The diffusion‐adoption of accrual accounting in Sri Lankan local governments

• Published date: 01 August 2020
• Author: Steven Dellaportas,Thusitha Dissanayake,P. W. Senarath Yapa
• DOI: http://doi.org/10.1111/faam.12222
• Date: 01 August 2020

Received: 14 June 2018 Revised: 1 August 2019 Accepted: 8 August 2019

DOI: 10.1111/faam.12222

RESEARCH ARTICLE

The diffusion-adoption of accrual accounting in Sri

Lankan local governments

Thusitha Dissanayake1Steven Dellaportas2

P. W. Senarath Yapa2

1Deakin Business School, Faculty of Business &

Law, Deakin University,Melbourne, Australia

2School of Accounting, RMIT University,

Melbourne, Australia

Correspondence

StevenDellaportas, School of Accounting, RMIT

University,GPO Box 2476V,Melbourne, 300,

Australia.

Email:steven.dellaportas@rmit.edu.au

Abstract

The aim of this paper is to evaluate the diffusion-adoption of accrual

accounting among Sri Lankan local governments.The paper draws on

the Diffusion of Innovation theory to explain the factors that assist

or mitigate the adoption of accrual accounting as a new account-

ing practice. Finance managers, charged with the responsibility of

adopting accrual accounting, were influenced by two major factors:

a centralised knowledge-diffusion process educating these finance

managers about its compatibility; and its observability in practice to

understand the benefits of adoption. The paper contributes to the

understanding of the diffusion of accounting innovation in develop-

ing countries and the role of key playerssuch as professional associ-

ations within this process.

KEYWORDS

accounting innovation, developing country, diffusion, local govern-

ment, Sri Lanka

1INTRODUCTION

In recent years, public sector reforms havebeen a major focus of policy makers and academic research. The continuing

reform of the public sector with the implementation of new management techniques highlights the role of accounting

in modernising public sector bureaucracy (Broadbent & Guthrie, 2008; Hood, 1995). This renewed emphasis on public

sector accounting as a tool to assist finance management was promoted byinternational standard setting agencies and

reinforced by organisations such as the World Bank, International Monetary Fund,and the Asian Development Bank,

emphasising the dissemination of international accounting protocols as part of an enhanced accountability regime. The

adoption of International Public Sector Accounting Standards in developing countries such as Sri Lanka transformed

accounting from traditionalcash-based reporting to a system of accrual accounting in which accountability and perfor-

mance were at the forefront of contemporary public sector management. The aim of this study is to assess the diffu-

sion of accrual accounting among local government in Sri Lanka to identify and understand the factors that influence

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262 DISSANAYAKEET AL.

the success or failure of the diffusion measured in terms of its adoption. In particular, this study seeks to unravelthe

internal and external processes promoting and influencing the adoption of accrual accounting bylocal governments.

The issue of accounting innovation within public financial management reform has been addressed in a growing

body of literature, referred to as the New Public Financial Management (Broadbent, Jacobs, & Laughlin, 2001; Gurd,

2008; Liguori, 2012; Liguori & Steccolini, 2013; Olsson, Guthrie, & Humphrey,1998). In this body of research, authors

explain the results and antecedents of accounting innovation bydrawing on organisational dimensions (e.g., new intu-

itionalism and old instructional economics) or the contextual factors in which the innovation is introduced (Adhikari,

Kuruppu, & Matilal, 2013; Carpenter & Feroz,2001; Harun, Peursem, & Eggleton, 2012; Yapa & Guah, 2012). It is from

this body of literature that the present study receives its motivation. Rather than examine organisational factors to

assess the motivation for accounting innovation, the present study draws on Rogers’ (1995) diffusion of innovation

theory to unpack aspects of the “process” in which the diffusion and adoption of accrual-based public sector accounting

standards and practice occurs. The application of diffusion theory in accounting research to understand the diffusion

of new accounting protocols is supported empirically with evidence demonstratingthe relevance and appropriateness

of diffusion theory in the study of public sector accounting reform (Christensen & Parker,2010; Jackson & Lapsley,

2003; Lapsley & Wright, 2004). Research relying on diffusion theory can offer insights into why particular techniques

and practices spread or do not spread throughout organisations (Lapsley,1999).

While diffusion of innovation theory has been used widely in accounting research, the application of the diffusion

theory framework has been applied predominantly in the context of private sector entities (Ax & Bjørnenak, 2005;

Bjørnenak, 1997; Malmi, 1999) and limited to advanced economies such as Australia (Perera, McKinnon, & Harrison,

2003) and in understanding non-accounting innovations (Swan & Newell, 1995). The particularities of public sector

institutions elicit context-specific investigation to understand how contemporary accounting is adopted or resisted.

However, despite the apparent promise of diffusion of innovation research to understand the diffusion of account-

ing, research in the public sector has received limited attention. Furthermore, research evidence on the adoption of

accounting reform in developing countries is mixed. For example, Adhikari, Kuruppu, Wynne, and Ambalangodage

(2015) detected a reluctance on the part of government accountants to give up the prerogativesof accounting reform

to external parties, whereas Korteland and Bekkers (2007) detected the rapid diffusion of e-governmentinnovation

stimulated by an active diffusion strategy among project managers who were able to share knowledge and expertise

with potential adopters. The present study will add further evidence to this ongoing discussion for better understand-

ingthe critical success factors in diffusion-adoption strategies of accounting innovations. This finding also offers insight

to policy-makers on how to enhance successful innovationsand meet the needs of target adopters. The findings of the

present study will inform public sector organisations of the benefits gained from new accounting systems applicable to

other contextswith similar institutional settings. Data collected from surveys completed by and semi-structured inter-

views with local government finance managers show that the adoption of accrual accounting depends on adopters

developing a favourableattitude toward the accounting innovation, in turn influenced by product champions playing a

central role in articulating the positive attributes of accrual accounting. The evidence highlights markedlythe impor-

tance of leadership and expertise in the diffusion of new accounting technologies.

The remainder of this paper is organised as follows: Section 2 presents the relevant literature outlining the theo-

retical background and evidence from prior diffusion literature. Section 3 presents the “research design” by succinctly

addressing the research context, and the process of data collection and analysis. Section 4 presents the findings, fol-

lowed by Sections 5 and 6 providing a discussion of the results and concluding remarks, respectively.

2DIFFUSION RESEARCH IN ACCOUNTING

Diffusion theory has been advocated as relevant and appropriate for the study of public sector reform because of

its ability to shed light on the critical success factors of innovation in accounting reform (Jackson & Lapsley, 2003;

Lapsley & Wright, 2004). The trajectory from innovation to diffusion is not automatic; there are significant contextual