Financial Sustainability of Public Sector Entities

Abstract

This chapter analyses the pitfalls and opportunities of accrual and cost accounting when playing a role in fostering universities’ financial sustainability. Some aspects of the Italian context are analysed in more depth, although accrual accounting and budgeting, as well as cost accounting systems, have spread in higher education institutions of many countries. Both practices aim to improve universities’ ability to cover their full costs, thus supporting transparency and financial sustainability. Despite the expected advantages of accrual accounting, empirical evidence is still lacking. In fact, in some countries, the reform of accounting systems in higher education has had no effect. This chapter investigates possible causes of this discrepancy. After having displayed the role of accrual accounting in supporting universities’ financial sustainability, some obstacles are evidenced that reduce the transparency or usefulness of accounting information and weaken its ability to support financial sustainability. Some issues suggest caution in the interpretation of universities’ financial performance; in particular, doubts arise on the accounting treatment of transfers from the government that are still the main source of universities’ revenues in most countries. This chapter shows that organisational issues may also deprive accrual accounting of its ability to provide reliable, transparent and complete information. Moreover, the adoption of cost accounting practices involves the risks of remaining symbolic or ceremonial—functional only to the appearance of an organisation’s rationality and efficiency—unless corrective factors are introduced.