Accrual accounting does not necessarily mean accrual accounting : compliance with standards in Swedish municipal accounting

The regulation of Swedish municipal accounting has undergone fundamental changes over recent decades. Municipal accounting became regulated by law the 1st of January, 1998, after having been merely voluntarily regulated in the past. In accordance with the legislation, a standard-setting body was formed, with responsibility for development and interpretation of generally accepted accounting principles for municipal accounting. Important aims of the legislation and reform were to suppress ‘creative’ accounting and to increase the level of harmonisation and comparability. Using the lens of positive accounting theory as well as institutional theory, this paper describes and explains the impact of the legislation and standard setting in the Swedish municipal sector. We have used a triangulation approach, collecting data through a survey, documentary study and interviews. The overall results show that the reform has had a very limited impact on accounting practice. Compliance with accounting standards and legislation was in general poor. This result is in line with the assumptions of positive accounting theory. However, the study also shows that there are differences among the preparers. The supposition, suggested by institutional theory, that large municipalities should produce better accounting information (i.e. more in line with generally accepted accounting principles) than the municipalities in general, could not be rejected. Weak audit quality seems to be another important factor that explains the poor compliance with accounting standards