Effects of leadership and accounting capacity on accountability through the quality of financial reporting by public organisations in Vietnam

Published date08 February 2021
Date08 February 2021
Subject MatterStrategy,International business
AuthorYen Thi Tran,Nguyen Phong Nguyen,Trang Cam Hoang
Effects of leadership and accounting
capacity on accountability through
the quality of f‌inancial reporting by
public organisations in Vietnam
Yen Thi Tran, Nguyen Phong Nguyen and Trang Cam Hoang
Purpose By drawing on the institutional theory and contingencytheory, this study aims to examine the
effects of leadership and accountingcapacity on the quality of financial reporting and accountability of
public organisationsin Vietnam. Furthermore, this paper is to determine the impactof financial reporting
qualityon accountability.
Design/methodology/approach The research model and hypotheses have been tested by partial least
squares structural equation modeling, with 177 survey samples obtained from accountants and managers
working in the public sector in Vietnam.
Findings The research resultsindicate that leadership and accountingcapacity have a positive effect
on financialreporting quality; leadership and accountingcapacity positively influenceaccountability; and
the qualityof financial reporting has a positiveimpact on accountability.
Research limitations/implications The research results provide empirical evidence of the direct
impact of leadership and accountingcapacity on financial reporting quality and accountability of public
organisations in a developingcountry. Moreover, the current work also provides importantevidence for
the impactof financial reporting quality on accountability.
Practical implications Public sector organisations must realise that leadership and accounting
capacity play a vital role in the accounting reform process. Public institutions likewise need to pay
attention to develop accountingcapacity and promote leadership. Moreover, the resultsrespond to the
continuingcall for increased citizen trust in public organisations.
Originality/value To the best of the authors’ knowledge,this study is the first to examine the chain from
leadership, accounting capacity, financial reporting quality and accountability in the context of public
sector organisationsin an Asian transition market.
Keywords Leadership, Public sector, Vietnam, Accountability, Financial reporting quality,
Accounting capacity
Paper type Research paper
1. Introduction
Public sector organisations play an essential role in every economy yet are often stereot yped
as operational inefficiencies (Antwi et al.,2008). Therefore, there have been calls to introduce
new practices to improve public sector performance towards better public service s (Nuhu
Nuraddeen and Appuhami, 2016). In recent decades, administrative reforms in countries
around the world have been implemented under the new public management (NPM)
framework to improve public sector performance (Rossi et al.,2019). NPM encourages public
entities to use resources effectively and efficiently and replaces the traditi onal bureaucratic
government model to implement many private sector practices (Hood , 1991).
Yen Thi Tran and
Nguyen Phong Nguyen are
based at the School of
Accounting, University of
Economics Ho Chi Minh
City, Ho Chi Minh City,
Trang Cam Hoang is based
at the Faculty of Finance
and Banking, Ton Duc
Thang University, Ho Chi
Minh City, Vietnam.
Received 24 February 2020
Revised 29 July 2020
3 October 2020
Accepted 2 November 2020
PAGE 484 jJOURNAL OF ASIA BUSINESS STUDIES jVOL. 15 NO. 3 2021, pp. 484-502, ©Emerald Publishing Limited, ISSN 1558-7894 DOI 10.1108/JABS-02-2020-0077
Furthermore, Sellami and Gafsi (2019) indicated that the pressures arising from market
globalisation and openness to foreign trade had prompted countries to apply best
accounting practices as international public sector accounting standards (IPSAS) or the
accrual basis of accounting. Following this trend, Vietnam has changed the accounting
regimes of various types of public organisations to suit better IPSAS and the specific
conditions of Vietnam’s political structure. Specifically, Vietnam is one of the developing
countries in Asia that is also in the process of applying the accrual basis of accounting to
the public sector, with the desire to improve the quality of accounting information, enhance
the transparency of financialinformation, enhance accountability and limit corruption.
Recent empirical evidence indicates that the implementatio n of accountability in many
developing countries has not yet reached the general standard and mainl y focusses on
compliance with prevailing regulations (Said et al.,2015;Keerasuntonpong et al., 2019). A
typical scenario is that many Asian countries are seeking to promo te accountability as part of
public sector reform. However, their situation is still we ak compared with developed countries,
as most developing Asian countries are still struggling with pol itical and socioeconomic
weaknesses (Kim, 2009). Like other emerging countries, Vietnam has many existing pr oblems,
such as low institutional capacity, lack of public transpare ncy and high levels of corruption
(Nguyen et al., 2015;Pham et al.,2015;Tran, 2014). Furthermore, unlike other regional
countries in Association of Southeast Asian Nations, Vietnam is striving to become a socialist-
oriented market economy (Doan and Nguyen, 2013). Thus, the tr ansparency of financial
information and accountability are crucial for various stakeh olders in Vietnam. Steccolini (2004)
found that financial reporting is a form of transparency to support account ability requirements
for public resource management activities for the government. Furthe r, Eivani et al. (2012)
determined that financial reporting is the output of accounting systems and is beneficial for
providing information to user groups when making financial d ecisions. Therefore, Van Helden
and Ouda (2016) found that public organisations in emerging economies a re increasingly
starting to use accounting tools for decision-making, contr ol and evaluation of accountability in
response to pressures from international donor organisations.
However, many researchers are interested in whether the information provided by public
organisations to users has the quality assurance to render it sufficiently accountable (Coy
and Dixon, 2004;Coy et al., 2001). The researchresults of Tooley et al. (2012) indicated that
many items in accounting reports had been identified as necessary for information
disclosure. Nevertheless, local authorities in Malaysia do not adequately disclose this
information, have not implemented proper public accountability and lack transparency.
Therefore, the financial reporting of public entities must meet quality requirements (Cohen
and Karatzimas, 2017). Thus, at present, many countries around the world have applied
IPSAS or the accrual basis to improve financial reporting quality (Sellami and Gafsi, 2019).
However, recent studies found that issues regarding leadership and accounting capacity
are among the barriers to the application of accrual accounting in developing countries
(Mbelwa et al.,2019;Nakmahachalasint and Narktabtee, 2019). Recently, Vietnam has
implemented many crucial public financial reforms in particular, the issue of new
accounting regimes on a full accrual basis. Therefore, leadership and accounting capacity
are of paramount importance for the public financial reforms to succeed in the
enhancement of both financial reporting quality and accountability in Vietnamese public
organisations. Therefore, this study was undertaken with three aims: first, to examine the
effects of leadership and accounting capacity on the quality of financial reporting in public
organisations in Vietnam after applying a full accrual basis; second, to evaluate the impact
of leadership and accounting capacityon accountability of public organisations in Vietnam;
and third, to examine the direct effect of financial reporting quality on the accountability of
public entities.
This study is significant because it provides additional empirical evidence to confirm the
impact of accounting capacity and leadership on the quality of financ ial reporting and

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