin,

2005). This might have lead to an influx of proposed benefits for the public

sector extrapolated from the private sector literature (Rutherford, 1992), where

creditor protection and investor needs are of paramount importance (Ellwood

and Wynne, 2005).

On closer examination, these three benefits are all less operational andrelate to the interaction of government bodies with its external stakeholders. As

such, it is important to emphasize here that we included politicians and senior

managers in our interviews, who act as a link between external and internal



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stakeholders and should therefore be able to assess the benefits of AOBB also

for less operational topics. Nobody from this group mentioned the benefits listed

above.

Our approach provides some evidence that, as asserted in the literature, much

fiction [on the benefits] has been created (Carlin, 2005, p. 320). The empiricalapproach we follow in our study has the notable advantage of directly addressing

the gaps between normative claims made in the literature and predominantly

by governments about the nature of the reform (Carlin and Guthrie, 2003; and

Connolly and Hyndman, 2006) and what organizations may realistically expect

from their reforms. With respect to user information requirements, we find that

the requirements mentioned by the extant literature (e.g., full cost information,

knowledge of assets and liabilities), appear to be better fulfilled by the AOBB

system compared to the prior cash-based system.

Further, our taxonomy enables us to contribute a deeper picture of thebenefits observed in practice to the literature in which, to date, they have mostly

been referred to in passing and on a level equating in our taxonomy to a top-

level category (for example, transparency). Generally speaking, as laid out in our

literature review above, two major benefits are typically given transparency

and better decision making. In our taxonomy, we show that these resonate well

empirically with our data and we call them Better knowledge and Better action,

respectively. Also at the top-level, we ascertain that benefits relating to Changes

in mindset have tended to be overlooked in the literature, yet we show, in both our

taxonomy and prioritization, that they are of practical relevance. We attributethis under-representation to the fact that the discussion to date has been rather

technical (ter Bogt, 2008), having only recently, and to a lesser extent, begun

to encompass less technical benefits. Taken as a whole, we would argue that in

the literature mindset changes have not yet received the attention they deserve.

Further research, of which some is currently emerging, that incorporates and

examines more closely these kinds of outcomes of AOBB implementation such

as changes in working methods, employee attitudes, or organizational culture

(e.g., ter Bogt, 2008) would therefore make a valuable contribution to the

literature. Further examples of mindset changes may include AOBB being usedin high-level discussions rather than its being applied solely in decision making

at the operational level (Connolly and Hyndman, 2006), a more businesslike

or citizen- and performance-oriented approach, or greater focus on output and

outcome (ter Bogt, 2008). Above and beyond simply structuring the benefits

of AOBB, our study also adds greater depth by providing both subordinate

categories and basic benefits to complement our top-level categories.

Our second point of discussion pertains to various antecedents of the benefits

that came to light because of our research design. As outlined above, we

conducted our research at two sites to obtain a broader perspective of ourfindings. On the whole, our resulting taxonomy shows reliable and conceptually

sound attributes across the two sites we studied. We do find, however, that some

of the underlying results seem to be contingent on the status of the reform and



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on the characteristics of its process and we were able to bring these to light

because of our specific research design.

Our first finding of this kind is the intuitive observation that the benefits

mentioned were less specific in the setting where the reform was slightly less

advanced i.e., in Hamburg and that, vice versa, concrete benefits such asenhanced cost management or more specific transparency in general were more

pronounced in Hesse. We summarize this as a greater tendency towards a more

precise perception of benefits the further the reform has advanced. Our results

thus add evidence to what has been termed an experience effect (Watts, 1995).

A number of studies have found evidence for such an increasing recognition of

the benefits of new information over time (e.g., Jones and Puglisi, 1997; and

Kober et al., 2010).

Secondly, we are aware that our analysis is based on perceptions expressed

by organizational participants gathered in interviews and not on hard data another limitation of our study. Our case findings show that such perceptions

may be driven by idiosyncratic communication within a given organization. This

tendency becomes manifest, for example, in the oft-repeated description of the

case of a police car in Hamburg:

About 13 years ago someone came up with an illustration of the current investmentpractice. In the old world one bought a police car in one year by issuing a creditthat provided the necessary liquidity. After five years that car was taken to the scrap

yard and a new car was bought. The credit remained unpaid. This way after 20 years

the state owned one used car but the credit worth four police cars remained. In thenew world this story looks a little different (Member of group responsible for the

AOBB-reform in State Audit Court).

We would therefore suggest that future research pay closer attention to such

issues of organization-internal folklore, since this may incur a bias. In our

study, the police-car argument was the only instance when organization-internal

folklore became apparent.

These findings corroborate the view that both the outcomes of the reform

and perceptions of it are influenced by the way the change process is managed

overall. Prior studies show that the parameters of the change process are oftendisregarded in research and in practice (ter Bogt and van Helden, 2000), so we

would encourage more research on this aspect. The literature refers to change

processes as trajectories of modernization and reform (Pollitt and Bouckaert,

2004, p. 67) or design styles (Bourmistrov, 2006, p. 13) and on this point

discusses a number of explanatory aspects or antecedents. In particular, reform

outcomes may be sensitive to trajectories that differ either according to their

what, i.e., to their scope and components (e.g., changing finance, personnel,

organization, or performance measurement systems), or according to their how,

i.e., their process. Thus, there exists a wide range of diverse trajectories that ajurisdiction introducing AOBB may pursue. At the same time, choosing one route

over another impacts the benefits pursuant to the reform (Pollitt and Bouckaert,

2004). In Hamburg, for instance, the opening balance sheet was presented in



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the first stage while the rollout of budgeting reforms only followed later. In our

view, this helped stabilize the reform and foster buy-in within the organization.

Similarly, Hesse started off with an ambitious set of reporting requirements that

were subsequently loosened. This practice led to more opposition and frustration

than in Hamburg where reporting was subsequently changed in comparativelysmall increments. Since we found evidence pointing to the importance of the

change trajectory itself, we would suggest further exploration of how it may

influence the outcomes i.e., the benefits and/or drawbacks of AOBB

implementations. Recent research drawn from the private sector has identified

employee participation and leadership style as influencing implementation

outcomes in management accounting change (Hoozee and Bruggeman, 2010).21

Not only do our findings contribute to existing research but we also see

managerial implications in two ways. First and foremost, politicians, policy

makers, and top-tier administrative employees may now have at their disposal astructured catalogue of benefits based on our findings when deciding

for or against the introduction of AOBB. Notably in the event that they

want to improve specific aspects in their respective organizations (e.g., lack

of cost transparency), our exploratory prioritization can provide them with clear

indications and address the improvement potential. Likewise, they could pay

special attention and increase resource allocation to those areas which they

want to improve but which benefit less from AOBB introduction and vice

versa. They will need to use their own judgment when applying the taxonomy

and deciding which of the presented benefits will materialize in their specificcontext and help address user needs. Although we see no evidence to refine

this taxonomy, we would nevertheless suggest testing whether or not it needs to

be customized to respective contexts. Since we only present the benefits of the

reform, assessing the (opportunity) costs of any decision to reform cannot rest on

this contribution alone. Here, we provide a structural basis for consideration, but

turn to practitioners to supply additional pieces of information. Secondly, this

papers findings could serve project managers in charge of the reform projects in

their attempts to shape implementations of the reform (Arnaboldi and Lapsley,

2009). As we present a weighted taxonomy of perceived benefits, our findingsare suitable for developing persuasive project communications. In such cases,

we suggest that project members engaged in these tasks select the benefits that

enjoy broad agreement from our interviewees.

Limitations and Further Research

In interpreting the results of this study, its limitations should be taken into

account. In general, a taxonomic classification like the one presented here

might be criticized for its reliance on the researchers judgement. By adopting athree-stage approach, incorporating a broad variety of practitioners perspectives

on AOBB benefits, and conducting a thorough coding procedure, however,

we attempted to objectify our impressions with the applied research method.



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Another possible limitation relates to the fact that the primary data we gathered

reflect the perceptions of interested parties whose views may reflect expectations

but not real benefits. Although, broadly speaking, hard data might be preferable

to soft data (Carlin, 2005) when evaluating the success (or the benefits) of

implementations, we do share the view that hard evidence is more difficultto obtain (Pallot, 2001). In some instances such as ours, however, we also see

advantages in conducting interviews and embracing perceptions derived from

them: for example, an impact on decisions and, in our case, the avoidance

of bad decisions, can be better understood than with quantified data. Such

understanding is important given that impact on decisions has, in a variety of

studies, often served as a proxy for the positive consequences of implementations

(e.g., Shields, 1995; Malmi, 1997; and Kober et al., 2010). In addition, we believe

that it is perceptions rather than hard data that are acted upon and that

decide the fate of AOBB, i.e., its use in practice, its adoption at the particularorganization, as well as its diffusion in general. Nevertheless, to mitigate any

potential bias resulting from the use of perceptions, we included a diverse set of

respondents in our analysis. In addition, by asking interviewees to give concrete

examples or to be more specific, we tried to make sure that benefits articulated

to us referred to the actual use of AOBB in practice and were not merely echoing

or parroting presumed benefits or expectations which interviewees had heard

from project management or government (Connolly and Hyndman, 2006).

Even though we set out to incorporate opinions of AOBB benefits from as

many knowledgeable users as possible, we did not include external users such as(1) voters, tax-payers, and consumers of public goods and (7) creditors (numbers

refer to stakeholder groups mentioned in the literature section according

to Mayston, 1992, pp. 228-29). Further, central government users have been

excluded in this study, as the reporting to the central government by Hamburg

and Hesse has not yet been set up using AOBB principles (similarly to the Italian

and Australian context, see Anessi-Pessina et al., 2008 and Kober et al., 2010,

respectively). Not surveying these three user groups limits the conclusions that

can be drawn from our study since these may have articulated further benefits or

that the three unconfirmed benefits are important to them. Another explanationcould be, however, that the finding of less external user-related benefits of AOBB

goes in parallel with findings of studies which show that internal users are more

active users of public accounting information (e.g., Coy et al., 1997). Through

its structuration along benefit categories and not according to user groups, the

taxonomy in this study has drawn a rather general picture. Future research

may determine with more precision whether and how internal and external

users benefit by having their information requirements met and purposes served

through AOBB (see e.g., Kober et al., 2010). For a more complete picture to

emerge, we suggest to include a broad sample of AOBB stakeholders to furtherresearch.

In a similar vein, the fact that, at the time of the interviews, Hamburg had

not yet fully completed its transformation and that Hesse had recently closed



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it by presenting its balance sheet, might raise some doubts as to whether the

benefits reported to us had actually materialized. As we were aware of this at

the outset and chose our research method accordingly, we see little reason to

assume that the results have been substantially distorted by this effect. This is

also because, due to opposing logics in the change trajectories at the two sites with Hessen starting with budgeting related reforms and ending with creating

an opening balance sheet and Hamburg proceeding in the opposite way

we have scrutinized the relevant parts of complete change from cash-based

accounting and budgeting to AOBB in the context of both businesslike and less

businesslike German Lander. Nevertheless, we see great worth in conducting

further longitudinal studies of AOBB implementations and believe that we have

generated valuable ideas for more of this kind of research in this paper. To

some extent, our findings are also applicable to settings outside Germany. Even

though previous studies have shown the implementation of reforms in the publicsector to depend on geographies and level of government (e.g., Hood, 1995; and

Olson et al., 1998), we find consistency in large parts of our taxonomy with

existing literature drawn from other settings.

One final caveat remains. Like many previous studies, this paper cannot

answer the question of whether the introduction of AOBB improves the net

performance of the public sector. It contributes to the literature by examining

the benefits of AOBB in depth but does not take into consideration aspects

of cost (Connolly and Hyndman, 2006). Therefore, the two pressing questions

of how qualitative benefits translate into increased output or outcome and ofwhat the flipside of the benefits the costs looks like, remain unanswered.

Taking account of costs would certainly be beneficial given that, for a specific

organization, an implementation will only prove of value if there is a positive

cost/benefit ratio. As Carlin (2006) shows, the costs of using AOBB are likely

to be significant. Further, it would be interesting to see whether AOBB has

relative disadvantages since the literature has failed to emphasise the innate

benefits of the cash basis of accounting (Ellwood and Wynne, 2005, p. 169).

Including the far end i.e., performance in the equation is, as we learn from

the literature, a difficult undertaking that has rarely been done to date (e.g.,Pallot, 2001). Not quite so far, the relationship between benefits in mindset and

more technical changes (i.e., tangible, direct improvements in an instrumental

sense) is another potentially fruitful area for further study. In this context, we

hypothesize that instrumental changes precede transformations of individual or

organizational mindsets, and we encourage scholars to follow this question.

CONCLUSION

The benefits of accrual accounting and full cost-based, output-oriented bud-geting in central governments have been intensely disputed among academics

and practitioners. In general, a more precise understanding of the benefits

adds to the decision of whether public entities should apply AOBB or not.



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While the normative, conceptual, or theory-based literature has made promising

claims regarding which benefits could be expected from reforms of government

accounting and budgeting, recent empirical research has found that at least some

of these expectations have been massively overstated. The observed gap between

promises and reality raises anew the question of what the true benefits are. Bycollecting practitioners judgements, the purpose of our paper was to draw up a

landscape of perceived benefits (taxonomy). We base our findings on analysis of

42 qualitative interviews conducted in the rather under-explored context of two

states in Germany. The derived taxonomy appears to be exhaustive, mutually

exclusive, and robust. Our analysis thus contributes both to the interpretation

of existing research and to the design of future research. In terms of the former,

while being consistent with existing research, it clearly and holistically structures

the benefits generally expected and articulated by practitioners implementing

AOBB.Mapping our results onto prior claims in the literature, we further reveal that

the practitioners interviewed do not see benefits in areas that previous research

deems important, while other areas, not previously emphasized, seem to be

more relevant in practice. Since interviewees in our sample did not mention

them at all, we suggest handling the following benefits with greater caution in

future debate: Increased compliance and reporting discipline, Increased intergenerational

fairness, and Provisioning of relevant information for creditors. In the latter case, the

field of AOBB research inherits contributions along two dimensions. Firstly,

our analysis brings to the fore various benefits of AOBB implementation interms of mindset changes. Secondly, building on quantitative analysis of our

interviews as well as on qualitative understanding of our data, we identify the

most important benefits: Increased cost awareness, Improved general decision making,

Improved cost management, Increased focus (on results), and Adoption of businesslike thinking,

procedures, and pragmatism. Providing guidance for future research, our framework

therefore points to a need to move beyond a purely technical focus and to

embrace less technical perspectives of such implementations. Facilitating the

design of future research, our exploratory analysis suggests ideas as to the

antecedents and priority levels relating to the benefits of AOBB.

APPENDIX

Themes investigated and covered during interviews:

Interviewees educational background; career positions held so far

Description of current position and main responsibilities

Perception of the reform process

General opinion of AOBB

Degree of exposure to AOBB reports and instruments



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Nature of AOBB information used

Role of AOBB in day-to-day work

Major benefits of AOBB compared to cash-based accounting and budget-

ing

Concrete examples of major benefits of AOBB

Impact of AOBB information on decision making.

NOTES

1 See Winckelmann (1949, p.1). All sources originally in a foreign language have been translatedby the authors.

2 In this paper, reform refers to the shift in government accounting from cash accounting

to accrual accounting (Christiaens and van Peteghem, 2007) combined with a reform of thebudgeting process (full accrual-based budgeting, product orientation) in public sector entities.

As a precursor data feeder system (Carlin, 2005, p. 321), accrual accounting, or similarlyresource accounting (RA, e.g., Connolly and Hyndman, 2006), supplies input data for publicsector agencies in order to plan, control, and classify public expenditures and sources ofrevenues with budgeting (Lee and Johnson, 1977). To refer to both these systems jointly, wefollow Carlin (2005) in employing the term accrual output-based budgeting (AOBB) whendenoting the target state of the reform.

3 Lapsley and Pallot (2000) observe that one stream focuses on the intent and the other on theconsequences of the new instruments.

4 Among the sources we reviewed were both publications that address reform-related topics without any intention to analyze benefits in more depth and studies that directly address

the benefits of reform. The latter also include recent studies with review sections, such asArnaboldi and Lapsley (2009), Anessi-Pessina and Steccolini (2007), Connolly and Hyndman(2006), and Carlin (2005).

5 In short, full accrual accounting is based on the businesslike principle that revenues and costshould be charged to the period in which they are earned and used (Arnaboldi and Lapsley,2009, p. 813).

6 Similarly, together with financial viability and fiscal compliance, also Anthony (1978) listsmanagement performance and cost of services provided as user needs.

7 We additionally refer the reader to studies such as Collins et al. (1991), Luder and Jones(2003), and Jones and Pendlebury (2004) who find that accounting data are not widely usedoutside of the respective authorities. One explanation for this may be that internal usersrequire greater detail because they actually manage and operate the entities affairs. [. . .]

internal users may need information at the most detailed level of each component activity ofa program (USGAO, 2000, pp. 20-21).

8 At this point, we would like to point to studies in management accounting that have raiseddoubts about the ontological and epistemological nature of (management) accounting systemsin change (Burns and Vaivio, 2001; Quattrone and Hopper, 2001; Busco et al., 2007; and Andonet al., 2007). These scholars are critical of linear conceptions of change processes and thereforequestion whether they should be seen as trajectories from one exact, distinct, and observablesteady state to another.

9 For a general description of this unique institutional culture, we refer the reader to Budauset al. (2003).

10 Local government in the German context includes counties (Kreise), non-county municipalities(kreisfreie Stadte), and municipalities (Gemeinden) (Pollitt and Bouckaert, 2004).

11 It is worth noting that Christiaens and Rommel (2008) make the proposition that accrualaccounting reforms work well only in businesslike (parts of) governments. This, however, doesnot mean that benefits do not result at all in less businesslike parts of governments.

12 This is especially true relative to Anglo-Saxon countries. Pollitt and Bouckaert (2004) arguethat in a Rechtsstaat such as Germany, reforms are generally stickier and slower than in public



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interest regimes because any reforms would require legal changes and an extensive trainingof senior Beamte with backgrounds predominantly in administrative law.

13 Out of a balance sheet total of about 89 billion, the negative equity of Hesse amounts toroughly58 billion.

14 This does not mean that we do not see the potential of intrinsic case studies as an important

way to gain understanding of particular phenomena (e.g., Flyvbjerg, 2007). Rather, such anapproach is just not compatible with the main objective of this study.15 For an oft-cited accounting literature study that analogously uses qualitative methods and

coding techniques with positivistic aims (see Malina and Selto, 2001).16 In addition to the 49 individuals who were met in an explicit research interview setting, 15

further individuals were met informally. The observations from these interactions have notbeen formally integrated into the codes but provide us with further reference for triangulationof our findings.

17 In one case three interviewees were present; in five cases we interviewed two individuals atonce.

18 Taking advantage of the structuring capabilities of such computer-based analysis, we createdtwo fully independent hermeneutic units with independent categories. Towards the end of

the procedure we compared the resulting taxonomies for each research site.19 The categories information (mental) model action are explicitly or implicitly used in severalpublications (e.g., Denzau and North, 1994).

20 For instance, we merged Transparency of risks, Impact on cost for new debt, Overall performanceimprovements, P&L data timeliness, Performance indicators into existing categories as they wereonly mentioned by a few respondents and fit well with the existing taxonomy.

21 For a management accounting study from the private sector, where this question has attractedequall

aobb in germania

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