Accruals and ‘accounting numbers management’ in UK executive agencies

Abstract

Public sector reforms have implemented business techniques, including management by results, cost management and accrual accounting, to make public entities more efficient and accountable. As a consequence, ‘accounting numbers management’ has become a way for managers in the public sector to adapt accounting figures to their interests. This study focuses on ‘earnings management’ (manipulation of earnings) in government agencies. The authors provide evidence of earnings management in which agencies try to keep net operating costs to around zero. The authors' findings question the effectiveness of financial targets associated with accrual-based measures.

Keywords:

• Accruals, agencies
• earnings management
• public sector reform

Acknowledgement

This study was carried out with the financial support of the Spanish National R&D Plan through research project ECO2010-17463 - ECON/FEDER.

Notes

* ACCRjt = - NOCjt – NCFOjt, where NOCjt = net operating cost of agency j in year t and NCFOjt = net cash-flow from operating activities of agency j in year t

Additional information

Notes on contributors

Vicente Pina

Vicente Pina is Professor of Accounting and Finance at the University of Zaragoza, Spain.

María José Arcas

María José Arcas is a lecturer in accounting and finance at the University of Zaragoza, Spain.

Caridad Martí

Caridad Martí is a lecturer in accounting and finance at the University of Zaragoza, Spain.