This study aims to understand the institutionalisation of accrual accounting systems in the Indonesian public sector. It relies on data from three sources: (a) official documents (that is, laws and government regulations) on the adoption and implementation of such accounting systems in the sector; (b) publicly available information about the social, economic and political developments leading up to the adoption; and (c) interviews with 36 participants with either involvement in or an understanding of the internalisation of accrual accounting in the sector. Drawn from an integrated model of institutionalisation inspired by new institutional sociology, this study identifies and discusses the features of the institutionalisation process in Indonesia, both at the national level and within one municipality (used as a case study).
This study finds that the new ideals requiring the adoption of accrual accounting in the Indonesian public sector were first mobilised in the 1980s by the technocrats (that is, by economists and accountants) in the Ministry of Finance since the 1980s. This mobilisation occurred when the country encountered a fiscal crisis. The study also identifies that the desire to adopt accrual accounting may have been driven by the wish to follow a similar practice to that adopted in other countries. Nonetheless, Indonesia's accrual accounting system was formally adopted only after the collapse, in 1998, of Soeharto's regime, through the issuance of Law 17 (2003) and the introduction, in 2005, of new government accounting standards.
At the organisational level, in the experience of one municipal government (as a case study), the internalisation of accrual accounting was motivated primarily by the presence of legal enforcement. Beyond this, the process and outcomes of the institutionalisation of accrual accounting contradict the intended benefits; the lack of skills and experience in using accrual accounting has increased the municipality's accounting costs, and its officials have yet to use accrual-based accounting for real decision making.
In addition, the power and old habits of local actors (in this case study, of senior municipal officials) have made the adoption of accrual accounting the subject of corruption. In this vein, the technical capacity, power and old habits of local actors affect the extent to which a new accounting system can be internalised. The process and outcomes of this institutionalisation are shaped not only by pressures from external factors but also by the activities, processes and routines of actors within organisations.
One of the implications of these findings for policymaking is that Indonesia's central government needs to be aware of the capacity of local governments in implementing policies and programs. The adoption of a business-style accounting system in the public sector may be costly and act against its promoted purposes, while a lack of competencies may exacerbate frustration within organisations, fuelling active resistance and hindering implementation. Further research could address the relationship between capability building and the proximity of educational institutions. The influence of culture, such as a common practice of bribery, should also be considered. The thesis also contributes to the public-sector accounting literature by reducing the gap between what is known and unknown about rarely investigated governmental accounting practices in one of Asia's emerging economies.
© 2013 Harun Harun