PERFORMANCE BUDGETING

AND ACCRUAL BUDGETING

A Study of the United Kingdom,
Australia, and New Zealand
Caridad Mart
Universidad de Zaragoza
ABSTRACT: This article analyzes accrual-based performance budgeting systems
in the United Kingdom, Australia, and New Zealand, focusing on the content and
format of implemented performance budgets and the added value that accrual
budgeting brings to performance budgeting. In all three countries, full accrualbased costs, revenues, and funding appropriations are linked to specifications of
planned and actual performance in terms of outputs/outcomes, thereby increasing
the quality of departmental performance reporting. Some differences between
the accrual-based performance budgeting models in the three countries are
identified.
KEYWORDS: accrual budgeting, Australia, central government, New Zealand,
performance budgeting, United Kingdom

Traditional budget systems are focused on inputs, an orientation served quite

adequately by the cash basis. New Public Management (NPM) reforms place
special emphasis on outputs and outcomes, adoption of the accrual basis,1 and a
shift from process accountability toward greater accountability in terms of results
(Gruening, 2001; Guthrie, Olson, & Humphrey, 1999; Hood, 1995; Lapsley, 1999;
Poister & Streib, 1999). Todays fiscal environment, in which governments are
struggling with declining revenues and growing pressure to do more with less,
creates an opportunity for renewed emphasis on the use of performance information in decision-making (Ho, 2011; Institute for Government, 2009).
Performance budgeting and the accrual basis are among the most prominent
reforms on the budget agenda (Schick, 2007). Accrual budgeting is defined as the
use of accrual accounting records and measures in the budgeting process (Lder
& Jones, 2003, p. 35).2 There are multiple definitions of performance budgeting,
which is also known as entrepreneurial budgeting, activity-based budgeting,
outcomes-based budgeting, and results-based budgeting. In general, it implies
the incorporation of performance measures into the budget process (Kong, 2005).
Public Performance & Management Review, Vol. 37, No. 1, September 2013, pp. 3358.
2013 M.E. Sharpe, Inc. All rights reserved. Permissions: www.copyright.com
ISSN 15309576 (print), ISSN 15579271 (online)
DOI: 10.2753/PMR1530-9576370102

33

34 ppmr / September 2013

The development of program budgeting is generally a precursor of the effective

use of performance information in the budget process. Schick (2007) provides
a twofold definition of performance budgeting. In a broad sense, performance
budgeting is an analytical tool whose only function is to inform policymakers,
while in a strict sense, it is a decision rule in which each increment in expenditure
is expressly linked to an increment in output or performance. The latter definition
of performance budgeting, which allocates resources based on results achieved,
is used only in specific sectors (health service, education) in a limited number of
member countries of the Organization for Economic Cooperation and Development (OECD, 2008).3
The intended objectives of performance and accrual budgeting reforms are to
improve accountability and the effectiveness of public programs. Performance
budgeting reforms aim to enhance the quality of public spending (Zaltsman, 2009)
and to introduce some rationality into a hitherto subjective and political decisionmaking process (Willoughby, 2011).
In spite of the growing research on the usefulness and impact of performance
budgeting, little is known about the content and format of the budget when a
performance budget is implemented and or about how a performance budget
can be linked to an accrual-based budget. The objective of this article is to study
the performance and accrual-based budgeting systems in the United Kingdom,
Australia, and New Zealand. The aim is to answer the following four research
questions: (1) What different models of accrual and performance budgeting exist?
(2) What kind of performance information is included in the budget documents of
central governments? (3) How are performance information and accrual budgeting
integrated into budgetary documents? (4) What added value does accrual budgeting bring to performance budgeting?
The four research questions complement one another. If we want to find
out what different models of accrual and performance budgeting exist, we will
have to know what kind of performance information is included in the budget
documents of central governments. In addition, studying both accrual-based
budgetary documents and the performance information included in them will
allow us to gain insights as to whether there is a necessary nexus between the
use of accrual budgeting and the use of performance budgeting. Moreover, this
article attempts to answer whether performance budgeting systems supported
by full accrual-based budgets provide superior information to performance
budgeting systems that are supported by partial accrual-based budgets or cashbased budgets. The answers to these questions will be useful for academics and
practitioners to know what is taking place in the UK, Australia, and New Zealand
with regard to accrual budgeting and performance budgeting, and why these
three countries decided to implement these two budget tools simultaneously as
part of a common set of reforms.

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 35

Table 1. Cash Budgeting and Accrual Budgeting Compared

Cash budgeting
Timing of recording
transactions

When cash is received or paid

Measurement focus

Budgeted cash inflows and

budgeted cash payments.

Accrual budgeting
When activity generating revenue,
increasing liability, or consuming
resources occurs
Budgeted resources generated, or
revenue
Budgeted resources consumed, or
expenses
Budgeted liabilities
Budgeted assets
Budgeted cash inflows and budgeted
cash payments

Framework and Previous Literature

Accrual budgeting must be framed within the context of the broader public sector
reform movement rather than as a mere exercise in technical improvement (Kelly
& Wanna, 2004). Although the application of the accrual basis has received a
great deal of attention in the governmental accounting literature, studies about
accrual budgeting are still very scant. This is because many countries, in recent
decades, have implemented the accrual basis for the preparation of financial statements, maintaining a cash-based or near-cash-based budget. Table 1 shows how
cash budgeting and accrual budgeting differ in terms of recording revenues and
expenditures as well as in measurement focus.4 Accrual budgeting, as shown in
the table, is not understood in pure accrual accounting terms; that is, accrual
budgeting is not a substitute for cash budgeting. Under accrual budgeting, as can
be seen in the table, budgeted cash inflows and budgeted cash payments are also
accounted, as are budgeted assets, budgeted liabilities, budgeted revenues, and
expenses. Under a cash budget, outlays and receipts are recognized in the budget
only in the year cash flows take place. This implies that a cash budget must be
accompanied by other controls over expenses involving future expenditure.
Performance and accrual budgeting has been adopted by countries with a
principal-agent model or a purchaser-provider system. The United Kingdoms
agency model requires specification of outcome or output targets linked to the
budget. The primary goal of purchaser-provider systems is to introduce quasimarket arrangements for agencies by making them competitive suppliers of public
sector outputs (World Bank, 2010). In purchaser-provider systems (some sectors
in Australia and New Zealand have implemented them), service-delivery agencies
receive funding on the basis of the results/outputs they deliver to the public with
specified quantity, quality, and price in performance targets.5
New Zealand has sought to stimulate market discipline by distinguishing

36 ppmr / September 2013

between the two types of contractual relationships between the government

and the departments: the government as a purchaser of outputs from the departments, and the government as the owner of its agencies, interested in getting
the best possible return on the assets invested (Public Finance Act 1989). It was
in light of the purchase and ownership interests involved in the assessment of
chief executive performance and the appropriation process that accrual-based
information was considered necessary (Pallot, 2001). A distinguishing feature of
New Zealand is the relative emphasis placed on technical efficiency (to achieve
outputs at the lowest possible cost), as opposed to the strategic priority setting
and cost-effective achievement of outcomes in Australia (Campos & Pradhan,
1997; Ha, 2002).
Most empirical studies of performance budgeting have assessed the usefulness
of performance data and the extent of their effect on budget allocations, that is,
whether performance budgeting has an impact on how budgetary decisions are
made and how funds are actually allocated (e.g., Gilmour & Lewis, 2006; Lee &
Wang, 2009; Moynihan, 2005; Willoughby & Melkers, 2000; Zaltsman, 2009).6
These studies have found mixed results. Performance-based information has had a
limited effect on legislative budget decisions and on political budgetary decisionmaking processes (Myers, 2009; Sterck & Scheers, 2006), but it is more useful
in the internal management of departments and at the program level (Ho, 2011;
Joyce, 2003). Performance budgeting provides a great deal more information for
citizens and others seeking to ensure government accountability (VanLandingham,
Wellman, & Andrews, 2005). Several authors indicate that information obtained
from performance budgeting helps managers to better understand their programs
and make necessary changes (Hou, Lunsford, Sides, & Jones, 2011; Melkers &
Willoughby, 1998). It adds value to the budgeting dialogue during different phases
of the budget process (Ho, 2011).
Another stream of the literature has studied the factors that affect the success
of the implementation of performance budgeting (Andrews, 2004; Andrews &
Hill, 2003; Helmuth, 2010; Lu, 2011; Pitsvada & LoStracco, 2002). Previous
research (Bourdeaux, 2008; Lu, Willoughby, & Arnett, 2009; Posner & Fantone,
2007) has shown the importance of the legislative processes in performance
budgeting reforms. In the United States, Posner and Fantone (2007) indicated
that the continued interest of congressional committees in monitoring the progress of agency plans and results can enhance the sustainability of performance
budgeting initiatives over time. Both international organizations and academics
have identified benefits and difficulties associated with the implementation of
performance budgeting (Melkers & Willoughby, 2001; OECD, 2007; World
Bank, 2010). The challenges resulting from the implementation of performance
budgeting include the difficulty of measuring outcomes, resistance from public
servants, and problems in developing the institutional capacity of the finance

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 37

ministry to analyze and evaluate the information received from the different
spending ministries (OECD, 2007).
Very few studies have jointly considered performance budgeting and accrual
budgeting. Sterck and Scheers (2006) identified two major trends in public budget
format change in a number of OECD countries: an evolution toward output and
outcome budgeting, and a tendency toward accrual budgeting. According to Schick
(2007), countries that have good performance-based management are more likely
to have adopted features of accrual budgeting. Robinson (2007) analyzed the cost
information requirements of performance budgeting. He argued that, except for
one particular form of performance budgeting, namely, purchaser-provider models,
budgeting on a partial accrual basis definitely assists performance budgeting, but
that the merits of budgeting on a full accrual basis for performance budgeting are
less clear-cut. The main difference between partial accrual budgeting and full
accrual budgeting is that the former covers all expenses of current production,
including payments in the present or in future years, while the latter includes all
expenses, even those arising from expenditure made in the past, like depreciation. Purchaser-provider models require the inclusion of depreciation because it
is necessary for producers to try to recover the full costs of production.

Research Design
To answer our research questions, we selected the three countries that have the most
experience in the implementation of accrual budgeting, performance budgeting,
and other public sector reforms. The United Kingdom, Australia, and New Zealand
have been at the forefront of those adopting New Public Financial Management
changes (Laughlin & Pallot, 1998). All three have Westminster parliamentary
systems, a framework with traditionally clear hierarchical lines of accountability
between elected officials and professional bureaucrats (Moynihan, 2006). For
Schick (2007), these three governments have two distinguishing characteristics
they are regarded as the best-managed countries in the world, and they generally
give public managers broad operating discretion. The reforms designed to provide
much greater autonomy to government departments and agencies were associated
with a let the managers manage or make the managers manage philosophy.
In the British central government, the change from cash to accrual in the
budget and the accounts took place in 2001/2002, and it was considered a new
stage in the financial management of the public sector. The change to the accrual
basis in the UK is referred to as resource accounting and budgeting, in order to
indicate that it consists of the application of accrual accounting for reporting on
central government expenditure and of a framework for analyzing expenditure by
departmental aims and objectives and relating these to outputs. In Australia, the
move to accrual budgeting and an outcomes and outputs management framework

38 ppmr / September 2013

took place in 1999/2000. Accrual output-based budgeting is not seen as an end

in itself, but as a means of shifting the emphasis toward outputs and outcomes in
order to achieve greater efficiency and, hence, better outcomes for governments
and citizens (Carlin & Guthrie, 2003). In New Zealand, by 1991, all departments
were accounting and budgeting on a full accrual basis, and in the mid-1990s,
there was an increased emphasis on outcomes (Pallot, 2001). Accrual accounting
was introduced in New Zealand to support a management system based on clear
objectives, good performance information, incentives, and freedom to manage
well (Lye, Perera, & Rahman, 2005).
In order to compare the three countries, the analysis presented in this
article considered three key elements of performance and accrual budgeting
models:
1. The appropriations, since they are the means by which Parliament authorizes
government departments/ministries to use resources for a specified purpose.
2. The financial statements that present the departmental budget.
3. The types of performance measures presented in appropriations and other budgetary information.

The method is based on a document analysis. We have reviewed the performance information and budgetary documents of all the departments/ministries at
the central/federal level of the UK, Australia, and New Zealand. In particular, we
have focused on the business plans published by each of the 16 central departments
of the UK, the 23 portfolio budget statements for Australian federal departments,
and the statements of intent of the 37 New Zealand central departments. Other
empirical materials analyzed refer to performance information in departmental
publications, budgetary papers, annual reports, and the forecasts and actual financial statements presented.
The documentation was collected from the Web sites of the ministries of finance
and departments/ministries in each country.7 The analysis for each country was
carried out with the latest documents available, namely, the budgetary documents
for 2012/2013 and the annual reports for 2011/2012. In the UK, this is especially
important, because the presentation of performance information in the central
government underwent a significant change after May 2010, when the outcome
of the general elections led to a new coalition government of the Conservative
Party and the Liberal Democrat Party.
To illustrate how accrual-based performance budgeting looks, examples from
the departments/ministries in each of the three countries are also provided. For
Tables 2, 3, and 4, the department of education in each country is taken as an
example. The selection of a department is not an important matter in this study,
since in each country appropriations are presented in a standard format and with
similar contents in all departments/ministries.

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 39

Accrual-Based Performance Budgeting in the United Kingdom

Appropriations

The amount voted by the British Parliament for each department is calculated
on both an accrual basis, total net resource requirement, and a cash basis, net
cash requirement. Supply estimates show reconciliations between the two bases.
The departments receive appropriations for the cash component of full accrual
amounts, that is, excluding depreciations and provisions.
Appropriations provide resources for the spending of the departments in order
to accomplish a number of functions. Spending is divided into departmental expenditure limits (DEL) and annually managed expenditure (AME), split by resource
and capital. DEL includes expenditure that is generally within the departments
control and can be managed with fixed multiyear limits. AME is generally less
predictable and controllable than DEL (H.M. Treasury, 2011).8
The estimates include a description of the services to be financed from each
relevant budget boundary. Resources are calculated on the accrual basis, including amounts related to the current consumption of assets. Capital includes
the amounts associated with the acquisition of capital items. Table 2 presents the
appropriations in the UK Department for Education and shows a breakdown of
spending according to a list of functions (lines A to L).
Financial Statements Used to Present the Departmental
Budget

The main supply estimates for each department contain a statement of comprehensive net expenditure that provides details of all expenditure and income,
but no other forecast financial statements are presented. However, departments
present a budgeted statement of their financial position in another document:
the Expenditure Plans.9 This document is part of a series of departmental
reports that, along with the Main Estimates, the document Public Expenditure: Statistical Analyses, and supplementary budgetary information, present
the governments outturn and planned expenditure. The budgeted statement of
financial position is presented in an annex, so it seems that scant importance is
given to this statement.
At year-end, the resource accounts comprise the traditional financial statements
(statement of comprehensive net expenditure, statement of financial position,
statement of cash flows, statement of changes in taxpayer equity, and notes to the
financial statements) and the statement of parliamentary supply. The statement of
parliamentary supply is used for parliamentary control, since it is a link between
the approved estimates and the resource accounts. This statement, which is specific
to the UK model, shows a comparison of the outturn (the actual results reported

20122013 Plans

20112012 Provisions

Resources

Capital

Resources

Capital

Gross

Administration
income

Net

Gross

Program
income

Net

Gross

Income

Net

Net

Net

10

11

Spending in departmental expenditure limits (DEL)

Voted expenditure
411,890
4,644
407,246 52,046,761
2,024
Of which:
A. Activities to support all functions
290,438
4,644
285,794
43,809

B. School infrastructure and funding of education (department)

1,029,934

C. Education standards, curriculum, and qualifications (department)

378,921

D. Children, young people, and families (department)

2,625,640

E. Children, young people, and families (NDPB) (net)

14,802

14,802
112,500

F. Departmental unallocated provision

66,954

G. Standards and testing agency

5,428

5,428
35,700

H. Teaching agency
19,394

19,394
471,617

52,044,737

4,563,000

4,563,000

51,342,261

5,063,856

43,809

15,000

15,000

295,621

16,000

1,029,934

178,052

178,052

949,719

94,856

271,962

378,921

31,000

31,000

112,500

66,954

35,700

19,111

471,617

677,867

2,625,640

2,425,050
129,421

148,085

40 ppmr / September 2013

Table 2. Appropriations in UK, 000

96,513

111,689

37,799,998

4,029,989

4,029,989

40,310,604

4,791,175

9,383,151

308,959

308,959

6,106,960

13,740

52,044,737

4,563,000

4,563,000

44,257
51,342,261

5,063,856

5,416

1,007

5,416

1,007

5,416

1,007

52,039,321

4,563,000

4,563,000

51,343,268

5,063,856

52,039,321

4,563,000

4,563,000

51,343,268

5,063,856

Source: UK Department for Education, main estimates 20122013, available at www.hm-treasury.gov.uk/main_supply_estimates_2012_13.htm.

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 41

I. National college
11,700

11,700
98,537
2,024
J. Educational funding agencyexcluding outcomes
70,128

70,128 37,799,998

K. Academies (Net)

9,383,151

Education standards, curriculum, and qualifications (NDPB) (net)

Total spending in DEL

411,890
4,644
407,246 52,046,761
2,024
Spending in annually managed expenditure (AME)
Voted expenditure

5,416

Of which:
L. Activities to support all functions

5,416

Total spending in AME

5,416

Total for estimate

411,890
4,644
407,246 52,041,345
2,024
Of which:
Voted expenditure
411,890
4,644
407,246 52,041,345
2,024
Non-voted expenditure

42 ppmr / September 2013

by a department in its resource accounts) and the estimate voted by Parliament.

It also includes a comparison between the outturn and the voted estimate of the
net cash requirement.
Types of Performance Measures

Performance indicators for each department are presented in the business plans
(updated annually) for the following four years. They include the vision, the
priorities, a structural reform plan, the departmental expenditure, and a set of
input and impact indicators that the department uses to report on its progress in
achieving the reforms set out in the plan. The structural reform plans replace the
former top-down system of targets and sets out how and when the department
will achieve the reforms.10 For each structural reform priority, the department has
a number of actions to complete. The planned departmental expenditure is split
into administration (including the costs of running the department), programs
(excluding depreciation), and capital (e.g., new buildings and equipment). Impact indicators help the public to judge whether the policies and reforms of the
departments are having the effect it wants. Examples of input indicators from
the UK Department for Education are threefour year old aggregate spending
and schools aggregate spending (excluding Pupil premium), and examples of
impact indicators from the same department are attainment of the basics at the
ages of eleven, sixteen and nineteen and number of academies and free schools
opened nationally. For each of the input and impact indicators, it is established
when publication will start and how often it will be published.
Information about the input and impact indicators is provided annually in the
annual report and accounts and, in some cases, quarterly. It includes information
about how each government department is performing in delivering on the priorities set out in its business plan.

Accrual-Based Performance Budgeting in Australia

Appropriations

Appropriations in Australia are structured around the outcomes each department/

portfolio must accomplish and are calculated on the accrual basis. Ministers are
responsible not only for the outputs but also for the ultimate outcomes. Each
outcome is divided into a number of programs. Appropriations can be of two
types: departmental and administered. Both administered items and departmental
items can be assets, liabilities, revenues, and expenses, but departmental items
are controlled by the department/agency, and administered items are managed
on behalf of the government.11 Ministries and agencies receive cash for both the
cash required during the year and for noncash items, such as depreciation. The
nature of parliamentary appropriations has changed considerably under accrual

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 43

budgeting, since own-source departmental funds (funded depreciation, asset sales

receipts) can be used, without parliamentary authorization but with approval from
the Treasury, to fund new capital expenditure (Robinson, 2002).
Table 3 shows a performance budget in the Australian Department of Education, Employment and Workplace Relations. The performance budget presents the
total program expenses and focuses on the outcomes to be achieved. The results
are measured by the accomplishment of key deliverables and key performance
indicators. Figures for these indicators are shown for the last years revised budget,
this years budget, and the forward estimates for the next three years.
Financial Statements Used to Present the Departmental
Budget

In Australia, the application of accrual budgeting requires the preparation of budgeted financial statements with the same format as those presented at the year-end.
Apart from the federal and state budgets, each department also presents budgeted
financial statements. These include an income statement, a balance sheet, a statement of cash flows, a statement of changes in equity, a capital budget statement, a
statement of asset movements, and the notes to the budgeted financial statements.
Each department also presents administered financial statements that include a
schedule of budgeted income and expenses administered on behalf of the government, a schedule of budgeted administered assets and liabilities, a schedule of
administered capital budget, and a schedule of budgeted administered cash flows.
The budget for a year includes forward estimates for the three following years.
Types of Performance Measures Used

Performance information in Australian departments is mostly contained in the

portfolio budget statements. These statements, prepared by portfolios, explain
the budget appropriations in terms of outcomes.12 The portfolio budget statements
comprise the department (also called an agency) and several agencies. They provide
information, explanation, and justification to enable Parliament to understand the
purpose of each outcome. Portfolio budget statements include qualitative and quantitative information for each of the outcomes that the department and its portfolio
agencies aim to achieve, and each of the outcomes is divided into a number of
programs. Qualitative information refers to the definition of the outcome and the
departments strategy and proposed actions to achieve it. Quantitative information
in the portfolio budget statements includes the budgeted expenses and resources
for each outcome.
The portfolio budget statements present key performance indicators for each
program. Figures are provided for the revised budget of the last year, the current budget, and the three following years. The kinds of performance indicators
presented are quantity for key deliverables and program effectiveness or key per-

Outcome 2: Improved learning and literacy, numeracy, and educational attainment for school students, through funding for quality teaching
and learning environments, workplace learning, and career advice.
Program 2.2. Nongovernment schools national support
201112
Revised budget
$000
Annual administered expenses:
Special appropriations:
Schools Assistance Act 2008
Indigenous Education (targeted assistance)
Act 2000

201213
Budget
$000

201314
Forward year 1
$000

201415
Forward year 2
$000

201516
Forward year 3
$000

7,587,740
150,941

8,183,019
130,047

8,840,529
136,689

9,557,949
133,391

10,330,319
126,928

7,738,681

8,313,066

8,977,218

9,691,340

10,457,247

Recurrent grantsnongovernment
Number of full-time equivalent students
funded (enrollment projections)

1,214,000

1,234,000

1,258,000

1,285,000

1,314,000

Capital grantsNongovernment
Number of schools assisted with capital
support

245

235

235

127

Total program expenses

Program 2.2 deliverables*

Ceases at end 2014

44 ppmr / September 2013

Table 3. Australian Portfolio Budget Statements

English as a second languagenew arrivalsnongovernment

Number of new arrivals assisted

838

1,000

1,050

1,100

1,150

838

1,000

1,050

1,100

1,150

Primary

633,725

646,000

662,000

679,000

681,000

Secondary

590,849

599,000

609,000

619,000

651,000

24,864

26,000

28,000

29,000

31,000

Indigenous youth mobility program

Number of new arrivals assisted
Program 2.2 key performance indicators

Full-time student enrollments in Australian schools

Number of indigenous students at school

Apparent retention rate of full-time
students from year 7/8 to year 12

79%

80%

80%

80%

80%

Source: Australian Department of Education, Employment and Workplace Relations, portfolio budget statements 20122013, available at http://deewr.gov.au/
portfolio-budget-statements-2012-13/.
* There were more performance measures for this program that are not presented here because of space limitations.

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 45

Enrollment trendsnongovernment

46 ppmr / September 2013

formance indicators. Examples of quantity for key deliverables indicators found

in the portfolio budget statements are: number of child care services receiving
establishment assistance and number of schools assisted with capital support.
Effectiveness indicators measure the joint or independent contribution of outputs
and administered items to the achievement of their specified outcome. Examples
of program effectiveness indicators are: trend in the number of children with additional needs using government approved child care services and percentage
of all children enrolled in preschool. There are also indicators about activity (in
the Department of Agriculture, for example, one indicator is meet regularly with
wool industry representative bodies to discuss policy issues) and about quality
and timeliness (satisfaction of the Minister/Parliamentary secretary with the
quality and timeliness of the output provided by the department). With respect
to performance information, the annual report contains a section that includes
the estimate and the actual figures for each performance indicator previously
set out in the portfolio budget statements. This has significantly improved the
quality of performance reporting in the annual reports since the introduction of
accrual-based budgeting in Australian agencies (Hawke, 2007). The departments
report the targets in the same table as the results, followed by a commentary on
the reasons for major discrepancies and how the agencies intend to respond to
unreached targets.

Accrual-Based Performance Budgeting in New Zealand

Appropriations

As far as possible, appropriations in New Zealand are structured around outputs,

since outputs are the basis of purchase agreements between ministries and government agencies (New Zealand Treasury, 2011). In New Zealand, departmental
chief executives are accountable for producing outputs because the departments
are provided resources to produce outputs and control their own production. The
primary responsibility for outcomes still lies with the government, but chief executives are responsible for knowing what their outcomes are, knowing how well
their outputs improve those outcomes, and taking sensible steps to improve both
their output mix and their outcomes.
Ministries and agencies receive cash for both the cash required during the year
and for the noncash items such as depreciation. The cost of each output is calculated
on a accrual basis, taking the capital charges and depreciation into consideration.
Departments pay a capital charge calculated on their net assets, excluding assets managed by the department on behalf of the Crown. The main objectives of
capital charges are to ensure that the prices of goods and services produced by
government agencies reflect full production costs, allow comparison of the costs

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 47

of output production with those of other producers (whether in the private or the
public sector), make explicit the cost to the Crown of maintaining its capital investment, and create an incentive for agencies to make proper use of capital and
to sell underused or unnecessary assets (New Zealand Treasury, 2011).
Appropriations can be of six types. Four of them authorize the incurring of
expenses: appropriations for output expenses, appropriations for benefits or other
unrequited expenses, appropriations for borrowing expenses, and appropriations
for other expenses; one type authorizes the incurring of capital expenditure; and
the remaining type authorizes both expenses and capital expenditure incurred by
the New Zealand security intelligence service and the government communications security bureau.
Financial Statements Used to Present the Departmental
Budget

In New Zealand, the application of accrual budgeting requires the preparation of

budgeted financial statements with the same format as those presented at year-end.
At the departmental level, forecast financial statements contained in the Information supporting the estimates include a statement of forecast comprehensive
income, a statement of forecast changes in taxpayers funds, a forecast statement
of financial position, a statement of forecast cash flows, a statement of significant
assumptions, a statement of entity-specific accounting policies, and notes to the
financial statements.
Types of Performance Measures

The performance information included in the budget documents of New Zealands

departments is formally presented in the information supporting the estimates
of appropriations, which includes the statements of intent of each ministry/
department. Information supporting the estimates is organized on the basis of
sectors, and it comprises sector overview information together with performance
information for appropriations, statements of forecast service performance, and
forecast financial statements of departments included in the sector. Performance
information for appropriation shows how the government priorities, outcomes,
and appropriations interconnect. Table 4 shows how an accrual-based performance
budget looks in New Zealand.
The statement of intent contains priorities, intended impacts, outcomes, output classes, the actions that will be taken to achieve the outcomes, and a number
of performance measures. Most departments present their statements of intent
covering the next three years, but in a few departments they cover the following five years.13 Performance indicators pertain to quantity, timeliness, quality,
and cost-effectiveness. Examples of performance measures from the Ministry of

48 ppmr / September 2013

Table 4. Performance Information for Appropriations in New Zealand

Interventions for target student groups
Scope of appropriation: Expenditure on policies and services focused on targeted
student groups or individuals participation in education. This includes providing
services to individuals with special education and developmental needs, providing
additional funding for the support of students with special education needs, providing
alternative education options, working with individuals and relevant stakeholders to
resolve participation issues, and administering scholarships and awards for individuals.
2011/12
Expenses and revenue
Total appropriation
Revenue from the crown
Revenue from other

2012/13

Budgeted
$000

Estimated Actual
$000

Budget
$000

257,192
253,860
3,332

255,192
251,860
3,332

261,189
259,489
1,700

Output performance measures and standards*

Targeted student participation
interventions

Budgeted
standard

Estimated actual
standard
Budget standard

The following scholarships, awards and school grants will be administered:

Boarding allowances and bursaries
400600
400600
400600
Home schooling allowances
5,5006,500
5,5006,500
5,5006,500
Mpihi Pounamu
350500
350500
350500
Aspire scholarships
200
240
250
Interim response fund grant
applications paid to schools for
students in need
1,5002,500
1,5002,500
1,5002,500
The following funding will be provided to schools for the provision of support to Englishlanguage learners:
English for speakers of other
33,000 students in 33,000 students in 33,000 students in
languages funding for provision of
1,200 schools
1,200 schools
1,200 schools
support
Refugee flexible funding pool (for
600 students in
600 students in
600 students in
additional support to at-risk refugee
3040 schools
3040 schools
3040 schools
background students)
Refugee pathways
2535 secondary 2535 secondary 2535 secondary
schools
schools
schools

Education is new early childhood education services licensed as a measure of

quantity, new schools . . . opened in time for the new school year as a measure
of timeliness, and families, education providers, and communities . . . satisfied
with the services received as a measure of quality.
The annual report also includes a statement of service performance. For each
of the outputs that the ministry produces, these statements outline the objectives
established at the beginning of each year and measures of the levels of service

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 49

Targeted student participation

interventions

Budgeted
standard

Estimated actual
standard
Budget standard

The following interventions for nonparticipation will be undertaken:

Reduce truancy rates for frequent
N/A
Reduce to:
truants in years 9 and 10
Total 1.1%
Mori 2.6%
Pasifika 1.6%
Reduce average time excluded
N/A
Average days
learners are out of school
excluded: 52.7
Parents and educators are satisfied
At least 60% of
At least 60% of
that ministry staff considered cultural parents, families parents, families
needs in the way they worked with
and whnau, and and whnau, and
the child and their family
educators are
educators are
satisfied or
satisfied or
higher
higher

Reduce to:
Total 1.0%
Mori 2.5%
Pasifika 1.5%
Average days
excluded: 47.4
75%

Source: Performance Information for Appropriations 2012/13: Vote Education, available at www.
treasury.govt.nz/budget/2012/ise/v2/ise12-v2-pia-educ.pdf.
* There were more performance measures for this appropriation that are not presented in this table
because of space limitations.

achieved for each output produced; actual performance measured against the objectives; and operating costs and revenues for each output produced. In order to
provide a comparison of the effort and accomplishment of the ministry, budget and
actual figures are provided for each performance measure in the annual report.

Comparative Analysis
Table 5 shows the main characteristics of the British, Australian, and New Zealand
performance and accrual budgeting systems. The UK and Australia present their
appropriations according to outcomes, while New Zealand structures its appropriations according to outputs and provides supplementary information about their
relation to the final outcomes. Australia has a stronger focus on outcomes than
New Zealand (Campbell, 2001; Sterck & Scheers, 2006). However, after more than
10 years of results-based management, New Zealand has also included outcomebased measures. All three countries have introduced a medium-term expenditure
framework involving forward estimates of spending over the next three years.
The amount of expense or capital expenditure authorized by an appropriation
is measured in accordance with generally accepted accounting practice in the
three countries. They all use the accrual basis, and accounting policies are generally common to both accounting and budgeting. Only in New Zealand, however,
is a charge for the capital invested in government departments included.14 This
explains why many statements of intent of New Zealand departments include
cost-effectiveness measures.
In terms of the financial statements used to present the departmental budget,

UK
Appropriations

Australia

Calculated on accrual basis and cash

basis.

Cash not appropriated to departments
for noncash component of full accrual
amounts (depreciation and provisions).
Divided into DEL and AME and also
into Resource and Capital.

Calculated on accrual basis.

Cash appropriated to departments for
full accrual amounts.
Outcomes.
Two types of appropriations:
departmental and administered.

New Zealand
Calculated on accrual basis, including
capital charge.
Cash appropriated to departments for
full accrual amounts.
Structured around outputs.
Four appropriation types for expenses,
one for capital expenditure, and one for
both.

Performance measures Input and impact indicators in

departmental business plans.

Quantity for key deliverables and

key performance indicators: program
effectiveness, quality, timeliness.

Quantity, timeliness, quality, cost

effectiveness.

Financial statements
used to present
departmental budget

Budgeted comprehensive income

statement (showing net cost of
services).
Budgeted balance sheet.
Budgeted statement of cash flows.
Budgeted statement of changes in
equity.
Capital budget statement.
Budgeted statement of asset
movements.
Administered (on behalf of
government) financial statements.
Notes to financial statements.

Statement of forecast comprehensive

income.
Forecast statement of financial
position.
Statement of forecast cash flows.
Statement of forecast changes in
taxpayers funds.
Statement of significant assumptions.
Statement of entity-specific accounting
policies.
Notes to financial statements.

Statement of comprehensive net

expenditure in main estimates.
Budgeted statement of financial
position in departmental reports.
Resource accounts at year-end contain
statement of parliamentary supply.

50 ppmr / September 2013

Table 5. Comparison of Accrual-Based Performance Budgeting Systems

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 51

two main differences are found. First, the UK estimates for each department do not
contain a whole set of budgeted financial statements (as was stated above in the discussion of accrual-based performance budgeting in the UK). However, New Zealand
and Australia present the same budgeted financial statements as are presented at the
year-end. The annual reports of UK departments include a statement of parliamentary
supply, which is not used in Australia and New Zealand. Second, Australia presents
a departmental capital budget statement, but this is not used in the other countries.
Capital budget statements are useful to impose limits on capital expenditure and to
limit debt, thereby ensuring fiscal sustainability (Robinson, 2009).
In analyzing the performance information included in the budgetary documents, we have observed that, despite differences in terminology, there are some
patterns in the information presented by the departments/ministries in the three
countries. All three countries present strategic documents containing information
about priorities, future actions to take, and the specific indicators and targets that
will be used to measure performance. At year-end, an explanatory comparison
between target figures and actual figures is also provided, and similarly all three
countries include explanations for deviations of actual budgetary outcomes from
estimates. As we have seen, all this information can be found in the business plans
in the UK, the portfolio budget statements in Australia, the statements of intent in
New Zealand, and the annual reports of all three countries.
In general, the indicators presented by the United Kingdom, Australia, and
New Zealand are similar in terms of what they are measuring, even though they
have different names. The UKs input indicators are equivalent to what Australia
and New Zealand usually term quantity for key deliverables. Impact indicators in
the UK measure aspects that are equivalent to the key performance indicators of
Australia and New Zealand (effectiveness, cost-effectiveness,15 quality, and timeliness). Performance indicators contain quantitative and qualitative measures in all
three countries, but as we have noted, many more indicators are presented in the
budgetary documentation of the Australian and New Zealand departments than in
the UK. The number of input and impact indicators presented by British departments
varies, ranging from four to 12. Moreover, while some of the British indicators are
global with respect to the activity of the department (e.g., the cost of supporting tax
policy in the UK Treasury), many Australian and New Zealand indicators are about
the detailed actions and programs carried out by the departments.

Discussion and Conclusions

What Different Models of Accrual and Performance
Budgeting Exist?

This study shows that there are two main ways in which accrual budgeting can
be implemented. In New Zealand and Australia, the implementation of accrual

52 ppmr / September 2013

budgeting requires the preparation of budgeted financial statements with the same
format as those presented at year-end. Comparative financial information between
budgeted and actual figures for the whole set of financial statements, such as those
presented by New Zealand in the departmental annual reports, is useful for accountability and decision-making purposes, according to the International Public
Sector Accounting Standards (in particular, IPSAS 1 and 24). But, in the UK, the
main financial statement used to present the accrual-based budget is the statement
of comprehensive net expenditure, and even when departments present a budgeted
statement of financial position, this is provided in an annex in departmental reports,
but not in the main supply estimates.16
In the UK, appropriations are approved by Parliament on both the cash and
accrual bases. To our point of view, the British model of presenting appropriations using the cash and accrual bases as well as reconciliation between them
seems to be an appropriate solution in order to avoid confusing members of
Parliament with accrual-based numbers. In New Zealand and Australia, cash
is appropriated for the full accrual amounts, including noncash items. This is
called a cash-in-hand model, and it is especially adequate in cases where reforms of the public sector have involved a clear purchaser-provider split, with
the purchaser expected to provide a given price reflecting the full costs of the
outputs (Blndal, 2004).
Cash accounting information remains important and available in all three
countries. However, there is some variation in the accrual systems they have
implemented, and only New Zealand includes a capital charge at present. These
different budgetary and accounting models may respond to different management
needs.
What Kind of Performance Information Is Included in
the Budget Documents of Central Governments?

The three countries analyzed have changed their budget structures to focus on outcomes and outputs as part of their initiatives to introduce accrual-based budgeting
(OECD, 2007). Input information, as we have seen, has not been totally replaced
by output and outcome information. Performance measures, such as quantity
for key deliverables (in Australia and New Zealand) and inputs (in the UK), are
provided together with other, more sophisticated measures, such as effectiveness,
impact, timelines, and quality. The presentation of input measures (both budgeted
and actual figures) provides the necessary information for parliamentary control
over public spending.17 Measures of intended and actual outputs and outcomes
can inform allocation decisions in the three countries, enabling evaluations of the
effectiveness of public programs, and this contributes to accountability by results.
On the contrary, an inability to compare actual outcomes with targeted outcomes
is a fundamental flaw in any system of accountability (Carlin, 2004).

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 53

How Are Performance Information and Accrual

Budgeting Integrated into Budgetary Documents?

The study of the budgetary documents and annual reports of departments in the
UK, Australia, and New Zealand reveals that accrual budgeting and performance
budgeting are, in general, complementary tools, even though there are some differences between the three countries. Financial information about full accrualbased costs, revenues, and funding appropriations is linked to the specification of
planned performance in terms of outputs/outcomes.
What Added Value Does Accrual Budgeting Bring to
Performance Budgeting?

The experience of the United States, Canada, Sweden, the Netherlands, and
other countries that have obligation-based or cash-and-commitments budgets
shows that accrual budgeting is not a prerequisite for the implementation of
performance budgeting (Robinson, 2007; Sterck, 2007). Depending mainly on
the kinds of decisions that should be made with the information provided by
performance budgeting models, full accrual budgeting measures may or may
not be necessary. In attempting to link resources to results, it is important to
measure the full costs of the resources associated with performance goals using a consistent definition of costs between and among programs (U.S. General
Accounting Office, 2002).
However, accrual budgeting can assist in the implementation of performance
budgeting. Accrual budgeting brings added value to performance budgeting in
several ways:
Accrual budgeting provides measures of the full cost of services/outputs in the
budgetary statements.
A full accrual accounting system that registers costs rather than cash flows is
required for measurements of efficiency or cost-effectiveness (Curristine, Lonti,
& Joumard, 2007; Lder & Jones, 2003; Nsi, 2003).18 If government wants
to present performance measures of the efficiency or cost-effectiveness of the
services provided, the costs of the outputs must still be calculated using accrualbased figures even if an accrual-based budget system is not implemented.
Full accrual budgeting measures are necessary for decisions that require a comparison of prices with other public- or private-sector providers.
Accrual budgeting allows departments to base their expenditure prioritization
decisions on the full costs of alternative programs within a medium and longterm framework of expenditure.

These considerations can provide useful lessons for other countries where appropriations are still calculated on a cash basis and performance reporting is much
less developed and of lower quality than in the three countries discussed in this
article. Despite the imperfections of accrual-based performance information, it can

54 ppmr / September 2013

help policymakers, managers, and other decision-makers to make more-informed

decisions and thus should be made available to them.

Acknowledgment
This study was carried out with the financial support of the Spanish National R&D Plan
through research project ECO2010-17463-ECON/FEDER.

Notes
1. Accrual accounting records costs and revenues as they are incurred or earned, whereas
cash accounting registers them when payments are made or receipts received. Between the two
extremesaccrual and cashnumerous variations can be put into practice, depending on the
assets and liabilities that are recognized. The four main accounting bases are the full accrual
basis, the modified accrual basis, the modified cash basis, and the full cash basis (International
Federation of Accountants, 1993). Variations in the degree of accrual measurement can also
be found in the budget. The U.S. General Accounting Office (2000) distinguishes three main
accounting bases in the budget: cash, accrual, and obligations. Obligation-based budgeting
recognizes legal obligations or commitments entered into a period.
2. Robinson (2009) defined accrual budgeting as a system in which budgetary spending
authorizations to line ministries are formulated in accrual terms. From a fiscal policy perspective, he provided a more limited definition of accrual budgeting as the specification of budgetary
expenditure authorizations and revenue estimates in terms of accrual accounting measures,
which means the use of accrual concepts to specify budgetary totals.
3. The OECD (2008) classifies three main types of performance budgeting. Presentational
performance budgeting is a nonformal approach to the development and use of performance
information in negotiations between the finance ministry and the spending ministries. There is
no expectation of a link between performance indicators and resource allocation, and performance information is used mainly for accountability purposes and outside the budget negotiation
process rather than as part of it. Performance-informed budgeting has no direct or mechanical
link between performance (planned or actual) and funding; when performance information is
used, it can be for planning or accountability purposes. Direct performance budgeting allocates
resources based on results achieved.
4. Measurement focuses refers to the resources that are measured in the financial statements
(International Federation of Accountants, 1991).
5. According to Robinson (2007, p. 122), purchaser-provider systems were not a success
in New Zealand and Australia because the relationship between output and cost is, for many
government services, too uncertain to permit a tight linkage of funding to the quantity of outputs
delivered. The purchaser-provider model and the formula-funding mechanisms are impractical
in the case of many public services.
6. Until the 1990s, much of the literature about performance budgeting was American or
analyzed the American experience (Melkers & Willoughby, 1998). This is because the United
States was a pioneer in these reforms, and most states have implemented some kind of performance budget.
7. In addition to documentary sources, we consulted the finance departments of these
countries by e-mail to obtain some clarification about budgetary information issues.
8. In the Spending Review 2000, depreciations, costs of capital charges, and provisions
were accounted as AME to allow departments more time to get used to dealing with the new
costs. In the Spending Review 2002, these costs were transferred from AME to DEL (Likierman, 2003).
9. The latest departmental reports found on the UK departments Web sites were published
in 2009 with plans for 200910 and 201011.

Mart / PERFORMANCE BUDGETING AND ACCRUAL BUDGETING 55

10. Until 2010, performance information was formally presented in the public service agreement (PSA) and service delivery agreement (SDA) of each department. PSAs were the government
priorities and strategic objectives with measurable targets, and the vast majority of them measured
outcomes. SDAs explained how the government aimed to deliver the high-level targets in the
PSAs, and how it would modernize and reform to get better value for money. The SDAs included
measures of outputs, processes, and inputs that would deliver the outcomes the government was
aiming for. In June 2010, with the new government, PSAs and SDAs were abolished.
11. Examples of administered items are grants, subsidies, and benefits. Departmental items
include computers, plant and equipment assets used by agencies, employee expenses, supplier
costs, and other administrative expenses.
12. The World Bank (2010) indicated that, although outcomes are one of the most appropriate
measures of performance because they are the impacts of government policies and actions, there
are some problems with outcome indicators. First, in many areas of government, outcomes are
a difficult concept of performance to make operational and to measure. Second, there is only
a weak link between results and funding because outcomes often derive from multiple causes,
some of which are beyond government control.
13. Due to a change in reporting requirements, two New Zealand offices (Education Review
Office and Crown Law Office) present their statements of intent for one year.
14. In the past, the UK and Australia also had capital charges, but they were abolished.
15. Measures of cost-effectiveness refer to the ratio of outcomes (intermediate or final)/
costs.
16. According to the U.S. Government Accountability Office (2007), accrual budgeting provides information similar to that found in a private sector operating statement. The UK accrualbased system, which presents a statement of comprehensive net expenditure, is an example.
17. In Germany, parliamentarians feared that the change from an input to an output orientation would result in a loss of control over the budget and the governments finances (Jones &
Lder, 2011).
18. The definition of efficiency (output/costs) is generally the delivery of a defined output
at minimum cost while holding quality constant.

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Zaltsman, A. (2009). The effects of performance information on public resource allocations: A study of Chiles performance-based budgeting system. International Public
Management Journal, 12(4), 450483.

Caridad Mart is a lecturer in the Department of Accounting and Finance at the

University of Zaragoza, Spain, and participates in the research group Gespblica
led by Lourdes Torres and Vicente Pina. She has published on accrual budgeting,
performance measures, and accounting numbers management in public sector
entities and has been a visiting scholar at the University of Gothenburg, Sweden,
and the Nottingham University Business School, United Kingdom.

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