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Journal of Accounting & Organizational Change: Article Information
Journal of Accounting & Organizational Change: Article Information
The interaction amongst reform drivers in governmental accounting changes: The case
of Indonesian local government
Marwata Manzurul Alam
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Marwata Manzurul Alam, (2006),"The interaction amongst reform drivers in governmental accounting
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changesThe case of Indonesian local government", Journal of Accounting & Organizational Change, Vol. 2
Iss 2 pp. 144 - 163
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JAOC
2,2 The interaction amongst reform
drivers in governmental
accounting changes
144
The case of Indonesian local government
Marwata
Department of Accounting and Finance, Monash University,
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Abstract
Purpose The purpose of this paper is to understand the process of accounting change in Indonesian
local government. It sets to explore how various reform drivers with different interests and preferences
compete and cooperate in the process of governmental accounting reform policy formulation in a
developing country context.
Design/methodology/approach The paper adopts a qualitative case study research involving
semi-structured interviews with the key informants within the institutional environment under which
the local government organizations operate. This paper looks at the introduction of new accounting
systems as a result of public sector reform in Indonesia local government by focusing on how the
policy of reform was formulated. A review of related documents and regulations, as well as interviews
with key informants, was conducted to gather information on accounting change.
Findings The process of governmental accounting reform is characterized by rivalries and
alliances amongst reform drivers. This confirms the political nature of the process of accounting policy
formulation found in the extant literature of accounting policy setting.
Research limitations/implications This is a case study research within the institutional
settings of Indonesian government bureaucracy. Any generalization of the conclusions from this study
should undertaken with care even though there are similarities between Indonesian and other
developing countries as institutions operate differently in different countries.
Originality/value As the vast majority of studies in the extant literature have focused, mainly, on
accounting reform in the context of developed countries, this paper makes important contribution by
highlighting accounting changes in Indonesian local government.
Keywords Public sector reform, Indonesia, Accounting, Local government
Paper type Research paper
1. Introduction
Following the adoption of market principles in the public sector management,
Journal of Accounting & accountability mechanisms and performance measurement based on output and
Organizational Change outcomes have been preferred to replace a focus on adherence to formalized procedures
Vol. 2 No. 2, 2006
pp. 144-163 which is essentially input-based approach (Hood, 1995; Guthrie and English, 1997).
q Emerald Group Publishing Limited
1832-5912
In such changes, accounting has been implicated and there are new demands for
DOI 10.1108/18325910610675989 accounting to make new organizational visibility and to discipline performance
(Hopwood, 1984). Pervasive changes in the public sector accounting practices Interaction
accompanying new public management movement have led to the growing interests in amongst reform
the study of accounting changes in the public sector. Many efforts have been made to
study accounting changes in the public sector and a variety of theoretical approaches drivers
have been adopted to develop understanding of accounting changes phenomena in the
public sector (Broadbent and Guthrie, 1992; Lapsley and Pallot, 2000). Research
questions were raised to provide answers on why governmental accounting innovation 145
took place in some countries and not in others. The contingency theory of accounting
change suggests that innovation in governmental accounting is the outcome of an
interaction between stimuli of reform, social structural variables of a country,
structural variables of the politico administrative system and implementation barriers
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(Luder, 1992). However, despite the growing body of governmental accounting change
literature in the contingency paradigm, such literature remains limited in focus, not
least as it treats governmental accounting innovation as a black box (Chan et al.,
1996). In such a black box, the body of literature has emphasized the exploration of
contextual variables that may promote or hinder innovations, with little attention paid
to the process by which the innovation takes place. This situation has led to a call for
research to analyze the process of generating and implementing governmental
accounting innovations (Chan et al., 1996).
The present study focuses on the role played by various actors in public sector
accounting change. Such an approach is interesting, as the reform actors play different
roles other than merely as rational actors. This is not adequately explained by
contingency theory. Applying this notion in the context of reform process, it can be
expected that the pace and path of this reform process is very much influenced by the
actions of agents and the nature of the relationships amongst those agents. There is a
potential for the process of reform to operate differently in different societies because
the nature of the relationship amongst agents is very much influenced by wider
cultural and socio-economic factors.
Recognizing that accounting reform process can be expected to be different in
different societies, this paper aims to explore the nature of the relationships amongst
reform drivers in the process of governmental accounting reform in a developing
country context. The interest in the reform process in the context of a developing
country is due to the fact that the vast majority of studies in the extant literature have
focused, mainly, on accounting reform in the context of developed countries.
Consequently, the extant literature tends to reflect western institutional values, beliefs,
and arrangements. These are different to the beliefs, and arrangements in developing
countries (Alam and Nandan, 2005). The research issues addressed in this paper are as
follows:
.
How accounting systems were changed in Indonesian local government as part
of the public sector reform process.
.
How various reform drivers with different interests and preferences compete and
cooperate in the process of governmental accounting reform policy formulation
in a developing country context.
The remainder of the paper is organized as follows: section two outlines the theoretical
perspective by which empirical materials of this study will be interpreted. This section
serves as the frame of reference for the study. The third section is devoted to
JAOC a discussion of the methodological issues concerning the study. The fourth section
2,2 describes the empirical materials related to the process of governmental accounting
reforms. Special attention is given to the actors and their roles in the process of the
development of accounting norms at national level. The discussion in the fifth section
highlights the nature of the relationship amongst the reform drivers in the process of
governmental accounting reforms. To conclude the paper, a number of key messages
146 and implications of this study are outlined.
2. Theoretical perspective
An underlying premise in accounting policy formulation is deeply rooted in the
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3. Research method
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The empirical materials for this paper were gathered by the first author through a
one-year field study of local governmental accounting reforms in Indonesia[1]. As the
research questions were aimed to understand a social phenomenon within a cultural
context, it was useful to adopt a qualitative research approach. Such a method was
deemed necessary as the researchers wanted to understand the social and institutional
context. Within the overall umbrella of qualitative research, a case study approach was
used, not from a unit analysis but from an overall research approach point of view.
This allowed the investigation of a social phenomenon when boundaries between the
phenomenon and the context are linked together (Yin, 2002). During the fieldwork,
particular attention was given to the way the policy of reform was formulated. A review
of related documents and regulations, as well as interviews with key informants,
revealed that the nature of the interaction amongst main actors deserved particular
attention. This led to a specific effort to pull the emerging themes related to reform
policy formulation process.
Empirical data for this paper was gathered by means of interviews and document
analysis. Seventeen people who were deemed knowledgeable on the issues of concern
were interviewed. The selection of informants was largely based on judgments made
from preceding interviews and document analysis. The legal frameworks state that
the governmental accounting standards committee is the independent body with the
sole authority to establish governmental accounting standards. Key persons in the
committee were interviewed to reveal the direction of governmental accounting reform
as well as the dynamics in the process of accounting reform policy setting. In addition
to key persons in the committee, interviews were also conducted with senior officials at
the Ministry of Home Affairs (MoHA), senior officials at the Supreme Audit Board, and
consultants.
Interviews were conducted in open-ended and semi-structured formats. The
open-ended formats were used at the initial stages to encourage the interviewees to
speak broadly and deeply about the issues of concern. At this stage, informants were
encouraged to speak freely (Glesne and Peshkin, 1992). The semi-structured formats
were used at the later stages, particularly at the confirmation stages, to ensure focused
probing of vague points. On many occasions, loosely structured interviews, interviews
without particular order and with no particular wording (Gomm, 2004), were conducted
during the fieldwork. However, the discussion was centered on the accounting
policy-making process in the Indonesian local government context and specifically,
which agencies were involved, what role each of these agencies pursued, and how
different actors and agencies interacted between them. The interviews were mostly
conducted in a relatively semi-structured manner, viz. as a special occasion, scheduled,
and audio taped. The interviews were mostly transcribed as soon as the interviews Interaction
were completed, and feedback and additional commentaries were sought during the amongst reform
subsequent meetings. Brief notes were also made, either during or after each interview.
The notes were made principally to record general impressions, to determine the bases drivers
on which analytic decisions made to identify future possible informants, and to develop
further interview questions. It is in this sense that intuitive data processing was
conducted while the data were being collected (Gomm, 2004). Based on preceding 149
discussions, further interviews, with either the same interviewee or additional
interviewees, were conducted. Several interviewees were interviewed more than
once, depending on the leads from the previous sessions. Thus, the interviews
were iterative in nature. Although the issues to be explored were stated in the request
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letter for an interview, many questions emerged during the actual interviews. As a
result, the interviews, which lasted between a half and three hours, took different
paths.
Regulations, and related documents, were investigated before and after interviews,
especially during a one-month presence in the secretariat of the governmental
accounting standards committee. Despite its limited availability, a considerable
amount of documentary evidence was obtained. The documents deemed relevant to the
issue of concern were analyzed. These include directives at national level in the form of
national regulations, politicians and senior bureaucrats speeches, policy statements;
organizational documents in the form of local regulations, correspondence, reports and
minutes, annual reports, publications in the form of magazines, newspapers,
newsletters, proceeding of conferences, and training materials. These documents
provide a context for the functioning of accounting as well as attempts at accounting
reform that have taken place from time to time.
A large amount of verbal data based on interviews and documents were
collected during the fieldwork. Efforts have been made from the beginning of the
fieldwork to construct the data in a meaningful way to provide a reasonable basis
for extracting the meaning behind the actions of actors in the accounting reform
process. Data analysis in this study is not a distinct stage of the research as
would occur in a conventional quantitative study. Instead, it is ongoing throughout
the research process.
Data analysis was conducted in two stages. The first stage of analysis was
conducted on a real time basis, i.e. data collection and analysis were conducted
simultaneously and continuously during the research process. During and after the
interview sessions, on-the-spot intuitive data analysis was made, in the sense that the
interpretation/understanding of interviewees response led to subsequent questions
(Gomm, 2004). With such a strategy, the author was able to focus and shape the study
as it proceeded (Glesne and Peshkin, 1992). By the end of the fieldwork, major themes
had surfaced.
The later stage of analysis was conducted in a rather formal mode after the
fieldwork was completed. At that stage, thematic analysis was conducted by reading
and rereading the data. In this process, passages were coded as free nodes in the sense
that the coding process was not guided by a particular coding frame. The emerging
themes, then, were constructed in tree nodes, i.e. in a particular structure it became
meaningful and relevant to the purpose of this research. Technically, the coding
process was conducted using the NVivo version 2 software program.
JAOC 4. Public sector accounting change in Indonesia
2,2 4.1 The nature of the site
Indonesia is a unitary state with a three-tier government, namely a central government,
provincial government, and local government[2]. The last two tiers are referred to as
regional government or sub-national government. The relationship between the three
tiers of governments is characterized by a complex web of subordination and
150 coordination, vertically and horizontally. The arrangement of sub-national government
in Indonesian has been marked by swings between favor for centralization and
decentralization.
Indonesian local government systems and structures were once well known for
being arranged in favor of centralization. In such an arrangement, Indonesian local
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transactions related to balance sheet elements (e.g. purchasing fixed assets, debt
payments), additional corollary entries are made to recognize the transactions. At the
end of the year, when final accounts are about to be prepared, adjustments are made for
inventories. The PPA UGM explicitly claims that their concept of accounting
systems is formulated on an accrual basis. In that approach, commercial accounting
techniques are fully adopted in the recording transactions of local governments during
the whole year. At the end of the year, adjustments are made to recognize deferral and
accrual elements.
4.3.3 Time to consolidate and negotiate. As Depdagri was no longer the institution
with a monopoly position to dictate financial systems and procedures of local
government, many institutions tried to influence the direction of the development of
financial systems and procedures of local governments. The situation reached at a
stage where different competing models were proposed by different actors and
institutions. In order to resolve confusion and misunderstandings, the Menkeu
(Ministry of Finance) proposed for a presidential decree regarding the authority to set
public sector accounting standards. This is an attempt by Menkeu to resolve long
debates on who has the authority to set accounting standards for government
organizations, particularly local governments. Up to that time, there had been a lack of
clarity over the authority to set accounting standards for local governments.
An interviewee admits that the authority had been disputed among Depkeu,
Depdagri and IAI. Depkeu claimed the authority due to its function as the state
treasury, having responsibility over the entire financial matters of state, including
financial matters of local governments.
A compromise deal was made to constitute a consultative board consisting of the
chairpersons of BAKUN (State Accounting Agency), IAI (Indonesian Institute of
Accountants), BPKP (Development and Financial Supervisory Agency), ISEI
(Association of Indonesian Economists), Provincial Governments Association,
Regency Governments Association, City Governments Association, and the Director
General of Local Autonomy. The Standards Setting Board is to consist of nine
members proposed by the consultative board and ratified by Menkeu. The chosen
members must be persons with academic competence in public sector accounting,
registered accountants, and of good reputation. This board is to be the actual body
with the authority to set due process procedures and public sector accounting
standards.
Responding to the proposal, inter-agency meetings were held at the cabinet
secretariat on April 12, and 22, 2002. The meetings were attended by representatives
from Depkeu, Depdagri, IAI and cabinet secretariat. The presence of Interaction
representatives from Depkeu, Depdagri and IAI in the meetings indicates that amongst reform
efforts have been made to promote reconciliation among the three bodies. The list
of conclusions resulting from the meeting was sent to Menkeu on April 23, 2002. drivers
The main conclusions were:
.
The formation of the standards setting body and the definition of its authority
are to be approved by Menkeu. A Presidential Decree regarding the authority 155
to set governmental accounting standards was not needed, since the authority to
set such standards has been given to the Menkeu according to Presidential
Decrees No. 102/2001 and 109/2001.
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On June 13, 2002, following the decision of the meeting, Menkeu established KSAP
(Komite Standar Akuntansi Pemerintahan Governmental Accounting Standards
Committee) by enacting a ministerial decree of Menkeu No. 308/KMK.012/2002. The
committee consists of elements from Depkeu, Depdagri and IAI. This means that
a new institution, which was a joint committee between profession and government
agencies, entered the governmental financial reporting policy community. The
composition of the KSAP which consists of elements from Depkeu, Depdagri and
IAI shows that a collaborative action had been taken by Menkeu in order to
formulate governmental accounting policy. In such a collaborative action, Depkeu
has been positioned as the leading body in formulating governmental accounting
policy. The idea of having a joint committee that involves professional and government
agencies is considered to be ideal. As expressed by an interviewee:
The ideal one is a joint committee . . . Since, the main constituency is government, it would be
odd if the authority (to set governmental accounting policy) is given to private bodies. The
role of the government should be dominant.
The idea of a joint committee that involves professional and government agencies is
also supported on the grounds that the two have complementary powers to make the
standards effective. On the one hand, the profession has knowledge power to ensure
that the standards will be highly respected. The governmental agencies, on the other
hand, have coercive powers to impose the standards. On this issue, an interviewee
expresses his opinion:
I think it would be respected higher (if standards are promulgated by IAI profession). The
problem is its enforcement in the field. . . . IAI (profession) is powerless. To be powerful, its
implementation should be enforced by the government. So, involving IAI (profession) in the
committee is a solution.
It seems that although the Depkeu has been given the authority, backed by
regulations, to develop governmental accounting standards, it has tried to gain support
from both Depdagri and the profession. The support from Depdagri is of particular
importance for the enforcement of the standards because, by tradition, Depdagri acts
under the auspices of local governments to whom the standards are also to be applied.
In addition, the support from the profession is needed due to the fact that the actual
JAOC application of the standards is in the hands of members of the profession. The support
2,2 from Depdagri and the profession is deemed to be an important determinant of how
effectively the standards will be promulgated. This acknowledgement is in line with
Burggraaff (1983, p. 11) who argues that:
No standard will be effective unless it has sufficient support from the community and from
the profession.
156
In this context, Depdagri is deemed to represent the community (local governments)
and IAI is considered to represent the profession.
The KSAP consists of two sub-committees: a steering committee (five people) and
a working committee (11 people), and as well as a secretariat (five people). The steering
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Those reform drivers who are involved in the political game do not necessarily
evenly influence the reform policy formulation process. In this case, particularly in the
accounting standards setting arena, the Depkeu has gained the dominant status in
the governmental accounting policy area. Depkeu has been at the center of the
governmental accounting policy community. Its position as the leading sector in the
policy community is backed by state regulation and the fact that traditionally
Depkeu possesses the technical capacity in the governmental accounting area.
As mentioned elsewhere in this paper, Depdagri has very limited number of officers
with accounting background and IAI has been short of accounting groups with
strong knowledge and experience in the area of governmental accounting. In contrast,
Depkeu has been the only agency with a large number of officers with an accounting
background and long experience in the governmental accounting area. Depkeu has a
long history of holding the monopoly of governmental accounting knowledge in
Indonesia. In the words of one interviewee:
In the 1990s this was what happened (accounting) academics knew nothing what happened in
the governmental organizations. Their textbooks were American governmental accounting
textbooks, and they knew nothing about governmental organizations. . . . At that time the
only people who knew governmental accounting were those who work in BAKUN a
division of Depkeu.
The empirical evidence shows that the main actors involved in local government policy
process were ministries and other professional bodies, such as, IAI. The general public
uses little accounting information and such information is mainly used by government
entities, such as the ministries. Another observation made in this study is that the
accounting change process mainly concentrated on the institutional actors, such as
different ministries and professional accounting bodies. In contrast to the views of
contingency theory, the focal organizations, such as, local government units (councils)
were not involved in the accounting change process. This can be explained partly by
the bureaucratic culture in Indonesia and partly by the fact that most of these local
governments units lacked accounting personnel to guide this accounting change
process. As a result, such local government units were mainly involved in the
implementation of accounting change when an accounting change was agreed and
accepted at the institutional level.
6. Concluding remarks
This paper responds to a call for the study of the process of accounting reforms in the
governmental sector. The process of accounting reform policy formulation in Indonesia
JAOC has been used as a case study to highlight the nature of the interaction amongst reform
2,2 drivers in the process of accounting reforms, especially in the context of a developing
country. Our narrations show that the process of governmental accounting reforms in
Indonesia is driven by many parties and the nature of their interaction, however, does
not seem to reflect those of an epistemic community.
Broadly speaking, governmental accounting reforms in Indonesia have been driven
160 by state agencies and the profession. This study finds that, during the process of
governmental accounting reforms, the reform drivers have engaged in a dynamic
interaction as both rivals and allies. The inherent mix of competition and cooperation
amongst reform drivers in the process of reforms confirms the political nature of the
accounting policy-setting process found in the extant literature. The empirical findings
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This study indicates the complex nature of accounting change in a developing country
context. Similar studies could be undertaken in other developing countries for
comparison purposes and to provide a better picture. Also, it would be useful to study
implementation issues once new accounting rules are introduced at the local
government level.
Notes
1. The fieldwork was conducted in two stages: December 2002-February 2003 and July
2003-March 2004.
2. Local governments consist of regencies (kabupaten) and cities/municipalities (kota).
The regency term is used for rural areas, the city/municipality term for urban areas.
3. Commenting on article 14:4, an interviewee who was involved in the process of drafting the
PP 105/2000 said that the stipulation was the result of guerilla tactics undertaken by
Depdagri to secure the role for Depdagri in the financial management development of
Indonesian local governments. The article was labelled a smuggling article because, in the
original draft of the PP 105/2000 (prepared by a team in the Depkeu), there was no such a
stipulation.
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Appendix. Glossary
Depdagri MoHA.
Mendagri MoHA.
Depkeu Ministry of Finance.
Menkeu Minister of Finance. Interaction
BPK Supreme Audit Board. amongst reform
IAI Indonesian Institute of Accountants.
drivers
KSAP Governmental Accounting Standards Committee.
PP Government Regulation.
Kepmendagri Minister of Home Affairs Decree. 163
BAKUN State Accounting Agency.
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Corresponding author
Manzurul Alam is the corresponding author and can be contacted at: Manzurul.Alam@BusEco.
monash.edu.au
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