Short-Term Impact of Advanced PFM-Systems: Cross-Sectional Evidence from Swiss Sub-National Level
Questions as to whether accrual based techniques should be adopted by public sector entities are largely passť. Though, other issues of interest remain, particularly with regard to the post-adoption influence of accrual accounting systems. In this context, some research particularly focuses on the influence of accrual PFM systems on organizational decision making, the ability to better meet user needs or other accountability issues. However, there exists limited evidence concerning the post-adoption effects on key financial ratios. Although limited work has been conducted with respect to private sector entities (Lueg, Punda & Burkert 2014; Lantto & Sahlström 2009), there exist no comprehensive evidence of the short-term financial impact of a transition towards advanced accrual accounting systems such as IPSAS.
This paper focuses on the post-adoption effects of different types of accrual PFM systems on Swiss state level. It is a first attempt to assess the short-term impact of different accrual PFM systems by examining differences in key accounting ratios after the transition. The underlying research questions are as follows: How does the implementation of advanced accrual PFM systems (i.e. HAM2 “light”, HAM2 “advanced” and IPSAS) affect key financial ratios of Swiss cantons in the short-term? How do the results differ with respect to the three types of advanced PFM systems? What implications might be drawn for national and international governments which will only change to advanced accounting systems in the next years?
Following the approach of Lueg, Punda & Burkert (2014) and Lantto & Sahlström (2009) this paper aims to examine differences in key accounting ratios before and after the introduction of advanced accrual PFM systems in the Public Sector, comparing original and restated financial statements of 15 Swiss Cantons. Therefore, we calculate differences between financial statement items before and after the conversion to advanced accounting systems and test for statistical significance using non-parametric tests. In a second step, pearson correlation analysis is used to test for the overall relationship between different types and rigorousness’ of PFM systems and relative changes of key financial figures between the three different panels. The fact that all 15 Swiss Cantons do present restated financial statements for their transition period allows to comprehensively taking into account counterfactual evidence. Since we compare figures of original and restated financial statements within the same year, this model allows for eliminating time effects.
It is to be expected that the implementation of advanced PFM systems (i.e. HAM2 “Advanced” or IPSAS) significantly affect financial ratios (e.g. equity- and debt-ratios) due to a revaluation of assets or liabilities in order to present a more transparent picture of their financial situation. Hence, this might affect political and economic environments of various states, therefore igniting broad scale discussions about the true state of public finances and the adequate allocation of newly “discovered” (or disappeared) resources.