ACCRUAL ACCOUNTING:

CHANGE AND MANAGING CHANGE

Faculty of Business and Accountancy
University of Malaya
Research Team
Assoc. Prof. Dr Che Ruhana Isa
Assoc. Prof. Dr Zakiah Saleh
Dr Haslida Abu Hasan
23 April 2013
Jabatan Akauntan Negara, Putrajaya

Acknowledgement:
We would like to thank AGD for the research grants,
IPN - Dr Shahril Baharim and team, PPPA - Dr Hj Sofian Kochik and team, as well as all
respondents to our interview and questionnaire surveys for their valuable comments and
inputs.

Introduction
Change Initiative
New Economic Model (NEM)
Strategic Reform Initiatives (SRIs)
Public Sector Transformation

Change Management
Aim: secure buy-in to the change and
align behavioural and skills with the
change
Importance: meeting milestones and
ensuring employees capacity to
adapt to and work effectively and
efficiently in the new environment
Committ
ed
Leadersh
ip

Main focus: facilitate assetliability management

Accrual
accounti
ng

Provide a better picture of

government financial position
- government assets and
liabilities
Reflect full cost service
provision, improve decision
making and enhance
performance measurement
and accountability (Saleh and
Pendlebury, 2006).

Planning

Key
Factors in
Managing
Change

Informed
Stakeholde
rs

Defined
Governanc
e

Aligned
workforc
e

Source:
http://www.psc.qld.
gov.au/

Research Objectives
1. Suggest best structure of government

organization for successfully embracement

of change.
2. Suggest best operational practice in

government organizations' to ensure

change towards accrual is successful.
3. Suggest appropriate information system of

government organization in successfully

embracing change to accrual.
4. Suggest the appropriate knowledge and

skills of government employees to

guarantee change towards accrual
accounting is successful.
5. Assess the current organizational readiness for change.
6. Assess the current level of individual awareness and

commitment to change.

Contributions
Assisting government of Malaysia,
specifically the AGD, in successful
transition towards accrual accounting
through evaluation and
documentation of:

appropriate organizational
structure, operational practices
and information system as
evidenced in other countries;
suitable knowledge and skills
for government employees.
level of readiness, commitment
and awareness of the public
sector organization and
participants;
factors influencing the
readiness and commitment to
change;

7. Examine organizational and individual factors

influencing commitment to change.

Justification
A need to assess organizational readiness before
the implementation of reform initiative i.e. adoption
of accrual accounting:
implementation of accrual accounting involves significant cost to the
government, all involved should not only accept reform but must have
the technical ability to understand, implement and maintain the reform
(Hepworth, 2003).

Important to assess critical success factors which

include infrastructure support, human capital as well as
organizational and behavioral factors influencing change.
Other countries have changed to accrual accounting
which would provide examples of best practices
Malaysia can learn.
4

Theoretical Framework
Change message
Attitude towards
change
Information flow

COMMITMEN
T TO CHANGE

Principal support
Organizational
readiness
*The framework is developed based on Herscovitch
and Meyer (2002)
5

Research Methodology
Research
Objectives
Research objectives 1
to 4

Methods

Respondents
(300)

Archival Research

Review of documents

Structure
Operational practice
Information system
Appropriate
knowledge and skills

Review of documents to
identify best practices and
experiences

Policy documents,
government instructions
and publication in other
countries e.g. New
Zealand, Australia and
the UK

Research objectives 5
to 7

Questionnaire Survey and

Interview

Policy makers and

implementers

5. Organizational
readiness
6. Individual awareness
and commitment to
change
7. Factors influencing
commitment to
change

Quantitative dataset questionnaire survey

Use of postal mail followed
by e-mail
Interviewing the top
management for
perception on change

Accountant General (AG),

Deputy AGs, directors in
AGD and Treasury
Accountants, deputy
accountants and
assistant accountants of
Federal Government and
Ministries.

1.
2.
3.
4.

References: IFAC (2003), OECD (2008), EFA (2003)

Recognition of the
elapsed time needed

Strategy to diminish risk

and deal with
unexpected effects

IT capacity
Appropriate culture
approach

Implementation
capacity skills and
resources

Comprehensive
management training

Institutional politics
cooperative organisational
networks; consultations,
commitment to change

Support of government
auditor and a robust audit
process

Leading change
effective leadership

Joint development of
accounting standards

Assess the need for

change

Consultation and
acceptance

Ideological vision
strategic agenda

Participation of
accountancy and other
professions

Use of legislation to
provide formal authority
and signal commitment to
change
Adequate technological
capacity and information
systems
Effective project
management and
coordination structure
Adequate human and
financial resources
Commitment of central
entities and key officials
Political commitment

Clear mandate

IFAC

OECD

European Federation
of Accountants

International Practice Guide

Critical Factors
Eight important factors warrants
attention and consideration at various
point of time during the change process
(Fernandez and Rainey, 2006) :
Ensuring theres a need
Provide a plan for the change
Build internal support for change and
overcome resistance; employee commitment
Ensure top management support and
commitment
Build external support
Provide resources
Institutionalize change
Pursue comprehensive change
Preconditions for a move to accrual
accounting (IMF, 2009):
A sound accounting system
Political ownership must be seen to be
championing and supporting
Adequate technical resources e.g.
accounting and IT skills
Modern government financial management
information system.
5/21/16

Challenges in reforming the system:

Planning with clear vision, documenting case
for change
Dealing with resistance from /readiness of
accounting staff;
Require huge resources (infrastructure and
human capital);
Apply accrual accounting in both financial
reporting and budgeting;
Decision maker knows how to use accrual
based information;
Accounting issues valuation, accounting for
treatment for certain government assets;
Risk management:
Applying IPSAS without clear
understanding
Financial management and expenditure
control being made more difficult for
members of parliament
Huge cost and timescale involved
Training is given to preparers but not the
users of information
Initiative being abandoned halfway
8

Adequate knowledge and skills

Upgraded finance staff professional staff
Sufficient training responsibility of chief executives not Treasury faster
implementation

Development of financial management and information systems contracted

out to accounting firms and software suppliers
One integrated system
Gradual implementation adaptation, piloting
Time frame: short reform period when theres strong political support and small
number of entities; too long then theres a risk of reform fatigue
Set milestones - action plan
Communication strategy disseminate information through seminar, media,
etc.
Coordination and consultation
Setting policy and amend relevant acts
Use of legislation demonstrates strength of government commitment to change
Standard setting body with consultation from the professions, academicians
and auditor
Change agent: role of Treasury and Ministry of Finance

Human
resource
Informatio
n system
Operation
al
Structure
(institutio
nal
framework
)

Summary of the Experience of Other

Countries

Moving Forward
Ensure adequate involvement
of internal staff in setting up
the system and using the
system specifications should
follow needs of the
organisation

Infrastructure

Change has to be
actively promoted
especially to the policy
makers and senior
officials change agent
and sponsor

Fostering a
cultural
change

Implementat
ion Issues

Knowledge
and skills
Training
Basic senior officials, members
of parliament
Intermediate managers,
accountants
Advanced senior accountants
Recruitment strategy
Competency gaps
Sustainability of work performed by
consultants adequate knowledge
transfer

Implementation phase:
(i) A certain proportion of
ministries and agencies
switching to accruals each year.
More manageable;
(ii) Implementation can be done in
a big bang approach with all
ministries and agencies
switching to accruals at the
same time. This is a heavy load;
(iii)Accruals can be tested for a
number
of years behind the
Implementat
scenes

ion models

Need for
communicatio
ns
Effective communication
a- clear communication with the audit office to reinforce
the reform and attest to the accounts on accrual basis
as well as assessment of the outcome
bcommunicating
with
politicians,
notably
parliamentarians
with
strong
communication
strategies so that sustained change can be achieved
c- avoid communication gap and confusion with the
media through training sessions for the media
10

Survey Result Profile of Respondents

11

Survey Result Correlation Among the

Main Construct

12

Survey Result Descriptive Statistics of

the Variables

13

Survey Result Independent Sample TTest

14

15
High information flow (5.03); Moderate change message (4.77)
Although information is shared, but the message is not yet effective as
evidenced by the moderate level of change message; which also
explained the moderate level of commitment and attitude towards
change.
High organizational support staff training (5.28); moderate (4.46)
organizational readiness in terms of number of staff and number of
qualified accountants.
Findings training varies across ministries, some ministries properly
plan for their training while others adopt an attitude of wait and see
for further instructions from AGD

3- KNOWLEDGE AND SKILLS

a- training, recruitment strategy
and analysis of competency gaps
b- sustainability of work performed
by consultants adequate
knowledge transfer
4 EFFECTIVE
COMMUNICATIONS
a- clear communication with the
audit office
b- communicating with politicians
c- avoid communication gap with
the media
1 FOSTERING A CULTURAL
CHANGE
Change has to be actively promoted
especially to the policy makers and
senior officials change agent and
sponsor

High principal support (5.02); Moderate commitment to change (4.22);

Moderate attitude towards change (4.41); High organizational
leadership (5.25)
Therefore effective promotion is necessary to engage everyone with
the change process, information on the overall picture of change and
its effect should be shared not only to the management levels

2- INFRASTRUCTURE
Ensure adequate involvement of
internal staff in setting up the
system and using the system
specifications should follow needs of
the organization

High system support for accounting staff (5.57) in terms of

infrastructure and budget
Moderately high (4.85) for organization infrastructure readiness in
terms of office space, computing facilities and accounting software

Discussion Moving
Forward

Moving Forward
FOSTERING CULTURAL
CHANGE
1 FOSTERING A CULTURAL CHANGE
Change has to be actively promoted especially to
the policy makers and senior officials change
By Gods will, if
Acceptance level is
agent and sponsor
everyone plays
very good and
their role we will
High principal support (5.02);
encouraging. This
be able to adopt
Moderate commitment to change
can be seen from the
accrual accounting
interaction of
(4.22); Moderate attitude towards
in 2015.
participants during
change (4.41); High organizational
briefing session.
leadership (5.25)
ACCOUNTS
Therefore effective promotion is
DEPARTMENT
Pasukan Projek Perakaunan
necessary to engage everyone
Accounts
Akruan (PPPA)
with
the
change
process,
department is
After we received
leading the change,
information on the overall picture of
AGD plan later, we
but strategic plan
change and its effect should be
will
develop our own
is yet to be
shared
not
only
to
the
plan based on our
determined
management levels
environment and
aligned to the AGD
plan.

TRAINING OF
TRAINERS

I will deliver my
responsibility with
commitment from all
departments, divisions and
help from accounts, finance
and Accountants General
Department. We place great
reliance on the AGD to
develop the new system.

At the moment our

Ministry have not
implemented any
changes, however, we
are ready for change in
accounting basis.

CHANGE
AMBASSADORS
(Chief Accounting
Officer)

16

Moving Forward
INFRASTRUCTURE
2 INFRASTRUCTURE
Ensure adequate involvement of internal staff in setting up
the system and using the system specifications should follow
needs of the organization
Our accounts
department is
managing
infrastructure
aspect.
EXISTING
FACILITIE
S

Depends on IT
policy by AGD. Our
Ministry is ready to
incur the
acquisition and
maintenance costs
if necessary.
I was told that

infrastructure at our
ministry will not change
much, we will be using
current computing
facilities. However, I was
informed that there will
be cost in acquiring
license to the accounting
system.

High system support for

accounting staff (5.57) in
terms of infrastructure
and budget
Moderately high (4.85)
for organization
infrastructure readiness
in terms of office space,
computing facilities and
accounting software

We have doubt on the

ability of the new
accounting system to
handle users and
information, what if it
fails like HRMIS

We need support
from AG and we
have raised our
concern over the
centralised system.
At present we still
1GFMAS
maintain stand
alone system.
2015 is not viable with
APPOINTM
current progress, staff are
ENT OF
in need of technical
VENDORS
training, huge challenge in
recording of assets and
uncertainty of the effect on
recording of payment.
17

Moving Forward
KNOWLEDGE AND
3 KNOWLEDGE
AND SKILLS
SKILLS
a- training, recruitment strategy and

analysis of

competency gaps
b- sustainability of work performed by consultants
adequate knowledge
Our officers have
Hightransfer
organizational support
Agencies under
attended the
staff training (5.28); moderate
our ministry may
awareness
(4.46)
organizational
have problems with
session, we have
readiness
in
terms
of
number
the
no objection to
of staff and number of
implementation
move towards
qualified accountants.
betterment.
Findings training varies
Strengthening of the
GAP ANALYSIS
PTJs
across ministries, some
Local agencies at
ministries properly plan for
We have issues with
state and district
their training while others
frequent movement of
level have problems
adopt an attitude of wait-andstaff. Although lack of
in terms of staff
see for further instructions
staff is not critical
numbers and
success factor
from AGD
qualification
qualification
AGD as front-liner has
successfully organized
awareness program, training
of trainers (TOT) programs,
joint venture programs with
IPN , professional bodies and
local university as well as
appointed service provider to
trained and monitor officers.
Our ministry will also conduct
courses for our officers.

TRAINERS

Trainer from accounts

department will provide
training after we
received instructions
from AG. Training for
user of the accounting
system will be given
after the system is in
18
place.

CHANGE
MANAGEMENT
AND TRAINING
UNIT

Moving Forward
EFFECTIVE
COMMUNICATION

4 EFFECTIVE COMMUNICATION
a- clear
communication with the audit office
Information
on
b- communicating with politicians
accrual accounting
is channeled
c- avoid communication gap with the media
directly through
training as well as
bulletin
boards/discussions/
forum/ specific
blogs
SEMINARS

Accounts
department is
expected to drive the
change initiative.

CONFERENCE
S

High information flow (5.03);

Moderate change message
(4.77)
Although information is
shared, but the message is
not yet effective as
evidenced by the moderate
level of change message;
which also explained the
moderate level of
commitment and attitude
towards change.

We plan to
continuously share
information through
email

WORKSHO
PS

There should be
direct communication
between AGD and
head of both
accounting and nonaccounting
departments

AGD channeled all

information through
accounts department.
Accounts department
is our change agent

BRIEFING
SESSIONS

Awareness
courses were only
given to the
accounting staff.
19

Conclusion
Findings from archival search shows that:
1. Generally, our change effort is in line with the recommendations of
bodies such as IFAC and OECD;
Clear mandate has been given by the Prime Minister through the
New Economic Model;
Formal authority through amendment of the relevant Acts;
Development of accounting standards by GASAC;
PPPA is formed to manage the change;
Commitment and awareness at various levels are apparent.
2. Other countries approach the change either by phases or parallel with
existing system. Malaysia approaches the change in big-bang i.e. the
whole of government at the same time;
3. One integrated system is applied by countries using accrual basis;
Findings from both survey and interviews suggest that:
4. Intensive upgrade in human resources;
1. At organizational level the level of readiness and commitment towards
accrual accounting is encouraging;
2. At individual level moderate level of readiness and commitment;
3. Significant factors identified as influencing commitment to change are
Attitude towards change;
Organizational readiness;
Change message; and
Information flow
20

Question & Answer

Thank you

Assoc. Prof. Dr Che Ruhana Isa (cruhana@um.edu.my)

Assoc. Prof. Dr Zakiah Saleh (zakiahs@um.edu.my)
Dr Haslida Abu Hasan (haslida@um.edu.my)

We welcome any comment or feedback. You can contact us at the above e-mail address. Thank
you.