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Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
OBSTACLES TO PUBLIC SECTOR ACCOUNTING
REFORM IN INDONESIA
Harun
To cite this article: Harun (2007) OBSTACLES TO PUBLIC SECTOR ACCOUNTING
REFORM IN INDONESIA, Bulletin of Indonesian Economic Studies, 43:3, 365-376, DOI:
10.1080/00074910701727613
To link to this article: http://dx.doi.org/10.1080/00074910701727613
Published online: 18 Apr 2008.
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Date: 18 January 2016, At: 20:06
Bulletin of Indonesian Economic Studies, Vol. 43, No. 3, 2007: 365–75
OBSTACLES TO PUBLIC SECTOR ACCOUNTING REFORM
IN INDONESIA
Harun*
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Tadulako University, Central Sulawesi
This paper draws attention to the importance of improving the quality of public
sector accounting in Indonesia, in line with the aims of reformasi (reform) and
demokratisasi (democratisation), and in the context of decentralisation. It highlights
a continuing lack of progress in reform of government accounting. This is attributable partly to a lack of interest in and understanding of the issues among newly
empowered electors. Successive governments have been reluctant to push hard for
accounting reform, not least because improved accountability poses a significant
threat to politicians’ and bureaucrats’ overall income levels. In addition, current human resource management practices in the public sector have resulted in a shortage
of accounting skills, and without these there is little prospect of successful reform in
this area. A possible solution may be to establish a parallel civil service specifically
to undertake the accounting functions of government.
INTRODUCTION
Ball (2005) suggests three reasons why high-quality financial reporting by government agencies, institutions and enterprises is desirable. The first relates to monitoring and managing their own performance: government organisations, just like
large private enterprises, need timely and accurate financial information for this
purpose. They shift large amounts of resources from the private to the public sector with the objective of improving the well-being of society, and if they do not
operate efficiently and effectively, or invest funds wisely, this can represent a huge
drain on the economy.
The second reason is that electors entrust governments with the management
of assets and liabilities that have been accumulated over decades, and will affect
the welfare of citizens for many more decades to come. They are entitled to information that allows them to hold governments accountable for their use of public
resources, including information on the extent to which revenues are sufficient to
pay for services being provided, and on the capacity of governments to meet their
financial obligations and to withstand potential shocks.
*
I am grateful to Ross H. McLeod and Peter McCawley of the Australian National University, Peter Robinson of the University of Western Australia Business School, Hal Hill and
other participants at the Indonesia Council Open Conference (Canberra, 29–30 September
2003) and four anonymous referees for their valuable comments.
ISSN 0007-4918 print/ISSN 1472-7234 online/07/030365-11
DOI: 10.1080/00074910701727613
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The third reason, closely related to the second, is that a properly functioning
democracy requires its constituents to have confidence in politicians and to be
willing to take an interest in politics. This confidence is enhanced when governments fully inform their constituents, enabling them to exercise their votes on
the basis of reliable financial information. Transparent financial reporting is one
means by which politicians can engage constituents in the democratic process and
engender confidence.
Other studies have pointed to deficiencies in accounting systems as a significant weakness in public sector management, particularly in developing countries. Guthrie, Olson and Humphrey (1998) argue that accounting reforms are an
important part of ‘new public management’ ways of governing, pointing to the
introduction of business-like forms of accounting as an important recent reform
in the public sector. This change involves a shift from cash-based or budgetary
accounting to accrual accounting as part of a broader public sector reform process
(Robinson 1998).
Jones and Puglisi (1997: 13) highlight potential problems in adopting accrual
accounting in the public sector context: the complexity and cost of designing and
implementing the new accounting systems; difficulties in applying economicsbased definitions of assets, liabilities, expenses and revenues; and, importantly,
managerial and political factors related to change management and resistance to
change. Likewise, Guthrie argues that although the implementation of accrual
accounting has tended to be seen as a ‘good thing’ in public administration, government bodies must consider many issues when adopting it, especially in developing countries (Guthrie 1998: 5). The purpose of this paper is to identify, and
suggest solutions to, problems encountered by the Indonesian government since
the early 1990s in the adoption of accrual accounting as the basis for public sector
financial management and reporting.1
PUBLIC SECTOR ACCOUNTING
DURING AND AFTER THE SOEHARTO ERA
Public sector financial accounting was never given high priority during the Soeharto era. The general public had no real prospect of voting the government out
of office because of Soeharto’s effective monopoly of political power. There was
little point, therefore, in the public taking an interest in politics, and the government itself had no incentive to promote such interest. Since the collapse of the
Soeharto regime in 1998, Indonesia’s political, economic and social institutions
have experienced significant change. The electoral and political processes have
been greatly reformed, and more autonomy has been granted to local governments in macro-level planning, service delivery, public administration, economic
institutions, human resource development, natural resource utilisation and conservation. Political reform and decentralisation have been accompanied by moves
to adopt a more sophisticated accounting approach in the public sector. These
1 Indonesian public sector accounting covers three areas: the central government; local
government; and non-profit organisations owned by the government, such as schools
and hospitals. State owned-companies use the private sector’s Statement of Financial
Accounting Standards to prepare and present their financial statements.
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moves flow from a recognition that the proper functioning of democracy at both
central and local levels requires detailed evaluation of the efficiency, effectiveness
and integrity of government’s use of scarce resources.
In the post-Soeharto era, successive governments have paid lip-service, at least,
to the importance of reform in this area. There have been calls for a switch from
the existing system—in which financial accountability amounts to nothing more
than the basic book-keeping function of recording cash inflows and outflows—to
a more complex system of accounting on an accrual basis, in which statements
of budget realisations are complemented by balance sheets and cash flow statements, and by explanatory notes on all of these.
A move from traditional cash-based accounting to accrual accounting involves
a shift in the recording of revenues and costs from the time they are received or
paid to the time they are incurred. Depreciation expense is charged over the life of
an asset, and is matched with either the original purchase cost or the replacement
cost. These features allow the accrual accounting model to show, as cash-based
accounting cannot, the true cost of providing services to the community. Knowledge of this is key to ensuring sound decision making, as well as accountability to
parliaments, taxpayers and voters.
The global trend toward adoption of accrual accounting for the public sector
was stimulated by the Organisation for Economic Co-operation and Development (OECD), which noted in 1993 that ‘while the advantages of [a cash-based
system] are acknowledged in terms of assessing short-term economic impact
and compliance with spending limits, the ability of cash information to enable
informed decisions on the stewardship and financial position is constrained
because it excludes physical and financial assets and liabilities’ (OECD 1993).
The shift to accrual accounting has been relatively limited internationally, but
there is a gradual move in that direction. Australia, New Zealand and the United
Kingdom are among the countries that appear to have made the most far-reaching changes (Pollit and Bouckaert 2000; Lye, Perera and Rahman 2005; Mack and
Ryan 2006).
Government efforts to adopt accrual accounting began in the early 1990s in
Indonesia, but its use remains much less advanced in the public than in the private sector. Most government institutions at central and regional levels still rely
on the single-entry system based on the Indonesische Comptabiliteitswet (Indonesian Government Accounts Law) introduced by the Dutch colonial government
to assess the performance of government bodies, but this is significantly inferior
to more modern approaches. Guthrie, Parker and Shand (1990), Sugianto, Dunadi
and Loho (1995), Guthrie, Olson and Humphrey (1998) and Harun (2005) highlight the main deficiencies of the Indonesian cash-based system:
• there is no standard way of recording transactions, either for budgeting
purposes or for realised expenditures;
• the grouping of accounts is not in a form that affords proper analysis and control
of activities and programs supporting public sector provision of services;
• there is no distinction between capital and operational expenditures;
• such reporting is only for the purpose of fulfilling the statutory requirements
of each government institution;
• financial reporting does not satisfy the audit requirements set out in Law
17/2003 on State Finance;
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• there is a failure to represent the amount of resource usage accurately: for
instance, a large capital acquisition will distort expenditure upwards in the
first year, and the usage of that asset will not be recognised in subsequent
years;
• there is a failure to take account of future commitments, guarantees or other
contingent liabilities: these will not be recognised until cash is paid to discharge
the obligation in question;
• concentration on cash payments alone will sometimes mean that any
deterioration in the condition and value of fixed assets remains unnoticed.
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In short, the old governmental accounting system cannot provide a satisfactory
basis for planning, controlling and decision making by government officials.
THE 1992 ACCOUNTING REFORM
Perhaps in recognition of this, the government attempted to switch from cashbased to accrual accounting within the Indonesian public sector as long ago as
1992, when it stipulated that accrual accounting was to become the basis for
development of a new central government accounting system. Presidential Decree
35/1992 on the Central Government Accounting System (Sistem Akuntansi
Pemerintah Pusat) aimed to develop a new governmental accounting system, to
devise new accounting standards and principles for the public sector, and to bring
about the formation of an Accounting Development Board within the Ministry of
Finance. On the basis of the new decree the ministry established the State Financial Accounting Agency (Badan Akuntansi Keuangan Negara, or Bakun), which
was assigned responsibility for effecting the public sector transition from cashbased accounting to the new, more informative system, using World Bank funding (Dewi 2001).
However, by 2000, progress with implementation had been so slow that President Abdurrahman Wahid issued Presidential Decree 17/2000 on Government
Financial Accountability (Pertanggungjawaban Keuangan Negara), requiring government institutions at central and local levels to submit not only realised budget
reports but also balance sheets as part of their annual financial statements. These
two reports are compulsory within an accrual regime, along with reports on cash
flow, changes in government equity, and performance indicators.
In 2001 the then finance minister gave three main reasons for the failed implementation of Presidential Decree 35/1992 (Ministry of Finance 2001). First, the
nation’s lack of qualified accounting and information technology personnel
meant that the Indonesian public sector lacked the staff to implement the reforms
successfully (although this begged the question of why the private sector was
able to implement much more sophisticated accounting practices). Second, since
senior government officials were familiar with the old accounting system, and
held a widely shared opinion that what worked before would continue to work in
the future, political support from the top was insufficient to advance the central
accounting initiative within the public sector. (In turn, this begged the question of
whether the old system had in fact served Indonesia as well as a modernised system could.) And finally, since the government had yet officially to adopt a set of
‘Generally Accepted Government Accounting Standards’ for Indonesia, there was
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no instrument that could serve as a basis for the uniform treatment of economic
transactions and standardisation of government reporting.
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DECENTRALISATION AND ACCOUNTING REFORM
In 1999 two laws were enacted (Law 22/1999 on Regional Governance and Law
25/1999 on Fiscal Balance between Central and Regional Governments) that were
intended to strengthen the political and financial autonomy of regional governments. The new laws sought to devolve greater responsibility for a wide range
of governmental matters to the local level, and emphasised the need for local
governments to accept greater responsibility for planning and implementing
their programs. In addition, Government Regulation 105/2000, on the Financial Accountability of Regional Governments (Pertanggungjawaban Keuangan
Pemerintah Daerah), required regional governments to present annual reports
comprising a realised budget report, a balance sheet and a statement of cash flows.
Thus local governments came under increasing pressure to adopt sound financial
management and accounting systems.
Following decentralisation in 2001, some district and municipal governments
participated in a pilot project to implement financial accountability procedures
based on Government Regulation 105/2000. These included the city of Semarang
(the capital of Central Java province) and the district of Sleman (in Yogyakarta
Special Region). The pilot project was then followed by dissemination and replication in nine other cities around the country: Sawahlunto, Sukabumi, Metro
Lampung, Solo, Probolinggo, Sumbawa, Kendari, Gorontalo and Mataram, in collaboration with the United Nations Development Programme (Bastian 2003).
In parallel with the implementation of decentralisation, the central government, through Minister of Finance Decree 308/2002, established the Committee
on Accounting Standards for Central and Local Governments (Komite Standar
Akuntansi Pemerintah Pusat dan Daerah), which was charged with drafting a
set of accounting standards for the public sector. Members of the committee were
drawn from the Ministry of Finance, the Supreme Audit Agency (Badan Pemeriksa
Keuangan, or BPK), the Ministry of Home Affairs, the Finance and Development Supervisory Agency (Badan Pengawasan Keuangan dan Pembangunan,
or BPKP), the Indonesian Institute of Accountants (Ikatan Akuntan Indonesia, or
IAI) and various universities. The committee prepared a draft entitled ‘Standar
Akuntansi Pemerintah Pusat dan Daerah’ (Accounting Standards for Central and
Local Governments) in 2002.
The objective of the new standards was to provide information that would
assist a wide range of users in making and evaluating government decisions
about resource allocation. This objective was to be achieved by providing information about all assets controlled by public sector agencies and about the allocation and uses of financial resources within the government; information about
how the entities in question financed their activities and met their cash requirements; information that would be useful in evaluating entities’ ability to finance
their activities and to meet their liabilities and other commitments; and information about the financial condition of these entities and changes therein.
After receiving comments on the draft standards from BPK, the Indonesian Institute of Accountants, universities and elsewhere, the finance ministry promulgated
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Minister of Finance Decree 337/2003 on Accounting Standards for Central and
Local Governments. Importantly, Law 17/2003 on State Finance, which required all
government institutions to adopt accrual accounting within five years (that is, by
2007), added significant support to the provisions of Decree 337/2003. The standards were later revised to become the Government Accounting Standards (Standar
Akuntansi Pemerintah, or SAP) and were supported by Government Regulation 24/2005 on Government Accounting Standards (Harian Kompas, 7/7/2005).
Although some technical terms differ from those used in business accounting practice, the new system runs completely in parallel with the framework of standards
for the preparation and presentation of financial statements of private sector enterprises—setting out definitions and describing recognition criteria and measurement concepts for assets, liabilities, revenue and expenses.
OBSTACLES TO ACCOUNTING REFORM
As with the initiative of the early 1990s, President Wahid’s decree and subsequent
efforts to formulate new standards for public sector accounting have resulted in
very little change in actual accounting practices—especially at the level of the
newly important regional governments. Various explanations can be suggested;
they relate to standard setting, to attitudes to financial accountability, and to
human resources in the field of accounting.
Lack of independent standard setting
Although Law 17/2003 on State Finance supports the adoption of accrual
accounting within the public sector, neither the Accounting Standards for Central and Local Governments based on Presidential Decree 35/1992 nor the Government Accounting Standards based on Government Regulation 24/2005 were
determined by an independent body. Although the Committee on Accounting
Standards for Central and Local Government included members of the Indonesian Institute of Accountants and a number of academics, its work was
backed and controlled by the president. Zaki Baridwan, professor of accounting
at Gadjah Mada University, has criticised as improper the fact that the government effectively sets its own accounting standards for the public sector (Harun
2004). In similar vein, Dewi (2001) suggests that the government should allow
an independent organisation such as the Indonesian Institute of Accountants
to develop and promulgate appropriate government accounting standards, as
is the practice in countries such as Australia, Sweden and the United Kingdom
(Lundqvist 2003).
In Australia, accounting standards for the public sector are formulated and
promulgated by the Australian Accounting Research Foundation (AARF) on
behalf of the accounting profession. The Australian Accounting Standards Board
and the AARF’s Public Sector Accounting Standards Board cooperate in this
process, the former with responsibility for accounting standards for companies,
the latter for public sector accounting standards (Shand 1990; Jones and Puglisi
1997; see also ). The objective is to maintain credible
standards for the presentation and disclosure of government agencies’ financial
accounts and independence of standard setters in the eyes of auditors, parliaments, taxpayers and citizens in general, and to provide a standard setting body
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that can act independently in solving accounting problems within public sector
institutions (Lundqvist 2003; Robinson and Harun 2004).
The absence of an independent standard setting body for public sector accounting in Indonesia signals a reluctance on the part of the government and the
bureaucracy to loosen their control of the process, and suggests a concern among
some officials that reform might make it more difficult to conceal practices on
which they rely to supplement their relatively low civil service salaries. On this
interpretation, it is unsurprising that progress in public sector accounting reform
remains elusive.
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Attitudes to financial accountability
The public has yet to become used to the idea that it can elect a new government
from time to time, and that it therefore needs to monitor incumbent governments’
financial operations (if not directly, then at least through NGOs and an inquisitive media). While it seems to have some interest in reforms intended to improve
government accountability, the electorate is less conscious of the need for reform
of public sector accounting practices. Kartomo Wiryobroto, former Director of
Accounting Development and Evaluation at the Ministry of Finance, says that the
public has shown little interest in responding to the draft standards issued by the
public sector accounting division of the Indonesian Institute of Accountants, and
that the parliament also lacks concern about accounting issues.2
It is widely believed that many members of parliament still view their positions as providing scope for advancing personal interests, rather than as bestowing on them (especially those whose parties are not part of the government) the
responsibility to monitor the executive and the bureaucracy on behalf of their constituents. There is little doubt that the lack of public and parliamentary pressure
on bureaucrats to improve government financial accountability by switching to a
more informative public sector accounting system reduces the likelihood of public sector accounting and managerial reform. This is consistent with the absence
of an independent accounting standards body for the public sector. It reflects the
absence of both a strong civil society and a substantial group of private and public professionals, as exists in other countries, to advocate for the establishment
of such a body. A number of studies have pointed out that pressure from parliaments, professional organisations and other interest groups was important to the
successful implementation of such reforms in Australia, New Zealand and the UK
(Christensen 2002). In Indonesia, strong pressure from citizens, professionals and
members of parliament is likewise needed to influence the attitudes of government agencies to disclosure of information on financial management and to the
need for a more informative accounting system.
Since many members of the bureaucracy and the executive are heavily dependent on non-salary, quasi-legal or illegal forms of remuneration, these officials are
2 Interview with author, 5 November 2003. Since the late 1990s the Indonesian Institute of
Accountants has released several exposure drafts of accounting standards for the government, but these have received little attention from government, the public or the parliament. Although Law 17/2003 on State Finance requires accounting standards to be developed by an independent body, the Government Accounting Standards of 2005 were
developed by a standard-setting body set up by the government (Harun 2004).
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directly threatened by accurate monitoring and reporting of the financial operations of government. This factor strongly undermines attempts to improve public
sector accountability. According to the former chair of BPK, Satrio B. Joedono,
this problem led to the failure of public sector accounting reforms initiated during the Soeharto era.3 And it helps to explain the assertion by Hekinus Manao,
former head of the Centre of Accounting and Financial Reporting at the Ministry
of Finance, that managers and ministers in all departments have a low commitment to accountability. Even though Indonesia has now entered a new economic,
social and political phase of its history, the central government remains reluctant
to commit strongly to reforming public sector accounting. Seno, former secretary
general of BPK, claims, for example, that the government has failed to follow up
the audit findings and recommendations of BPK.
Skills shortages in accounting
It is widely recognised that the government has limited capacity to manage the
functions of public sector institutions because of a lack of skilled staff in specialised
fields. At the local level, following decentralisation, only a few districts have been
able to absorb all of their new duties quickly and meet appropriate quality standards in the public services provided (Robinson and Harun 2003). The adoption of
more sophisticated accounting approaches requires skilled and experienced staff.
The majority of government accounting staff are not accounting professionals,
and have direct experience only of the cash-based single-entry system inherited
from the Dutch. Although there are no precise data on the number of accountants
within the government, previous studies have pointed to a lack of skilled accounting staff within government agencies at the central and regional level (Soepomo
1999; Robinson and Harun 2004). The best prospect for stimulating accounting
reform may therefore involve focusing on the accounting skills shortage.
THE ACCOUNTING SKILLS SHORTAGE: CAUSES AND REMEDIES
Causes: civil service recruitment and remuneration
What is needed—if there is to be general reform of financial monitoring and
reporting in the public sector—is large numbers of well-trained and experienced accountants able to take over this activity and transform it into something considerably more than mere book-keeping. The general problem with
the bureaucracy is not lack of personnel—on the contrary, under-employment of
its personnel is common—but lack of relevant skills where they are needed. In
turn, this is a reflection of dysfunctional human resource management practices
in the civil service (Synnerstrom 2007). Even if governments genuinely desired
accounting reform, the rules of the civil service prevent recruitment of welltrained and experienced accountants.
All civil service recruitment occurs at the base level of new secondary school
or tertiary graduates. Since new staff are recruited only at base levels, high-level
positions can be filled only by people who have slowly been promoted from these
3 Statements reported in this paragraph were made at interviews the author conducted
with officials in November 2003.
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lower levels, overwhelmingly on the basis of seniority. Moreover, there are very
few job descriptions for positions in the civil service, so people are recruited on
the basis of their educational attainment level (as undifferentiated secondary or
tertiary graduates) rather than on the basis of their field of study (engineering,
political and social studies, accountancy and so on). Training existing generalist
personnel in accounting is not a feasible solution to the accounting skills shortage, because the process is drawn out, and the outcome for each individual is
uncertain. And finally, since salaries are not comparable with those paid for similar qualifications and experience in the private sector, it is difficult to recruit and
retain officers of high quality (and to discourage civil servants from involvement
in corrupt activity).
These circumstances are very different from those in countries such as Australia,
New Zealand, the UK, the US and Canada, where large numbers of accounting
specialists with private sector experience work in the public sector (Christensen
2002; Lundqvist 2003).
Remedies: accounting reform requires civil service reform
Reforming human resource management in Indonesia’s civil service is such an
overwhelming task that it makes sense to approach it in phases. Accounting
reform is particularly urgent and could best be achieved if the government were
to establish a parallel professional civil service for accountants; that is, alongside the existing civil service, a hierarchy of positions would be created, to be
filled exclusively by individuals with professional qualifications in accountancy.
These people would be responsible for carrying out all of the present and desired
accounting functions of the bureaucracy. Each such position would have a full
job description. The associated salary (including retirement and other benefits)
would be comparable with remuneration in the private sector for work of similar
complexity and responsibility. Any individual could compete for such positions,
including the incumbent (if there is one), other officials within the mainstream
civil service, new graduates, and experienced professionals from the private sector, academia and elsewhere.
To a certain extent this approach would build on current practice within the
existing civil service for a limited range of professionals, such as medical doctors. Positions in this category are available only to fully qualified professionals,
and remuneration is somewhat closer to that in the private sector. However, positions of this kind are at present filled only by promotion from within. Allowing
appointments from outside the civil service is the only practical way of obtaining
the necessary skills in the quantities needed if genuine reform of the public sector
accounting function is to be achieved within a reasonable time frame.
CONCLUSIONS
The proper functioning of democracy depends, among other things, on financial
accountability of governments to elected representatives of the people, and to the
people themselves. In turn, this relies on the determination of a set of meaningful
and useful standards for the preparation and presentation of public sector financial accounts, and on the availability of sufficiently skilled and well-motivated
practitioners within the civil service to implement these standards.
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A process of reform of public sector accounting, involving a transition from the
Dutch era cash-based, single-entry book-keeping system to accrual-based, doubleentry accounting, was initiated in the early 1990s, but little progress was made.
More recently, legislation has been enacted that requires all levels of government
to engage in much more informative financial reporting, based on the Government Accounting Standards of 2005. The new standards, perceived to represent a
more sound financial reporting system, are intended to facilitate greater transparency in public sector agency activities, to strengthen the accountability of government and to improve the quality of decision making within the Indonesian public
sector. But despite all the new legislative provisions, government regulations and
ministerial decrees, the adoption of more sophisticated accounting approaches in
the Indonesian public sector is still encountering significant obstacles.
It might be possible to arrive at a superior set of public sector accounting
standards if the government were to delegate this task to a genuinely independent
body of professional accountants. But the most significant barrier to reform is
actually outside the realm of accountancy, and concerns the broader issue of
civil service human resource management. Within governments at all levels, the
management of staff resources does not permit the recruitment and retention of
appropriate numbers of adequately trained and experienced professionals in most
specialist fields, including accountancy. It is of little use to call for the adoption of
sophisticated accounting approaches if the civil service does not have sufficient
staff with the skills and experience necessary to implement such a reform. Therefore
it may be worthwhile to consider the establishment of a parallel professional
civil service for accountants, with remuneration closer to private sector levels—a
system somewhat similar to that for employing medical professionals, but with
recruitment at all levels permitted from outside the civil service.
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Mack, Janet and Ryan, Christine (2006) ‘Reflections on the theoretical underpinnings of the
general-purpose financial reports of Australian government departments‘, Accounting,
Auditing and Accountability Journal 19 (4): 592–612.
Ministry of Finance (2001) Accrual accounting and budgeting: Indonesian experience,
Paper presented at the OECD–ASEAN Senior Budget Officials Meeting, Singapore,
19–20 November.
OECD (Organisation for Economic Co-operation and Development) (1993) ‘Accounting
for what? The value of accrual accounting to the public sector’, Working Paper No. 93,
OECD, Paris.
Pollit, C. and Bouckaert, G. (2000) Public Management Reform: A Comparative Analysis, Harcout Brace Jovanovich, Sydney.
Robinson, M. (1998) ‘Accrual accounting and the efficiency of the core public sector’, Financial Accountability and Management 14 (1): 21–38.
Robinson, Peter and Harun, Alrasyid (2003) Indonesian public sector reform: is it rhetoric?, Paper presented at the Indonesia Council Open Conference (ICOC), Australian
National University, Canberra, 29–30 September.
Robinson, Peter, and Harun (2004) Reforming the Indonesian public sector: the introduction of accrual accounting, Paper presented at an accounting seminar at Murdoch University, Perth WA, 20 April.
Shand, D.A. (1990) ‘Public sector accounting standards: progress on implementation in
Australia’, in The Public Sector: Contemporary Readings in Accounting and Auditing, eds
J. Guthrie, L.D. Parker and D.A. Shand, Harcourt Brace Jovanovich, Sydney.
Soepomo, Prodjoharjono (1999) ‘Accrual Accounting in Indonesian Local Government’,
Unpublished PhD thesis, School of Economics and Commerce, Birmingham University,
Birmingham, UK.
Sugianto, Robert, Dunadi, H. and Loho, Sonny (1995) ‘Akuntansi pemerintah dan organisasi non laba [Accounting for governmental and non-profit organisations]’, Pusat
Pengembangan Akuntansi, Fakultas Ekonomi (Centre for the Development of Accounting, Faculty of Economics), Brawijaya University, Malang.
Synnerstrom, Staffan (2007) ‘The civil service: towards efficiency, effectiveness and honesty’, in Indonesia: Democracy and the Promise of Good Governance, eds Ross H. McLeod
and Andrew MacIntyre, Institute of Southeast Asian Studies, Singapore: 159–77.
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ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
OBSTACLES TO PUBLIC SECTOR ACCOUNTING
REFORM IN INDONESIA
Harun
To cite this article: Harun (2007) OBSTACLES TO PUBLIC SECTOR ACCOUNTING
REFORM IN INDONESIA, Bulletin of Indonesian Economic Studies, 43:3, 365-376, DOI:
10.1080/00074910701727613
To link to this article: http://dx.doi.org/10.1080/00074910701727613
Published online: 18 Apr 2008.
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Date: 18 January 2016, At: 20:06
Bulletin of Indonesian Economic Studies, Vol. 43, No. 3, 2007: 365–75
OBSTACLES TO PUBLIC SECTOR ACCOUNTING REFORM
IN INDONESIA
Harun*
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Tadulako University, Central Sulawesi
This paper draws attention to the importance of improving the quality of public
sector accounting in Indonesia, in line with the aims of reformasi (reform) and
demokratisasi (democratisation), and in the context of decentralisation. It highlights
a continuing lack of progress in reform of government accounting. This is attributable partly to a lack of interest in and understanding of the issues among newly
empowered electors. Successive governments have been reluctant to push hard for
accounting reform, not least because improved accountability poses a significant
threat to politicians’ and bureaucrats’ overall income levels. In addition, current human resource management practices in the public sector have resulted in a shortage
of accounting skills, and without these there is little prospect of successful reform in
this area. A possible solution may be to establish a parallel civil service specifically
to undertake the accounting functions of government.
INTRODUCTION
Ball (2005) suggests three reasons why high-quality financial reporting by government agencies, institutions and enterprises is desirable. The first relates to monitoring and managing their own performance: government organisations, just like
large private enterprises, need timely and accurate financial information for this
purpose. They shift large amounts of resources from the private to the public sector with the objective of improving the well-being of society, and if they do not
operate efficiently and effectively, or invest funds wisely, this can represent a huge
drain on the economy.
The second reason is that electors entrust governments with the management
of assets and liabilities that have been accumulated over decades, and will affect
the welfare of citizens for many more decades to come. They are entitled to information that allows them to hold governments accountable for their use of public
resources, including information on the extent to which revenues are sufficient to
pay for services being provided, and on the capacity of governments to meet their
financial obligations and to withstand potential shocks.
*
I am grateful to Ross H. McLeod and Peter McCawley of the Australian National University, Peter Robinson of the University of Western Australia Business School, Hal Hill and
other participants at the Indonesia Council Open Conference (Canberra, 29–30 September
2003) and four anonymous referees for their valuable comments.
ISSN 0007-4918 print/ISSN 1472-7234 online/07/030365-11
DOI: 10.1080/00074910701727613
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The third reason, closely related to the second, is that a properly functioning
democracy requires its constituents to have confidence in politicians and to be
willing to take an interest in politics. This confidence is enhanced when governments fully inform their constituents, enabling them to exercise their votes on
the basis of reliable financial information. Transparent financial reporting is one
means by which politicians can engage constituents in the democratic process and
engender confidence.
Other studies have pointed to deficiencies in accounting systems as a significant weakness in public sector management, particularly in developing countries. Guthrie, Olson and Humphrey (1998) argue that accounting reforms are an
important part of ‘new public management’ ways of governing, pointing to the
introduction of business-like forms of accounting as an important recent reform
in the public sector. This change involves a shift from cash-based or budgetary
accounting to accrual accounting as part of a broader public sector reform process
(Robinson 1998).
Jones and Puglisi (1997: 13) highlight potential problems in adopting accrual
accounting in the public sector context: the complexity and cost of designing and
implementing the new accounting systems; difficulties in applying economicsbased definitions of assets, liabilities, expenses and revenues; and, importantly,
managerial and political factors related to change management and resistance to
change. Likewise, Guthrie argues that although the implementation of accrual
accounting has tended to be seen as a ‘good thing’ in public administration, government bodies must consider many issues when adopting it, especially in developing countries (Guthrie 1998: 5). The purpose of this paper is to identify, and
suggest solutions to, problems encountered by the Indonesian government since
the early 1990s in the adoption of accrual accounting as the basis for public sector
financial management and reporting.1
PUBLIC SECTOR ACCOUNTING
DURING AND AFTER THE SOEHARTO ERA
Public sector financial accounting was never given high priority during the Soeharto era. The general public had no real prospect of voting the government out
of office because of Soeharto’s effective monopoly of political power. There was
little point, therefore, in the public taking an interest in politics, and the government itself had no incentive to promote such interest. Since the collapse of the
Soeharto regime in 1998, Indonesia’s political, economic and social institutions
have experienced significant change. The electoral and political processes have
been greatly reformed, and more autonomy has been granted to local governments in macro-level planning, service delivery, public administration, economic
institutions, human resource development, natural resource utilisation and conservation. Political reform and decentralisation have been accompanied by moves
to adopt a more sophisticated accounting approach in the public sector. These
1 Indonesian public sector accounting covers three areas: the central government; local
government; and non-profit organisations owned by the government, such as schools
and hospitals. State owned-companies use the private sector’s Statement of Financial
Accounting Standards to prepare and present their financial statements.
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moves flow from a recognition that the proper functioning of democracy at both
central and local levels requires detailed evaluation of the efficiency, effectiveness
and integrity of government’s use of scarce resources.
In the post-Soeharto era, successive governments have paid lip-service, at least,
to the importance of reform in this area. There have been calls for a switch from
the existing system—in which financial accountability amounts to nothing more
than the basic book-keeping function of recording cash inflows and outflows—to
a more complex system of accounting on an accrual basis, in which statements
of budget realisations are complemented by balance sheets and cash flow statements, and by explanatory notes on all of these.
A move from traditional cash-based accounting to accrual accounting involves
a shift in the recording of revenues and costs from the time they are received or
paid to the time they are incurred. Depreciation expense is charged over the life of
an asset, and is matched with either the original purchase cost or the replacement
cost. These features allow the accrual accounting model to show, as cash-based
accounting cannot, the true cost of providing services to the community. Knowledge of this is key to ensuring sound decision making, as well as accountability to
parliaments, taxpayers and voters.
The global trend toward adoption of accrual accounting for the public sector
was stimulated by the Organisation for Economic Co-operation and Development (OECD), which noted in 1993 that ‘while the advantages of [a cash-based
system] are acknowledged in terms of assessing short-term economic impact
and compliance with spending limits, the ability of cash information to enable
informed decisions on the stewardship and financial position is constrained
because it excludes physical and financial assets and liabilities’ (OECD 1993).
The shift to accrual accounting has been relatively limited internationally, but
there is a gradual move in that direction. Australia, New Zealand and the United
Kingdom are among the countries that appear to have made the most far-reaching changes (Pollit and Bouckaert 2000; Lye, Perera and Rahman 2005; Mack and
Ryan 2006).
Government efforts to adopt accrual accounting began in the early 1990s in
Indonesia, but its use remains much less advanced in the public than in the private sector. Most government institutions at central and regional levels still rely
on the single-entry system based on the Indonesische Comptabiliteitswet (Indonesian Government Accounts Law) introduced by the Dutch colonial government
to assess the performance of government bodies, but this is significantly inferior
to more modern approaches. Guthrie, Parker and Shand (1990), Sugianto, Dunadi
and Loho (1995), Guthrie, Olson and Humphrey (1998) and Harun (2005) highlight the main deficiencies of the Indonesian cash-based system:
• there is no standard way of recording transactions, either for budgeting
purposes or for realised expenditures;
• the grouping of accounts is not in a form that affords proper analysis and control
of activities and programs supporting public sector provision of services;
• there is no distinction between capital and operational expenditures;
• such reporting is only for the purpose of fulfilling the statutory requirements
of each government institution;
• financial reporting does not satisfy the audit requirements set out in Law
17/2003 on State Finance;
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Harun
• there is a failure to represent the amount of resource usage accurately: for
instance, a large capital acquisition will distort expenditure upwards in the
first year, and the usage of that asset will not be recognised in subsequent
years;
• there is a failure to take account of future commitments, guarantees or other
contingent liabilities: these will not be recognised until cash is paid to discharge
the obligation in question;
• concentration on cash payments alone will sometimes mean that any
deterioration in the condition and value of fixed assets remains unnoticed.
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In short, the old governmental accounting system cannot provide a satisfactory
basis for planning, controlling and decision making by government officials.
THE 1992 ACCOUNTING REFORM
Perhaps in recognition of this, the government attempted to switch from cashbased to accrual accounting within the Indonesian public sector as long ago as
1992, when it stipulated that accrual accounting was to become the basis for
development of a new central government accounting system. Presidential Decree
35/1992 on the Central Government Accounting System (Sistem Akuntansi
Pemerintah Pusat) aimed to develop a new governmental accounting system, to
devise new accounting standards and principles for the public sector, and to bring
about the formation of an Accounting Development Board within the Ministry of
Finance. On the basis of the new decree the ministry established the State Financial Accounting Agency (Badan Akuntansi Keuangan Negara, or Bakun), which
was assigned responsibility for effecting the public sector transition from cashbased accounting to the new, more informative system, using World Bank funding (Dewi 2001).
However, by 2000, progress with implementation had been so slow that President Abdurrahman Wahid issued Presidential Decree 17/2000 on Government
Financial Accountability (Pertanggungjawaban Keuangan Negara), requiring government institutions at central and local levels to submit not only realised budget
reports but also balance sheets as part of their annual financial statements. These
two reports are compulsory within an accrual regime, along with reports on cash
flow, changes in government equity, and performance indicators.
In 2001 the then finance minister gave three main reasons for the failed implementation of Presidential Decree 35/1992 (Ministry of Finance 2001). First, the
nation’s lack of qualified accounting and information technology personnel
meant that the Indonesian public sector lacked the staff to implement the reforms
successfully (although this begged the question of why the private sector was
able to implement much more sophisticated accounting practices). Second, since
senior government officials were familiar with the old accounting system, and
held a widely shared opinion that what worked before would continue to work in
the future, political support from the top was insufficient to advance the central
accounting initiative within the public sector. (In turn, this begged the question of
whether the old system had in fact served Indonesia as well as a modernised system could.) And finally, since the government had yet officially to adopt a set of
‘Generally Accepted Government Accounting Standards’ for Indonesia, there was
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369
no instrument that could serve as a basis for the uniform treatment of economic
transactions and standardisation of government reporting.
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DECENTRALISATION AND ACCOUNTING REFORM
In 1999 two laws were enacted (Law 22/1999 on Regional Governance and Law
25/1999 on Fiscal Balance between Central and Regional Governments) that were
intended to strengthen the political and financial autonomy of regional governments. The new laws sought to devolve greater responsibility for a wide range
of governmental matters to the local level, and emphasised the need for local
governments to accept greater responsibility for planning and implementing
their programs. In addition, Government Regulation 105/2000, on the Financial Accountability of Regional Governments (Pertanggungjawaban Keuangan
Pemerintah Daerah), required regional governments to present annual reports
comprising a realised budget report, a balance sheet and a statement of cash flows.
Thus local governments came under increasing pressure to adopt sound financial
management and accounting systems.
Following decentralisation in 2001, some district and municipal governments
participated in a pilot project to implement financial accountability procedures
based on Government Regulation 105/2000. These included the city of Semarang
(the capital of Central Java province) and the district of Sleman (in Yogyakarta
Special Region). The pilot project was then followed by dissemination and replication in nine other cities around the country: Sawahlunto, Sukabumi, Metro
Lampung, Solo, Probolinggo, Sumbawa, Kendari, Gorontalo and Mataram, in collaboration with the United Nations Development Programme (Bastian 2003).
In parallel with the implementation of decentralisation, the central government, through Minister of Finance Decree 308/2002, established the Committee
on Accounting Standards for Central and Local Governments (Komite Standar
Akuntansi Pemerintah Pusat dan Daerah), which was charged with drafting a
set of accounting standards for the public sector. Members of the committee were
drawn from the Ministry of Finance, the Supreme Audit Agency (Badan Pemeriksa
Keuangan, or BPK), the Ministry of Home Affairs, the Finance and Development Supervisory Agency (Badan Pengawasan Keuangan dan Pembangunan,
or BPKP), the Indonesian Institute of Accountants (Ikatan Akuntan Indonesia, or
IAI) and various universities. The committee prepared a draft entitled ‘Standar
Akuntansi Pemerintah Pusat dan Daerah’ (Accounting Standards for Central and
Local Governments) in 2002.
The objective of the new standards was to provide information that would
assist a wide range of users in making and evaluating government decisions
about resource allocation. This objective was to be achieved by providing information about all assets controlled by public sector agencies and about the allocation and uses of financial resources within the government; information about
how the entities in question financed their activities and met their cash requirements; information that would be useful in evaluating entities’ ability to finance
their activities and to meet their liabilities and other commitments; and information about the financial condition of these entities and changes therein.
After receiving comments on the draft standards from BPK, the Indonesian Institute of Accountants, universities and elsewhere, the finance ministry promulgated
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Minister of Finance Decree 337/2003 on Accounting Standards for Central and
Local Governments. Importantly, Law 17/2003 on State Finance, which required all
government institutions to adopt accrual accounting within five years (that is, by
2007), added significant support to the provisions of Decree 337/2003. The standards were later revised to become the Government Accounting Standards (Standar
Akuntansi Pemerintah, or SAP) and were supported by Government Regulation 24/2005 on Government Accounting Standards (Harian Kompas, 7/7/2005).
Although some technical terms differ from those used in business accounting practice, the new system runs completely in parallel with the framework of standards
for the preparation and presentation of financial statements of private sector enterprises—setting out definitions and describing recognition criteria and measurement concepts for assets, liabilities, revenue and expenses.
OBSTACLES TO ACCOUNTING REFORM
As with the initiative of the early 1990s, President Wahid’s decree and subsequent
efforts to formulate new standards for public sector accounting have resulted in
very little change in actual accounting practices—especially at the level of the
newly important regional governments. Various explanations can be suggested;
they relate to standard setting, to attitudes to financial accountability, and to
human resources in the field of accounting.
Lack of independent standard setting
Although Law 17/2003 on State Finance supports the adoption of accrual
accounting within the public sector, neither the Accounting Standards for Central and Local Governments based on Presidential Decree 35/1992 nor the Government Accounting Standards based on Government Regulation 24/2005 were
determined by an independent body. Although the Committee on Accounting
Standards for Central and Local Government included members of the Indonesian Institute of Accountants and a number of academics, its work was
backed and controlled by the president. Zaki Baridwan, professor of accounting
at Gadjah Mada University, has criticised as improper the fact that the government effectively sets its own accounting standards for the public sector (Harun
2004). In similar vein, Dewi (2001) suggests that the government should allow
an independent organisation such as the Indonesian Institute of Accountants
to develop and promulgate appropriate government accounting standards, as
is the practice in countries such as Australia, Sweden and the United Kingdom
(Lundqvist 2003).
In Australia, accounting standards for the public sector are formulated and
promulgated by the Australian Accounting Research Foundation (AARF) on
behalf of the accounting profession. The Australian Accounting Standards Board
and the AARF’s Public Sector Accounting Standards Board cooperate in this
process, the former with responsibility for accounting standards for companies,
the latter for public sector accounting standards (Shand 1990; Jones and Puglisi
1997; see also ). The objective is to maintain credible
standards for the presentation and disclosure of government agencies’ financial
accounts and independence of standard setters in the eyes of auditors, parliaments, taxpayers and citizens in general, and to provide a standard setting body
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371
that can act independently in solving accounting problems within public sector
institutions (Lundqvist 2003; Robinson and Harun 2004).
The absence of an independent standard setting body for public sector accounting in Indonesia signals a reluctance on the part of the government and the
bureaucracy to loosen their control of the process, and suggests a concern among
some officials that reform might make it more difficult to conceal practices on
which they rely to supplement their relatively low civil service salaries. On this
interpretation, it is unsurprising that progress in public sector accounting reform
remains elusive.
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Attitudes to financial accountability
The public has yet to become used to the idea that it can elect a new government
from time to time, and that it therefore needs to monitor incumbent governments’
financial operations (if not directly, then at least through NGOs and an inquisitive media). While it seems to have some interest in reforms intended to improve
government accountability, the electorate is less conscious of the need for reform
of public sector accounting practices. Kartomo Wiryobroto, former Director of
Accounting Development and Evaluation at the Ministry of Finance, says that the
public has shown little interest in responding to the draft standards issued by the
public sector accounting division of the Indonesian Institute of Accountants, and
that the parliament also lacks concern about accounting issues.2
It is widely believed that many members of parliament still view their positions as providing scope for advancing personal interests, rather than as bestowing on them (especially those whose parties are not part of the government) the
responsibility to monitor the executive and the bureaucracy on behalf of their constituents. There is little doubt that the lack of public and parliamentary pressure
on bureaucrats to improve government financial accountability by switching to a
more informative public sector accounting system reduces the likelihood of public sector accounting and managerial reform. This is consistent with the absence
of an independent accounting standards body for the public sector. It reflects the
absence of both a strong civil society and a substantial group of private and public professionals, as exists in other countries, to advocate for the establishment
of such a body. A number of studies have pointed out that pressure from parliaments, professional organisations and other interest groups was important to the
successful implementation of such reforms in Australia, New Zealand and the UK
(Christensen 2002). In Indonesia, strong pressure from citizens, professionals and
members of parliament is likewise needed to influence the attitudes of government agencies to disclosure of information on financial management and to the
need for a more informative accounting system.
Since many members of the bureaucracy and the executive are heavily dependent on non-salary, quasi-legal or illegal forms of remuneration, these officials are
2 Interview with author, 5 November 2003. Since the late 1990s the Indonesian Institute of
Accountants has released several exposure drafts of accounting standards for the government, but these have received little attention from government, the public or the parliament. Although Law 17/2003 on State Finance requires accounting standards to be developed by an independent body, the Government Accounting Standards of 2005 were
developed by a standard-setting body set up by the government (Harun 2004).
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directly threatened by accurate monitoring and reporting of the financial operations of government. This factor strongly undermines attempts to improve public
sector accountability. According to the former chair of BPK, Satrio B. Joedono,
this problem led to the failure of public sector accounting reforms initiated during the Soeharto era.3 And it helps to explain the assertion by Hekinus Manao,
former head of the Centre of Accounting and Financial Reporting at the Ministry
of Finance, that managers and ministers in all departments have a low commitment to accountability. Even though Indonesia has now entered a new economic,
social and political phase of its history, the central government remains reluctant
to commit strongly to reforming public sector accounting. Seno, former secretary
general of BPK, claims, for example, that the government has failed to follow up
the audit findings and recommendations of BPK.
Skills shortages in accounting
It is widely recognised that the government has limited capacity to manage the
functions of public sector institutions because of a lack of skilled staff in specialised
fields. At the local level, following decentralisation, only a few districts have been
able to absorb all of their new duties quickly and meet appropriate quality standards in the public services provided (Robinson and Harun 2003). The adoption of
more sophisticated accounting approaches requires skilled and experienced staff.
The majority of government accounting staff are not accounting professionals,
and have direct experience only of the cash-based single-entry system inherited
from the Dutch. Although there are no precise data on the number of accountants
within the government, previous studies have pointed to a lack of skilled accounting staff within government agencies at the central and regional level (Soepomo
1999; Robinson and Harun 2004). The best prospect for stimulating accounting
reform may therefore involve focusing on the accounting skills shortage.
THE ACCOUNTING SKILLS SHORTAGE: CAUSES AND REMEDIES
Causes: civil service recruitment and remuneration
What is needed—if there is to be general reform of financial monitoring and
reporting in the public sector—is large numbers of well-trained and experienced accountants able to take over this activity and transform it into something considerably more than mere book-keeping. The general problem with
the bureaucracy is not lack of personnel—on the contrary, under-employment of
its personnel is common—but lack of relevant skills where they are needed. In
turn, this is a reflection of dysfunctional human resource management practices
in the civil service (Synnerstrom 2007). Even if governments genuinely desired
accounting reform, the rules of the civil service prevent recruitment of welltrained and experienced accountants.
All civil service recruitment occurs at the base level of new secondary school
or tertiary graduates. Since new staff are recruited only at base levels, high-level
positions can be filled only by people who have slowly been promoted from these
3 Statements reported in this paragraph were made at interviews the author conducted
with officials in November 2003.
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lower levels, overwhelmingly on the basis of seniority. Moreover, there are very
few job descriptions for positions in the civil service, so people are recruited on
the basis of their educational attainment level (as undifferentiated secondary or
tertiary graduates) rather than on the basis of their field of study (engineering,
political and social studies, accountancy and so on). Training existing generalist
personnel in accounting is not a feasible solution to the accounting skills shortage, because the process is drawn out, and the outcome for each individual is
uncertain. And finally, since salaries are not comparable with those paid for similar qualifications and experience in the private sector, it is difficult to recruit and
retain officers of high quality (and to discourage civil servants from involvement
in corrupt activity).
These circumstances are very different from those in countries such as Australia,
New Zealand, the UK, the US and Canada, where large numbers of accounting
specialists with private sector experience work in the public sector (Christensen
2002; Lundqvist 2003).
Remedies: accounting reform requires civil service reform
Reforming human resource management in Indonesia’s civil service is such an
overwhelming task that it makes sense to approach it in phases. Accounting
reform is particularly urgent and could best be achieved if the government were
to establish a parallel professional civil service for accountants; that is, alongside the existing civil service, a hierarchy of positions would be created, to be
filled exclusively by individuals with professional qualifications in accountancy.
These people would be responsible for carrying out all of the present and desired
accounting functions of the bureaucracy. Each such position would have a full
job description. The associated salary (including retirement and other benefits)
would be comparable with remuneration in the private sector for work of similar
complexity and responsibility. Any individual could compete for such positions,
including the incumbent (if there is one), other officials within the mainstream
civil service, new graduates, and experienced professionals from the private sector, academia and elsewhere.
To a certain extent this approach would build on current practice within the
existing civil service for a limited range of professionals, such as medical doctors. Positions in this category are available only to fully qualified professionals,
and remuneration is somewhat closer to that in the private sector. However, positions of this kind are at present filled only by promotion from within. Allowing
appointments from outside the civil service is the only practical way of obtaining
the necessary skills in the quantities needed if genuine reform of the public sector
accounting function is to be achieved within a reasonable time frame.
CONCLUSIONS
The proper functioning of democracy depends, among other things, on financial
accountability of governments to elected representatives of the people, and to the
people themselves. In turn, this relies on the determination of a set of meaningful
and useful standards for the preparation and presentation of public sector financial accounts, and on the availability of sufficiently skilled and well-motivated
practitioners within the civil service to implement these standards.
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A process of reform of public sector accounting, involving a transition from the
Dutch era cash-based, single-entry book-keeping system to accrual-based, doubleentry accounting, was initiated in the early 1990s, but little progress was made.
More recently, legislation has been enacted that requires all levels of government
to engage in much more informative financial reporting, based on the Government Accounting Standards of 2005. The new standards, perceived to represent a
more sound financial reporting system, are intended to facilitate greater transparency in public sector agency activities, to strengthen the accountability of government and to improve the quality of decision making within the Indonesian public
sector. But despite all the new legislative provisions, government regulations and
ministerial decrees, the adoption of more sophisticated accounting approaches in
the Indonesian public sector is still encountering significant obstacles.
It might be possible to arrive at a superior set of public sector accounting
standards if the government were to delegate this task to a genuinely independent
body of professional accountants. But the most significant barrier to reform is
actually outside the realm of accountancy, and concerns the broader issue of
civil service human resource management. Within governments at all levels, the
management of staff resources does not permit the recruitment and retention of
appropriate numbers of adequately trained and experienced professionals in most
specialist fields, including accountancy. It is of little use to call for the adoption of
sophisticated accounting approaches if the civil service does not have sufficient
staff with the skills and experience necessary to implement such a reform. Therefore
it may be worthwhile to consider the establishment of a parallel professional
civil service for accountants, with remuneration closer to private sector levels—a
system somewhat similar to that for employing medical professionals, but with
recruitment at all levels permitted from outside the civil service.
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Harun (2004) ‘Reforming the Indonesian Public Sector: The Introduction of Accrual
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