None of the literature on moving to accrual accounting appears to note the experience in the British war ministry in the early 1920s. The accrual basis of accounting was introduced, but this reform was reversed a few years later as the benefits were seen as being less than the significant costs.
During the First World War numerous accountants were recruited from the private sector into war related departments. Some of these accountants were critical of the differences between public and private sector accounting. As a result, in 1918, parliament was recommended to adopt the basis of income and expenditure (accrual basis) for both annual estimates and the accounts of individual departments. These changes were only actually adopted by the War Office from 1st April 1919.[i] “However, the already existing cash accounts… were continued pending further experience.”[ii] The advocates of the new scheme hoped that the new accounts “would show the Unit Commanders the money cost of achieving efficiency in their units” and, with de-centralisation, these Commanders would be encouraged to “attain economic control of the units under their command.”[iii]
Accrual based financial statements were actually produced for six years. But in 1925, the Army Council, with the support of the parliamentary Public Accounts Committee, decided that this approach required additional costs of at least £200,000 a year (and twice that amount for the first year), but that “the experiment had not led to commensurate economies in administration and seemed unlikely ever to do so”[iv]. So the experiment was terminated and the accrual based accounts were no longer produced.
In 1950 a Parliamentary Committee also carefully reviewed the evidence for the general adoption of accrual accounting and decided that:
“We agree with the principle that the main Exchequer Accounts and the framework of both Estimates and Appropriation Accounts must remain on a cash basis.”[v]
This Committee also concluded that the adoption of the accrual basis would:
“necessitate the valuation of all existing assets and an estimate of the probable remaining useful life of each – a gigantic task requiring the listing of figures many of which could be no more than guess work.”[vi]
[i] HMSO (1950) Final Report of the Committee on the Form of Government Accounts, London: HMSO: page 69, paragraph 2
[ii] Op cit: page 70, paragraph 2
[iii] Op cit: page 70, paragraph 2
[iv] Op cit: page 70, paragraph 5
[v] Op cit: page 13, paragraph 26
[vi] Op cit: page 20, paragraph 46.