Transforming Public Sector Financial Reporting in Malaysia: Institutional Pressures and the Shift to Accrual Accounting

HRMARS - The transformation of public sector financial reporting has become a global priority as governments seek to enhance transparency, accountability, and fiscal governance. A key reform initiative involves the transition from traditional cash-based accounting to accrual-based accounting systems aligned with international standards. This study examines the transformation of public sector financial reporting in Malaysia by analysing the institutional pressures and challenges associated with the adoption of accrual-based accounting. Drawing on Institutional Theory and New Public Management (NPM), the study explores how coercive, mimetic, and normative pressures influence the adoption of accrual accounting reforms in the public sector. Using a conceptual research approach, this paper synthesises existing literature, theoretical perspectives, and policy documents to develop an integrated understanding of the factors affecting the implementation of accrual-based financial reporting. The analysis highlights several key barriers, including limited technical expertise, inadequate information systems, resistance to organisational change, and weak institutional readiness. Although the adoption of Malaysian Public Sector Accounting Standards (MPSAS), which are aligned with the International Public Sector Accounting Standards (IPSAS), represents a significant step toward improving financial transparency, the reform process remains gradual and uneven across government agencies. The study suggests that successful implementation of accrual-based financial reporting requires stronger institutional capacity, continuous professional training, improved digital infrastructure, and greater policy coordination among public sector institutions. By integrating institutional and governance perspectives, this research contributes to the growing literature on public sector accounting reforms in developing economies and provides insights for policymakers seeking to strengthen financial reporting systems and public accountability.