Financial Sustainability of Higher Education Institutions: A Challenge for the Accounting System

The chapter analyses pitfalls and opportunities for accrual and cost accounting to play a role in fostering universities’ financial sustainability. Some aspects of the Italian context are analyzed more in depth, although accrual-based accounting and budgeting as well as cost accounting systems have spread in the HEIs of many countries. Both practices aim at improving universities’ capability to cover their full costs, thus supporting transparency and financial sustainability. Despite the expected advantages of accrual accounting, empirical evidences still lack: rather, in some countries the reform of accounting system in HE had no effect. This paper investigates possible causes of this discrepancy. After having displayed the role of accrual accounting in supporting universities’ financial sustainability, some obstacles are evidenced that reduce the transparency or the usefulness of accounting information and weaken its capability to support financial sustainability. Some issues suggest caution in the interpretation of universities’ financial performance.: in particular, doubts arise considering the accounting treatment of transfers from the government that are still the main source of universities’ revenues in most countries. The paper shows that also organizational issues may deprive accrual accounting of its capability to provide reliable, transparent and complete information. Moreover, the adoption of cost accounting practices risks to remain symbolic or ceremonial, i.e. functional to the enhancement of the organization’s appearance of rationality and efficiency unless corrective factors are introduced.