The introduction of accrual accounting and budgeting in the city state of Hamburg: A qualitative analysis of the reform process and its benefits

Abstract

In a multiple-step reform process, the city-state of Hamburg introduced a full accruals accounting and budgeting system. Based on a document analysis, this paper describes how the reforms were implemented, who the supporters were, and what the motivation behind their support was. It also analyses what benefits users of financial information have gained from the reforms by using responses resulting from semi-structured interviews. The authors find that the main actors were the state parliament and the state government, whose primary aim was to increase transparency about public resources and their consumption. These actors benefitted from the reforms because they now have information available that enables them to fulfil their respective roles within the budget process, and to achieve their political objectives. The authors conclude that under these conditions information use is encouraged and, thus, contribute to a better understanding of how reforms in public sector financial management succeed.

Full text

Tékhne – Review of Applied Management Studies
40
Research Article • DOI: 10.2478/tekhne-2019-0004 • Tékhne • Special Issue 2018 • 40-51
THE INTRODUCTION OF ACCRUAL ACCOUNTING
AND BUDGETING IN THE CITY STATE OF
HAMBURG: A QUALITATIVE ANALYSIS OF THE
REFORM PROCESS AND ITS BENEFITS
a Zeppelin University, Friedrichshafen, Germany
b Johannes Kepler University Linz, Linz, Austria
c arf GmbH, Nuremberg, Germany
Kristin Wagner-Krechlok*,a, Dennis Hilgersb, Helge C. Brixnerc
Abstract
In a multiple-step reform process, the city-state of Hamburg introduced a full accruals accounting and budgeting system. Based
on a document analysis, this paper describes how the reforms were implemented, who the supporters were, and what the
motivation behind their support was. It also analyses what bene ts users of  nancial information have gained from the reforms by
using responses resulting from semi-structured interviews. The authors  nd that the main actors were the state parliament and
the state government, whose primary aim was to increase transparency about public resources and their consumption. These
actors bene tted from the reforms because they now have information available that enables them to ful l their respective roles
within the budget process, and to achieve their political objectives. The authors conclude that under these conditions information
use is encouraged and, thus, contribute to a better understanding of how reforms in public sector  nancial management succeed.
Keywords
public sector accounting and budgeting • accrual accounting •  nancial information • information use • politi-
cians • public sector managers
1. Introduction
As part of an international movement towards a more ef cient,
effective, and responsive public administration, for which
Hood (1991, 1995) coined the term New Public Management
(NPM), accounting and budgeting systems have undergone
fundamental changes in the last few decades. In Germany,
NPM reforms were introduced under the label of the New
Steering Model (NSM) (Reichard, 2003; Wollmann, 2000).
Here as elsewhere, the reforms aimed at making additional
 nancial information available as the traditional cash-based,
or cameral system of accounting and budgeting (see Monsen,
2002, for a detailed description of cameral accounting) proved
inadequate to provide the information necessary for sound
 nancial management (Lueder, 1993). Due to its narrow
focus on cash receipts and disbursements, cash accounting
and budgeting further aggravated the  nancial situation of
many public entities as information on assets, debts, service
costs, and service performance were unavailable, making it
impossible to assess the overall  nancial situation of public
entities (Hilgers, 2011).
*Corresponding author: Kristin Wagner-Krechlok
E-mail: k.wagner@zeppelin-university.net
The proposed remedy to address the crisis in public sector
 nancial management was to introduce accrual accounting.
However, the adoption of an accounting model from the private
sector in the public sector provoked an intense debate (Lapsley,
Mussari, & Paulsson, 2009; Olson, Guthrie, & Humphrey, 1998;
Wynne, 2008), which also took place in Germany (Mühlenkamp,
2011; Thieme, 2008). In comparison with other countries,
Germany appears to be a late and, moreover, reluctant reformer
(Ridder, Bruns, & Spier, 2005). While the federal government
eventually abandoned a reform project aimed at modernising
its accounting system (Jones & Lueder, 2011), the federal
states carried out reforms to substitute accrual accounting – or
a modi ed version of cash accounting – for cash accounting
(Budäus, Behm, & Adam, 2003; Burth & Gnädinger, 2013). In
the majority of states, however, the reforms aimed at the local
level. Only four federal states introduced accrual accounting at
the state level and among these only the city state of Hamburg
adopted a full accrual accounting and budgeting system.
The aim of this paper is twofold:  rstly, based on a document
analysis it describes how accrual accounting and budgeting
was introduced in the city state of Hamburg, who the supporters
of reform were, and what the motivation behind their support
Received: 4 June 2018; Accepted: 20 October 2018
Open Access. © 2018 Kristin Wagner-Krechlok et al., published by Sciendo
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Kristin Wagner-Krechlok: The introduction of accrual accounting and budgeting in the city state of Hamburg
parliament and senior ofcials in the city state’s administration.
On the part of the rst group, the spokesperson on budgetary
policy from each of the six parties represented in parliament
was interviewed. As the spokesperson of one party was not
available for an interview, this party’s deputy representative
on the budget committee was interviewed instead. Among
the senior ofcials in the city state’s administration who
were questioned four serve as the budgetary ofcial of their
respective ministry, while two hold the position of head of
ofce in a ministry or a district ofce.
The interviewees were chosen based on their job
descriptions, which entail an active participation in budgetary
and nancial decision-making, the planning, execution and
control of the budget, and nancial resource management.
All of these tasks require an extensive use of accounting and
budgeting information. This applies to the spokespersons on
budgetary policy but not to members of parliament whose
focus is on other areas of policy-making since they use
nancial information selectively and only at the main stages
in the budget process (Duisenberg, 2016; Wagner, Quast,
Brixner, & Hilgers, 2017). As regards administrative ofcials,
budgetary ofcials can be counted as key users because
their responsibilities comprise, inter alia, the preparation of
documents concerning the nancial planning and the draft
budget for the respective government ministry, and the
execution of the latter. Furthermore, budgetary law requires
that they are to be involved in internal decision-making on
administrative measures that carry nancial implications.
Similarly, heads of ofces are also responsible for the planning
and execution of the budget, though not at the ministerial level
but at the level of public policy remits.
The interviews were conducted in July and August and in
November and December 2016 in the course of face-to-face
meetings, the duration of which ranged from 60 to 90 minutes.
Each interview was audiotaped and later transcribed. We
asked the interviewees to describe situations, in which
they use accounting and budgeting information from the
budget plan, the budgetary reports, and the budget account.
If necessary, we asked follow-up questions as to what
information they use in particular and whether they consider
it relevant, whether they need assistance in analysing and
interpreting the information, whether the frequency and the
timeliness of reporting is adequate, and what the effects of
the new accounting and budgeting system on the budgetary
powers of parliament are. The questions were pretested in
interviews with budgetary experts. Section 4 examines the
interviewees’ responses. We use qualitative content analysis
to determine whether the interviewees experience any of the
benets that the reforms were expected to deliver and why
certain benets have not been delivered (yet).
was. The second aim is to analyse what benets political
and administrative decision-makers have actually gained
from the reform by using responses resulting from semi-
structured interviews. Thus, the focus of our research is on
the users of nancial information because the objectives
of accounting and budgeting reforms revolve around them.
One of these objectives is that political representatives and
administrative ofcials use the information to improve their
decision-making, leading to a more efcient and effective
public administration and healthy public nances. Having
completed the reform process, in Hamburg it is possible to
evaluate decision-makers’ actual experiences with the new
accounting and budgeting system (Burth & Hilgers, 2014).
By drawing on these experiences this paper contributes to a
better understanding of how reforms in public sector nancial
management succeed.
The paper begins by describing the methods used in our
research. Section 3 then examines how the accounting and
budgeting reforms in Hamburg were carried out, who the
main actors were, and why they supported the reforms. The
paper’s second question about the benets of the reforms
for users of nancial information is answered in section 4
based on the statements from two groups of users: members
of the Hamburg state parliament and senior ofcials in the
city state’s administration. Finally, in its concluding section
the paper considers possible factors that inuence the use
of nancial information and, thus, the success of accounting
and budgeting reforms.
2. Research method
Due to the paper’s twofold aim, different research methods
were used. The description of the reform process in
Hamburg, its main actors, and the motivation behind their
support is based on an analysis of government statements
and parliamentary legislation during the years 2002 to 2013.
In addition, the paper uses responses resulting from semi-
structured interviews and hence follows the example of
other research on the introduction of accrual accounting in
the public sector (Christensen & Parker, 2010; Hyndman &
Connolly, 2011) and the benets of accounting and budgeting
reforms (Jagalla, Becker, & Weber, 2011). In order to
highlight the benets of accrual accounting and budgeting
in terms of the information provided, the interviews were
conducted with two groups of information users. They can be
expected to use accounting and budgeting information to be
able to full the responsibilities resulting from their respective
roles and positions within the politico-administrative system
of Hamburg. The two groups are members of the state
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Who and why
The main actors in the process of introducing accrual
accounting and budgeting in Hamburg were the state
parliament and the state government. The rst mentioned
actor introduced the legislative initiative (Buergerschaft der
FHH, 2002), following which the project Doppik was initiated.
This initiative was aimed at complementing the annual budget
account, in which actual cash receipts and disbursements
were accounted against the planned cash ows in the adopted
budget, with information that would help to assess whether
intergenerational equity was being ensured. The principle of
intergenerational equity holds that every generation should
consume only those resources that it is able to generate in
order not to burden future generations with debts (Robinson,
1998). Accordingly, members of parliament requested
better information on the distribution of public services and
the nancial burden associated with them among present
and future generations (Buergerschaft der FHH, 2002).
This information would enable parliament to examine the
long-term effects of political decisions and take appropriate
action (Buergerschaft der FHH, 2002). In view of the fact
that the cash-based accounting system would not be able
to provide the necessary information, the state government
was requested to devise a plan for the introduction of accrual
accounting.
Its response to the parliament’s initiative showed that
the state government was aware of the need of connecting
budgetary decisions more closely to desired political results
and increasing transparency regarding the consumption of
resources (Buergerschaft der FHH, 2003). Therefore, the
overall objective of the project Doppik was to enable decision-
making based on better information about public resources
(Buergerschaft der FHH, 2003). Further goals that were being
pursued were to:
―represent the total consumption of resources in a given
budget period;
―record and value all assets in the possession of the city
state and record depreciations on assets;
―focus on the output – that is the services provided by the
city state’s administration – and outcomes to dene criteria
by which to measure efciency and success;
―facilitate comparison of the quality and cost of public
services with other public and private providers and
improve the quality of international credit ratings;
― issue consolidated nancial statements that would
give a complete overview of the core administration, its
subsidiaries, and its interests in other entities;
―and, lastly, fully assess the cost of public services as well
as the nancial consequences of government actions
(Buergerschaft der FHH, 2003).
Considering the introduction of accrual accounting only as
a rst step, the state government sought to integrate the
3. Accounting and budgeting reforms in Hamburg
since 2002
How
The multiple-step process of accounting and budgeting reform
in Hamburg, began in 2003, when the state government
initiated the project Doppik (Buergerschaft der FHH, 2003) –
Doppik being the abbreviation for the German equivalent of
double-entry bookkeeping. The term Doppik also denotes an
integrated accounting and budgeting system on an accruals
basis. The accounting part was devised by Lueder (1993) in
the 1990s and involves three elements: an operations account,
or rather prot and loss statement, an account of assets and
liabilities, or rather balance sheet, and a cash ow account
or statement. Cost and activity accounting complements
these elements and is closely connected to the prot and
loss statement, the information from which is used for
internal costing and controlling and thus also for performance
management purposes. Lueder’s accounting model has since
been developed into an integrated system that also includes
the planning with three corresponding elements: an accrual
budget that records all planned income and expenses, a
budgeted balance sheet that shows estimates of balance
sheet items, and a cash budget that records all planned
cash inows and outows. In this integrated system, cost
and activity accounting provides the basis for an output- and
resource-oriented budgeting as depicted in the accrual budget
and links this budget to the prot and loss statement.
As the direct result of the project Doppik, the opening
balance sheet for the core administration on 1 January 2006
was published in the same year, while the consolidated
balance sheet on 31 December 2007 followed in 2008. In 2006,
when the introduction of accrual accounting was completed,
the state government initiated a second project NHH, which
stands for ‘new budget system Hamburg’ (Finanzbehoerde der
FHH, 2009). As its name indicates, the aim of the project was
to integrate the information from the new accounting system
in the budget process, starting from budgetary planning, to
budget control, and the budget’s execution. In 2010, however,
the reform process came to a halt due to a lack of acceptance
on the part of both political representatives and administrative
ofcials. Acceptance was to be regained with the help of a
legislative initiative by the state parliament, following which
the project SNH, which stands for ‘new strategic orientation
of the budget system’, was initiated in 2012. This project
aimed to enforce the requirements dened by parliament
by introducing a new budgetary act, which came into force
in 2013. The budgetary act stated that the budgeting system
established therein was rst to be applied in the budget year
2015.
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Kristin Wagner-Krechlok: The introduction of accrual accounting and budgeting in the city state of Hamburg
of government. Each of these 24 budgets corresponds to the
respective area of responsibility of a government minister or
the head of a district ofce and, again, contains an accrual
budget and a cash budget.
The budgets for public policy remits and the product groups
are part of the budgets for the constitutional and administrative
organs. There are more than 80 remits that follow the
organizational structure of the administration and correspond
to elds of public policy that fall under the responsibility of
the Hamburg government, such as police, transport and
roads, and universities. For each remit an accrual budget and
a cash budget are planned: the accrual budget records the
income generated and the expenses incurred by all services
provided by the remit, while the cash budget accounts for
the sum of all cash inows and outows from, or rather for
investments, loans, and administrative operations associated
with the remit. Thus, the budget provides information on both
the consumption of resources in a given budget period as well
as cash ows.
Lastly, the budget also contains information on the
services provided by the state administration. They are
grouped into nearly 300 product groups1, which are described
in terms of their revenue and cost, the political objectives they
are designed to achieve, and performance indicators, which
show the level of achievement of the objectives. The police,
for instance, consist of nine product groups among which are
criminal police, university police, constabulary, and waterway
police. The product groups are the level at which the Hamburg
state parliament approves the government’s draft budget. For
each product group an accrual budget is planned, in which
the income and the expenses are categorized according to
the specic purpose for which they are being generated, or
rather incurred, such as administrative operations, personnel,
transfer payments, and depreciation expense. The information
in the accrual budget is complemented with information on the
level of achievement of the political objectives that are being
pursued with the help of a product group.
Political objectives and performance indicators
As mentioned above, political objectives and performance
indicators constitute an essential part of the description
of administrative services in the budget. This description
serves two purposes: rstly, it makes the objectives pursued
by the government transparent and, secondly, it provides
an instrument to measure their achievement. The majority
of indicators that are currently in use measure the level of
service output. The denition and adaptation of indicators
1 As noted by Jones and Lueder (2011), “the use of the term ‘products’
has long been common in Germany […]. The closest translation in
English would be ‘programmes’. However, the preferred term in Ger-
many incorporates a stronger sense that government services can, in
essence, be taken to be the same as commercial services” (p. 267).
accruals data in the budget process. Thus, data on political
objectives, outputs, and outcomes as well as information on
depreciations on assets, provisions for retirement pensions
of public servants, and long-term funding commitments
would be included in the budget. The new budget system’s
orientation towards outputs and outcomes would help make
planning and control of administrative tasks more efcient
and devolve responsibility for the use of resources within
the administration (Finanzbehoerde der FHH, 2009). Lastly,
the budget system should help improve comparability and
transparency of public budgets nationally and internationally
(Finanzbehoerde der FHH, 2009).
In reaction to a notable lack of acceptance nearly ten
years into the reform process, the newly elected state
parliament introduced a second initiative in 2011, in which it
reafrmed its support for the introduction of a new budgeting
system in order to improve the transparency and information
content of the budget and thereby ensure intergenerational
equity (Buergerschaft der FHH, 2011). To achieve this goal,
however, the budget was to be structured more clearly to
provide parliament with sufcient information that would
enable it to full its role as the body legislating on the budget
(Buergerschaft der FHH, 2011). Therefore, appropriations
would have to be limited to an extent that would make it
necessary for the executive to inform parliament about
deviations from the amounts planned in the budget, while at
the same time making sure that it could be properly executed
by the administration (Buergerschaft der FHH, 2011).
Table 1 summarises the how, who and why of the reform
process in Hamburg. In order to organize the objectives that
each actor tried to achieve by supporting the reforms we
group them under categories as dened by Burth and Hilgers
(2014).
The new accounting and budgeting system in Hamburg
Budgetary structure
The new accounting and budgeting system in Hamburg
comprises a four-tier structure: an overall budget, budgets
for all constitutional and administrative organs, budgets for
public policy remits, and the product groups. The overall
budget gives an overview of the core administration, which
by denition comprises all units of the state’s administration
whose income and expenses are accounted for separately
in the budget (Bundesnanzministerium, 2016). It contains
an accrual budget and a cash budget that record all planned
income and expenses and cash inows and outows
respectively. The aggregate data in the overall budget
is collected from the budgets for 24 constitutional and
administrative organs, such as the Constitutional Court,
the Ministry of Health and Consumer Protection, and the
seven districts of Hamburg, which represent the local level
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parliament and is also publicly available and accessible online.
This external reporting system has four elements, the rst of
which is the budget plan, which contains planning information
on all four levels of the budgetary structure mentioned above.
The second and third elements of the reporting system are
the quarterly reports and the half yearly report. These reports
illustrate budgetary developments during the budget year in
differing levels of detail as shown in the table below.
The annual budget account and the consolidated account
comprise the fourth element of the reporting system. In the
annual budget account the actual income and expenses as
well as the actual cash inows and outows are accounted
against the planned amounts in the accrual and cash budgets
on all four levels of the budgetary structure. The annual
and their values is part of the biennial budgetary planning
process. During this process the indicators and their values
are discussed in the parliamentary committees and nally
decided upon by the state parliament. The budget shows the
indicator values for seven consecutive years to make long-
term developments visible. A table showing the cost and
revenue associated with providing the individual services of a
product group completes the section.
Reporting system
The following description of the reporting system, which is one
of the main elements of the new accounting and budgeting
system in Hamburg, applies to the external or parliamentary
reporting, which primarily addresses the members of the state
Table 1. Overview of the how, who and why of the reform process in Hamburg
Hamburg
How 2002-
2006
Introduction of accrual accounting, completed by the publication of the opening balance sheet for the core administration (2006)
and the consolidated balance sheet (2008)
2006-
2010
Integration of accruals data in the budget process (project NHH)
2011-
2015
New strategic orientation of the budget system (project SNH), established in a new budgetary act and rst applied in 2015
Who and why Hamburg state parliament
2002 Decision relevance (information quality)
Take appropriate action
Intergenerational equity and transparency (outputs/outcomes)
Ensure intergenerational equity
Make information on distribution of services and nancial burden among generations available
Examine long-term effects of political decisions
2011 Decision relevance (information quality)
Provide information that enables parliament to full its role as the body legislating on the budget
Transparency (outputs/outcomes)
Improve transparency and information content of the budget
Structure budget more clearly
Hamburg state government
2003 Decision relevance and performance comparison (information quality)
Enable decision-making based on better information about public resources
Facilitate comparison of quality and cost of public services with other providers
Improve quality of international credit ratings
Efciency and effectiveness, and transparency (outputs/outcomes)
Dene criteria to measure efciency and success
Represent total consumption of resources
Record and value all assets
Record depreciations on assets
Give overview of core administration, subsidiaries, and interests in other entities
Assess cost of public services
Assess nancial consequences of government actions
2009 Performance comparison (information quality)
Improve comparability and transparency of public budgets nationally and internationally
Resource planning and management (management quality)
Make planning and control of administrative tasks more efcient
Devolve responsibility for resource use within administration
Transparency (outputs/outcomes)
Present data on political objectives, outputs, and outcomes
Show provisions for retirement pensions of public servants
Show long-term funding commitments
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Kristin Wagner-Krechlok: The introduction of accrual accounting and budgeting in the city state of Hamburg
and budgeting. Such an increase would be directly reected
in the availability of information that supports parliament in
fullling its role, which is to approve the budget, control its
execution, and decide on granting the government discharge
based on its evaluation of the budget execution. Accordingly,
the members of parliament among the interviewees state that
they use the draft budget during the parliamentary debate
on the budget to decide whether to give their approval and
also to formulate budget proposals. During the budget year,
the approved budget is referred to when the government
proposes changes to appropriations, to control the outow
of resources and the development of indicator values, and
to address questions to the government. Asked to assess
the relevance of the information in the budget plan for these
situations, members of parliament consider the information
most relevant for their decision on approval of the budget
and least relevant for the control of resource outows and
indicator values. This latter evaluation is due to the difculty
of relating the spending of funds to the progress made in
achieving certain political objectives because many indicators
measure the achievement of objectives that do not affect the
amount of funds appropriated.
On the part of administrative ofcials, they use the
approved budget to plan a new budget, to check the
availability of nancial resources during the budget year, and
to ensure that appropriations are being used as intended.
budget account also consists of the core administration’s
nancial statements and the management report. Based on
the execution of the budget as documented in the annual
budget account and the consolidated account the state
parliament decides on granting the government discharge.
Table 2 shows the different reports and the type of budgetary
or accounting information2 they contain.
4. The benets of accounting and budgeting re-
forms for users of nancial information
Research results
Information quality
As shown by Burth and Hilgers (2014), increasing the
relevance of information for decision-making is a crucial rst
step towards fully reaping the benets of accrual accounting
2 In addition to budgetary planning, budgetary reporting, and budget-
ary accounting information, some of the reports also contain perfor-
mance information (see row no. 10). Financial accounting informa-
tion is also included in the annual report, which contains, inter alia,
the consolidated financial statements, and the management report
on the corporation Hamburg (Burth & Hilgers, 2014). As the annual
report does not contain information that primarily supports the budget
process and its participants in fulfilling their respective roles, it is not
considered here.
Table 2. Overview of reports and type of information contained
Type of information Budgetary
planning Budgetary reporting Budgetary/
nancial accounting
Content of reports Budget plan Report on
1st QTR
Report on
2nd QTR
Report on
3rd QTR
Report on
4th QTR Budget account
Accrual budget at overall budget level
(income and expenses) X X X X X X
Cash budget at overall budget level
(cash inows and outows) X X X X X X
Accrual budgets of constitutional and
administrative organs X X X X
Cash budgets of constitutional and
administrative organs X X X
Accrual budgets of public policy remits X X X
Cash budgets of public policy remits X X X
Accrual budgets of product groups X X X
Political objectives, performance indicators,
cost and revenue of services X X X
Investments of public policy remits X X X X
Loans of public policy remits X X X
Information on state owned enterprises,
special funds, and state universities X X X
Development of tax revenues and debts X X X X X
X denotes that the particular information is included in the report
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welfare services. As the provision of most of these services
is statutory, political and administrative decision-makers at
the state level cannot inuence the number of services and
can only minimally inuence the cost associated with their
provision. Consequently, the interviewees see a need for
adaptation of indicators, which should be more closely linked
to the amount of funds appropriated.
The interviewees also refer to benets regarding the
quality of management. One administrative ofcial highlights
the important role of budgetary ofcials in coordinating the
execution of the budget for a constitutional or administrative
organ. This internal coordination is necessary because
responsibility within the administration has been devolved in
order to connect the responsibility for the use of resources
more closely with the responsibility for the completion of
tasks. Thus, heads of ofces are usually responsible for the
execution of the budget at the level of public policy remits,
while at the ministerial level budgetary ofcials ensure that the
overall limits dened by budget appropriations are not being
violated.
In summary, the interviewees’ responses show that a
change of mindset has already occurred because the focus
of political and administrative decision-makers in Hamburg is
clearly on the output produced by the administration, which,
however, should be connected more closely to the nancial
input. Furthermore, the interviewees’ interest in developing the
instruments available to increase the relevance of information
for decision-making has the potential to improve management
capabilities, even though related benets such as a more
efcient planning and control of administrative tasks have not
been delivered yet.
Outputs/outcomes
According to the model developed by Burth and Hilgers
(2014), an increase in transparency and intergenerational
equity has the most important direct effect on the benets of
accrual accounting and budgeting. Although intergenerational
equity is also prominent among the reform objectives in
Hamburg, neither this term nor the related term of balanced
budget are being mentioned in the interviews. This, however,
is not to be mistaken for a lack of awareness of this central
principle3 among political and administrative decision-makers.
One of the spokespersons on budgetary policy, for instance,
emphasises the importance of reporting on the corporation
Hamburg in its entirety because the state’s interests in private
and public entities entail nancial risks that have a potential
3 As shown in the annual report of 2015, equity has been negative
for the seventh consecutive year, accumulating from 1 billion euros
in 2009 to almost 23 billion euros in 2015. While liabilities were being
reduced, though only slightly, assets decreased by more than 600
million euros between 2014 and 2015 alone as depreciation expense
exceeded the expense for investments.
Also, they use the budget as an instrument for communication
with parliament. The budget provides a point of reference for
discussions in the parliamentary committees as well as for
responses to parliamentary questions because it shows what
has been agreed in terms of what objectives are being pursued
and how they are to be achieved. Moreover, one interviewee
states that the budget provides a basis for comparison with
other departments within the state government, whereas
none of the interviewees mentions the benet of comparison
with private service providers or public administration in other
German federal states. The lack of comparability with other
public entities could be attributable to the heterogeneity of
public accounting and budgeting in Germany (Burth & Hilgers,
2014).
The administrative ofcials were also asked to assess the
relevance of the information in the budget for the situations
mentioned. From their perspective, the information is most
relevant for the planning of a new budget and least relevant
for checking the availability of resources. The latter result is
due to the administration’s need for a more detailed planning,
which is done at a level below what the parliament decides
on. This, however, does not lead to a signicant decrease in
the information’s relevance for administrative ofcials, who
on average consider the information in the budget as rather
relevant for their decision-making because the appropriations
granted therein limit the expenses for specic purposes.
Mindset changes and management quality
In order for the observed increase in the relevance of
information for decision-making to have a positive effect
on management capabilities, the focus on the output and
outcomes of administrative actions needs to be rmly xed in
the minds of decision-makers (Jagalla et al., 2011). Whether
this applies to members of the Hamburg state parliament
and senior ofcials in the city state’s administration can be
determined by assessing their use of the instrument of
performance indicators, which are used to measure the
achievement of political objectives. When asked to evaluate
the importance of performance indicators eleven interviewees
consider performance indicators to be important or rather
important, while one interviewee regards them as rather
unimportant.
The importance of performance indicators is higher for
members of parliament than for administrative ofcials.
By way of explanation, members of the latter group of
interviewees refer to the administration’s focus, which is on
the amount of resources allocated and used for providing
specic services. This focus, however, is not necessarily
reected by the indicators in the budget, many of which
measure the achievement of political objectives that have no
effect on the amount of funds appropriated for specic policy
areas. This missing link becomes apparent when looking at
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Kristin Wagner-Krechlok: The introduction of accrual accounting and budgeting in the city state of Hamburg
information on the condition of infrastructure assets is
needed in order to determine whether funds appropriated
for infrastructure investments are sufcient. Therefore, the
information on cash outows for investments in the cash
budget should be complemented with information on the
assets, at which investments are aimed.
One interviewee among the members of parliament
mentions retirement provisions and credit liabilities in
connection with the benet of having an overview of the
core administration, its subsidiaries, and its interests in other
entities. This overview is provided in the annual report. The
interviewee’s statement underlines the importance of this
overview, which, however, should be complemented with
information on investments, personnel, retirement provisions,
and credit liabilities outside the core administration because
these factors directly affect nancial planning within. The
same applies to nancial risks arising from subsidiaries
and interests in private and public entities, of which, two
interviewees argue, the management report as part of the
annual report does not take enough account.
A last objective of public accounting and budgeting
reforms in Hamburg with regard to transparency was to
improve the content of the budget by devising a clearer
structure. The statements of some interviewees suggest that
this benet has not been delivered yet. For instance, one
interviewee nds it difcult to differentiate between information
relevant for budgetary and nancial decision-making, and
information on developments that do not affect the amount of
appropriated funds. A second interviewee suggests omitting
detail information that is below the level at which parliament
approves the budget and controls its execution.
Table 3 summarises the benets that members of the state
parliament and administrative ofcials describe they have
gained from accounting and budgeting reforms in Hamburg.
It also compares these benets with the objectives pursued
in order to identify a gap between them and to assess the
success of the reforms from the perspective of the users of
budgeting and accounting information.
Discussion of results
Although the literature on the use of nancial and performance
information in the public sector is quite extensive as, for
instance, a special issue of Public Money & Management
(van Helden, Argento, Caperchione, & Caruana, 2016) and a
literature review by Kroll (2015) show, only a small number of
empirical research examines politicians’ use of performance
information (Askim, 2007; Bogt, 2004; Johnson & Talbot,
2007) or their use of nancial information (Giacomini, Sicilia,
& Steccolini, 2016; Guarini, 2016; Jorge, Jorge de Jesus, &
Nogueira, 2016). Furthermore, the small number of papers
dealing with the use of nancial information by politicians
paint a bleak picture. They nd that politicians manipulate
effect on the observance of laws limiting the amount of public
debts. Constitutional law requires the German federal states
to balance their budgets without resort to credits from the year
2020 onwards. In addition, the budgetary act of Hamburg
requires that the expenses recorded in the accrual budget –
including inter alia depreciation expense and provisions for
retirement pensions, which are not taken account of in the
legal provisions at federal level – are gradually covered by the
income. This incorporation of the principle of intergenerational
equity into state budgetary law amounts to a commitment on
the part of nancial decision-makers to maintain a balanced
budget and thereby ensure intergenerational equity.
Concerning the benet of efciency, it has already been
found that the interviewees do not experience this benet,
partly because efciency cannot be measured based on
the information available. This is expected to have only a
minimal effect on decision-makers’ overall perception of
benets of public accounting and budgeting reforms (Burth &
Hilgers, 2014). With regard to the benet of effectiveness, the
interviewees were asked to evaluate how well performance
indicators measure the achievement of objectives and
evaluate outcomes. Eight interviewees state that the indicators
are not fully able to measure the achievement of objectives
and evaluate outcomes, whereas two interviewees recognise
their ability to measure/evaluate and one interviewee states
that they are able to measure/evaluate accurately. The
interviewees name two factors that adversely affect the ability
of performance indicators to measure the achievement of
objectives and evaluate outcomes: rst, indicators are often
only loosely connected to the objectives whose achievement
they are supposed to measure. This is for instance the case
with political objectives that are dened too broadly in order
to nd appropriate indicators to measure their achievement
and illustrate their effect on administrative cost. Second,
the majority of indicators that are currently in use measure
achievement in terms of service output rather than in terms of
the impact of services. This is where administrative ofcials in
particular see a need for adaptation.
Many of the reform objectives in Hamburg relate to the
availability of additional information, which the cash-based
system of accounting and budgeting failed to supply. Examples
of this information are full cost of public services, assets and
depreciation, and long-term funding commitments, to all of
which the interviews contain repeated reference. From the
interviewees’ statements it becomes clear, however, that
members of parliament in particular are interested in the
relations between these items of information. For instance,
one interviewee mentions the relation between revenue and
cost of administrative services and the number of services
provided, while another interviewee criticises the reports
for not showing the information on investments in relation
to depreciation expense. As argued by two interviewees,
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Tékhne – Review of Applied Management Studies
In view of these different ndings, the obvious question to
ask is why; why have users of nancial information in Hamburg
benetted from accounting and budgeting reforms? Also,
what can be learned from the case of Hamburg for ensuring
the success of reform processes in other public entities? To
begin with, the quality of nancial information as well as its
relevance for decision-making seem to be highly instrumental
in encouraging its use. This is supported by Hyndman (2016),
who states that “[t]he needs (and abilities) of politicians (and
other day-to-day users of information) ought to be central in
[accounting] system design decisions” (p. 478). Therefore,
the goal of accounting and budgeting reforms should be to
increase information relevance. For political and administrative
decision-makers, nancial information is relevant if it enables
or purposely misinterpret nancial information to discredit
their opponents (Guarini, 2016) or use nancial information
selectively to cater for the public’s interests, while at the
same time neglecting their constitutional duties with respect
to budgetary decision-making (Duisenberg, 2016). Still others
conclude that politicians do not use nancial information from
accrual accounting systems simply because it is too complex
and difcult to understand (Hyndman & Connolly, 2011). Our
case study of Hamburg, on the other hand, offers an alternative
perspective: we nd that politicians and administrative
ofcials do use nancial information because it is relevant and
helpful in producing desired political results and increasing
transparency about the state of public nances.
Table 3. Overview of benets for members of parliament and administrative ofcials in comparison to reform objectives
Reform objectives Benets
Decision relevance (information quality)
Provide information that enables parliament to full its role as the body legis-
lating on the budget
The information in the budget is used throughout the budget process and is
regarded as relevant
Performance comparison (information quality)
Facilitate comparison of quality and cost of public services with other provid-
ers
The information in the budget provides a basis for comparison with other
departments but not with private or other public service providers
Resource planning and management (management quality)
Make planning and control of administrative tasks more efcient The information in the budget does not allow to assess the efciency of the
administration
Devolve responsibility for resource use within the administration Responsibility within the administration has been devolved to connect the
responsibility for the use of resources more closely with the responsibility for
the completion of tasks
Intergenerational equity (outputs/outcomes)
Ensure intergenerational equity Not mentioned in the interviews but was incorporated into state budgetary
law on legislators’ initiative
Efciency and effectiveness (outputs/outcomes)
Dene criteria to measure efciency and success Efciency cannot be measured based on the information available
Indicators currently measure achievement in terms of service output rather
than in terms of the impact of services
Transparency (outputs/outcomes)
Examine long-term effects of political decisions Not mentioned in the interviews, but the budget shows the indicator values
for seven consecutive years, making long-term developments visible
Improve transparency and information content of the budget, and structure it
more clearly
Only partly delivered: the overall structure of the reports could be improved
Represent total consumption of resources, and assess cost of public services Repeatedly mentioned in the interviews
Record and value all assets, and record depreciations on assets Repeatedly mentioned in interviews
Information on investments should be complemented with information on the
assets, at which investments are aimed
Give overview of core administration, subsidiaries, and interests in other
entities
Provided in the annual report, should be complemented with information on
investments, personnel, retirement provisions, and credit liabilities outside the
core administration
Present data on political objectives, outputs, and outcomes In the budget, administrative services are described in terms of the political
objectives they are designed to achieve, and performance indicators, show-
ing the level of achievement of the objectives
Show provisions for retirement pensions of public servants and long-term
funding commitments Repeatedly mentioned in the interviews
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Kristin Wagner-Krechlok: The introduction of accrual accounting and budgeting in the city state of Hamburg
and analysing nancial information. Instead of employing
information brokers, Reichard (2016) considers the possibility
of training politicians to help to improve their understanding of
nancial information. Although theory suggests that being a
member of a parliament with support services already in place
or being a member of the parliamentary budget committee
act as incentives to accept training offers, participation is
shown to have been low in the past (Reichard, 2016). In our
interviews, members of the Hamburg state parliament also
deliberate about establishing an institution that would provide
services in connection with budgetary and nancial matters.
They consider either a central budget ofce or specially
trained staff in the parliamentary groups suitable.
Regardless of whether politicians acquire a better
understanding of nancial information through training or
with the help of information brokers, the case of Hamburg
demonstrates that it also helps them recognize the links
between the core administration, its subsidiaries, and interests
in public and private entities and the inuence of the latter
two on the nancial situation of a public entity. Therefore,
reports should show the nancial implications of all activities
undertaken by government ministries, government agencies,
and state-owned enterprises. The introduction of harmonized
accounting standards for the European public sector has the
potential to help make these reports more understandable as
the nancial information contained in them will be generated
based on the same standards. This is also a necessary
condition for applying performance indicators across different
public entities to assess and manage the nancial risks arising
from them.
5. Conclusion
This conclusion begins by identifying the limitations of our
research in order to show what this paper can contribute
to a better understanding of how reforms in public sector
nancial management succeed and what it cannot contribute.
To begin with, the ndings presented in this paper are based
on a single-case study. As this type of study is criticised for
“offer[ing] a poor basis for generalizing” (Yin, 2009, p. 129),
its ndings are to be interpreted with caution: they do not
describe the benets of reforms in public accounting and
budgeting in general, but particularly of the introduction of
accrual accounting and budgeting as experienced by two
groups of users of accounting and budgeting information in
the city state of Hamburg.
The small number of interviewees imposes a further
limitation on the interpretability of our ndings. First, we
deliberately excluded the majority of users of nancial
information from our analysis. In addition to parliamentary
representatives and administrative ofcials, users of public
them to full their respective roles within the budget process.
Information that does not serve this particular function should
not be included in the budget and the associated reports but
made available through annual reports or online platforms
as, for instance, the OpenBudgets platform. Both of these
instruments are not essential for performing constitutional
duties such as planning the budget, formulating budget
proposals, approving the budget, executing the budget,
controlling its execution, and, nally, holding the executors
accountable. These channels may also prove to be effective
in providing information for other user groups, who are
interested in the use of public resources and the objectives
and outcomes of government actions but do not have the
time or ability to delve into the details. Popular reporting is
one possible approach to meet the needs of this type of users
(Cohen & Karatzimas, 2015).
In addition to reducing reports to their essential content,
the tools used therein should also be developed further.
One of these tools are performance indicators that measure
the achievement of political objectives and outcomes of
government actions, serving as an instrument of information
for both members of parliament and the general public. While
the rst-mentioned group of users uses this instrument to
control the execution of the budget by the administration, the
latter mentioned group can track the government’s progress
in achieving its objectives and, thus, in executing the
electorate’s democratic will. As our interviewees in Hamburg
suggest, for these purposes it is necessary rst to dene
political objectives more narrowly and choose indicators
more carefully, and second to only include indicators that
affect the amount of funds appropriated. Also, continuity
should be maintained to allow developments and progress to
be tracked over time.
Another possible way to encourage information use
by politicians is to offer them assistance in analysing and
interpreting the information supplied by the accounting and
budgeting system. For instance, Jorge et al. (2016) discuss
the role of information brokers, who serve the information
needs of specic addressees by “generating, interpreting,
organizing or communicating information” (p. 516) in a way
that it becomes more understandable and, hence, useful and
usable. Although the authors do not offer any insight as to
whether the work of information brokers actually increases
the use of nancial information by politicians4, they make
the important observation that these actors can full their
functions in varying degrees of neutrality, making it necessary
to carefully dene their role within the process of generating
4 Duisenberg’s (2016) research on information use by members of
the Dutch parliament suggests that even if information brokers such
as the Central Planning Bureau or the Netherlands Court of Audit
complement and validate financial information, on their own they do
not contribute to an increased use of information.
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Tékhne – Review of Applied Management Studies
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