Coexistence of Accrual Accounting and Commitment-Cash Budgeting Evidence from European Union Agencies

Many entities in the public sector reporting accounting information on an accrual basis continue to prepare budgets on a commitment-cash basis. In this article, we analyze the effects of this coexistence in European Union agencies by empirically testing four propositions put forward in the existing literature. Our study examined the impact of various factors on the variance between economic and budgetary results in EU agencies’ financial reporting. While previous research suggested a decreasing correlation between accrual and budgetary results over time, we find no clear trend. Our study confirmed that as accrual accounting experience increases, conceptual differences between accrual and budgetary results become more pronounced. However, our study does not support the idea that reconciliation between accrual and budgetary results becomes more difficult with increased experience. Additionally, we find no evidence that the coexistence of accrual and cash-based systems hinders the implementation of the new accrual system, as the EU agencies received unqualified audit opinions on the reliability of their accounts right from the start. We conclude that differences in institutional conditions and pressures between Italian municipalities and European institutions led to the differences in the findings of this study and existing literature.