Government Accounting in Pakistan: transition from a Legacy system to the New Accounting Model

ABSTRACT

This research aims to describe and assess the historical development of government accounting in Pakistan; and to analyse the distinctive elements of each stage of development that contributed to the dynamics of change. Prior studies have overlooked public sector accounting as researchers have focused more on Pakistan’s private sector. We find, in the first instance, a transition in the government accounting of the country from a Legacy system to the New Accounting Model. A thematic analysis of the archival data further reveals that the system has passed through the stages of Dependency, Stepping-stone, and Modernisation with a forward look to Standardisation. Beyond accounting history, our results are deemed to be useful to accounting education, policy, and practice.

KEYWORDS:

• Government accounting
• New Accounting Model
• Pakistan
• accounting history
• accounting innovation

Acknowledgement

We are indebted to extend our sincere gratitude to Professor Cheryl Susan McWatters, Editor of the Accounting History Review, for her generous support. Her patient guidance, constructive comments, dedication beyond measure, and kind-hearted approach brought this paper to publishable standard. Further, we do acknowledge the encouragement and suggestions of anonymous referees.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Pakistan is located in South Asia with India to its East, Iran to its West, China to its Northeast and Afghanistan to its Northwest. Before partition, it was part of the Undivided India that consisted of present-day Pakistan, India, and Bangladesh, besides Kashmir which is an unsettled and controversial area between Pakistan and India (Ashraf and Ghani 2005b). However, with the partition of British India, Pakistan came into existence as an Islamic republic on 14 August 1947 (Jaffrelot 2004, 1).

2 The pattern to restructure the public sector to bring its management and accounting approaches closer to the approaches used in business organisations (Dunleavy and Hood 1994).

3 A list of acronyms and abbreviations is included in the Appendix.

4 PIFRA is a World Bank financed project for reforming audit and accounting systems and improving financial discipline in the public sector in the country, which was initiated in 1996. Some salient reforms of PIFRA are the complete divesting of audit functions from accounting, introduction of the New Accounting Model (NAM), large scale training and capacity building of the departmental functionaries (World Bank 2010a).

5 For example, China (Aiken and Lu 1993), UK (Coombs and Edwards 1995), India (Khumawala and Shroff 2017), Nigeria (Abdulrahaman 2012), USA (Patton and Hutchison 2013), Portugal (Rodrigues and Sangster 2013), Yemen (Al-Tholaya 2013), Iraq (Abdullah 2014), Sri Lanka (Nagendrakumar, Fonseka, and Dissanayake 2015), Italy (Andrei, Baker, and Sargiacomo 2017), Egypt (Elbayoumi, Awadallah, and Basuony 2019) and Turkey (Arslan 2017; Yakupçebioğlu 2020).

6 In Australia, the reform process was completed over a period of 25 years starting in 1984 and ending in 2008 in three phases (Allan 2009). Malaysia attempted three times to revive its government accounting in 1969, the 1980s, and 1992 respectively (Saleh 2007). Poland reformed its PSA system in the 1990s, with considerable changes in 1994-1995, besides amending it in 1986 and 1988 (Jaruga, Nowak, and LisieckaZajac 1998). New Zealand reformed its budget and financial management system in the 1980s (Ouda 2008). Yet, other counties including the USA, Canada, UK, Netherlands, France, Denmark, Russia, Korea, Brazil, Portugal, Turkey, South Africa, Chile, Singapore, China, Sri Lanka, India, Nepal, Bangladesh, Bhutan, Vietnam, Maldives, Nigeria, Taiwan Thailand, Philippines and UAE have also reformed their public sector accounting (Ouda 2003; Subramanian 2007; Adhikari and Mellemvik 2010; Xue and Zan 2012; Rodrigues and Sangster 2013; Alkaraan 2018; Nagendrakumar 2020; Bulgarelli et al. 2021; Krishnan 2021).

7 Cash Basis IPSAS is a principles-based, fair presentation cash-basis accounting framework and it has two parts. The mandatory part requires entities to prepare a statement of cash receipts and payments which recognises all cash receipts, cash payments, and cash balances controlled by the entity (IPSASB 2017). The non-mandatory part identifies additional accounting policies and disclosures that a public sector entity is encouraged to adopt to enhance the usefulness of its financial statements for accountability and decision-making purposes and to support its transition to the accrual basis of financial reporting and adoption of Accrual Basis IPSAS.

8 Especially from the Central Archives of the Office of the AGP available at http://koha.pastic.gov.pk:5483/

9 Official websites of governmental, international, donor organisations and other scholarly articles.

10 Open coding is conducted by dismantling texts and distinguishing different themes and concepts found in the data. These pieces of data are then regrouped based on their relevant content into categories. This categorising step is termed axial coding. Finally, selective coding was conducted by making logical connections between the core categories to make sense of understanding what had been happening in the observed practices.

11 A legacy system is any system that relies on outdated software, hardware, technology, product and processes; which is subject to heavy cost and non-reliable outputs. Due to the concurrence of this definition with the government accounting system in Pakistan in this period, we refer to it as the Legacy system.

12 An Act of the UK Parliament divided British India into two independent state, Pakistan and India, on 14 August 1947.

13 The Consolidated Fund consists of all revenues and loans received by the government or money received by it in repayment of any loan; while a Public Account consists of all other public money received by or on behalf of the government.

14 Previously known as North West Frontier Province (NWFP)

15 COBOL stands for Common Business-Oriented Language, which is the first operating system and a business application based on a high-level programming language.

16 SAP is software used in Enterprise Resource Planning (ERP) to co-ordinate the functional areas of the organisation.

17 Complete financial reports of federal and all provincial governments can be accessed at https://cga.gov.pk/Content/Index?PageCode=y1qB8wBsAa0*V

18 Other than those relating to contributions by the Government as owner that result in an increase in equity.

19 An essential element of the accounting framework which provides the structure by which accounting transactions are coded in a manner to present financial information in a logical manner (AGP 1999b).

20 The external audit uses Audit Command Language (ACL) which was part of the PIFRA under the Audit components; however, it is beyond the scope of this study.

21 Through an official Gazette No. M302, dated 20 April 2000.