ICAS's research report, NHS resource accounting in Wales: problems of implementation, provides a novel insight into the consequences of moving from cash to accruals accounting in the public sector.

National Health Service trusts have used accruals accounting (capital charges) since 1991 and, although they do not report in resource accounting and budgeting format, their superior tiers of management are required to, which influences the way in which trusts are managed. The research investigates the claimed benefits and potential problems that have been identified for the accruals aspect of the resource accounting and budgeting reforms. Data from all NHS trusts in Wales revealed that the consequences of accruals accounting, as reflected by capital charges, had not diffused into management accounting practices.

Accounting information about fixed assets was used to compile reports required by central government, such as the annual accounts, but the managerial utility of this aggregated data was questionable.

The capital charges from the ownership of fixed assets were not devolved to the managers responsible for employing the assets, leaving them as 'free goods' at the point of use. Diffusion had not taken place to any extent and only a minority of trusts thought that budgetary control over assets had improved.

The reforms were negatively perceived and had not been assimilated into the culture of the organisation. Evidence of a loose-coupled organisation was found, with numerous information sources used to make asset acquisition and disposal decisions. Limited use was made of capital accounting information in external reports.

The internal effects, however, were negative. Capital charges were seen as another hindrance in the approval process for projects. The study suggests that for the claimed benefits to materialise, the loose-coupled system needs revision. The development of a single integrated asset management system needs to encompass both financial and physical facets. This would enable the integration of the management of assets over all those functional units that are responsible for different aspects of using these assets.

Further diffusion could then take place within each trust to devolve information and locate charges alongside responsibility for asset management. However, this may create tensions because central control is required to deliver overall strategy, while devolved responsibility is necessary for strategy implementation.

Howard Mellett, professor of accounting at Cardiff Business School & Neil Marriott, professor of accounting at Glamorgan Business School