Financial Management Information Systems and accounting policies retention in Brazil

• Pages: 207-227
• Published date: 19 March 2020
• DOI: https://doi.org/10.1108/IJPSM-01-2019-0027
• Date: 19 March 2020
• Author: Ricardo Rocha de Azevedo,André Feliciano Lino,André Carlos Busanelli de Aquino,Túlio César Pereira Machado-Martins
• Subject Matter: Public policy & environmental management,Politics,Public adminstration & management

Financial Management

Information Systems and

accounting policies retention

in Brazil

Ricardo Rocha de Azevedo

Faculty of Accounting, Federal University of Uberl^

andia, Uberl^

andia, Brazil

Andr

e Feliciano Lino

Institute of Applied Social Sciences, Federal University of Par

a, Bel

em, Brazil

Andr

e Carlos Busanelli de Aquino

School of Economics, Business Administration and Accounting at Ribeir~

ao Preto,

University of S~

ao Paulo, S~

ao Paulo, Brazil, and

T

ulio C

esar Pereira Machado-Martins

Getulio Vargas Foundation, S~

ao Paulo Business Administration,

S~

ao Paulo, Brazil

Abstract

Purpose –The successful implementation of International Public Sector Accounting Standards (IPSAS)

depends on the adoption and subsequent maintenance of accrual accounting policies. Moreover, Financial

Management Information Systems (FMIS) are important drivers of reforms, and their replacement might

disruptthe execution of accrual accounting policies. This paper aims to analyze the effects of FMIS replacement

(or maintenance) on the retention of accrual accounting policies in Brazilian local governments.

Design/methodology/approach –The researchadopts a sequential mixed-methods approach, starting with

a quantitative analysis of the presenceof accrual accounting policies in local governments and the effects of

FMISreplacement. Next, a qualitative analysisis conducted with a survey, documents and interviewsto observe

the FMIS replacement process. Our analysis focuses on local governments from one state in Brazil, but the

context is highly transferableto other states, as the same procurement law and accounting regulations apply.

Findings –FMIS replacement may reduce accounting policies retention; consequently, public procurement

regulation may induce a public procurement context in which the IPSAS project would find more difficulties to

prosper.

Research limitations/implications –This research contributes to the IPSAS literature by examining the

phenomenon of accounting policies retention or persistence, as one should not take it for granted that an

adopted accounting procedure will be sustained over time. The analysis argues that FMIS replacement due to

compulsory rebidding should be carefully considered.

Practical implications–Promoters of accounting reforms may consider the regulation of contracting out for

FMIS a relevant issue to the institutionalization of accounting policies.

Originality/value –The analysis innovates by linking IPSAS accounting reform to the contracting out

of FMIS.

Keywords Accrual accounting, Contracting out, Local governments, IPSAS, FMIS

Paper type Research paper

1. Introduction

The development of accrual-based financial reporting standards for public sector

organizations has been discussed and globally supported since the late 1990s. It is

generally argued that the adoption of International Public Sector Accounting Standards

(IPSAS) would improve the quality of accounting information, leading to more efficient and

transparent public sector activities worldwide (ACCA, 2017;Brusca et al., 2016). Extant

literature identifies several obstacles for IPSAS adoption by governments (Christiaens et al.,

FMIS and

accounting

policies

207

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/0951-3558.htm

Received 29 January 2019

Revised 4 June 2019

13 August 2019

Accepted 5 October 2019

International Journal of Public

Sector Management

Vol. 33 No. 2/3, 2020

pp. 207-227

© Emerald Publishing Limited

0951-3558

DOI 10.1108/IJPSM-01-2019-0027

2010;Brusca et al., 2015;Liguori and Steccolini, 2018). In general, the focus is on lack of

legitimacy or enforcement (Arnaboldi and Lapsley, 2009), cultural barriers (Brusca et al.,

2015), and lack of capabilities (Caperchione et al., 2014;Brusca et al., 2015).

The continuous development of accounting reforms depends on initiatives to push

forward the persistence and maintenance of accrual accounting policies over time, even if an

accounting policy is already being performed. One should not take for granted that an

adopted procedure will be easily sustained, especially if it is not fully connected with or

embedded in other systems. Internal factors, rather than external pressures, may affect

accounting policies retention (i.e., a situation in which the execution of an accounting policy is

maintained in subsequent periods): for instance, challenges associated with Financial

Management Information Systems (FMIS), which are considered crucial to driving

accounting reforms in developing countries (Peterson, 2007;Scott, 2003).

Usually, FMIS are contracted out in a competitive bidding process, and public

procurement regulation mandates the rebidding of such systems in several countries. In

effect, the regulation may force the replacement of FMIS, even when the systems perfectly fit

the requirements of the government (Diamond and Khemani, 2005;Alaranta and Jarvenpaa,

2010). This may create temporary interruptions in accounting practices (Diamond and

Khemani, 2005). We propose that, in extreme cases, FMIS replacement might challenge the

accounting ecosystem and disrupt the accrual accounting policies execution (i.e., reduce its

retention). The disruption might happen if there is a lack of ex ante specification of the FMIS

features, an unclear set of performance criteria for the FMIS solutions, or weak penalties for

FMIS performance noncompliance (Cohen et al., 2007). Therefore, the process of FMIS

replacement can encounter difficulties because the accounting teams’capability lack to

evaluate the current contracted-out systems (Venieris and Cohen, 2004).

A remarkable feature of Brazilian local governments is that they usually contract out their

FMIS under a commercial off-the-shelf model. The contracting model lasts 12 months and is

renewable for another 36 months. Each year, governments are required to evaluate whether

to extend the agreement or issue a new procurement bill to recontract. At the end of the

agreement, local governments are required to rebid for the FMIS, which may lead to FMIS

replacement.

The article analyses the effects of FMIS replacement (or maintenance) on the retention of

accrual accounting policies in Brazilian local governments. The research adopts a sequential

mixed-methods approach, starting with a quantitative analysis looking at whether the

occurrence of accrual accounting policies is affected by FMIS replacements. Our focus is on

the local governments from one Brazilian state, covering approximately 850 local

governments. The quantitative analysis first observed the occurrence of nine converged

IPSAS in Brazil that were specifically related to changes in the “journal entry”rules, rather

than the “reporting rules.”We compared those IPSAS that were highly dependent on

software to the non-dependent on, from 2015 to 2017. Next, we focused on four (out of the nine)

policies that were highly dependent on software and tested the effect of FMIS replacement on

the retention of the accounting policies for municipalities that had adopted them previously.

We finally conducted a qualitative analysis, triangulating a short survey with documental

analysis and interviews to observe accountant engagement in the bidding process.

The results show that FMIS replacement may reduce accounting policy retention. Such an

effect may emerge due to poor contracting out practices, leading to difficulties in an IPSAS

reform’s success. The discussion opens a debate on the influence of the market for FMIS and

on how the mandatory rebidding of FMIS may affect public financial management reforms,

specifically regarding the adoption of IPSAS. For countries in which FMIS are often

outsourced, such as Brazil, a weak contracting out process potentially reduces the chances of

success of IPSAS reforms.

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