International Journal of Business Management (IJBM) Volume 2 Issue 2 2017

Issues and Strategies of Accrual Accounting Implementation in Malaysia:

A Comparative Study between Federal Government and State
Governments
Noor Kaziemah Sariman*, Rozaidy Mahadi, Rasid Mail, Raman Noordin
Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, Malaysia

Keyword ABSTRACT
Accrual accounting
Malaysia’s New Economic Model (NEM) has been the centre of
Public sector accounting
national financial transformation programs which serves as a
Comparative study
framework for achieving Malaysia’s aspiration to be a
Malaysia
developed nation by 2020. In line with this matter, the adoption
of accrual accounting is suggested that could help propel
Malaysia to achieve its financial transformation plan. The
difference in political and governance structure between federal
and state governments in Malaysia leads to different strategies
being employed in implementing accrual accounting. Therefore,
the study seeks to compare the implementations of accrual
accounting in Malaysian federal and state governments by
highlighting the strategies employed to tackle the issues and
challenges in the implementation. The study adopts a qualitative
approach to investigate the research issues through interviews
and documents review. Findings showed that the
implementations of accrual accounting among different
governments in Malaysia do not have a huge difference. Federal
and state governments face similar issues and challenges and
similar strategies are used to tackle the issues and challenges.
However, a distinction exists in the strategy of deciding accrual
accounting system among federal and state governments. Thus,
this study offers a comparative experience of different levels of
government in Malaysia in implementing accrual accounting.

*Corresponding Author. Email address: kaziemahsariman@gmail.com

1. INTRODUCTION
Malaysia’s New Economic Model (NEM) has been the centre of national financial transformation
programs which serves as a framework for achieving Malaysia’s aspiration to be a developed nation by
2020 (National Economic Advisory Council, 2010). In line with this matter, the adoption of accrual
accounting is suggested that could help propel Malaysia to achieve its financial transformation plan.
Malaysia has enjoyed rapid economic growth with a gross domestic product growth rate of 5.8% in the
second quarter of 2017, maintaining its uptrend momentum since the second quarter of 2016
(Department of Statistics Malaysia, 2017). Thus, the adoption of accrual accounting as one of the
measures in Public Finance Reform Initiative is suggested to help Malaysia in having a more prudent
fiscal management, increased accountability and transparency of the government (Pasukan Pelaksanaan
Perakaunan Akruan [PPPA], 2013) and is believed would help to place Malaysia at par with other
developed nations.
 Earlier attempts were made to implement accrual accounting in Malaysian public sector but the
effort later found failure due to lack of top management support. The adoption was then made possible
after the Prime Minister of Malaysia announced and called for the federal government to adopt accrual
accounting by 1 January 2015 and followed by state governments a year later (Gomes, 2013). However,
this has not been achieved following of an introduction of a revised strategy called “Dry Run” due to
several reasons. Firstly, the relevant Acts involved in the reform such as Financial Procedure Act are
yet to be amended (PPPA, 2015). Secondly, the readiness of the ministries is not at the same level which
concerns the top management, further led to the postponement of accrual accounting adoption (ibid).
Moreover, the most significant reason is the development of accrual accounting system that will be used
by the federal government, “1Government Financial Management Accounting System (1GFMAS)” has
not been fully completed as of the intended date of implementation (Prime Minister’s Office, 2015).
As experienced by Malaysia, the implementation of accrual accounting system is neither
straightforward nor easy. There are many issues and challenges in implementing accrual accounting
which must be carefully addressed to ensure a successful outcome. The element of strategy employed
by the responsible agencies in preparing Malaysia’s federal and state government agencies towards the
implementation of accrual accounting plays a crucial role in determining the process and outcome of
the implementation of accrual accounting in Malaysian governments. Without those elements, the effort
could be another costly failure, not only in the form of an unachievable target but the resources being
spent to put the accrual system in place. Thus, this research attempts to examine and compare the
motivation of the reform, issues, and challenges in implementing accrual accounting as well as
strategies undertaken by both federal and state governments in implementing accrual accounting.

2. PUBLIC SECTOR IN MALAYSIA

The Malaysian public sector consists of three tiers of government: federal, state and local
governments (Mail, 2010). Each level of government has various departments and agencies which run
the activities of and provide services for the government. The federal and state governments are separate
entities and they have their own legislative and executive branches. The federal government is
responsible for controlling external affairs, defence, internal security, civil and criminal law,
citizenship, finance, commerce and industry, education, health, and labour. The Cabinet is led by the
Prime Minister and it is the highest coordinating executive body of all government activities and
interest, accountable to the Parliament. Under federal government, a number of ministries, departments,
and agencies are established which include statutory bodies, public enterprises, and corporations.
Statutory bodies are established by the federal and state laws and are responsible for carrying out
government tasks while public enterprises undertake commercial activities and the government holds
50 percent of the equity (Saleh, 2002).
 At the state level, the Executive Council led by a Chief Minister is the highest coordinating body
responsible for handling state matters. The Executive Council is accountable to the Legislative
Assembly and will be assisted by the state secretariat and other state government departments for state’s
administration. Each of the states has their own constitution which must be compatible with the Federal
Constitution, the supreme law in Malaysia. Similar to the federal government’s structure, there are a
number of departments and agencies including statutory bodies, public enterprises, and corporations in
each of the state government. The number of departments and agencies varies among the states in
Malaysia and it depends on the individual state. Local governments or often called as local authorities
are established under the jurisdiction of state governments. There are two groups under local
governments: municipality for large towns and district council for small urban centres. The local
authorities are responsible for the environment, public amenities, public health and cleansing, and
development (Saleh, 2002).
The accounting and reporting practices between federal and state governments are similar because
the Financial Procedure Act 1957 applies to both of the entities. However, there are separate Acts that
are governing the accounting and reporting practices of the local governments, statutory bodies and
public enterprises such as Local Government Act 1976 and Statutory Bodies Act (accounts and Annual
Reports) 1980. The Accountant General’s Department (AGD) and the State Treasurers are respectively
responsible to publish the accounts for the federal and the state governments. The Federal Public
Accounts contains all financial transactions of Federal’s ministries, departments, and agencies and do
not include Federal statutory bodies and government-owned companies. The AGD is responsible to
prepare the Federal Public Accounts and carries a number of duties and responsibilities including
providing financial and accounting consultancy and advisory services to the relevant agencies,
regulating and enforcing accounting rules and regulations, formulating the Public Sector Accounting
Standards, managing the Pension Trust Fund and enforcing the Unclaimed Moneys Act 1965, and
managing accounting employees for government sector (Osman, 2001 as cited by Saleh, 2002).
AGD was established in 1946 under the Ministry of Finance and has grown to have 24 offices
throughout Malaysia as to provide efficient and effective service delivery. AGD is lead by the
Accountant General who is the principal accountant of the federal government, having the authority of
any issues related to accounting and accounts of both federal and state governments. On the contrary,
the State Treasurers of each state are responsible for the State Government Public Accounts. Some
differences exist in the format and contents between Federal and State Government Public Accounts,
but since both Public Accounts are prepared based on the same rules and requirements, the minimum
disclosure would be similar. Similarly, both Public Accounts would be audited by the Auditor General
of Malaysia.
3. ISSUES AND CHALLENGES OF IMPLEMENTING ACCRUAL ACCOUNTING IN THE
PUBLIC SECTOR
The adoption of accrual accounting has been a controversial subject and has been debated for years.
It is argued that the adoption of accrual accounting in the public sector is problematic, and the benefits
of accrual accounting are often emphasised (Lapsley, Mussari and Paulsson, 2009). However, accrual
accounting is more complex and difficult to understand than cash accounting. One of the most
significant issues and challenges often being discussed in the literature are the difficulties in valuing
and recognising of assets especially heritage and military assets (Marti, 2006; Basnan, Md. Salleh,
Ahmad, Mohd Harun and Upawi, 2015). Unlike the private sector, heritage, infrastructure, and military
assets exist in public sector. These assets are difficult to identify because the acquisition costs are
unknown (Saleh and Pendlebury, 2006; Lapsley et al., 2009), thereby making it harder to measure these
assets in financial terms (Chan, 2003). In addition, the absence of a proper record of the assets poses a
challenge as to provide accurate, relevant and detailed information about the government assets (Ouda,
2005). This, in turn, would make the identification, valuation and recognition process of the assets more
challenging.
In addition, the international experience of the adoption of accrual accounting in the public sector
has shown that political commitment is essential in creating the support environment for the adoption
to be taken seriously. The lack of political will would result in an impossible adoption of accrual
accounting in the public sector, especially when the government has no interest or prefers not to share
information with its public. This is evidenced in the experience of Indonesia who has had several
failures in the attempt to reform its public sector accounting due to lack of political support (Harun &
Robinson, 2010). The Indonesian government had no interest in good governance and was reluctant to
embrace accountability and transparency under Suharto’s administration (McLeod & Harun, 2014). In
contrast, the public sector accounting reforms in New Zealand and Australia were pledged through
election platform, showing that the accountability and efficiency aspects were taken seriously by the
politicians (Ellwood & Newberry, 2007; Christensen, 2002). Therefore, political commitment can be
considered as a very important factor as they are the primary decision makers who make the adoption
of accrual accounting in the public sector possible. It is connotated that Anglo-Saxon countries with
Western minister-style Parliaments are better equipped for reforms such as accrual accounting as
compared to less developed countries due to differences in delegation of power in these countries
(Newberry, 2015). As mentioned earlier, the Anglo-Saxon countries such as New Zealand and Australia
received political backing to instigate the reforms which is in contrast to Indonesia, whose accrual
accounting reform was failed due to lack of political support during Suharto’s era of administration
(Adhikari and Garseth-Nesbakk, 2016).
There is also a concern that the employees may not be fully equipped and skilled in dealing with
the reform especially the employees who do not have accounting knowledge. Furthermore, shortage of
qualified government accounting employees is especially significant in the developing countries (Saleh
and Pendlebury, 2006). The accounting employees have an important role in the reform and without
sufficient accounting knowledge, it will likely decelerate the implementation process (Azmi and
Mohamed, 2014). On another note, there are qualified and skilled accounting personnels from the
private sector who understand accrual accounting but they do not necessarily understand and have
adequate knowledge on the government’s practice of accounting and financial reporting (Ouda, 2005).
This is because the accounting education is usually focused on the commercial accounting, with less
emphasis on the government accounting and financial reporting. Therefore, the shortage of qualified
and skilled government accounting employees may be overcome through recruitment of private sector
employees who have experience of using accrual accounting. For instance, the use of sector neutral
standards in New Zealand and Australia allows the transfer of private sector staff and expertise to the
public sector, accelerating the reformation process (Christensen, 2002; Buhr, 2012). However, it is still
necessary for the staff to understand the process and policies of the government in which training of the
staff is essential in assisting them with the change (Gomes, 2013).
Another reason that caused failure towards accrual accounting implementation is associated with
accrual accounting system (Cohen et al., 2007). A successful adoption of accrual accounting requires
capable and adequate computerised accounting system which can manage more complex information
associated with accrual accounting such as depreciation accounts and accruals general ledgers which
do not exist in the traditional cash accounting system. Based on previous experience of other countries,
problems started to arise when they develop their own accounting systems or made significant changes
to an existing commercial system (Blondal, 2003). In addition to the high costs involved in developing
the system, failure to understand the implications of the new accrual-based system to the existing public
sector infrastructure can be catastrophic and implementation delay or changes in legislation may also
affect the new accounting system (Cohen et al., 2007). Therefore, opting for existing commercial
software may be easier and convenient, with some adjustments to be made to suit the government’s
internal processes.

4. RESEARCH METHOD
The objective of this study is to provide a comparison of the implementation of accrual accounting
in federal and state governments in Malaysia by highlighting the strategies taken by the elected
responsible agencies, as well as investigating the issues and challenges pertaining to the accrual
accounting implementation. The local governments, statutory bodies, and public enterprises are not
covered by this study because they are already using accrual accounting basis. The study utilises a
qualitative approach to investigate the research issues of the study that includes interviews and review
of internal documents, government reports or statements. The interviews were conducted from 2015 to
2016, involving chief accountants from several ministries as well as state treasurers and assistant state
treasurer from three state governments (Sabah, Selangor and Penang). The three state governments were
chosen as these states represent the largest six gross domestic product (GDP) contributors of Malaysia’s
GDP in 2015 (Department of Statistics Malaysia, 2016). The study focuses on the accounting employees
as they are the main actors who will carry out the reform. The research used semi-structured interviews
with English and Malay as the main mediums of communication. The interviews lasted about one to
two hours, which are recorded and then transcribed to enable thematic analysis to be done.

5. THE IMPLEMENTATION OF ACCRUAL ACCOUNTING IN MALAYSIAN PUBLIC

SECTORS
The research findings in Table 1 and 2 provides a comparison of few aspects between the federal
government and the state governments in implementing accrual accounting. Table 1 focused on aspects
such as follows: (1) applicable laws and regulations; (2) sources of finance of each government; (3)
accounting standards that will be used; (4) motivations to change; and (5) reaction to the change and
the delay. In addition, Table 2 focused on the issues and strategies during the implementation of accrual
accounting in Malaysian federal and state governments.
Based on Table 1, there are similarities and differences found between the implementation of
accrual accounting across different levels of governments in Malaysia. Firstly, the same laws and
regulations apply to both federal and state governments, with one distinction which every state
government is bound to comply with their own respective state enactments. Secondly, the revenues
collected by federal government consist of non-tax revenue, non-revenue receipts, and tax revenue
which includes both direct and indirect tax. Examples of federal’s revenue are dividends, domestic
borrowing and external borrowing. However, in Malaysia, the federal government is given the power
to collect direct tax. Therefore, it is important to note that there is an exception which the state
government is allowed to collect one direct tax which is quit rent. State’s revenues come from taxes on
land, assessment rates, licenses, rentals, federal government grants and borrowing from government
and/or financial institutions. Both federal and state governments will use MPSAS as the accrual
accounting standards, which has been adapted from IPSAS. Also, the presentation of financial
statements set by the AGD must be followed by all departments and agencies in Malaysian public
sectors.
The main motivation for the reform is the aspiration of Malaysia to become a developed nation as
outlined in the New Economic Model. The state governments see the reform as to standardise all
financial statements being produced, subsequently assist the Auditor’s General for auditing purposes.
Furthermore, the accrual financial statements allow understanding of the stakeholders for funding
purposes. These are explained in the following comments:
The idea of adopting accrual accounting is related to the New Economic Model (NEM) and
Government Transformation Program. I still remember I had attended the SRI Lab in Kelana
 Jaya. This is our Prime Minister’s planning. The implementation of accrual accounting is
one of the strategic planning under NEM since 2011.
(Chief Accountant of Ministry of Home Affairs)

For Sabah, our stance is to follow what federal government is doing. If we decide not to
follow federal’s stance, the presentation of the financial statements will not be standardised
with other states in Malaysia which could cause problems later on. As we know, National
Audit Department or other departments and ministries need to use our financial reports for
funding purposes. They would need clear and understandable financial reports to assist them
in analysing the reports later. Problems will arise if we do not follow the standards they are
using, making it difficult for them to understand our financial reports.
(Assistant State Treasurer of Sabah State Treasury Department)

We only have one auditor which is Auditor General for twelve state governments. If there is
no standardised reporting, the Auditor General would be confused.
(State Treasurer of Selangor State Treasury Department)

Initially, the decision to adopt accrual accounting received mix responses from the employees. The
AGD saw this as a golden opportunity for them to enhance their status and roles in the government from
being merely a scorekeeper to a business partner who will involve in decision-making process. This is
supported by the accountants at the ministries as mentioned below:
When we use accrual accounting, the reports produced are the true outcome from the heart
and mind of an accountant. The report is a product of an accountant, which cannot be
produced by other professions as it is not easy to be understood by other people. For instance,
when we are dealing with laws, we need a lawyer to interpret the laws because it is difficult
to understand it. Only lawyers can understand the laws and if we try to interpret it ourselves,
we may be wrong. Thus, we want accounting to be similar; only accountants can give advice
to the top management. Previously, we only provide them with information and they are the
responsible people who make the decision. Therefore, we want to be a business partner, who
works together with top management in making important decision for the organisation. Our
roles will be bigger as accountants would report on many things such as financial ratios.
This would further assist the top management in the decision-making process.
(Chief Accountant of Ministry of Agriculture and Agro-based Industry)

However, it was found that some of the respondents from state governments do not convince that
there is going to be a change in the role of the accountants. They believe that it would be difficult to
change the old practice, in which the accountants are focused on account management and reporting,
while financial management is under the responsibility of the top management. This is illustrated in the
following comment:
I think in terms of decision making, there might be some changes. But we have to understand
the process of decision-making in our government, it is made through centralisation. Usually,
the accounting basis would not matter and the decision-making process would still be the
same. Therefore, the role of the accountants would remain the same as before.
(State Treasurer of Selangor State Treasury Department)

Then again, the introduction of the revised strategy consequently led the implementation of accrual
accounting in Malaysia to be extended for several times. This was seen as a silver lining by the
employees, as it gives room for the accrual accounting system to be fully developed as well as it gives
more time to prepare the employees for the reform.

6. ISSUES AND STRATEGIES IN IMPLEMENTING ACCRUAL ACCOUNTING IN

MALAYSIA
The transition from cash accounting system to accrual accounting system is not a simple or an easy
process. The adoption of accrual accounting in public sector is indeed challenging, with many issues
and challenges arising in the implementation process. Thus, the responsible agencies must deal the
issues and challenges by employing appropriate strategies for ensuring a successful reform. The
findings showed that Malaysian federal and state governments experience almost similar issues and
challenges, but it is more substantial in the federal government as they are the first government to
implement accrual accounting before the state governments begin to do the same. Thus, the state
governments will follow the federal government’s lead.
An effective change management is required in dealing with the public sector financial
transformation carried out by the Malaysian governments. In order to successfully execute the
implementation of accrual accounting, special taskforce specialising in the implementation is
established. The Accrual Accounting Implementation Team (PPPA), a division under the AGD is the
main division responsible for developing and implementing accrual accounting. PPPA’s responsibilities
include setting public sector accrual accounting policies and standards, designing and developing public
sector accrual accounting system, planning and monitoring the implementation of public sector accrual
accounting, managing ICT infrastructure and technical requirements needed for the implementation, as
well as planning and conducting training programs for the implementation. Therefore, PPPA is also
responsible for setting the strategies used for the implementation. In addition, change ambassadors
consisting of higher management of AGD and the chief accountants from all ministries in federal
government are appointed to support and assist AGD for the implementation.
 On the other hand, the state treasury department of each state is responsible for the implementation
of accrual accounting at the state government. A committee responsible for the implementation is set
up at the state level. For instance, Sabah State Government has established a committee of accrual
accounting implementation who is responsible for the implementation of accrual accounting system in
Sabah. This committee has the duties to develop the accrual accounting system as well as identifying
the requirements needed for the implementation. Thus, PPPA and accrual accounting committee in each
of the states join forces for the implementation of accrual accounting at the state level. The initial
strategy undertaken by AGD was to make sure that all employees are aware of the reform, with
awareness program being conducted regularly to increase understanding and acceptance of the
employees (PPPA, 2013). The awareness programs do not only focus on the operational employees, but
it also includes the top management. Based on this strategy, the AGD has done a great job in ensuring
the employees and the stakeholders are aware of the implementation, covering both federal and state
level as supported by a state treasurer in the following comment:
AGD has done a great job in educating the stakeholders about accrual accounting. The idea
has been widely disseminated and people have known about it already. I think there is no
issue on that. AGD already executed their job nicely.
(State Treasurer of Selangor State Treasury Department)

However, the implementation of accrual accounting does not come without obstacles. So far, there
are few issues and challenges encountered during the implementation process. The issues and
challenges that are currently being faced by both federal and state governments are lack of proper
records for collecting opening balances for assets, recognition of assets, employees’ knowledge and
readiness, time constraint, as well as maintaining employees’ motivation to carry out the reform.
Additionally, the amendment of relevant Acts that have not been conducted affects both
implementations at the federal and state governments, further slowing down the reform. Thus, the AGD
has come up with a new strategy by revising the timeline of the implementation, as to give more time
to all parties to solve the issues and challenges by employing a different kind of strategies.
One major debate relating to implementing accrual accounting in public sector is the
implementation itself is problematic due to the distinct nature of objectives in decision making that exist
between public sector and private sector (Rowles, 2004). The distinct nature of public sector such as
the nature of government assets and activities are not comparable to what is usually being practiced in
the private sector. For instance, recognition of the assets and liabilities of public sector raise a huge
challenge for the employees. This is due to the lack of proper records of these assets since it was
expensed off under the previous cash accounting system, requiring a little need to maintain the cost
information related to these assets. Furthermore, assets recognition may not be as simple as recognising
assets in the private sector as evidenced in New Zealand’s and Australia’s experience. These developed
countries faced issues of valuation for items such as infrastructure and heritage assets because the
private sector standards are developed specifically for the private sector and do not deal with
governments or nonprofit organisations (Buhr, 2012; Basnan et al., 2015). The public sector assets do
not necessarily meet the definition of assets as compared to the assets that exist in private sector. In
addition, overlapping asset poses a challenge to the employees and is mentioned in the comment below:
The Public Works Department is the responsible department who governs the assets owned
by state government. They have all the information including information on overlapping
assets such as land is owned by the federal government while the building built on the land
is owned by the state government, and vice versa. Due to the overlapping ownership of the
two assets, it raises an issue and confusion on identifying the ownership of the building.
(Assistant State Treasurer of Sabah State Treasury Department)

Thus, this leads to the second strategy which is engagement of stakeholders. The stakeholders
include Ministry of Finance, Public Accounts Committee, National Audit Department, Valuation and
Property Services Department (JPPH) and etcetera. It is imperative to gain their support because the
existence of top management support can assist in reducing the resistance to change, as well as keeping
the motivation of the employees (Ouda, 2005). These stakeholders possess the power to influence the
speed of the reform depending on the benefits that they see in the reform (Ball et al., 2000) as well as
assisting in the implementation process such as valuation of the assets especially for those assets with
insufficient records. Thus, stakeholder engagement was done through various mediums such as
briefings, meetings, seminars, conference and training to get the buy-in from the stakeholders. This is
mentioned in the following comment:
There is an accrual accounting working committee meeting where all the chief accountants
will attend. The consultant, PricewaterhouseCoopers (PwC) and also our property advisor,
JPPH will join the meeting too. The JPPH is the advisor to the government relating to
property such as valuation of government property. Therefore, the meeting is the platform
for these professionals to assist us in the implementation process such as valuation and
recognition of the assets.
(Chief Accountant of Ministry of Agriculture and Agro-based Industry)

Another challenge that must be carefully addressed is the readiness and knowledge of the
employees to execute the implementation. It is noted that not all employees who involve in the
implementation came from accounting background. Thus, there is a concern that these non-accounting
employees may not be fully equipped and skilled in dealing with the reform because they play
significant role as the key persons who will key in the transactions in the new system later. The use of
sector neutral standards in New Zealand and Australia allows smoother transfer of accounting expertise
to the public sector through recruitment of private sector employees, giving them the advantage of
having skilled employees for the reform (Buhr, 2012). In contrast, Indonesia witnessed that lack of
experienced and skilled accounting staff had severely affected the adoption of accrual accounting in the
country (Harun and Robinson, 2010). Similar issue is seen in Malaysia and this concern is further
elaborated by the following comments:
In our ministry, there is only two accounting staff. This is a challenge because accounting is
very technical. Even the accountants may get confused as it has been very long since they
have to deal with accrual accounting. So how about the responsibility centres who do not
have accounting staff? This poses a big challenge. If they wrongly enter the transactions to
the system, it means garbage in and garbage out. The accounts would be wrong. Therefore,
the knowledge of the manpower on accounting poses a huge challenge.
(Chief Accountant of Ministry of Agriculture and Agro-based Industry)

Yes, we are aware that we may face few problems especially in human resource aspect,
regarding their understanding of accrual accounting. This is because the existing cash
accounting system is easier and clearer as compared to accrual accounting, for instance in
recognising expenses. We may face problem with the officers at the district offices because
these officers do not have educational background in accounting. Accrual accounting needs
an officer who understands accounting concepts. This would allow the officers to understand
the transactions that have occurred and correctly record it to the system.
(Assistant State Treasurer of Sabah State Treasury Department)

Thus, training programs for the employees are undeniably crucial to prepare them for the
implementation. Training includes the basic concepts of accrual accounting and training on the accrual
accounting system. The federal government of Malaysia has started conducting the training since 2014;
whereby it is estimated around 20,000 expert end users need to be trained. However, the federal
government has postponed the training of the system several times due to the problems faced in system
development. Consequently, the state governments have yet to start their training programs as they are
waiting for the federal government to kick-start the implementation of accrual accounting as explained
in the following comment:
We have yet to start the training as we are waiting for the federal government. If the federal
government implements accrual accounting in 2017, then we will start our training program
in the same year. The training program will consist of how to operate the new system and to
provide an understanding of the new system to the employees involved.
(Assistant State Treasurer of Sabah State Treasury Department)
 Another strategy that must be emphasised is the communication strategy. AGD has carried out a
number of communication strategies to ensure federal and state employees are well informed about the
change process. The communication strategy includes briefings, seminars, conference, workshops, and
townhall sessions. Printed documents are also used during the change process such as quarterly bulletins
(Fokus Akruan), pamphlets and posters. A website specifically for the accrual accounting
implementation and FAQ helpdesk are also established to help disseminate the latest information about
the implementation. Surveys are also conducted to get the feedback from the employees involved in the
change process. In addition, the state governments are also consistently following the ongoing
implementation process at federal level by engaging with several series of meetings and briefings with
the federal government.
Most importantly, the major issue that distinguishes the implementation of accrual accounting in
the federal and state governments is the system development. The federal government decided to use a
consultant to assist in developing the accrual accounting systems needed for the implementation. Thus,
Innovation Associates Consulting Sdn Bhd (iA Group) has been appointed to develop 1GFMAS for the
federal government. The system integrator appointed could not meet the deadline; due to the growing
complexity to develop 1GFMAS as Malaysian top management requires the system to have dual ledger
and dual reporting, which further led to the delay in implementing accrual accounting in the federal
government. It was also found that the system integrator is lacking in-depth knowledge and
understanding of government’s financial procedure, resulting in a less effective training whereby the
system integrator could not answer the questions asked by the trainees. This is explained in the comment
below:
The delay is caused by the new requirement of dual ledger. In accounting, all business
transactions involved with two lines; debit and credit. If we have dual ledger, it is going to
be doubled to 4 lines. So how many lines it will involve later if there are thousands of business
activities that the government involved in? The system integrator is getting confused due to
this matter. …This also requires many customisations to be made, which increases the costs.
Furthermore, the system integrator is an outsider who does not fully understand the
government structure. Firstly, they have to understand our structure…
(Chief Accountant of Ministry of Home Affairs)

In contrast, Theta Edge Berhad is the appointed system developer who is responsible for
developing 1SPEKS for the state governments. Theta Edge Berhad however, managed to successfully
complete 1SPEKS up to 93% at the end of 2016 (Theta Edge, 2016). Then again, it is notable to
highlight that 1SPEKS will only be used by state governments in Peninsular Malaysia. Sabah and
Sarawak particularly are using their own strategy to develop their own accrual accounting system. For
instance, Sabah is currently developing its own accrual accounting system which has already been 80%
completed when the research was conducted. The accrual accounting system developed by Sabah’s state
government maintains both cash and accrual ledgers, similar to 1GFMAS. The main reasons that render
Sabah’s state government to develop their own accrual accounting system are explained as follows:
We did not choose to use the accrual accounting system suggested by federal government
because we are well aware that we might face few problems if we use the system suggested
by federal government. For example, if we face problems in the system, we would have to
wait for six to a year time in order for the system to be fixed. However, if we use our own
system, we could just make a phone call to our Computer Service Department if any problem
occurs, and the problem would be solved very soon...
...In our opinion, if we could develop our own system using funds from the state government,
why should we use services from the consultant if we are confident that we can build and
develop the system ourselves? The existing cash accounting system has covered nearly 60-
70% of accrual accounting aspect, so our duty is to add and change around 30% of the system
to make it accrual-based system. In addition, our State Computer Services Department has
been involved in system development ever since the existing systems already. If we use
consultancy services, we will have to take into the account the provisions and costs required
to appoint a consultant. So why would we use consultancy services to develop the accrual
accounting system, when the consultant does not have the expertise on the existing system?
In order to improve a system, the person must understand how the current system operates.
(Assistant State Treasurer of Sabah State Treasury Department)

The cooperation between few departments in Sabah’s state government allows them to succeed in
reducing the cost of developing the system which is further elaborated by the following comment:
The system is developed by the state government itself. We have our State Computer Services
Department (JPKN) who is responsible for developing the system. In addition, we established
a committee consisting of our Ministry of Finance, National Audit Department, state
treasurer, and JPKN to collaborate in developing the system. We discuss among ourselves
about the requirements needed for the new system and then JPKN will use their expertise to
develop the system based on our discussions and requirements. We also managed to save
around RM 1 million in cost by developing our own system.
(Assistant State Treasurer of Sabah State Treasury Department)

Finally, the delay has led to the demotivation of the employees. AGD has urged the change
ambassadors such as the chief accountants to maintain the momentum of the employees to carry out the
reform. However, the respondents commented that they do not receive much support from AGD to keep
the momentum in place as mentioned below:
 When the implementation is set to be by 2015, we accepted it and the ministry focused on
data collection. The planning and strategy were already good at that time, but they have to
do few changes when there is a delay. After it was delayed, we at the ministry feel unsatisfied
because we do not received a proper guidance and support from the Accountant’s General
Department (AGD) to maintain the momentum. They (AGD) asked us to maintain the
momentum; however, they do not provide us with the guide on how to do it. Currently, the
meetings at AGD level are getting lesser. So during this period of delay, we have to search
for our own idea. We understand that AGD is worrying on the system development issue, but
we still need their moral support and they should at least give us some idea on how to
maintain the momentum.
(Chief Accountant of Ministry of Tourism and Culture)

7. CONCLUSION
In summary, the study has provided the adoption of accrual accounting from the perspective of
federal and state governments in Malaysia, with an emphasis on the issues and challenges faced during
the process, as well as strategies for the implementation. It can be concluded that the implementation
of accrual accounting among different levels of governments in Malaysia does not have a huge
difference. Majority of the issues and challenges are faced by federal and state governments, and similar
strategies are used to tackle the issues and challenges. However, there is a major distinction that lies in
the strategy used in deciding accrual accounting system to be used. The federal government appointed
a consultant to assist them in developing the accrual accounting needed for the reform while Sabah’s
state government took a distinct path by developing their own accrual accounting system using their
own expertise.
However, the successfulness of the accrual accounting reform in Malaysia has yet to be
determined. It is hoped that federal government of Malaysia would be able to implement accrual
accounting in the nearest time, which would be followed closely by the state governments. Thus, the
issues and challenges mentioned by the employees must be dealt carefully for ensuring a successful
outcome, as an effort to assist Malaysia in achieving its aspiration of becoming a developed nation.
Finally, the study provides fruitful insights to the body of knowledge by providing a comparative study
between different levels of governments, highlighting the experience of Malaysian federal and state
governments in implementing accrual accounting in their governments.

ACKNOWLEDGEMENTS
The authors acknowledge the financial support from the Universiti Malaysia Sabah’s SBK fund (0197-
SS-2015/The Implementation of Accrual Accounting System among Public Sector: Comparative Study
between Federal Level and Sabah’s State Level).
Table 1 Comparison of the implementation of accrual accounting in Malaysian federal and state governments (Selangor, Sabah and Penang)

Aspects Federal Government Selangor State Government Sabah State Government Penang State Government
Laws and  Treasury Instructions  Treasury Instructions  Treasury Instructions  Treasury Instructions
regulations  Financial Procedure Act 1957  Financial Procedure Act 1957  Financial Procedure Act 1957  Financial Procedure Act 1957
 Circulars and Treasury Circular Letters  Circulars and Treasury  Circulars and Treasury  Circulars and Treasury
Circular Letters Circular Letters Circular Letters
 State enactments  State enactments  State enactments
Sources of  Tax revenue (both direct and indirect)  Tax revenue including one  Tax revenue including one  Tax revenue including one
finance  Non-tax revenue direct tax (quit rent) direct tax (quit rent) direct tax (quit rent)
 Non-revenue receipts  Non-tax revenue  Non-tax revenue  Non-tax revenue
 Non-revenue receipts  Non-revenue receipts  Non-revenue receipts
Accounting  MPSAS  MPSAS  MPSAS  MPSAS
standards  Following financial presentation format as  Following financial  Following financial  Following financial
set by Accountant’s General Department presentation format as set by presentation format as set by presentation format as set by
Accountant’s General Accountant’s General Accountant’s General
Department Department Department
Motivations to  Aspiration to become a developed nation  Standardisation: to assist  Standardisation: to allow  Change of role: bookkeeper to
change  New Economic Model Auditor’s General understanding of the business partner
 Change of role: bookkeeper to business  Aspiration to become stakeholders and to assist
partner developed nation Auditor’s General
 New Economic Model  Change of role: Accountants
 Change of role: Difficult to are more focused on account
change the old practice management and reporting;
financial management is under
the power of state’s Ministry
of Finance
Reaction to the  Received support from Prime Minister,  Accepted the change  Accepted the change  Accepted the change
change and the which lead to support from other top  Sees the delay as a silver  Acknowledge the delay and
delay management lining (make room for system users are ready and waiting
 Accepted the change to be fully developed)
 Sees the delay as a silver lining (more time
to prepare the employees)
 Aspects Federal Government
Issues and  Amendments of relevant Acts
challenges  Readiness of the ministries
 Time constraint
 Data collection on assets – no proper records
 Recognition of assets
ISSUES
 Human resource capability – accounting
knowledge
 Complexity in system development
 Knowledge of the system vendor on public
sector
 Maintaining the motivation of the employees
Awareness  All departments are aware through briefings
Stakeholders  Briefings and awareness to the top
engagement management for support
 Engaged with Malaysian Institute of
Accountants through seminar and conference
 Briefing, meetings and training to the
stakeholders: Public Accounts Committee,
National Audit Department and Malaysian
Anti-Corruption Commission
Communication  Briefings and awareness programs
 Quarterly bulletins: Fokus Akruan
 Pamphlets and posters
STRATEGIES
 Conference, workshops, seminars, interactive
sessions and accounting courses
 Surveys on readiness, awareness and training
effectiveness
 Accrual accounting website/ FAQ Helpdesk
 Meetings and townhall sessions
Training  Started since 2014
 To train 1,000 trainers and 20,000 expert end
users
Consultants  System Integrator: Innovation Associates
Consulting Sdn Bhd
 Service Provider: PricewaterhouseCoopers
Accounting  eSPKB, e-Terimaan, and GFMAS to
system 1GFMAS
 1GFMAS maintains cash and accrual ledgers
 Delay in system development due to the new
requirement of dual ledger and dual reporting
Table 2 Overview of issues and strategies in the implementation of accrual accounting in Malaysian federal and state governments (Selangor, Sabah and Penang)
Selangor State Government
 Data collection on assets – no
proper records
 All departments are aware through
briefings
 Engaged with federal since the start
through frequent meetings
 Briefings and awareness programs
 Meetings with federal government
 Not yet conducted; expecting it to
start in mid-2016
 System Integrator: Theta Edge
Berhad
 SPEKS to 1SPEKS
 System development is 93%
completed
Sabah State Government
 Human resource capability –
accounting knowledge
 Recognition of assets
 Readiness of human resource
 All departments are aware through
briefings
 Engaged with federal since the start
through frequent meetings
 Established an accrual accounting
committee consisting State Ministry
of Finance, State Treasury
Department, Sabah State Computer
Services Department (JPKN) and
National Audit Department
 Series of meetings and briefings
with federal government
 Meeting once a month between
accrual accounting committee
 To commence after Federal
successfully kicks start accrual
accounting implementation
 System Integrator: Sabah State
Computer Services Department
(JPKN)
 SISVOT to S3P to an unnamed
accrual accounting system
 System development is 80%
completed
 The accrual accounting system
maintains cash and accrual ledgers
Penang State Government
 Data collection on assets – no
proper record
 Human resource capability –
accounting knowledge
No information found
 Received support from the top
management and investors
 Chief Minister is an accountant
and supports the reform
 Meetings related to accrual
accounting; 2 times a year with
State Treasurer as the chairperson
and 6 times a year with Treasurer
 Conducted by AG (headquarters
and state) and State Treasurer
 System Integrator: Theta Edge
Berhad
 SPEKS to 1SPEKS
 System development is 93%
completed
International Journal of Business Management (IJBM) Volume 2 Issue 2 2017

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