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The Role of Accrual Financial Reporting and Budgeting Basis in Public Sector Financial Management Reforms: Croatian Experience and International Trends

The paper explores the main characteristics of accrual basis of accounting in financial reporting and budgeting and their role in public sector financial management development. The author addresses developed countries’ trends concerning public sector reform processes and introduction of New Public Management, which leans on the irredundant and transparent governmental accounting information system. The paper emphasizes that such a governmental accounting information system most of all requires the consistency of budgeting and reporting accounting basis. In a number of developed countries introduction of private sector management techniques in public sector has led to the full adoption of the accrual basis in reporting as well as in budgeting, shifting the emphasis of the budgetary process away from cash inputs and towards outputs and outcomes. In Croatia, modified accrual accounting basis, as a gradual transition from cash accounting to accrual accounting, has been implemented in financial reporting. The author indicates insufficient concern, in theory and practice, put on the development of governmental accounting in Croatia and primarily its accordingly adjusted accounting information system as a precondition for efficient public sector financial management. The reason for concern author finds in the governmental accounting information system’ s structure and contents still being viewed in Croatia more in function of State’ s budget goal achievements and less in function of achieving greater management efficiencies and hence better outcomes. Author argues this is due to the fact that even though the government bodies’ financial reports are presented on the modified accrual accounting basis, budgets still happen to be prepared on cash basis. In terms of budgeting and reporting basis consistency, this paper thus suggests, analyses and provides evidence that accrual basis of accounting in reporting and budgeting is a useful tool for assuring greater managing and performance measurement of a Croatian government entities and the sector as a whole. In addition, the implementation of accruals to financial reporting and to the public budget would allow Croatian government to be linked with wider international public sector reforms’ trends.

Accrual reporting and budgeting basis; Governmental accounting information system; Financial management; New public management; Public sector reforms; Croatia.

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