ADOPTION OF ACCRUAL ACCOUNTING IN THE BRAZILIAN PUBLIC SECTOR: A CASE STUDY IN LIGHT OF REGULATION THEORY

Objective: To identify existing gaps in the adoption of full accrual accounting in the public sector, with a focus on analyzing the financial statements of the Ministry of Defense (MD), and to investigate the application of accrual accounting in the public sector, considering its complex regulations. Theoretical Framework: For the analyses, the theoretical foundation is based on the theory of regulation applicable to accounting regimes in the public sector. Methodology: The research, using the Ministry of Defense (MD) as a case study, adopted a multifaceted methodological approach, including a case study, literature review, and documentary analysis. Data sources included books, dissertations, scientific articles, and legislation. Documentary analysis focused on the MD's Financial Statements, accessed through the government portal, covering the years 2018 to 2022. The research also employed content analysis techniques, following the methodology suggested by Sampaio and Lycarião (2021), to evaluate the content of the information in relation to the established objectives. Results and Conclusions: The research identified that there is already partial adherence of the public sector to international standards, as the cash basis is still observed for revenues, and areas for improvement were noted, such as the adoption of the Statement of Comprehensive Income in the context of the public sector. Research Implications: It was observed that regulatory changes are important instruments for influencing the accountability processes of the public sector. Originality/Value: The research emphasizes the partial adoption of international public accounting standards and suggests further discussions and analysis to achieve complete adherence, confirming a gap between the implementation of standards and their practical application.


INTRODUCTION
The term Accounting Regulation refers to the existing laws, rules and generally accepted accounting principles that deal with the content, form and periodicity of the accounting statements (LEV, 1988).Regulatory Theory is an approach that seeks to understand and guide government intervention in the economy and other sectors of public interest.Its goal is to establish rules and standards that public organisations must comply with, aiming at the interest of society as a whole (Niyama & Silva, 2022).
The public sector is highly regulated, and above all, the principle of legality directs the public administrator to do only what the law prescribes (cf.Art. 5, II).The figure of the legislator, that is, the one who creates the laws, is often confused with that of the regulator, responsible for applying and supervising compliance with these laws.This confusion of roles can pose challenges and dilemmas for public administration, as it can lead to regulatory decisions and interventions that are not always efficient or adequate to meet the interests of society.
The complexity of economic regulation in the public sector requires a careful and wellfounded approach to ensure that the policies and standards adopted are effective.Transparency, societal participation and ongoing assessment of regulatory impacts are key aspects to ensure that regulatory actions are well aligned with public interests and promote overall well-being.
In this scenario, Accounting is also the target of regulation.The regulatory bodies establish laws, principles, standards, rules, technical pronouncements, interpretations, instructions, deliberations, resolutions that the Accounting should follow, however, the accounting practice is not always determined by the normalisation (Murcia, 2010).
In view of this, the convergence of Brazil to IPSAS -International Public Sector Accounting Standards and the adoption of the regime of full competence in the public sector, through various legal provisions, brought some issues to be discussed, such as the full adoption of such regime to revenues and expenditures.
The basic idea of the employment of the Cash Regime was based on Article 35 of Law 4,320, of March 17, 1964, which established a mixed system that took into account in the financial year the revenues collected and the expenditures committed.The regulator's idea was that the budget should respect the principle of prudence, preventing the manager from considering as belonging to the financial year revenues that were only foreseen but were not collected, as well as limiting the possibility of commitment to the approved budget.
The adoption of this mixed system, together with the emphasis given by Law No. 4,320 to budgetary classifications, led to an interpretation that the focus of public accounting should be on the budget and not on assets.For some authors, such as Herbest (2010) and Dutra and Jesus (2012), a type of mixed competence regime still prevails in the Brazilian public sector.
The central issue was the transition to the full implementation of the public sector competence regime, which required a paradigm shift from a historically public finance law-based regime that prioritised committed spending and earned revenues as the basis of Public Accounting.Sousa et al. (2013) consider that the need to increase the transparency and accountability of managers in the public sector has led to the understanding that the competence regime is the alternative for generating better information for decision-making as well as for assessing the performance of managers.According to Monteiro and Gomes (2013), this change to the competency regime allowed information users to assess accountability for all resources controlled by the entity, as well as the distribution of those resources, evaluate the entity's performance, financial position and cash flow, and also make decisions about the provision of resources.
New Public Governance, a movement that reinforced the need to create transparency and accountability mechanisms in the Public Sector, highlighted transparency as one of the core values, and that financial reports are instruments of communication from public managers to citizens (Gomes et al., 2024).
Thus, the convergence of the public sector to international accounting standards has brought new challenges to public institutions, especially as it is a highly regulated sector.Faced with these challenges, it was sought to assess, in a case study, how the Ministry of Defence adhered to international accounting standards applicable to the public sector, using the competency regime for its financial statements from 2018 to 2022.
It was chosen to choose the Ministry of Defence as an institution that operates on a significant and complex budget scale, encompassing several Management Units subordinate to the Ministry of Defence itself, as well as the Air Force, Army and Navy Command.In addition, the defence sector is of great importance for society and is essential for the security of the national territory.
Thus, as to the method employed, the research is characterised as: case study, bibliography and documentary.It was sought, using the case study in the MD, to investigate whether the jurisdiction regime is being applied in practice, in view of the various public sector regulations.
The basic sources were searched in books, dissertations, scientific articles and legislation.The documentary research assessed the public documents of the Ministry of Defence, fundamentally the Accounting Statements, with access to the government portals: www.gov.br/defesa/ptbr/acesso-a-informacao/despesas-1/demonstracoes-contabeis the documents published in the years 2018 to 2022, period available in public consultation.It should be noted that the data were analysed based only on the demonstrations available on the website.
The research also characterises itself as a content analysis application.According to Sampaio and Lycarião (2021), such research is used to audit the content of communications in relation to their objectives and is already used to evaluate the content of scientific articles.
The following contents of the accounting statements made available by the Ministry of Defence were consulted: the Balance Sheet, the Statement of Balance of Assets Variations, the Budget Balance Sheet, the Financial Balance Sheet, the Cash Flow Statement, the Statements of Equity Changes and, finally, the Explanatory Notes to the Accounting Statements.
On the Balance Sheet, you can track depreciation, amortisation, and exhaustion of assets, as well as the reduction to the recoverable value of those assets.However, during the analysis of the Statement of Balance Sheet Changes, a comparison of the revenues with the Budget Balance Sheet was sought to verify the consistency of the data, but inconsistencies were observed.In addition, there was no proper valuation to verify that the revenue collected was duly recorded in the Statement of changes in the balance sheet.This suggests the need for a more detailed and careful review of accounting records and integration between different financial reports.The reference to the recording of revenue by the jurisdiction regime was not identified in the explanatory notes.
The Balance Sheet and Income Statement provide summary information of transactions and accounting policies and more detailed information is provided in the explanatory notes (CPC 00).In view of this, it was in the explanatory notes that a view was sought on the use of the accrual regime for expenditure.However, the analysis did not identify the reference to the adoption of the revenue accrual regime.This research was purely investigative, aimed at academic purposes, and should not be interpreted as a conclusive analysis or judgement on the relevance of the reported facts.
This article aims to demonstrate that, although the accounting legislation adopted in Brazil determines the use of the competency regime, there are still gaps that hinder its full implementation, mainly as regards public revenues.To achieve our goal, the article is structured in this introduction and three more sections.The second section presents the theoretical framework.The third article presents the results of the research, with the data collected in the government portal on the Accounting Statements of the Ministry of Defence, and its analysis on the competence regime.The final considerations are set out in the fourth section.

THE REGULATORY THEORY
According to Murcia (2010) for the accounting community, high-quality laws and regulations improve users' confidence in accounting statements, improving market development and resource allocation in the economy.Thus, the main purpose of accounting regulation is to require the information that users need and that companies are not willing to disclose voluntarily.
History tells us that accounting practices have not always been regulated, and there are no standards or norms that could determine criteria for recognising, measuring, and evidencing economic and financial transactions.In the classic case of railways in the US and the UK, it is shown that before 1906 -when the Interstate Commerce Commission (ICC) began to establish an accounting system -there were no debates in the literature on depreciation, which only started after the ICC regulation fixing the railways' rate after profit.Thus, depreciation became recognised as expense and no longer as profit allocation.These regulations preceded the debates observed in the accounting literature on depreciation (Watts & Zimmerman, 1979, apud Niyama & Silva, 2022).
However, the discussion addresses issues such as the extent to which a rule or law should require users to disclose information.
As there is a fine line between what information is actually relevant to users and how wide the range of users is, it is unclear what criterion regulators should use to decide what should be disclosed by companies (Lev, 1988).Cardoso (2005) analysed whether the regulatory requirement by the National Regulatory Agency -ANS of certain economic-financial parameters may affect the accounting practices choices of the regulated companies, and found that the regulation encourages the practice of simple result management, such as avoiding injury and avoiding Overdraft Liabilities.
The study conducted by Ferreira et al. (2023) analysed government regulation in the electricity sector and found that regulatory changes implemented by the regulator had a positive impact on the Economic Result of the assets, which proved to be advantageous for investors.These results suggest that regulatory changes have contributed to improving the financial performance of assets in the electricity sector, offering benefits to investors involved in this market.
In recent years, there has been a substantial increase in the number of accounting standards.The responsible bodies seek to issue rules and regulations on various accounting matters, under allegation of social justice (Nyiama & Silva, 2022).
The asymmetry of the information assumes that the company administrator holds all the information, but the other stakeholders in the accounting do not have this knowledge.
Regulation tends to lessen this information asymmetry by seeking social justice.
To this end, the theory of regulation defines rules and standards that public organisations must comply with in the interest of society.In this context, it seeks to explain the purposes for which regulators or regulators intervene in market behaviour.
However, in Government Accounting, there is no room for the administrator to use the generally accepted principles, only in the regulatory framework, because in the Public Sector it is only allowed to do what the law so determines.
In this context, Public Accounting has undergone a continuous process of evolution in response to social changes.The only regulation on the theme, dated 1964, Law No. 4320, shows signs of obsolescence, while Brazil is awaiting the processing of a new draft law on public finances (Brazil, 2016).
Law No. 4,320 played a crucial role in shaping the evolutionary scenario in the country's accounting and finances.At that time, the emphasis of regulation was on the public budget, filling a regulatory vacuum in that context.However, as times progressed and regulation progressed, attention gradually shifted to the sphere of accounting balance.In such a scenario, the jurisdiction regime is the most appropriate approach to reflect the reality of economic transactions and events.Thus, the system of competence in the public sector appeared through coercion by regulators and inspectors (Herbest, 2010).To this end, it is relevant to present a historical account of this regime in the Brazilian public sector.

HISTORY OF THE PUBLIC SECTOR ACCOUNTING REGIME IN BRAZIL
Until the edition of Complementary Law No. 101 of 2,000, known as the Fiscal Responsibility Law -LRF, Law No. 4,320, had been the only general rule of public finance.
Article 35, established a mixed system in which the revenues collected and the expenses committed were considered in the financial year: "the revenues collected and the expenses legally committed in the financial year belong to the financial year" (Brazil, 1964).
According to Nunes et al. (2017) the advantage of this criterion was compliance with the principle of prudence, preventing the manager from considering as belonging to the financial year revenues that were only forecast but were not collected, as well as limiting the possibility of encumbrance in the approved budget.It was, therefore, the most adequate criterion for the Brazilian reality.
The adoption of this mixed system, coupled with the emphasis given by Law No. 4,320 to budgetary classifications, provided an interpretation that the focus of public accounting should be on the budget and not on assets.In practice, the diffusion of this interpretation led some, mistakenly, to seek to associate Article 35 with an "accounting regime", although Law No. 4,320 did not use this denomination, nor did it mention the regime of cash or competence (Nunes et al., 2017).The Court of Auditors of the Union -TCU ruled in this respect, noting that the adoption of the competence regime for recognition of public revenue is not supported by Law No. 4.320 (Brazil, 2012).
In 2000, with the publication of the FRL, it was decided to adopt the competence system for determining the limits of personnel expenditure, as well as expenditure and commitment, independent of commitment.Thus, in the interpretation predominant at the time of the elaboration of the CRL, the main function of public accounting was to record and evidence the acts and facts in each of the stages of budget execution, even after the beginning of the process of convergence of Brazilian public accounting to international standards (Nunes et al., 2017).With regard to revenue, it was considered more prudent, for the determination of tax ceilings and targets, the cash regime to prevent the State from "creating" revenues that have not yet entered public coffers as a way of adjusting artificially.The choice was thus made by the stricter and more conservative criterion, considered more prudent, since it would offer less space for creative accounting.Borges et al. (2010) consider the accounting regime adopted in the FRL to be a mixed regime.
The adoption of the jurisdictional regime in the Public Sector Accounting Handbook-MCASP was the subject of analysis and intense debate in the TCU, which assessed the relevance of the convergence process to international standards in the context of the TCU judgement No 158/2012.The decision was for the adoption of the competence, but, in the process, the risks for tax management were debated.The technical analysis showed a fear that this regime would open up new possibilities for non-compliance with the FRR, due to the overestimation of revenues.In this sense, Nunes et al. (2017, p. 8): By changing the accounting regime, "financial assets" will incorporate items whose value will be recorded by estimate, enabling federated entities to control their net indebtedness through "overestimated" revenues.
For some time, the claim in favour of using the cash regime was that the country was still at an early stage in the process of convergence to international standards and the competence regime was not yet fully established.However, the Federal Government's Cost Information System (SIC) already used a methodology that was close to the competence, starting from the information at the stage of settlement of expenses (Nunes et al., 2017).
However, there are still points of doubt in the public bodies that need to be further developed.The work of Borges et al. (2010) discussing the likely benefits of adopting the government governance competence regime.They point out that many analyses need to be carried out, since the adoption of the new regime has an impact on society as a whole, and may generate costs that cannot yet be measured.Sousa et al. (2013) investigated the perception of users and preparers of public sector accounting information about the change to the competency regime to produce potential benefits for decision-making purposes from ten specific situations and found that the general perception of respondents is consistent with the national and international literature most suited to such regime.As a result, they suggest that the change to the jurisdiction regime may result in informational benefits for decision-making and management of public entities.They conclude that the proposal and implementation of concepts and techniques related to the use of competence, Accounting Science brings to the public sector a powerful management tool.Herbest (2010) studied the difficulties in applying competence in the public sector and found that empirical studies show that the implementation of such a regime has had little or no success.He presented that the lack of political will reveals itself as the main difficulty, since the information generated is not duly used in the decision making and in the control of the entity.The author interviewed Brazilian municipal managers and the answers obtained indicated that the statement of economic result and balance sheet were not considered relevant for decision making, and that the budget is the instrument used.Cruvinel and Lima (2011) analysed the adoption of competence from the perspective of Brazilian and International Accounting Standards, also confronting the legal aspects from the perspective of the National Treasury, the TCU and the Attorney General's Office of the National Treasury.According to the authors (2011, p. 83): to use the accrual or cash budget.So the process of convergence to international standards underway will not make the competence regime have to be adopted for the budget (Monteiro & Gomes, 2013).
At the same time, the International Monetary Fund (IMF) adopted the Government Finance Statistics (GFS) competence regime as from 2001.Information from tax statistics allows analysis of diverse information such as the size of the public sector, its contribution to aggregate demand, investment and savings, impact of tax policy on resource use, effectiveness of spending for poverty reduction, sustainability of tax policies among others (Flynn et al., 2016).
Governments have traditionally used input-based budget systems and cash-based accounting systems, however, these systems do not provide the information needed for a government to operate efficiently and effectively.Therefore, a large and growing number of countries have moved, or plan to move, to accrual-based accounting.Countries such as New Zealand, Australia, Canada and the United States have already implemented in the 1990s (Hoek, 2005).
Jesus and Dutra (2012) made a comparison of the adoption of the competence regime in developed countries and presented a major division on the adoption of accounting regimes.
The Competence Regime is adopted: Australia, Canada, New Zealand, United Kingdom, United States, Sweden, France, Switzerland and Italy.The Cash Scheme is adopted: Ireland, Finland, Norway, Germany, Austria, Belgium, Luxembourg, the Netherlands, Spain, Portugal, Hungary, Poland.Monteiro and Gomes (2012) examined the international experiences of adopting the competence regime in the public budget.They assessed the need for studies to investigate fiscal results and the evolution of public debt in countries that adopt this regime.The authors highlighted the importance of research that addressed the experiences of implementing the competence regime in the budget, as well as the comparison between the countries that kept the budget on a cash basis after the adoption of the competence regime.
One can see that the adoption of competence is not unanimity among countries and that studies must be made feasible to identify the potential benefits or losses for its adoption.

PRESENTATION OF RESULTS
As explained in the methodology, the analysis of the Ministry of Defence Accounting Statements -MD, was carried out in the years 2018 to 2022.The objetive was to verify if the organ adopts accounting by competence for the preparation of its accounting statements.It should be noted that the above point was recorded in an explanatory note, however the Theory refers us to the use of the comprehensive Result Demonstration.According to NBC TG #26, which deals with the presentation of accounting statements, actuarial gains and losses on employee benefit pension plans, which will affect profit or loss in later periods, are to be recorded in the Comprehensive Income Statement.
In the 2022 analysis there was no mention of the adoption of the accrual regime for accounting statements.
Based on the analysis of the MD explanatory notes, it is noted that the agency began in the year 2018 the accrual accounting, recording depreciation, amortisation and exhaustion.As of 2018, it has been improving to conform to Brazilian public accounting standards, converging to international standards.
However, it should be noted that the MD does not mention the registration of government revenue by competence in its explanatory notes.A comparative analysis between the Budget Balance Sheet and the Statement of Change in Assets, within the framework of the income collected, was not successful.
The adoption of the mixed scheme can be inferred here: cash for revenue and competence for expenditure.Here we can see the conclusion of Herbest (2010) and Jesus and Dutra (2012), on the theme where they place Brazil as a mixed accounting regime, that is, the revenues are recorded by the cash regime.
In this sense, Cruvinel e de Lima (2011) the Accounting Manual Applied to the Public Sector -MCASP tries to reconcile the budgetary vision with the asset vision.However, the mixed scheme is adopted at the time of recognition of revenue and expenditure in Public Sector Accounting, despite the National Treasury Secretariat -NTS considering that the intention of the legislator was to define financially the treatment of revenue and expenditure from the budgetary point of view and not from the accounting regime.
It is important to note that this analysis was conducted in a purely investigative character, with strictly academic purposes.Any conclusion on the relevance of the reported events is not appropriate in this context, since it was not intended to issue judgments on the nature of the facts discussed.

FINAL CONSIDERATIONS
The Theory of Regulation, employed in the accounting context, seeks to analyse and improve the processes of implementing the competency regime in the public sector, seeking to ensure that accounting information is comprehensive, accurate and transparent, as well as adhering to rules, laws and regulations.
The competency regime is effectively employed in the Brazilian public sector, as we can show in the accounting statements at the Ministry of Defence.Such a scheme records transactions in government expenditure at the time the rights and obligations are assumed, disconnecting from the cash flow.This reflects a more accurate approach to accounting for government operations.
However, there are aspects that have not yet been fully addressed in relation to the jurisdiction regime, especially with regard to the application of the cash-for-income regime.
While the MD's accounting statements demonstrate the public sector's effort in line with international standards for public expenditure, revenues are not yet fully integrated into that regime.They are not explicitly mentioned in the explanatory notes, and the statements do not present reconcilable figures in this sense.Therefore, it is essential to establish clearer guidelines for the accounting of realised revenues, as well as to implement audit and oversight mechanisms to ensure compliance with appropriate accounting practices.Although the adoption of the competence regime based on empirical data of the Ministry of Defence still presents points to be discussed in the light of the Theory of Regulation, it is a positive advance that some organs are already using this regime.
It is important to note that the Comprehensive Income Statement is still an item to be discussed and evidenced in public sector regulations.In the case of the Ministry of Defence, it is necessary to consider that the actuarial staff data relating to military pensions were presented only in explanatory notes, without full demonstration.This indicates a gap in the disclosure of comprehensive and transparent financial information, which highlights the need for improvements in public sector accounting standards for more complete and comprehensible accountability.
As a suggestion for future research, it is recommended to conduct studies on other government agencies adopting the competency regime in order to assess the challenges and benefits encountered during the transaction and implementation process.Research into the use of the Comprehensive Income Statement in public sector entities is also suggested, to understand how this demonstration is being employed and its contribution to a more comprehensive and transparent accountability.In addition, conducting discussions about the adoption of the cash or competency regime for Brazilian public revenues, exploring the impacts, advantages and challenges of each approach and how this can influence the financial and accounting management of the public sector.
The convergence process only came to fruition in 2008, following the publication of Order No 184 of 25 August 2008.
_________________________________________________________________________ Rev. Gest.Soc.Ambient.| Miami | v.18.n.3 | p.1-18 | e06711 | 2024.14Theexplanatory notes refer to the audit of the TC 034.006/2020-6 dealing with the financial audit report on the 2020 accounting estimates for the actuarial liability of the Union's own social security scheme for servers.The audit indicates the undervaluation R $ 7,2 billion military pension liability recorded in military pension provision.Such a record, it should be noted, refers to the provisions for competencies of labour liabilities relating to the MD.