Conformity of Accounting Practices with International Standards in the Local Government of Bangladesh

Abstract

Purpose: The shift from cash to accrual accounting and the establishment of globally recognized International Public Sector Accounting Standards (IPSAS) represent a significant development in public sector accounting (PSA) practices. These reforms are largely inspired by the New Public Management (NPM) paradigm, which demands enhanced efficiency, transparency, and accountability in public financial management, similar to the private sector. However, the uniqueness and complexity of the public sector have made the reform process challenging. In this context, the present study focuses on the local governments (LGs) of Bangladesh, one of the most significant entities in the public sector with distinctive features. The study primarily aimed to explore and examine the current accounting practices of LG in relation to international standards. Furthermore, the research also intended to explore the factors influencing the IPSAS-based accrual reform and evaluate the perceived benefits associated with these reforms in the LG of Bangladesh. DiMaggio and Powell’s (1983) Neo-institutional Sociology (NIS), as well as an integrated theoretical framework of contingency theory by Lueder (1992) and its further development in Lueder’s FMR model (2002), along with NPM philosophies, were deployed as the theoretical underpinning of the study. Methodology and Data: The study collected data from various complementary sources to yield robust and comprehensive findings, following an explanatory sequential mixed-method research design. This study has assembled secondary data from the documentary evidence of the respective LG offices, relevant acts, and other organizations associated with the LGs. Additionally, the study has reviewed relevant literature. In the quantitative phase, cross-sectional data were collected from 153 accounting personnel of local governments using a five-point Likert scale questionnaire, employing a multi-stage random sampling technique. In addition, to explain the quantitative outcomes, 31 semi-structured interviews and 10 Key Informants interviews have been conducted. The questionnaire data were analyzed by applying SEM via SmartPLS software, and interviews were analyzed employing thematic narrative analysis. Findings: The study reveals that the existing manual cash basis accounting practices of LGs deviate from international norms and fail to provide detailed and timely information to the users. The study revealed that both institutional and contextual aspects significantly influence local government accrual transformation. This study suggested that ensuring | viii sufficient ICT infrastructure, updated legal frameworks, improved training facilities, appointment of skilled accounting personnel, engaging professionals and their strong support, and a sincere leadership commitment to reform are the significant factors for the successful implementation of accrual reform in the LGs. Therefore, the study concluded that without creating a favorable implementation environment, sheer pressure from resource providers or imitative tendency would not yield the intended reform in the LG. Research Implications: The study outcomes will benefit the researchers, policymakers, relevant authorities, and other stakeholders in advancing local government accounting reform. Moreover, the research outcomes may significantly contribute to the implementation of the accounting reform initiatives of the Financial Reporting Council (FRC), Bangladesh. Finally, the study has a great potential to contribute to the PSA literature and the ongoing arguments on accrual reform in the public sector. Originality: In the global context, there is limited research that explores the factors influencing accrual reform in local government, employing an explanatory sequential mixed-method research design together with structural equation model techniques. The study is the first of its Kind in Bangladesh.