an investigation of the information requiremetns...

AN INVESTIGATION OF THE INFORMATION REQUIREMETNS OF USERS OF AUSTRALIAN PUBLIC SECTOR FINANCIAL REPORTS

Janet Mack

i

ABSTRACT

The emergence of new public management has been implicated in the changes that have

occurred in the public sectors of western democracies. One outcome of these changes is

that the public sector is expected to operate in a more commercial manner and that it be

accountable not only for the money that it spends but also for the effectiveness with which

it spends those funds. In response to these expectations, changes have occurred in both the

accounting technologies and reporting mechanisms for the public sector.

The Treasuries and Departments of Finance for each jurisdiction in Australia set

accounting and financial reporting policy for the public sector. However, since the

establishment of the Public Sector Accounting Standards Board in 1983, the

commonwealth and state governments have shown a willingness to adopt standards issued

by the accounting profession. The adoption of three specific public sector accounting

standards developed by the accounting profession in accordance with the conceptual

framework, mean that a financial reporting model, based on the private sector ‘decision-

useful model’, has been adopted in the Australian public sector. The ‘decision-useful

model’ incorporates dependent users who are reliant on general purpose financial reports to

make economic decisions. The decision to adopt this model for all public sector reporting

entities, did not receive unanimous support. The complexities of the public sector formed

the foundation for critics to question the applicability of this model to the public sector. In

addition, critics argued that the model lacked empirical substantiation.

The purpose of this research is to determine the applicability of the ‘decision-useful model’

to the public sector by empirically identifying users of public sector general purpose

financial reports and their information requirements. Prior empirical research has been

piecemeal in terms of both scope and research method. As a result, it has not been

cumulative. This research will refine and extend the work of previous studies in two ways.

First, in terms of scope, it will encompass all public sector entity types and will address all

three elements of the ‘decision-useful model’ – the identity of users, what information they

use and their purposes for requiring information. Second, this research will adopt a method

ii

which directly accesses users across public sector entity types. As a consequence, an

assessment is able to be made of the applicability of the ‘decision-useful model’ in general

and its application to specific public sector entity types.

The findings of this research indicate that the ‘decision-useful model’ is misspecified in the

public sector and that there are significant differences among public sector entity types in

terms of users and their information requirements. First, the classification of users as

normatively determined is not exhaustive and includes a large representation of non-

dependant users. Second, all users preferred performance information and narrative

information was preferred over general purpose financial reports. Further, users considered

that general purpose financial information was more useful for accountability purposes

than for decision making. These results should be useful to policymakers and accounting

standard setters in the future prescription of the contents of financial reports for public

sector entities.

KEY WORDS: Public sector, financial reporting

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TABLE OF CONTENTS

Abstract Table of Contents List of Tables List of Figures List of Abbreviations Statement of Originality Acknowledgements Chapter 1 – Introduction

1.1 Institutional environment 1.2 Annual reporting in the public sector 1.3 The public sector general purpose financial

reporting model 1.4 Motivation for the research

1.5 Research questions 1.6 Analytical framework 1.7 Structure of thesis

1.8 Style adopted 1.9 Summary

Chapter 2 – Literature Review 2.1 The historical development of the models for general purpose financial reporting 2.1.1 Underlying concept of ‘decision-usefulness’ 2.1.2 General purpose financial reporting models 2.2 The concept of accountability 2.2.1 Public sector accountability relationships 2.2.2. Public accountability 2.3 Implications of the choice of reporting model 2.4 Literature on the elements of the ‘decision-useful’ model 2.4.1 Normative user literature 2.4.2 Studies that have focused on pre-determined classifications of users 2.4.3 Studies that have identified actual users 2.5 Summary

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vi

viii

ix x

xi 1

3 8 9

13 16 18 22 23 23

25

25

26 28 30 32 35 37 40

41 43

55 57

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Chapter 3 - Research Methodology

3.1 Research approach 3.2 Scope of the study 3.3 Data collection and analysis 3.3.1 Sample selection of entities 3.3.2 Establishing a database 3.3.3 Research instrument design 3.3.4 Research strategy 3.3.5 Preliminary data analysis 3.4 Summary

Chapter 4 – The Users of General Purpose Financial Reports in the Public Sector 4.1 Classification of respondents 4.2 Analysis of Respondents 4.2.1 Analysis of respondents by entity type 4.3 Analysis of results 4.4 Summary Chapter 5 - The Information Requirements of Users of Annual Reports in the Public Sector 5.1 Analysis of responses 5.1.1 Factor analysis 5.1.2 Analysis based on user categories 5.1.3 Analysis based on entity type 5.2 Analysis of results 5.3 Summary Chapter 6 - The Utility of Financial Statement Information 6.1 Analysis of responses 6.1.1 Factor analysis 6.1.2 Analysis based on user categories 6.1.3 Analysis based on entity type 6.2 Analysis of results 6.3 Summary

59

59 62 66 68 73 74 79 82 86

88

88 93 95 100 102

105

106 108 112 117 123 125

128

129 130 133 137 142 144

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Chapter 7 - Findings 7.1 The general purpose financial reporting model 7.2 Findings for the model 7.3 Application of the ‘decision-useful’ model to individual public sector entity types 7.3.1 Local government authorities 7.3.2 Government departments 7.3.3 Government owned corporations 7.3.4 Differences between entity types 7.4 Summary Chapter 8 - Conclusions 8.1 Purpose of the research 8.2 Summary of findings 8.3 Implications of the research 8.4 Limitations of the research 8.5 Future research possibilities Appendix A Legislative requirements to produce annual reports Appendix B Queensland Government Departments Appendix C Queensland Local Government Authorities Appendix D Government Owned Corporations Appendix E Research Instrument Appendix F Emphasis Placed on Disclosure Items by User Category Emphasis Placed on Disclosure Items by Entity Type Appendix G Factor Analysis Question 6 Appendix H Mann-Whitney significance levels for comparing mean factor scores for each user category Appendix I Use made of judgment items by User Category Use made of judgment items by Entity type Appendix J Factor Analysis Question 9 Appendix K Mann-Whitney significance levels for comparing mean factor scores for each user category Bibliography

146

147 149

152 152 155 158 160 167

168

168 169 170 174 175

177 178 179 180 181 189

191

197 205

207

214

221

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List of Tables

Table 2.1 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.7 Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 5.5 Table 5.6 Table 5.7 Table 5.8 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5

Factors investigated by prior user studies Factors investigated by prior user studies Research strategy Response rate by local authority type Survey response rates Modes of access by recipients of annual reports Reclassification of recipient associations to user categories Frequency of responses by user category Frequency of responses by entity type and user category Comparison of user profiles for public sector entity types Comparison of user profiles for government departments and local government authorities Comparison of user profiles for government departments and government owned corporations Comparison of user profiles for local government authorities and government owned corporations Identification of factors and the variables that comprise them Mean factor scores for the emphasis placed on information by user category Comparisons between mean factor scores for the emphasis placed on information by ‘dependent’ and ‘non-dependent’ users of public sector general purpose financial reports Mann-Whitney significance levels for comparing mean factor scores for the emphasis placed on information between user categories Mean factor scores for the emphasis placed on information for each entity type Comparison of means of factor scores for the emphasis placed on information between individual entity types Comparison between mean factor scores for the emphasis placed on information by ‘dependent’ and ‘non-dependent’ users of local government authority annual reports Comparison between mean factor scores for the emphasis placed on information by ‘dependent’ and ‘non-dependent’ users of government department annual reports Identification of factors and the variables that comprise them Mean factor scores for the use made of financial statement information by user category Comparison of the mean factor scores for the use made of financial statement information by ‘dependent’ and ‘non-dependent’ users of public sector annual reports Mann- Whitney significance levels for comparing mean factor scores for the use made of financial statement information between user categories Mean factor scores for the use made of financial statement information by entity type

44 63 80 83 84 85 92 94 95 97

98

99

100 111

113

115

116

119

120

122

122 132

134

135

136

138

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Table 6.6 Table 6.7 Table 6.8 Table 7.1 Table 7.2 Table 7.3 Table 7.4 Table 7.5 Table 7.6 Table 7.7

Comparison of mean factor scores for the use made of financial statement information between individual entity types Comparison between mean factor scores for the use made of financial statement information by ‘dependent’ and ‘non-dependent’ users of local government annual reports Comparison between mean factor scores for the use made of financial statement information by ‘dependent’ and ‘non-dependent’ users of government department annual reports Users of public sector general purpose financial reports and their information needs Users of local government authority general purpose financial reports and their information needs Users of government department general purpose financial reports and their information needs Users of government owned corporation general purpose financial reports and their information needs Comparison of user profiles for government departments, local government authorities and government owned corporations Comparison of information used by users from government departments, local government authorities and government owned corporations Comparison of purposes for which financial statement information is found useful by users from government departments, local government authorities and government owned corporations

140

141

142

150

154

157

159

161

163

165

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List of Figures

Figure 1.1 Figure 1.2 Figure 3.1 Figure 7.1

Institutional and Accountability Frameworks within the Australian Public Sector Public Sector ‘Decision-Useful’ Model for Financial Reporting Data Collection and Analysis Process Public Sector ‘Decision-Useful’ Model for Financial Reporting

6

12 67 148

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List of Abbreviations

AARF AICPA FASB GASB JCPA PAEC PSASB SAC SFAC

Australian Accounting Research Foundation Americain Institute of Certified Public Accountants Financial Accounting Standards Board Governmental Accounting Standards Board Joint Committee of Public Accounts Public Accounts and Estimates Committee Public Sector Accounting Standards Board Statement of Accounting Concept Statement of Financial Accounting Concept

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STATEMENT OF ORIGINALITY

This is to certify that the work contained in

this thesis has never previously been

submitted for a degree or diploma in any

university and that, to the best of my

knowledge and belief, the thesis contains no

material previously published or written by

another person except where due reference is

made in the thesis itself.

Janet Mack

Date

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ACKNOWLEDGEMENTS

The writing of a thesis is necessarily an individual journey, however, there have been

many people who have helped and supported me on the way.

Without a doubt I could not have achieved this milestone without the support of my

supervisors. To my principal supervisor Assoc. Professor Chris Ryan there are not words

to express the thanks and gratitude that I owe you. There were many times when I know

that it must have been very frustrating working on this project but your support never

wavered. As well I do not think there is anybody who could have been more generous both

with their time and knowledge. I have grown as a researcher as a result of your input.

I would also like to thank my associate supervisor Professor Keitha Dunstan who has also

been a source of great support. The statistical elements of this thesis in particular would

have suffered without your input.

To my mother I say thank you for not only the enormous amount of practical support that

you gave me with my other responsibilities which allowed me to complete this project, but

also the emotional support to continue when I didn’t think that I could. To my friends,

Kate, Sue, Pauline, Paula, Elizabeth, Helen, Sue, Jeannie, Sally and Ann thank you - you

kept me in touch with the rest of the world.

Lastly I would like to thank those who participated in this research, the entity officers who

were happy to provide the necessary information for surveys to be distributed and the

survey respondents. Without the assistance of both of these groups this research would not

have been possible.

1

CHAPTER ONE

INTRODUCTION

The last twenty years has seen enormous changes in the public sector in Australia.

Changes have occurred to human resource management systems, accounting

systems and industrial relations systems. These changes have also occurred in

other western democracies and are due to a combination of several factors

(Broadbent and Guthrie, 1992; Ryan, 1995). One of the factors proposed as being

a catalyst for the changes is the emergence of the ‘new right’ and its promotion of

market solutions to public sector resourcing problems (Hood, 1991). Others have

argued that the role of government has been challenged in the late twentieth

century (Pollitt, 1990). In addition, the fiscal problems suffered by many western

democracies in conjunction with the oil crisis have contributed to the changing

character of the public sector (Wanna, O’Faircheallaigh and Weller, 1992). In an

Australian context, it has been argued that the resource constraints of the 1970’s

that resulted from a decline in the level of taxation revenue and the restructuring

of the national economy are factors that have also contributed to the changes in

the public sector (Emy and Hughes, 1991).

One consequence of these changes has been that the public sector has had to adapt

to new expectations that it operate in a more commercial manner, including the

adoption of private sector style organisational practices. As a result, there have

been changes in the expectations of managers of public sector enterprises (Pollitt,

1990; Wanna, O’Faircheallaigh and Weller, 1992). While once public sector

entities were able to discharge their accountability responsibilities by reporting on

the manner in which appropriated funds were dispersed, managers are now also

held accountable for the efficiency and effectiveness with which they use those

Chapter One: Introduction 2

funds. The public sector rhetoric is now concerned with terms such as ‘outputs’,

‘efficiency’, ‘value for money’ and ‘full cost’ (Guthrie, 1998).

The promotion of these new accountabilities created a general dissatisfaction with

the existing public sector accounting system with its emphasis on cash and fund

accounting (Parker and Guthrie, 1990). This led to the endorsement of accrual

accounting for use within the ‘new’ public sector as the vehicle by which agencies

would improve their accountability and manage their finances more efficiently

(Chua and Sinclair, 1994; Ryan, 1998; Guthrie, 1998). The move towards an

accrual model as used in the private sector provided the accounting profession

with an opportunity to become active in public sector accounting through its

Public Sector Accounting Standards Board (PSASB). One of the first tasks

undertaken by the PSASB was to commission the development of a conceptual

framework within which to develop public sector accounting standards (Sutcliffe,

1985). The 1985 monograph Financial Reporting in the Public Sector – A

Framework for Analysis and Identification of Issues (Sutcliffe, 1985) laid down

the fundamental principles which were to guide the production of accounting

standards in the Australian public sector. This monograph, which advocated the

adoption of a common conceptual framework for both the private and public

sectors, was embraced by the PSASB.

As a result of the deliberate decision of the PSASB to adopt a common conceptual

framework for both the public and private sectors, the public sector model is

effectively the same as the private sector model. Consequently, there is no

difference between the two sectors in terms of the classifications of dependent

users or their information needs (McGregor, 1999). The public sector financial

reporting model that has emerged assumes that dependent users have needs for

information for the purposes of economic decision making and accountability that

can be satisfied by the provision of general purpose financial reports.

The public sector financial reporting model has been criticised as lacking

empirical substantiation and ignoring the diversity and complexity of public sector

institutions (Walker, 1989; Jones, 1992; Jones and Puglisi, 1997; Barton, 1999). It


has been argued that the simplicity of the private sector general purpose financial

reporting model is inappropriate for the public sector and its complex mix of

operating structures, sources of financing, operating motives and accountability

obligations (see for example, English, 1999, 2003; Carnegie and Wolnizer, 1995;

Guthrie 1998; Walker 1989). The objective of this research is to provide empirical

evidence on the applicability of the general purpose financial reporting model to

the public sector. The research was conducted within the Australian public sector

and incorporated the different types of organisations within the public sector and

the diversity of their accountability relationships.1

The remainder of the chapter will outline the institutional environment within

which public sector general purpose financial reporting occurs, examine the role

of annual reporting in the public sector, and describe the public sector general

purpose financial reporting model. The final four sections of this chapter will

explain the motivation for the research, identify the research issues to be

addressed, describe the analytical framework used in the research, describe the

structure and style of the thesis and provide a brief summary of the chapter.

1.1 INSTITUTIONAL ENVIRONMENT

It is generally agreed that the institutional environment within which public sector

accounting is regulated is the product of three significant influences. The first is

the Westminster system of accountable government; the second is the federal

system of government, which operates in Australia; the third is the involvement of

the accounting profession in the regulation of public sector accounting. Each of

these will be discussed in turn.

The first influence is that the Australian political system is based on the

Westminster system of ‘responsible government’ that originated and was

operating in the UK at the time Australia became an independent nation (Stewart

1 The Australian public sector comprises departments, statutory authorities, government owned corporations and local government authorities.


and Ward, 1996). This doctrine of ‘responsible government’ has, as one of its key

assumptions, that Parliament is the central body in a chain of accountability that

allows the electorate to hold those who govern accountable for their actions. Thus,

as the central player in the chain of accountability, Parliament is accountable to

the public (Davis et al., 1993).2

This doctrine of ‘responsible government’ embodies the notion of accountability.

Ministerial responsibility is a convention that allows Parliament to exercise its

constitutional responsibility to monitor the performance of executive government,

including its financial performance and to report on that performance (Milazzo,

1992). One of the functions of Parliament is that of controlling government

expenditure by evaluating financial proposals and subsequently ensuring that

government funds have been expended appropriately. In practice, the task of

scrutiny of the appropriate dispersion of funds most often falls to the Auditor–

General who then reports to Parliament.

While the ‘responsible government’ system operates for the Commonwealth and

State governments, it is not applicable to local government authorities. Local

government authorities do not operate under the Westminster system so the

concept of ‘ministerial responsibility’ is not applicable. The governing body for

local government authorities is the council. The council, which is comprised of

the elected representatives from the community, is not formally divided between a

government and an opposition (and independent members) as state and federal

parliaments are. Consequently, there is no equivalent in local government

authorities to cabinet. Instead, the council meets in its entirety to determine

matters of policy for the local government authority. In local government

authorities therefore, the council is directly responsible to ratepayers and electors

for its actions (Emy and Hughes, 1991). The result of this is that there are

different accountability regimes in local government authorities than those that

operate in state and Commonwealth governments. There are fewer layers in the 2 Other accountability relationships exist between government and Parliament (and thereby indirectly, to the public); Ministers who are accountable to cabinet and as well to Parliament for the activities of their departments; and heads of departments who are accountable to government through the appropriate minister.


governance system for local government authorities than there are for state and

federal governments and consequently the accountability relationships are

different.

The second influence on the institutional environment within which the public

sector is regulated is the federal system. Australia is a federation with a central

government and seven states together with one territory. Each state encompasses

many local government authorities. The outcome of this federal system is that

Australia has three levels of government, the Commonwealth, the states and local

government (Davis et al., 1993). The Commonwealth government and each of the

state and territory governments have acts of parliament that govern the accounting

and reporting requirements for entities encompassed by that particular

government. The Departments of Finance and Treasury3 in each jurisdiction have

the responsibility for setting accounting requirements for each of the entities

within their jurisdictions. Requirements for accounting and reporting for local

government authorities are regulated by the state governments via legislation and

administrative oversight through Departments of Local Government.4

Figure 1.1 details the institutions and accountability frameworks within the

Australian public sector. It can be seen that the Commonwealth and State

governments are comprised of budget-funded authorities and non-budget

authorities. These non-budget authorities include both statutory authorities and

government owned corporations.5 Local governments are shown as a subset of

state governments as, although not controlled by them, their accounting and

financial reporting requirements are set by the state government department

responsible for the administration of local government authority matters.

3 Depending on the jurisdiction the titles of Department of Finance, Treasury and Department of Finance and Treasury are used to describe the department responsible for financial and accounting functions of the jurisdiction. In this thesis the term used to describe such entities will be Treasury. 4 In Queensland, The Financial Administration and Audit Act, 1977 regulates the accounting functions of state government public sector entities and the Local Government Act 1993 regulates those functions for local government authorities. 5Statutory authorities has been described as any ‘body performing a public function and established by or appointed pursuant to any rule, regulation, by-law, order in council, proclamation or other instrument of a legislative character’ (NSW PAC, 1983). Statutory authorities can be either fully funded by the government or self-funding. Government owned corporations are either corporations in which the government is a shareholder covered by the corporations law or statutory corporations which are covered by individual government legislation (Funnell and Cooper, 1998).


FIGURE 1.1

Institutional and accountability frameworks within the Australian public sector6

Key: GOCs – Government Owned Corporations SAs – Statutory Authorities

The third influence on the institutional environment within which the public

service is regulated is the involvement of the accounting profession. Until twenty

years ago, the Westminster system of government and the federal system of

government were the predominant institutional influences on the public sector

reporting model. However, the changes in the public sector that have included

changes in the method of accounting have seen the emergence of a third influence

on the regulation of accounting policy in the public sector. The accounting

profession has become involved in the formulation of public sector accounting

policy (Walker, 1989; Ryan, 1999). Even though it is the Treasuries and

Departments of Finance in each jurisdiction that have the responsibility for setting

accounting policy for the public sector, the Commonwealth and State

6 Adapted from Emy and Hughes (1991) Australian Politics: Realities in Conflict, Figure 10.1, p.379.

AUSTRALIAN PUBLIC SECTOR

Commonwealth Parliament

(Whole of Government)

Budget Authorities

(Departments)

Non-Budget Authorities

(GOCs, SAs)

State and Territory Parliaments

(Whole of Government)

Local Government Authorities

Budget Authorities

(Departments)

Non-Budget Authorities

(GOCs, SAs)


governments have shown a willingness to adopt the professional standards issued

by the accounting profession through its PSASB (Ryan, 1999).7 Indeed the State

and Federal governments partially funded the PSASB in order to advance the

development of public sector accounting standards. Ryan (1999) argues that

accounting policy officers in the Treasuries and Departments of Finance actively

promoted a co-operative standard setting arrangement between themselves and the

accounting profession. They saw the benefits of using an organisation that already

had an infrastructure in place to develop accounting standards. Further, using the

PSASB, allowed them to distance themselves from policy formation when trying

to regulate standards in their respective jurisdictions.

To date, three specific public sector accounting standards have been issued – AAS

27 Financial Reporting by Local Governments in 1991, AAS 29 Financial

Reporting by Government Departments in 1993 and AAS 31 Financial Reporting

by Governments in 1994. Taken together these three standards impose a general

purpose reporting model based on accrual accounting on all three levels of

government. These standards have been adopted by all jurisdictions in Australia.8

The legislative adoption of these three accounting standards, grounded as they are

in the conceptual framework as defined by the Statements of Accounting

Concepts developed by the accounting profession, means that a new public sector

financial reporting model has been adopted in the Australian public sector to

replace the traditional cash-focused model.

Having established the public sector institutional environment, the role of annual

reporting in the public sector will be discussed in the next section. The annual

report is the primary vehicle for disseminating public sector general purpose

financial reports to stakeholders. This will be followed by a description of the

general purpose financial reporting model adopted in the Australian public sector

and its primary elements.

7 The PSASB is an arm of the Australian Accounting Research Foundation which is the body set up by the Institute of Chartered Accountants and the Australian Society of Certified Practicing Accountants to deal with technical accounting issues and formulate accounting standards (Sutcliffe, 1985). 8 Appendix A contains a table detailing for each state the relevant legislation and regulations.


1.2 ANNUAL REPORTING IN THE PUBLIC SECTOR

The increased emphasis on performance and accountability that has occurred in

the public sector has led to a greater awareness of mechanisms that are available

to discharge accountability. In this respect, the role of the annual report in the

accountability chain and as a means of discharging public accountability has

received increased prominence. It has been argued that annual reports should be

considered in their context as only one of several methods of discharging

accountability (Coy and Pratt, 1998; Sinclair, 1995; Kloot and Martin, 2001). In a

parliamentary system, the presentation of annual reports is one stage in a cycle of

accountability that begins with the budget process and ends with the tabling of

reports to parliament (English, 2003). While it is acknowledged that the annual

report is not the only accountability mechanism available to public sector

agencies, it is statutorily required as the primary medium of accountability (JCPA,

1989; PAEC, 1999).

Even though they are not the sole accountability mechanism for state and

commonwealth public sector entities annual reports are regarded as the

cornerstone of public and parliamentary scrutiny (SSCFPA, 1989; Milazzo, 1992;

PAC, 2001). Further, they enable governments to discharge their accountability

obligations to a diverse group of stakeholders (JCPA, 1989: PAEC, 1999; Banks

and Nelson, 1994; Coy et al., 2001). Boyne and Law (1991: 179) argue that the

annual report is ‘the only comprehensive statement of stewardship available to the

public’, a view echoed by Coy et al., (2001: 14 ) who state:

The value of the [public sector] annual report rests in the provision of a wide range of summarised, relevant information in a single document, which enable all stakeholders to obtain a comprehensive understanding of [an entity’s] objectives and performance in financial and non-financial terms. No other single source of such information is available to all stakeholders on a routine basis.

A public sector annual report commonly comprises both descriptive information

about the entity and its activities and the audited financial statements which


comprise the general purpose financial report. As a result, the annual report has

become the primary method of disseminating general purpose financial reports to

external stakeholders. The next section will examine a specific subset of the

annual report, the general purpose financial report.

1.3 THE PUBLIC SECTOR GENERAL PURPOSE FINANCIAL

REPORTING MODEL

The PSASB was established as an arm of the Australian Accounting Research

Foundation (AARF) in late 1983.9 Its purpose was to promote the development of

general purpose financial reporting in the public sector at the commonwealth,

state and local government levels. The PSASB was primarily concerned with

developing standards of reporting that would provide public sector users of

financial statements with useful financial information (Sutcliffe, 1985).

The PSASB determined that accounting standards in the public sector should be

developed within the context of a conceptual framework (Miller, 1988). As a

result of this decision it commissioned Paul Sutcliffe, an AARF researcher, to

develop such a framework. Accounting Theory Monograph 5, Financial

Reporting in the Public Sector – A Framework for Analysis and Identification of

Issues was produced and endorsed by the PSASB. In this monograph, it was

argued that the public and private sectors should share a common structure for a

conceptual framework and the framework being developed by AARF for the

private sector was also appropriate for the public sector.

This decision was important because the conceptual framework provides a

structure from which accounting standards are developed as part of an overall

strategy rather than as an ad hoc response to specific issues (McGregor, 1999). It

provides a blueprint that defines the border of the discipline of financial reporting, 9 The PSASB was disbanded on the 1/1/2000 as a result of the establishment of the Financial Reporting Council and the Australian Accounting Standards Board that took over responsibility for developing accounting standards for both the public and private sectors (Financial Reporting Council Annual Report, 2000).


and as well, defines the subject, objectives, elements and characteristics of the

discipline. The conceptual framework is effectively operationalised by the

development of Statements of Accounting Concepts (SACs). To date, four

Statements of Accounting Concepts have been issued. The first two of these set

out the circumstances in which general purpose financial reports should be

prepared and presented. They define the nature, subject, purpose and broad

content of general-purpose financial reports (AARF, 1990).

Statement of Accounting Concept 1 Definition of the Reporting Entity (SAC 1)

addresses the issue of determining which entities are reporting entities and will, as

a consequence, be subject to the reporting requirements of the conceptual

framework. A ‘reporting entity’ is defined as an entity in which it is reasonable to

expect that users exist who will be dependent on general purpose financial reports

for the provision of information to enable them to make economic decisions (para

40). Several guidelines are provided for determining whether or not a particular

entity is a reporting entity. SAC 1 identifies public sector entities including

departments, local government authorities, whole of government, statutory

authorities and government owned corporations as reporting entities. As a result

of this determination, these entities are required to prepare general purpose

financial reports.

Statement of Accounting Concept 2 Objective of General Purpose Financial

Reporting (SAC 2) is, as the name suggests, concerned with the objectives of

general purpose financial reports. SAC 2 identifies the three crucial elements of

the general purpose financial reporting model. First, it identifies the users of

general purpose financial reports (who requires information). It then identifies the

purposes for which users may require information (why information is required)

before prescribing the types of information that users will require (what

information is required). The identification of users is therefore crucial to the

model prescribed by SAC 2.

In relation to users, SAC 2 establishes two broad categories of users of general

purpose financial reports – those users who are dependent on the information


provided by general purpose financial reports for their information needs, and

those who are able to command special purpose financial reports - non-dependent

users. Included in the non-dependent category are taxation authorities, central

banks and management and governing bodies. All of these users are deemed by

SAC 2 to have access to, or the power to command, special purpose financial

reports. The information needs of these non-dependent users are deemed to be

outside the scope of SAC 2 (paras 8 and 20).

Having established that there are two broad categories of users and that general

purpose financial reporting is concerned only with the needs of dependent users,

SAC 2 identifies three classes of dependent users and their respective information

needs. The classes that it identifies are: resource providers (eg. ratepayers, lenders

and investors), resource recipients (eg. residents, consumers and taxpayers), and

review and oversight bodies (eg. media, analysts and special interest groups).

In relation to what information is required, SAC 2 determines that in order to

meet the information needs of users, general purpose financial reports should

provide information about the performance of the entity, the financial position of

the entity, the financing and investing activity of the entity and compliance

matters.

With regard to the purposes for which information is required SAC 2 takes the

position that, in view of the information needs of the users identified in the

statement, the objective of general purpose financial reporting is ‘to provide

information to users that is useful for making and evaluating decisions about the

allocation of scarce resources’ (para 26). Further, it is asserted that when general

purpose financial reports meet this objective they will also enable entities to

discharge accountability. The stated objective clearly indicates that SAC 2 is

prescribing a ‘decision-useful’ model for general purpose financial reporting

within an overall framework of user needs. In short, SAC 2 prescribes a financial

reporting model that has three elements, dependent users requiring general

purpose financial information for the purposes of making economic decisions.


Figure 1.2 is a diagrammatic representation of the public sector reporting model

that results from the operationalisation of the conceptual framework through the

SAC’s.

FIGURE 1.2

Public sector ‘decision-useful’ model for financial reporting

General purpose Financial reports

(what)

Re porting Entities

Whole of Government

Government Departments

Government Owned Corporations

Statutory Bodies

Local Governme nt Author it ies

* Resource providers(eg taxpayers)

* Resource recpients(eg pensioners)

* Review & overs ightbodies (eg auditors)

Purposes for Re quiring Info rmation

*Economic dec is ion making

*Accountability

Classes of De pe nde nt Use rs (who)

The remaining two Statements of Accounting Concept build on the concepts

developed in the first two statements. SAC 3 addresses the qualitative

characteristics of financial information. It identifies the attributes, such as

relevance, materiality and reliability, that financial information should possess so

that it can meet the objectives specified in SAC 2. SAC 4 provides more detailed

information about the specific elements of financial statements, including criteria

for their recognition in financial statements.

In summary, the PSASB endorsed the conceptual framework as relevant to the

public sector. The public sector reporting model that exists as a result of the


conceptual framework defines the users of general purpose financial reports and

their purposes for requiring information to be identical to those for private sector

entities. In addition there has been no differentiation between the different types

of public sector entities. However these assumptions are not empirically derived

but are normative assessments made without reference to the complexity and

diversity of the myriad of accountability relationships that exist within the public

sector. It is the objective of this research to empirically test the veracity of these

assessments.

1.4 MOTIVATION FOR THE RESEARCH

The adoption of a general purpose financial reporting model for the public sector

grounded in a ‘decision-useful’ framework (as described in section 1.3) was not

without criticism (McGregor, 1999) and it is these criticisms that were the initial

stimulus for this research. The complexity of the public sector in terms of its

operating structure, sources of financing, operating motives and accountability

obligations resulted in concerns being raised regarding the appropriateness and

simplicity of this framework for the public sector (see for example, Walker, 1989;

Aiken, 1994; English, 2003).

The most fundamental of these concerns was whether a financial reporting model

primarily concerned with reporting performance in terms of profit and loss

(financial bottom line) had the capacity to adequately and fairly reflect the

performance of organizations for which the generation of profit was not the

operating motive. In other words, could a financial reporting model based on

reporting profit adequately explain the performance of public sector entities with

diverse operating motives and discharge their accountability obligations (Walker,

1989; Guthrie, 1998; Ma and Mathews, 1993; Stanton and Stanton, 1998; Conn,

1996)? This research will tease out this issue.

An issue that is closely related to the ‘decision-useful model’ is the existence and

identity of users. The private sector ‘decision-useful’ model for financial reporting


was adopted for the public sector based primarily on normative assessments of the

users of public sector general purpose financial reports and their information

requirements (Rutherford, 1992). Concern was expressed, when the adoption of

the private sector model for the public sector was suggested, that users and their

information needs in the public sector were not the same as those in the private

sector. Walker (1989) was critical of AARF publications, arguing that the

questions of identifying users, what information is relevant to those users, and the

manner in which the information is used were not based on analytical or empirical

evidence. He argued that the classifications of users and their information needs

identified in the private sector did not transpose to the public sector. There are no

shareholders in the public sector and creditors in the public sector are unlikely to

have the same information needs as those in the private sector.

Similarly, Mayston (1992) has also challenged these categories of users, arguing

that the accountability relationships in the public sector are more complex and less

well defined than those in the private sector and this has contributed to difficulties

in identifying users for public sector reports. While these authors have argued

their point from a theoretical perspective, despite the importance of the identity of

users to the model there has been very little empirical research into the

identification of users and what little has been done lacks a strong conceptual

framework (Cheng, 1992; Rutherford, 1992; Ma and Matthews, 1993). Jones

(1992) indicates that the lack of any empirical investigation is a common feature

of many conceptual framework projects in the public sector internationally. Ma

and Matthews (1993) contend that it is this lack of empirical data on users that has

raised the possibility that the existing accounting standards which are premised on

the existence of users as identified in the private sector are inappropriate for

public sector agencies. This research will provide empirical evidence on the users

of public sector financial reports and their information needs.

An expansion of the concerns noted above relates to whether or not it is

appropriate to apply the same general purpose financial reporting model to each of

the entities ( government departments, statutory authorities, government owned

corporations and local government authorities) in the public sector (Barton, 1999).


As the application of the model currently stands, SAC 1 determines that all public

sector entities are reporting entities. This means that every public sector entity

from the smallest local government authority to the federal government of

Australia has the same reporting requirements. The model as it is currently applied

does not take into account the vast diversity in size, structure, objectives, and

accountability relationships that exist amongst public sector entities. Indeed the

PSASB argued that the fact that no distinction is made between entities of any

type, either public or private, on these grounds is an important and positive feature

of the framework.10 Others, however, have argued that these differences in the

characteristics of public sector entity types indicate the necessity of the public

sector having its own unique set of accounting standards and reporting framework

(Walker, 1989; Guthrie, 1998; Ma and Mathews, 1993; Stanton and Stanton,

1998; Conn, 1996; Rutherford, 1992; Van Peursem and Pratt, 1992). Such a

framework would accommodate the differing characteristics of public sector

entity types.

These normative arguments have been supported by recent empirical research that

has identified cross-sectional variation among public sector entity types in the

distribution of their financial statements, their accountability relationships and the

way they satisfy those relationships. Ryan, Dunstan and Brown (2002) illustrate

that there are different accountability relationships amongst public sector entities

because of their differing institutional structures. Kloot and Martin (2000) have

identified differing accountability relationships amongst local government

authorities resulting in variations amongst the different entities in the value of the

annual report in discharging accountability obligations. As well there is evidence

that there are differences in the profiles of recipients of annual reports distributed

by public sector entities (Kloot and Martin, 2001; Mack, Ryan and Dunstan, 2001;

Clark, 2002) and differences among users both in respect of the information that

they require and the purposes to which they put the information (Priest, Ng and

Dolley, 1999; Collins, Keenan and Lapsley, 1991; Daniels and Daniels, 1991).

10 There is in the private sector the capacity for some entities to operate under a differential reporting regime under certain circumstances.


This research will address these normative concerns and empirical findings by

encompassing different types of public sector entities.

In summary, this study is motivated by the ongoing debate about the public sector

financial reporting model, the lack of empirical justification for its underlying

features including the identification of users, what information they require and

the purposes for which they find general purpose financial reporting useful

(Rutherford, 1992; Ma and Matthews, 1993) and its application across the entire

public sector. It is also motivated by the continuing calls for empirical research

about users and their information needs in the public sector which have to date

been unanswered (Jones, 1992: Rutherford, 1992; Ma and Matthews, 1993).

The choice of model for the production of financial reports accounting paradigm

is not neutral (Hopwood, 1984). As a consequence of the introduction of private

sector based accounting technologies, aspects of the operations of the public

sector that were not previously reduced to financial presentation are now being

reported in that manner. This in turn has the potential to affect not only the way

the public sector is viewed and assessed but also the way in which it carries out its

functions (Hopwood, 1985; Revsine, 1991; Gray and Jenkins, 1993; McCrae and

Aiken, 1994; Aiken, 1994; and Aiken and Capitano, 1995).

This thesis will contribute to the debate about the appropriateness of the model

not by further theorising or normative assessment but will instead employ an

empirical methodology to examine both the appropriateness of the public sector

general purpose financial reporting model and its application to various public

sector entity types.

1.5 RESEARCH QUESTIONS

The adoption of the general purpose financial reporting model in the Australian

public sector, despite the reservations expressed about its applicability, provides

the central research issue for this thesis.


Is the general purpose financial reporting model as described by

SAC 2 and adopted in the Australian public sector applicable to

the public sector and its constituent entity types?

In order to address this issue this research will empirically examine each of the

elements of the general purpose financial reporting model - the identification of

users, the information they require and the purposes for which they require

information. The first element in the model, users, gives the first specific research

question.

Research Question 1

(a) Who are the users of general purpose financial reports in the Australian

public sector?

(b) Are there cross-sectional variations in the user profiles of different public

sector entity types?

The second research question seeks information about the information

requirements of users of public sector annual reports.

Research Question 2

(a) What emphasis do individual categories of user place on information

contained in general purpose financial statements?

(b) What emphasis do individual categories of user place on non-financial

information contained in the annual reports of public sector entities?

(c) Are there cross-sectional variations in the emphasis placed on the information

contained in annual reports by users from different public sector entity

types?

The third research question seeks information about the purposes to which users

put information contained in general purpose financial statements.


Research Question 3

(a) For what purposes do individual categories of user consider the information

contained in general purpose financial statements to be useful?

(b) Are there cross-sectional variations in the purposes for which users from

different public sector entity types find financial statement information to be

useful?

Synthesising the answers to these individual research questions will enable a

determination of the applicability of the model to the public sector and to each of

its different entity types. The empirical evidence provided by this research will

provide policy makers with information about accounting policy and its

effectiveness in discharging accountability. It will therefore have the capacity to

impact on future policy prescriptions.

1.6 ANALYTICAL FRAMEWORK

The analytical framework used in this thesis is principal/agent theory. The formal

accountability relationship in both the public and private sectors is one of

principal and agent (or superior and subordinate), where agents are held

accountable to, and receive direction from, their principals Mulgan (2000a).

Mayston (1993) has argued that principal/agent theory is a lens through which

accountability can be viewed.

The general agency model consists of a principal(s), an agent(s), an agreed task(s)

or function, and the rendering of an account by the agent to the principal for the

performance of that task or function. The provision of an account by the agent to

the principal is to address the issue of information asymmetries and to enable the

principal to assess the performance of the agent. The reporting obligation placed

on an agent is one way in which the principal can observe the results of the

actions of the agent (Greiling, 1999). In each specific agency situation, the

composition of three of these elements (principal, agent, task) will vary, however


the overall concept of the accountability of the agent to the principal for the

performance of a defined task or function will not. As a consequence of variations

in the relationships between principals and agents, and particularly the task or

objective pursued, accountability cannot be defined by a standardized set of rules.

Further, the type of account rendered to the principal by the agent will be

dependent on the task or objective performed or satisfied by the agent (Levaggi,

1995). In other words, while the need for accountability is not a variable in an

agency relationship, what is accounted for and how it is accounted for are.

Broadbent and Laughlin (2003) expand on defining the principal/agent

relationship advocating that it is a relationship that can be viewed in terms of a

continuum. At one extreme, the agent has control of an asset for a broad purpose

and the ability to define that purpose and the way it will be accounted for. At the

other end of the continuum, the agent has control over an asset but there are clear

expectations about how the asset is to be used and the actions of the agent together

with how the agent’s actions will be accounted for. They argue that at all points

along the continuum the agent has differing amounts of autonomy resulting in

differing needs for accountability mechanisms to ensure that the agent is

complying with the wishes of the principal. As a consequence, there is no

universal definition of the principal/agent relationship, defining that relationship

will be dependent on the context in which it is conducted.

The principal/agent relationship is arguably somewhat easier to define in the

context of the private sector where the lines of accountability and the objectives

(the task for which agents are held accountable) are straightforward and where

participants, be they principals or agents, participate voluntarily. It is generally

accepted that the accountability relationships in the private sector are fewer and

less diverse in their nature than in the public sector (Parker and Gould, 1999;

Guthrie, 1998; Mulgan, 2000b). In the private sector, the predominant

accountability relationship is between management and shareholders for the

management of the financial resources of the shareholders. While other

stakeholders such as employees, customers and the community may be

acknowledged, they are not the primary focus of management. Indeed, in both the


USA and Australia, business leaders and regulators have strongly indicated that

were a private sector board to respond to issues in a way that went beyond the

traditional focus on shareholders then they would be abrogating their duty to those

shareholders (US Business Roundtable, 1997; Humphrey, 1999).11

In the public sector, the principal/agent relationship is more difficult to define.

Differences in the features of the public and private sectors are indicators of the

complexity of principal/agent relationships in the public sector. One source of

differences between the two sectors which contributes to differences in the

accountability relationships in the private sector compared to those in the public

sector is who provides the resources and the kinds of activities the resources are

used for (Mullgan, 2000a). In the public sector, involuntary taxpayers provide

resources without any expectation of a fair exchange. Funds are not paid for

particular goods or services as they are in the private sector and there is no

correlation between amounts paid and services received. In the private sector,

resource providers participate voluntarily and expect a correlation between

amounts paid and goods or services received. In the public sector, the in-

voluntary nature of the relationship and the non-reciprocal nature of the

transactions mean that there is a greater emphasis on process (Mullgan, 2000a;

Barton, 1999; Barrett, 2000). As a consequence, the principal/agent relationship in

the public sector is not only concerned with results, as is the private sector, it also

encompasses accountability for the way in which results were achieved.

A second source of difference between the private and public sectors is the

overarching purpose of the activity. Parker and Gould (1999) note that in the

public sector the agenda is largely politically driven with decisions being coercive

and legislatively based rather than market driven as in the private sector. Barton

(1999) argues the markets in which each sector operates differentiates the two

sectors. While the private sector operates in the market for private goods where

the primary objective is the generation of profit, the public sector operates in the

market for public goods where the objectives include social, equity and

11 It should be noted that the large corporate collapses in the US have impacted on this attitude.


community purposes. Parker and Gould (1999) also note that the complex and

interwoven objectives of the public sector, including political, social and

economic objectives subject the public sector to different constraints than those

encountered in the private sector where the generation of profit is the major

objective. Because governments operate for fundamentally different purposes than

business enterprises, it is reasonable to expect that measures of their performance

will also be different. The impact of there being no bottom-line or profit measure

that is universally applicable to the public sector is indicative that conventional

business enterprise financial statements can’t measure all aspects of performance

in the public sector (Ives, 1987).

A third source of differences between the public and private sectors can be found

in the environment in which they operate. The Westminster system of government

encompassing ‘ministerial responsibility’ results in there being more levels of

accountability in the public sector than there are in the private sector. There are

multiple accountability relationships among public sector managers, government,

parliament, citizens and service recipients. The nature of these accountability

relationships is complicated by the fact that, as already noted, in the public sector,

these relationships are sometimes non-voluntary. In short, the principal/agent

relationships (and hence accountability) in the public sector when compared to

those in the private sector are characterized by multiple principals, multiple agents

and multiple objectives.

Broadbent and Laughlin (2003) address the problems posed by the principal/agent

relationships and how they may be resolved. They identify two different streams

in the principal/agent literature. While both streams acknowledge the assumption

that agents are self-seeking and that mechanisms must be devised to ensure that

agents act in the best interests of the principals, they differ in the manner by which

they propose to accomplish this. The first stream of literature, which could be

described as a contractual response, has concentrated on designing and refining

contracts to align the interests of agents with principals and therefore control their

actions. This response to the agency problem is most suited to those situations

where the accountability relationship is well defined and easier to control. Much


of the accountability literature in the private sector, where the accountability

relationships are less complex and consequently easier to control, is placed in this

first stream.

The second stream recognizes that accountability relationships between principals

and agents that are complex and open-ended or not explicitly defined are not

easily monitored by contracts. Consequently, this stream has concentrated on the

use of different forms of accountability mechanisms as a means of ensuring the

behavioural compliance of the agent. This literature recognises that the level of

control that can be exercised by principals over agents may differ. This is

particularly the case in the public sector. Broadbent and Laughlin (2003) note that

a particular feature of public accountability is that governments are accountable

for authority that has been granted to them rather than for responsibility that has

been granted to them as is the case in the private sector. Consequently, public

accountability is more open-ended and less able to be controlled (Day and Klein,

1987).

These differences have important implications for the choice of a framework to

underpin the preparation of general purpose financial reports. The contractual

response to the principal/agent problem dominates the private sector ‘decision-

useful’ framework. The adoption of the same ‘decision-useful’ framework in the

public sector implies that the principal/agent problem in the public sector is also

able to be satisfied by this contractual response. A key issue of this research is

whether the more complex accountabilities in the public sector, resulting from the

complexities of the principal/agent relationship in that sector, can be satisfactorily

discharged by general purpose financial reports prepared under a ‘decision-useful’

framework.

1.7 STRUCTURE OF THESIS

The next chapter of this thesis will review the extant literature on the two

competing paradigms for financial reporting – the ‘decision-useful’ model and the


accountability model. It will also review the prior literature both normative and

empirical that has identified users of general purpose financial information and

their information needs in a public sector environment. Chapter Three will explain

the research method employed in this research whilst the following three chapters

will report the results. Chapter Seven will address the central research issue of the

applicability of the general purpose financial reporting model to the public sector

and its constituent entity types. It will do this by synthesising the individual

elements of the model examined in chapters Four to Six to determine if the

empirical identification of the elements of the model for the entire public sector

and for each public sector entity type corresponds to the normative description of

the model contained in SAC 2. The final chapter will form conclusions and

discuss any implications from the findings.

1.8 STYLE ADOPTED

This thesis has used the Harvard system for all referencing. It has used footnotes,

with the footnote number appearing at the end of the sentence unless it was clearer

to place it elsewhere. It has also conformed to the regulations prescribed by the

Faculty of Business with regard to the presentation and structure of theses.

Frequently used names of organizations or documents will be spelt out in full

followed by the acronym in brackets in the first instance and thereafter only the

acronym will be used. Except where they begin a sentence, numbers above nine

will be expressed in figures (Lewis, 2002).

1.9 SUMMARY

This chapter has provided a brief description of the changes that have occurred in

the public sector not only in Australia but also in many western democracies. It

has described the institutional environment in which public sector accounting and

reporting is regulated in Australia before describing the role of annual reporting in

the public sector and the public sector general purpose financial reporting model


that has been adopted in Australia. In the fourth section of the chapter the

analytical framework for the research was presented. Some of the dilemmas

posed by researchers about this model have been presented before providing the

motivation for this research. The final three sections of this chapter identified the

research questions, reported the structure of the remainder of the thesis and

clarified the style of the thesis.

25

CHAPTER TWO

LITERATURE REVIEW

The purpose of this research is to determine the applicability of the ‘decision-

useful’ model of financial reporting that has driven the financial reporting reforms

in the public sector in Australia. One way to assess the applicability of the model

to the public sector is to examine it in the context of the objectives that are

required of general purpose financial reporting in the public sector. The first

objective of this chapter is to examine the literature pertaining to the two

competing models for general purpose financial reporting – accountability and

decision-usefulness. The second objective takes a narrower focus and examines

the extant literature pertaining to the elements of the ‘decision-useful’ model – the

identification of users, what information they require and the purposes for which

they require information. This examination will include both the normative and

empirical research. The chapter will end with a brief summary.

2.1 THE HISTORICAL DEVELOPMENT OF THE MODELS FOR GENERAL PURPOSE FINANCIAL REPORTING

After many years of stability, there have been substantial changes to the form and

content of Australian public sector annual reports, including general purpose

financial reports. Until the last two decades of the twentieth century, the primary

motivation or objective of financial reporting in the public sector was the

discharge of accountability (and the associated concept of stewardship)

(Normanton, 1971). Indeed, until fairly recently, accountability was also the

objective of financial reporting in the private sector (Frese and Mautz, 1972;

Ronen, 1979; Tower, 1993; Coy, Fischer and Gordon, 2001).

Chapter Two: Literature Review

26

2.1.1 Underlying concept of ‘decision-usefulness’

In the last thirty years the focus for providing accounting information has shifted

in the private sector to that of decision-usefulness (Coy, Fischer and Gordon,

2001). The decision-usefulness model for the provision of general purpose

financial reports as the name suggests is based on the premise that there are users

who require accounting information for the purpose of making economic

decisions. The rise of managerialist philosophies in the public sector and with

them the adoption of more private sector type structures has also seen the

adoption of the ‘decision-useful’ model for general purpose financial reports in

the Australian public sector.

The decision-useful objective for general purpose financial reporting emerged in

the USA in the late 1960’s (Beaver, 1989). The ‘decision-useful’ model is

essentially a market based model that assumes that the making of rational

decisions, facilitated by the availability of appropriate information, will result in

the efficient allocation of resources (Coy, Fischer and Gordon, 2001). In 1966 the

Americain Accounting Association (AAA) defined accounting as being concerned

with providing economic information to users so they could make informed

decisions (Hyndman, 1990). Specifically, the American Accounting Association’s

A Statement of Basic Accounting Theory defined accounting as:

The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information (AAA, 1966, p. 1)

It was ‘officially’ recognized for the first time in 1970 when the American

Institute of Certified Public Accountants (AICPA)12 issued Accounting Principles

Board Statement No. 4 – Basic Concepts and Accounting Principles Underlying

Financial Statements of Business Enterprises, (APB 4, para 73) in which it stated:

12 The AICPA is the national professional association of accountants in the US.


27

The basic purpose of financial accounting and financial statements is to provide quantitative financial information about a business enterprise that is useful to statement users, in making economic decisions.

Clearly identified in this statement are the three elements of the model - the

concepts of users, their needs for quantitative financial information and the

making of economic decisions. In the same paragraph APB 4 also acknowledged

accountability as an issue that would be addressed as a consequence of providing

information useful for making decisions.

Several other statements that promoted the ‘decision-usefulness’ model followed

the publication of APB 4. The Trueblood Report from the AICPA embraced the

concept of financial reports being useful for decision making by shareholders and

creditors. In 1978, the Financial Accounting Standards Board (FASB)13 in

Statement of Financial Accounting Concept (SFAC) No 1 Objectives of Financial

Reporting by Business Enterprises also adopted the concept that financial

statements should provide information that is useful for the investors and creditors

of business organizations to make economic decisions. The importance of the

‘decision-useful’ objective for general purpose financial reporting in the private

sector was further strengthened with the issue of SFAC No 2. Qualitative

Characteristics of Accounting Information. This placed the concept of ‘decision-

usefulness’ emphasizing the importance of users’ information needs at the top of

the hierarchy of accounting qualities.

‘Decision-usefulness’ as an objective of financial reporting was adopted outside

the private sector (in the public sector and the not for profit sector) in the USA

with the adoption of Statement of Financial Accounting Concept No 4, Reporting

Objectives of Non-business Organisations by the FASB in 1980. SFAC 4 (para.

35) proclaimed that:

13 The FASB is an independent private non-government group which is authorised by the accounting profession to set accounting standards in the private sector.


28

Financial reporting by non-business organizations should provide information that is useful to present and potential resource providers and other users in making rational decisions about the allocation of resources to those organizations.

The National Council on Governmental Accounting’s Concept Statement 1,

Objectives of Accounting and Financial Reporting for Governmental Units issued

in 1982 emphasized the provision of information useful for decision-making

(Robbins, 1984). Over the next several years this ‘decision-usefulness’ based

model was adopted by most western democracies in both the public and private

sectors (Jones, 1992). Both the British Accounting Standards Committee (1975)

and the Canadian Institute of Chartered Accountants (1980) expressed similar

views on the objective of accounting information (Hyndman, 1990).

In an Australian context, SAC 2 issued in 1990, defined the objective of general

purpose financial reporting as being to provide information to users that is useful

to them for making decisions about the allocation of resources. The ‘decision-

useful’ model has as its focus the role of accounting information in facilitating the

activities of essentially economically motivated principals and agents (Williams,

1987). The PSASB claimed that accountability obligations would be met under

such a framework because it concluded that the provision of information for

accountability purposes must, rationally, have a decision-making focus. The

implications of this assumption deserve further examination and are considered in

section 2.3. The next section examines the two models for general purpose

financial reporting.

2.1.2 General purpose financial reporting models

Reporting is an important element in both the accountability model and the

‘decision-useful’ model (Ijiri, 1983). At a very general level, the accountability

model while defining the parties to the accountability relationship and the subject

of the relationship, does not necessarily define either the information to be shared

or the purposes for which that information will be used. However, it does imply


29

that reporting is a key mechanism by which to discharge accountability. In

contrast, the ‘decision-useful’ model emphasises specific users having needs for

financial information to make specific decisions. Because of the specificity of the

elements of the accountability relationship, it could be argued that the ‘decision-

useful’ model could be considered to be a particular subset of the accountability

model.

The determinants of information disclosure under each of the two models

illustrate the differences between the two frameworks. Within an accountability

framework information is disclosed for the benefit of both parties to the

accountability relationship. The information disclosed in an accountability model

protects the interests of the accountee (principal) by ensuring that the accountee

receives the information needed but it also protects the accountor (agent) by

defining the limit of information disclosure. In contrast in a ‘decision-useful’

model, information is disclosed only in so far as it is useful for making economic

decisions. In a ‘decision-useful’ model where only information that is useful in

making economic decisions is disclosed, agents do not have to consider the nature

of the accountability relationship (Ijiri, 1983).

The ‘decision-useful’ model for general purpose financial reporting, limited as it

is to the provision of information for making economic decisions, can not provide

information about such issues as equity and accessibility (Williams, 1987; Parker

and Gould, 1999; Coy, Fischer and Gordon, 2001). Ijiri (1983) and Williams

(1987) contend that accountability cannot be subsumed by decision-usefulness as

they perceive decision-usefulness to be ends focused in so far as it provides

information for a specific purpose, and accountability to be means focused as it is

concerned with one party giving an account of its actions to another.

Consequently the key question arising from the adoption of the ‘decision-useful’

model in the public sector is whether or not the accountability relationships that

exist in the public sector are able to be satisfied under this model. To answer this

question an understanding is needed both of the concept of accountability, the

accountability relationships in the public sector and the nature of public


30

accoutability. An understanding of these issues will be important in analyzing the

results of the empirical work.

2.2 THE CONCEPT OF ACCOUNTABILITY

Accountability is a term used in many contexts –social, political and business and

it is regarded as an important tenet in all of these arenas (Cummings and Anton,

1990; Ferris et al., 1995). Despite the frequent use of the term, at a general level

of understanding it is a difficult concept to define precisely (Normanton, 1971;

Sinclair, 1995; Mulgan, 2000a). Dictionaries provide a broad generic definition,

for example The Oxford English Dictionary (1989) defines accountability as –

‘the quality of being accountable; liability to give account of and answer for

discharge of duties or conduct’.

Different disciplines define ‘accountability’ differently, to some extent based on

what is being accounted for. Sinclair (1995) notes, for example, that auditors will

view accountability in financial terms, political scientists see accountability as

focusing on policy matters and philosophers consider accountability in terms of

an ethical framework.

Despite the difficulties in formulating a definition of ‘accountability’ several

researchers have attempted to do so. Mulgan (2000a) and Stewart (1984) have

focused on the relationship between parties arguing that accountability can only

exist when there is a relationship of authority between two parties, as there is for a

principal and agent and a superior and subordinate. Mulgan (2000a: 87) has

defined accountability as ‘obligations that arise within a relationship of

responsibility, where one person or body is responsible to another for the

performance of particular services’. Glyn and Murphy (1996) assert that

accountability is in broad terms the process by which a person or group can be

held accountable for their actions. Gray and Jenkins (1993) argue that

accountability is the obligation to present an account of, and answer for, the

execution of responsibilities to those who entrusted those responsibilities.


31

Accountability in the accounting literature is defined in much more specific terms

especially in relation to what is accounted for. SAC 2 (para 5) defines

accountability as:

the responsibility to provide information to enable users of financial statements to make informed judgments about the performance, financial position, financing and investing, and compliance of the reporting entity in question.

This definition focusses almost exclusively on accountability for financial matters.

In its narrowest perspective accountability arises from a contractual arrangement

in which a principal requires an agent who has been entrusted with resources to

supply an account of the management of those resources. This is the view of

accountability adopted by agency theorists (Watts and Zimmerman, 1986). In the

profit driven private sector accountability in this context will typically result in

the provision of financial statements to disclose the financial results of the agent’s

actions. Accountability from this legalistic agency theory perspective is

exclusively concerned with financial accountability, which may or may not be

regulated (Mouck, 1994). With this view of accountability, there is no explicit

interest in process or the manner in which the agent used the resources, other than

perhaps the legality of those actions.14

Despite variations in views about what constitutes accountability there is general

agreement that accountability stems from a relationship in which one person

accounts for their actions to another within a particular context. It is the concept

of the accountability relationship that is the subject of the next section.

14 This approach to accountability has developed over time in concert with the growth and development of company structures. The late nineteenth and twentieth centuries saw firms grow beyond the capacity of a single owner to control eventually resulting in the current situation where modern corporations typically have multiple owners who were not necessarily involved in the management of the firm. As a result of this separation of ownership and management, agency theorists argue that principals and agents will enter into monitoring and bonding arrangements to maximize their own utility (Jensen and Meckling, 1976). In more recent times agency theory and the relationship between principals and agents has received wide acceptance amongst many economics and accounting academics as a means of conceptualizing and analyzing the operations of the modern corporation. In agency theory owners are the principals as they entrust the management of the corporation to executives – the agents (Watts and Zimmerman, 1986).


32

2.2.1 Public sector accountability relationships

Accountability exists as the result of a relationship. For that relationship to be

fully described three aspects need to be defined. First, the identities of the parties

to the relationship must be identified, that is, who is accountable and to whom that

person is accountable. The second aspect is what is the accountable person

accountable for, and third aspect is how is the accountability exercised or

discharged (Thynne and Goldring, 1987, p.8-9).

There is a considerable literature pertaining to the description of accountability

relationships in the public sector. Gray and Jenkins (1993), while agreeing that in

essence accountability is the obligation of the agent to present an account of and

answer for the execution of the responsibilities entrusted by a principal, identify a

further element to the accountability relationship - a code of accountability. Gray

and Jenkins (1993) explain a code of accountability as the system of meanings

and customs that are central to the principal and agent in the establishment,

execution and judgment of their relationship. This code enables them to classify

accountability in a number of ways. They identify internal and external codes.

Internal codes are specifically developed to deal with a particular relationship.

External codes have a generic element in that they have already been established

in a general sense and are then used in a specific relationship. A further way in

which Gray and Jenkins argue that accountability can be classified is that it can

either relate to standards of outcome, or standards of execution, or process. In this

classification system codes based on standards of outcomes will be based on such

things as the meeting of targets, or the achievement of specified outcomes. Codes

relating to process will be more concerned with due process and equity, with little

emphasis on the outputs or outcomes themselves but greater emphasis on the way

in which those outputs and outcomes were achieved. As a subset of these codes,

Gray and Jenkins identify financial, professional and managerial codes of

accountability. The distinctions between these codes reflect the different

influences on the practice of accountability.


33

Mulgan (1997) attempts to unpack the meaning of accountability by identifying

the processes that accompany an accountability relationship. The most obvious

process associated with accountability is the giving of an account by the accountor

to the accountee. In essence this is a reporting or information function where the

person who is obliged to give an account of their actions reports to the person who

has the right to hold them responsible or who is able to demand such an account.

The giving of an account may also involve explaining and justifying actions taken

by the agent to the principal. Mulgan (2000b) argues that while accountability is

a word that was used only rarely and within a relatively restricted range of

meaning it is now used much more often in many different contexts. As a result he

argues that the concept of accountability has lost its uncomplicated meaning of

one party being called to account for their actions to another party and is now a

concept needing constant clarification, a notion also put forward by Patton (1992).

As discussed in the previous section, while it is possible to determine an overall

definition for accountability it is only in a specific context that a precise definition

of who is accountable, to whom and for what they are accountable can be

determined. Generic definitions sacrifice important dimensions of meaning.

Patton (1992) indicates that if the purpose of the account varies so will the bases

of accountability and as a consequence the type of information or disclosures may

also vary.

Stewart (1984) has identified several ‘bases of accountability’ which he refers to

as a ladder of accountability. This ladder starts with accountability by standards

and moves to accountability by judgment. The bases of accountability that he

identifies are – accountability for probity and legality, process accountability,

performance accountability, programme accountability and policy accountability.

Each of these bases of accountability defines a different area of accountability that

can exist in an accountability relationship. This is an hierarchical model of

accountability. Not all these types of accountability will be part of every

accountability relationship and the extent that they are part of an accountability

relationship will be dependent on the nature of that relationship.


34

Birkett (1988) classifies types of accountability. First, he identifies a ‘communal

accountability’ in which individuals accept an obligation to behave in a way that

conforms to a group norm and to be answerable to that group for their behaviour.

By being part of the group, individuals accept that their behaviour will be judged

by the group in relation to the group norms and that if necessary penalties will

result from that judgment. Second, he identifies ‘contractual accountability’ which

is the form of accountability associated with agency theory. Birkett describes

contractual accountability as applying in the situation where a principal

relinquishes control of resources to an agent knowing that there is some risk

involved in this. The principal however mitigates against this risk by requiring the

agent to provide information about the activities with regard to those resources

and by having the right to have the information supplied by the agent verified.

The third type of accountability that Birkett identifies is that of ‘administrative

accountability’. Administrative accountability occurs when a subordinate is given

the responsibility for some aspect of performance and that responsibility is

monitored by the superior as a result of which rewards or penalties may be applied

Sinclair (1995) took an empirical approach to examining accountability

relationships. She surveyed chief executive officers of government agencies to

determine how they understood and practised accountability. She identified five

separate types of accountability - political, public, managerial, professional and

personal. Chief Executive Officers saw themselves as being accountable at

several different levels. Political and public accountability acknowledge the place

of Chief Executive Officers in the accountability chain of the Westminster system

of government and, as well, an accountability relationship to members of the

public and to interested community groups. Managerial accountability refers in

this context to the accountability that the chief executive officer has for the

running of the entity for which he has responsibility. It is concerned with the

administration of inputs and resources and for outcomes. Professional and

personal liabilities are both accountabilities that an individual has on his own

behalf.


35

What is clear from this synthesis of the literature pertaining to accountability

relationships in the public sector is that they can be viewed from different

perspectives. Several methods of classifying accountability have been identified.

Further, the empirical work of Sinclair (1995) identifies multiple accountabilities

for senior public sector managers. An understanding of the concept of

accountability in the public sector depends not only on an understanding of the

accountability relationships but also on an understanding of the nature of public

accountability.

2.2.2 Public accountability

Public accountability is a complex issue, however, several researchers have

addressed its definition. Normanton (1971, p.313) describes public accountability

as being the accountability that exists when there is ‘no clear master-servant

relationship; public accountability means reporting to persons other than to one’s

own superiors who have the power to make open criticism’. Coy, Fischer and

Gordon, (2001, p. 8) assert that ‘public accountability refers to the public right to

know about the condition and performance of the organization under the

accounter’s charge’. These definitions acknowledge the absence of a direct

relationship between the accountor and the accountee. They display some

resemblance to Pallot’s (1991) notion of individualist and community models of

ethics.

Taylor and Rosair (2000) provide a selection of definitions of accountability in a

public sector context as provided by prior literature. They note that intrinsic to the

definitions is the idea that there is a right by particular parties to call on other

parties to provide information on issues of compliance and performance. Taylor

and Rosair suggest that the traditional model of accountability in the public sector,

fiduciary accountability, which focused on accountability for allocated funds, has

been expanded to include a managerial accountability in which the entity is also

accountable for the efficiency and effectiveness with which it uses those funds.

Ryan (1995: 53) who indicated that ‘there is general agreement that accountability

now implies notions of performance’ has previously voiced this view.


36

Taylor and Rosair (2000) note that this emphasis on performance is problematic

in the public sector where there is no universal or ultimate performance indicator

as exists in the private sector. Sendt (2000), the New South Wales Auditor-

General, also acknowledges the importance of the notion of accountability for

performance. He argues that simple bottom line measures of performance do not

have much meaning for many of the activities that governments are engaged in

and that instead information on the effectiveness of the operations of government

would be more useful.

In a political context, Mulgan and Uhr (2000: 2) states that:

The term ‘public accountability’ refers to an important range of accountability practices, covering all those types of accountability which are for important reasons of democratic legitimacy, acted out in public with the aim of generating a public record of performance open to community examination and debate.

These comments indicate that there are a variety of not only public

accountabilities but also accountability mechanisms. Public accountability

encompasses what has been termed the ultimate accountability when the

government is brought to account at an election. Mulgan and Uhr argue that the

Australian system of responsible government, at least in a formal way, is

dependent on this idea of the public using their vote to hold governments to

account. This electoral accountability that Mulgan and Uhr refer to is

supplemented by other mechanisms of accountability. Many of these, as would be

expected, are centred on Parliament – which has the dual purposes of providing a

government and then subjecting that government to scrutiny. It is in the role of

scrutineer that accountability mechanisms are important.

Focusing more precisely on what governments are accountable for, the

Governmental Accounting Standards Board (GASB) in the US in its Concept

Statement No. 2 provides three perspectives on accountability. They first

determine that accountability can be viewed from an accounting perspective in

which the emphasis would be on accounting for financial resources, compliance


37

with legal requirements and administrative policies, efficiency and economy in

operations and the results of government programs and activities. They also state

that accountability can be viewed from a functional perspective as it was by

Stewart in his ladder of accountability. From this perspective accountability is

viewed in terms of probity and legality, process and policy for example. The last

perspective is that accountability can be viewed from the key characteristics of the

accountability system that may include a focus on outcomes, the public reporting

of outcome information, and the use of performance indicators.

A common feature of all of these comments or views of public accountability is

that public accountability encompasses more than merely accounting for, and

reporting on, financial stewardship. Public accountability also requires agents to

account for the way in which they have managed the resources from both an

administrative and political perspective. Public accountability includes

accountability for policy, process and equity (Jubb and Kelso, 1998). It has been

argued that the current focus on financial accountability in the public sector will

result in an erosion of public accountability as the information provided to meet

financial accountability purposes does not provide information about such issues

as fairness, equity and process (Williams, 1987; Parker and Gould, 1999; Coy,

Fischer and Gordon, 2001; Jubb and Kelso, 1998). The importance of the choice

of a reporting framework that adequately discharges the accountability obligations

of the public sector is considered in the next section.

2.3 IMPLICATIONS OF THE CHOICE OF REPORTING MODEL

The accounting and reporting framework adopted by an organization or group of

organizations is not a trivial matter. Several researchers have argued that the

choice of an accounting and reporting framework has social and public policy

implications for public sector entities including government owned corporations

(Ijiri, 1983; Hopwood, 1984; Revsine, 1991; Gray and Jenkins, 1993; McCrae and

Aiken, 1994; Aiken, 1994; Aiken and Capitano, 1995). Hopwood (1984, p.170)

argues in reference to accounting that ‘as a means of collecting and reporting


38

selective patterns of information it has played a not insignificant role in the

construction of public organizations and policies’. Accounting from this

perspective is a construct that plays an active role in the management of public

sector organizations. In particular, Aiken and Capitanio (1995) claim that the

adoption of accrual accounting techniques in the public sector have contributed to

a lack of goal congruence and financial control amongst the entities that comprise

the public sector. As a consequence macro-economic planning and control as they

have been practised are compromised as the public sector, at least at an unofficial

level, becomes fragmented. As a tangible example of the adoption of a particular

reporting framework they warn that the subjectivity introduced by accrual

accounting techniques has placed many parliamentary conventions at risk.

This argument is supported by others who have argued that the information

provided and reported by accounting systems is viewed by some researchers as

being a tool that can create its own reality (Hopwood, 1984; Wilmott, 1985;

Hines, 1988; Guthrie, 1998; Boyce, 2000). Further, these researchers contend that,

accounting systems have the capacity to influence the direction that organizations

and entities will take in the future because of the emphasis placed on particular

information and the aspects of an organization that the accounting system has

made visible. It follows that those who have the power to determine what is

reported from accounting systems also have the ability to convey their own values

and concerns and thus perhaps influence policy and its subsequent assessment.

This contention is elaborated by Ijiri (1983), who indicates that the adoption of

either an accountability framework or a decision-usefulness framework will

critically affect the financial reporting model. The models that result from the

adoption of either framework result in differences in the information provided.

Ijiri’s contentions are supported by the prior research of Gjesdal (1981) who, in an

empirical analysis, determined that the criteria of stewardship informativeness and

decision-making informativeness were not identical and that as a consequence

there is reason to differentiate between the two.


39

Hood (1995) and Miah (1991) argue that accountability in the era of New Public

Management is moving towards the concept of accountability for financial

outcomes. An aspect highlighted from the adoption of a particular accountability

framework is that the risk in adopting a focus on accountability for financial

outcomes will result in accountability for the effectiveness and quality of service

being avoided because they cannot be quantified. If the pendulum should swing

back towards a focus on social and equity dimensions of government then

accountability may lessen its focus on financial outcomes and move towards a

new model. As Ghobadian and Ashworth (1994) note, financial measures alone

are insufficient to obtain a complete measure of performance. A full measure of

accountability requires more than accountability for financial outcomes (Kloot

and Martin, 2001). Potter (1999) argues that the adoption of accrual accounting

techniques in the public sector has been to deny the complex social and political

implications of accountability in the public sector and instead to reduce that

accountability to a process which is technical and financial.

A further aspect that needs to be considered in the adoption of a particular

framework is the volume of information to be provided. The adoption of a

‘decision-useful’ model for discharging accountability has the capacity to reduce

the volume of information provided. The ‘decision-useful’ model is likely to

provide less information than is required in the public sector as it does not include

reporting on such things as process and equity, which are important to the public

sector (Coy, Fischer and Gordon, 2001).

In essence, the identity and relationships between principals and agents in the

public sector has been the subject of much debate. However, the debate becomes

further complicated when the nature of what is being accounted for (the task) is

considered. In the main this dialogue is advanced through an understanding of the

literature on public accountability. It has been argued that the ‘decision-useful’

model for general purpose financial reporting, limited as it is to the provision of

information for making economic decisions, can not provide information about

issues such as fairness, equity and accessibility (Williams, 1987; Parker and

Gould, 1998; Coy, Fischer and Gordon, 2001). Synthesis of the literature indicates


40

that public accountability cannot be satisfied by the provision of general purpose

financial reports based on the ‘decision-useful’ concept. The ‘decision-useful’

model does not capture either the complexity of the relationships in, or the

multiple objectives of, the public sector. Further, the adoption of the ‘decision-

useful’ model for the public sector has significant ramifications for information

disclosure.

2.4 LITERATURE ON THE ELEMENTS OF THE ‘DECISION-USEFUL’ MODEL

While the first objective of this chapter was concerned with examining the

literature pertaining to the two competing models for general purpose financial

reporting, the second objective of this chapter is to examine research that has

investigated the individual elements of the ‘decision-useful’ model for public

sector general purpose financial reporting. This research stream has sought to

address the issues of the identity of users of public sector reports, what

information they require and why they require it.

The approaches to identifying users and their information needs that have been

adopted by prior research can be broken into three groups reflecting three

different methodologies. First, there are those studies that have used normative

arguments to identify user groups or classifications and to, in some cases,

normatively determine the likely information needs of those users. Second, there

are studies which have used these normatively identified classifications of users to

either further investigate the identification of user groups or their composition, or

to determine the information requirements or preferences of users and their

purposes for requiring information. Walker (1995) argues that the most common

approach taken by these first two groups of studies has been to identify users and

their information needs primarily based on those users either specified or implied

by the ‘decision-useful’ paradigm. A third group of studies has taken an entirely

different approach in that they have sought to empirically identify actual users and

their information needs within the context of specific entities, almost from a


41

grounded theory perspective. These studies are not therefore necessarily

influenced by either paradigm. Each of these groups will be examined separately.

2.4.1 Normative user literature

One method that has been used to identify users is a theoretical approach whereby

a researcher or group of researchers identify users based on normative

suppositions rather than empirical evidence (Van Daniker and Kwiatowski, 1986;

Atamian and Ganguli, 1991; Lapsley, 1992; Walker, 1995). One of the first bodies

to attempt an identification of users of public sector (governmental) financial

reports in this manner was the US National Committee on Governmental

Accounting in 1968. This body produced a report entitled Governmental

Accounting, Auditing, and Financial Reporting which identified six classifications

of users. Internal management was identified as the primary user of governmental

financial reports by this study although it is a group specifically excluded by the

Australian standard setters. Other users identified were legislative and governing

bodies, general public, investors and creditors, other governments and public

interest groups. Interestingly the 1980 revision of this report changed the

classifications previously established and excluded internal management as a user

group. This turnaround is especially interesting in light of the Coy et al., (1997)

study that empirically identified internal management as a significant user group.

The seminal work in the area of users of public sector financial reports is that by

Anthony (1978). Anthony suggested that in order to be useful any list of user

groups must be brief. His study normatively identified five categories of user;

governing bodies, investors and creditors, resource providers, oversight bodies,

and constituents. The majority of subsequent normative work has either adopted

these categories of users as a basis for further conjecture or re-classification or

taken them as given and examined information needs issues (Walker, 1995).

In a local government context several researchers have normatively identified

user groups. Davidson (1977) identified four groups into which potential users of

financial statements for state and local governments could be classified. He


42

identified the general public, investors and creditors, employees and potential

employees and finally elected and appointed officials of the entity. Coopers and

Lybrand (1978) formulated a list which had some similarities to the list compiled

by Davidson but also included oversight agencies and municipal management.

The list of categories produced by Burton (1979), as the result of a roundtable

discussion by a group of accounting professors, also identified four categories of

users. This study, while it included citizens and voters as users only did so on the

condition that they were ‘informed’. Businesses and labour leaders were included

subject to the condition that they are decision-makers.

Also in a local government authority setting a US study by Drebin, Chan and

Ferguson (1981) identified resource providers, resource allocation decision

makers, elected officials and the electorate and external parties involved in

transactions with the entity as major user groups. In 1985 a working party of the

Canadian Institute of Chartered Accountants identified constituents, elected

officials, developers, employees, government, investors and lenders as the

principal user of local government authority annual reports (CICA, 1985).

Within a state and local government context, Jones et al., (1985) undertook a

study to identify users and their information needs. This study used two

overarching concepts in its approach to normatively identifying users. First, they

considered that the number of users should be small and second that external

financial reports should meet the needs of users with limited access to internal

information. Using these concepts they identified three groups of users – citizen

groups, investors and creditors and legislative and oversight bodies. They

specifically excluded internal management as a user group because they were not

captured by the second concept of not having access to internal information.

Other researchers have also determined similar lists with varying amounts of

commonality identifying user classifications ranging in number, from one to nine

(Davidson, 1977; Holder 1980; US and Canadian Auditors General, 1985; Drebin

et al., 1981). Common user groups identified by these studies and many of those

discussed earlier are citizens, lenders, resource providers and elected officials. A


43

significant feature of all the studies that have attempted to normatively identify

users of general purpose financial information is that none have identified

resource recipients other than under the general heading of citizen or taxpayer.

Whilst these studies have been important in determining the direction of not only

normative work but also the direction that empirical work has taken they have

been the subject of criticism. One primary criticism is that studies of this type

cannot, because of their nature and because they fail to investigate actual use,

capture the complexities and variations of the environments in which financial

reports are produced in the public sector (Lapsley, 1992). A further criticism has

been that the failure of these studies to conduct any empirical testing of the

validity of their classifications of users has resulted in there being no

identification by these studies of any hierarchy of users or their information needs

(Griffin, 1982; Lapsley, 1992).

2.4.2 Studies that have focussed on pre-determined classifications of users

Table 2.1 summarises the prior research which spans the three research issues

across the different public sector entity types.15 This table indicates for each study,

the element of the ‘decision-useful’ model that it was investigating, the

government entity type which formed the context of the study and whether or not

the study had used representatives from normatively generated lists of users or

had directly accessed users from specific entities.16 This table provides a broad

overview of the research and the areas covered by individual studies.

15 Local government authorities, state governments and government departments and tertiary institutions. 16 As well a number of studies that have investigated the importance of report format have been included as a subset of those studies that have investigated the information needs of users.


44

TABLE 2.1 Factors investigated by prior user studies

Study Author/Date/Country Literature Direct Who are The The impact The Public sector entity type generated Access users? information of report purposes requirements format for S 2.4.2 S 2.4.3 of users requiring information Patton (1976) USA * * State government Raman (1979) USA * * Local Government Van Daniker & Maschmeyer * * State Government (1979) USA Robbins (1984) USA * * Local Government Jones et aI., (1985) USA * * * * State & Local Government Gaffney (1986) USA * * State Government Van Daniker and Kwiatowski * * State Government (1986) USA Butterworth et al., (1989) UK * * Local Government Hay and Antonio (1990) USA * * * State & Local Government Daniels and Daniels (1991) USA * * * State & Local Government Atarnian and Ganguli (1991) * * Local Government USA Collins et aI., (1991) UK * * Local Government Hay (1994) NZ * * Government Departments Coy et aI., (1997) NZ * * * T'ertiary Institutions GASB, (1995) USA * * Aliiarde (1997) Spain * * * * Local Government Jones and Puglisi (1997) * * Government Departments Australia Priest et aI., (1998) Australia * * Local Government Tayib et aI., (1999) Malaysia * * Local Government Mignot and Dolley (2000) * * * * Government Departments Australia Clarke (2001) Australia * * * State Government

44


45

This second group of studies has relied on previously established user

classifications to investigate other facets of use; whether in fact the user groups

identified use annual reports or financial statements (who uses), the needs that

users have for information (what information they require) and the purposes for

which they require information (why do they require it). A common approach has

been to interview or survey representatives of normatively identified user groups

with regard to these issues.

The identification of users

As part of a research project investigating the needs of users for information about

infrastructure assets, Van Daniker and Kwiatowski (1986) attempted to

empirically identify users of financial reports. In seeking to identify the

information needs of users, the authors undertook a survey of general purpose

financial report users as normatively established. In determining user groups from

which to draw participants, care was taken to, as far as possible, ensure that all of

the major user groups identified by official statements or pronouncements were

included. Representatives of academics, investors, management, legislators and

citizens were surveyed. The response to the question that asked respondents to

indicate if they were users of governmental financial reports revealed that 74% of

respondents identified themselves as actual users. This research provides

empirical evidence that there is at a general level some validity to the normatively

established lists of users of general purpose financial reports.

Atamian and Ganguli (1991) adopted a different approach to identifying the

primary recipients of municipal financial reports in the USA. Chief Financial

Officers of all municipalities with a population of over 50,000 were surveyed

about the distribution of municipal financial reports. The survey sought to

determine whether individual municipalities sent their financial reports to the user

groups identified in prior research. The results reported from responses to the

survey indicated that citizens were poorly represented on the distribution lists of

municipalities and that the distribution lists of cities were not uniform. In

addition, the users of municipal annual reports identified in the literature were not


46

always on the mailing lists of all municipalities and there were recipients not

identified in the literature who did appear on the distribution lists. Other

municipalities was a recipient category that was empirically identified but which

had not been previously normatively identified. Even though this research was

primarily examining recipients, who may not necessarily be the same as users,

there are two important inferences from this study. The first inference that can be

drawn is that the categories of users that have been normatively identified may not

be comprehensive. The second inference is that the normatively identified lists of

users are not consistent across all municipalities and this may have implications

for the identity of users for different public sector entity types.

In seeking to determine who uses public sector general purpose financial reports,

Alijarde (1997) asked two groups of users (Finance Directors and Audit Officers)

of Spanish local government financial reports who they perceived users to be.

Both of these groups identified each other as primary users and as well identified

resource providers as an additional major user group. This research also identified

that in the perception of Finance Directors and Audit Officers that the governing

body of council, citizens, and political parties both in government and opposition

were not important users of general purpose financial information.

Overall, the results of these empirical studies identify two categories of users,

internal management and other like entities, not considered in many of the

normatively derived lists or by the conceptual framework in an Australian context.

Further, Atamian and Ganguli (1991) find that the distribution lists for the

financial reports of municipalities are inconsistent.

What information do users require?

Several studies have sought to determine either what information users may

require or what information they find useful by seeking the views of

representatives of normatively identified user groups. An early empirical study

was that of Robbins (1984), who sought to determine the extent of congruence

between users and preparers’ views on the importance of information. In this


47

study Municipal Bond Analysts as representatives of users and Municipal Finance

Officers as representatives of preparers were surveyed as to the importance that

they placed on specific financial information disclosures. The study concluded

that preparers of financial reports do understand the information needs of users

but that they generally underestimate the importance that users attach to financial

information.17 This research is important because as preparers (within regulatory

constraints) determine the form and content of public sector reports it is

imperative that they have an understanding of the information needs of users.

One of the earliest studies that sought to determine user needs was that of Jones et

al., (1985). This study sought the views of users (as identified from prior

literature) of the financial reports of state and local governmental entities on the

information content of those reports. The major findings of this study were that

users considered fund type statements more useful than consolidated statements;

that budgetary information was considered useful; and that the modified accrual

basis of accounting was favoured over full accrual. In addition, there were some

differences identified in the information requirements of individual user groups.

Investors and creditors were more interested in the cash flow statement than either

citizens or legislative and oversight officials. Citizens were more interested in cost

of service type information than were investors and creditors and legislative and

oversight officials.

Hay and Antonio (1990) investigated the note disclosures required by GASB

standards in the annual reports of government entities in the USA. Specifically

they sought to determine from users whether the note disclosures required by the

standards continued to serve a useful purpose and whether users had unmet

disclosure needs. The research methodology employed by the researchers was to

interview representatives of important user groups.18 Consistent with the findings

of Jones et al., (1985) they found that interviewees wanted information on major

individual funds rather than on fund types which was how reports were compiled 17 This study compared the importance placed on information by users and the perceptions of preparers as to the importance placed on information by users. 18 The groups interviewed were debt rating agencies, debt insurers, underwriters, investment bankers, bond attorneys, legislative and oversight officials, public finance researchers and citizen advocate and information groups.


48

at the time of the study. They also indicated a requirement for additional

information other than that which was currently being presented. Particularly they

sought information on events that might materially affect financial statements for

future years as well as expanded disclosures on issues such as non-compliance

with laws, material contingent liabilities and subsequent events. The significance

of this research is that it indicates that users had requirements for information that

were not being met by the general purpose financial reports being produced at that

time.

Also in the US, Daniels and Daniels (1991) sought to identify any disparity

amongst user groups in terms of their information needs and decision accuracy.

The representatives of three user groups, identified by the GASB, were

surveyed.19 The research indicated that investors/creditors were most interested on

information on performance and viability, legislative/oversight officials were

interested in viability and performance but as well were interested in compliance

and cost of services, while citizens were interested in cost of services. In terms of

the usefulness of the financial statements the research indicated that all user

groups felt that the financial statements were not sufficient to evaluate the

financial condition of the municipality.

Collins Keenan and Lapsley (1991) investigated the use made of local authority

reports and accounts in the UK. Interviews were conducted with internal and

external users of four UK local authorities. With regard to external users the study

identified that there were two groups of external users. One group was external

parties who were able to exert some influence over the local authority. The second

group of external users were essentially peripheral to the authority (eg. the media

and individual citizens). The first group used local authority reports to a greater

extent than the latter group who tended to rely on other information sources such

as press releases. This finding was supported by an examination of the distribution

lists for the annual reports of the local authorities which were the focus of this

study. The examination indicated that there were very few annual reports

distributed to individual external users.

19 The groups were citizens, investor/creditors and legislative/oversight officials


49

With regard to internal users, two user groups – elected councillors and officers of

the authority - were interviewed about their use of the annual report of their local

authority. Both groups of users were generally found to exhibit only limited to

moderate understanding of accounting practices and both groups preferred

management and planning information to that contained in the annual report and

accounts. Both groups regarded their most important source of information to be

the finance officer who would provide prompt information with an explanation,

often informally. The authors propose that the results of this investigation for both

internal and external user groups are suggestive of a need for simplified forms of

financial reporting. They acknowledge that this notion is complicated by the fact

that some elected officials had a high level of understanding and used all

information and also by the tendency for internal users to have an interest in only

specific areas of the financial statements. The authors suggest that these factors

could indicate the need for specific purpose financial reporting.

A further study which examined the information requirements of different user

groups was that conducted by the GASB (Crain and Bean, 1998). Focus groups

comprising credit market users (eg. rating companies, investment bankers and

analysts) and non-credit market users (eg. citizens, media and elected officials)

were asked what types of information they were most interested in. There were

significant differences between the two groups as to the types of information they

wanted. The representatives of credit market users were interested primarily in

financial type information including such items as changes in growth of all

liabilities, individual fund deficits and surpluses and funding information on

pensions and related liabilities. Credit market users favoured the financial

statements as a source of information. Non-credit market users, however, were

most interested in the source and uses of government money, detailed capital

improvement plans and details of costs of services. This group of users favoured

the budget documents as a source of information.

In Spain, Alijarde (1997) sought to determine the usefulness of financial

statements for the users of local authority financial reporting. She surveyed

finance directors of local governments and audit offices to determine, among


50

other things, the degree of usefulness of the financial statements that must be

presented for local governments in Spain.20 Alijarde reported that for all

respondents, the budget execution statement was most useful, followed by the

cash statement and statement of debt. The balance sheet and the operating

statement were the next most useful statements. Although she did indicate that

there were differences in the importance attached to the statements by the two user

groups with regard to how useful they found these statements she did not expand

on the significance of those differences. These findings again provide evidence

that general purpose financial reports may be inadequate in meeting the

information needs of specific user groups.

In an Australian study, Priest, Ng and Dolley (1999) sought to discover the

information preferences of users of local government financial reports. They

surveyed users from three normatively accepted groups of users - ratepayers,

business people, and service providers. Representatives of these user groups were

selected from electoral rolls, local business association membership and council

records and were surveyed with regard to their opinions on financial statement

performance information, cost of service for activities and non-financial

performance information. The responses for each group of users were compared.

With regard to financial statement performance information, all user groups rated

financial performance measures as important items of disclosure with the only

difference being that business association members rated budgeted income and

expenditure information more highly than the other two user groups. Similarly, all

user groups rated cost of service information as important although service

providers attached significantly less importance to information about the cost of

health services and road construction than did the other two user groups. Non-

financial information received a relatively low importance rating and there were

no differences in the rating between user groups. The results of this study indicate

that there are differing levels of importance attached by users to the information

contained within an annual report. They also indicate that there are differences in

the level of importance placed on information factors between user groups. 20 Spanish local governments must present a balance sheet, operating statement, statement of sources and application of funds, budget execution statement, statement of claims and obligations related to previous fiscal years, cash statement and statement of debt.


51

Also, Tayib, Coombs and Ameen, (1999) undertook a survey of taxpayers from

three local government authorities in Malaysia that had differing levels of arrears

for the payment of local authority taxes. The authors sought to determine what

financial information taxpayers were interested in. They determined that for all

three authorities regardless of the level of tax arrears, taxpayers preferred income

and expenditure information over both balance sheet and funds statement type

information. The results however also indicated that there were significant

differences in the interest of taxpayers in the above information depending on the

level of taxation arrears of the authority. On the whole taxpayers from local

government authorities with higher levels of taxation arrears displayed more

interest in reading all of the information items above than did those in local

government authorities that had medium or low levels of taxation arrears. The

only exception to this was for income and expense information where there was

no significant difference between taxpayers from local government authorities

with high levels of arrears and those with low levels of arrears.

Empirical investigations to determine the information needs of users have been

conducted across a number of jurisdictions and across a number of public sector

entity types. Overall the results of these investigations indicate that users prefer

disaggregated information to consolidated information, that users have unmet

disclosure needs and that different user groups have differing information needs.

The impact of report format

As well as research aimed at determining what information users want in public

sector financial reports there have been several studies investigating the impact of

report format, and in particular, the consolidated format versus the fund-type

format on the use of public sector financial statements. The initial support for the

provision of consolidated government financial reports was based on the premise

that consolidated statements are more similar to private sector reports than the

more traditional fund-type statements produced by government entities and would

as a consequence be more easily understood (Gaffney, 1986).


52

In the US, a number of survey based studies aimed at determining the preferences

of users with regard to report format have had mixed results. While Raman (1979)

and Daniels and Daniels (1991), found support for consolidated municipal reports,

Patton (1978), Van Daniker and Maschmeyer (1979) and Jones et al., (1985) all

reported little support for consolidated reports over fund-type reports. These

studies confirm the findings of Hay and Antonio (1990), reported above, who

found users were more interested in fund information. Van Daniker and

Maschmeyer (1979) found that reports were perceived to be less useful the more

they were aggregated. Statement format has not been found to affect decision-

making (Howard, 1978; Daniels and Daniels, 1991). The results of these studies

provide evidence that the provision of general purpose financial reports may not

be the most appropriate way to meet the information needs of disparate groups of

users.

A New Zealand study by Hay (1994) examined the perceptions of users to

changes in financial reporting in a government department setting. Hay

interviewed representatives of user groups (as identified by the Statement of

Public Sector Accounting Concepts issued by the New Zealand Society of

Accountants, 1987) about their reaction to the New Zealand financial reporting

reforms. He found that users and potential users did not strongly support the

reforms including the production of general purpose financial reports compiled on

an accrual accounting basis.

In an Australian study, Mignot and Dolley (2000) investigated whether two

groups of previously identified users, legislators and interest group members, had

a preference for either accrual based accounting statements or cash based

accounting statements and whether the two user groups differed as to their

perception of the utility of accrual based accounting statements. By surveying

interest groups and state government parliamentarians about a specific department

this study went some way to adopting the approach suggested by Rutherford

(1992) that users and their information needs should be investigated in the context

of a specific entity. The results indicate that both user groups found accrual

accounting reports to be more useful than cash based reports. This study also


53

sought to determine whether there was any difference between the user groups on

the perceived usefulness as measured by importance and useability of each of the

statement types. No significant differences were detected although legislators did

find accrual based reports to be more important and both groups found them to be

more useable. These results are consistent with those of Daniels and Daniels

(1991) who also found no differences regarding the assessment of the usefulness

of financial reports amongst user groups and that users preferred accrual reports.

Why users require information?

Jones et al., (1985) sought information on the purposes for which financial reports

are used and the types of decisions made as a result of those uses. They surveyed

representatives of three user groups normatively identified from prior research.

The results of the survey indicated that each user had specific uses for

governmental financial reports. Citizen groups, who are described in this study as

users to whom government is accountable, indicated that they required

information to assess the efficiency and effectiveness of government activity, to

compare results of the current year with those of the previous year, to assess

financial operations and condition, to determine compliance with the budget and

finally to advocate for the provision of programmes. This wide ranging group of

purposes for which citizens require information contrasts sharply with the

purposes to which the second user group, investors and creditors, put information.

This group of users indicated that the primary purpose for which they found

government financial reports useful was to determine the ability of the

government entity to repay its debt. The last user group, legislative and oversight

officials, indicated that they found government financial reports useful to evaluate

funding proposals, to evaluate compliance matters including budgetary

compliance and as a monitoring device.

In seeking to add to knowledge of why users require information Alijarde (1997)

found that finance directors and auditors saw the primary function of the financial

reports differently. Finance directors saw financial reports as being useful for

several purposes including the assessment of budgetary execution, legal and


54

financial control and decision-making. Auditors on the other hand viewed the role

of financial reports as being primarily to satisfy accountability requirements. As

was the case in the previous study these results can be interpreted in terms of the

relationships each of these two groups of users has with the entity.

Taking a slightly different approach to investigating the information needs of

users, an Australian study sought opinions from preparers about the usefulness of

accrual accounting reports in government departments. Jones and Puglisi (1997)

examined the claim that one of the uses for general purpose financial information

is to make economic decisions. They discovered a lack of enthusiasm on the part

of preparers for the new accounting standards requiring general purpose financial

standards. The authors surveyed preparers of government department financial

reports and found a lack of support for the introduction of accrual accounting

techniques and also for the decision usefulness of reports prepared on an accrual

basis. The researchers however suggest that the attitudes of the departments could

become more favourable as they become more used to preparing the new reports.

In a further Australian study, Mignot and Dolley (2000) investigated whether two

groups of previously identified users, legislators and interest group members,

found financial statement information useful in a decision-making task. The

results of this research indicate that both user groups found financial reports

useful for decision-making. Mignot and Dolley’s results are contradictory to those

of Jones and Puglisi in that the preparers’ assessments of the usefulness of the

accrual accounting reports differs from at least some users’ assessments.

However, as this study used all government departments in Australia as a sample

and the Mignot and Dolley study only used users from one government

department this contradiction may not be as it appears.

The results of empirical research examining all three elements of the ‘decision-

useful’ model from the perspective of normatively established user categories

indicate there are conflicts with the assumptions that form the basis of the public

sector financial reporting model. There are indications that users for specific

entity types may differ, indicating cross-sectional differences between entity


55

types, that general purpose financial reports may not meet the information

requirements of all users and that the purposes for which information is required

may differ depending on the user or the entity in which they have an interest.

2.4.3 Studies that have identified actual users

Three studies, Butterworth, Gray and Haslam, (1989), Coy et al., (1997) and

Clarke (2002), have used the approach of surveying the actual users of specific

reports in their attempts to obtain information about users and their information

needs. These three studies met with differing levels of success, which to a large

part was due to the research approach taken.

Butterworth, Gray and Haslam, (1989) attempted to obtain information about the

users of local government public sector financial reports in the U.K. This was part

of a study that had as its main focus an examination of the role of the annual

report as a means of communication between U.K. local authorities and the

general public in terms of the report’s readability and availability. As part of this

study the researchers also attempted to identify if the general public actually read

the annual reports. The method employed to identify users was to leave a

questionnaire in copies of a local government’s annual report. The copies of the

annual report were available in public libraries and the librarians ensured that a

questionnaire was always in the report. As there was a zero response rate to this

data collection method the study was inconclusive with regard to identifying

users. The study did however conclude that as a means of widespread

communication the annual reports were less readable than is desirable.

A further empirical study that attempted to directly access users was a New

Zealand study by Coy et al., (1997). This study identified the users of tertiary

education institution’s annual reports and sought their views on the qualities and

disclosures of the annual reports which they received. A similar data collection

method to that of the U.K. study was used, but the method was refined by

obtaining the co-operation of tertiary education institutions in placing cards in all

reports distributed and then surveying those recipients who returned the cards.


56

The study revealed that of the recipients who identified themselves by returning

the cards, 60% had a role in the management, operation or governance of the

institutions, 10% were involved in other educational institutions’ management,

25% were managers of businesses or employee organisations and the remainder

were journalists, librarians, Members of Parliament and members of the general

public. These results are consistent with the results of a survey of the distribution

patterns for annual reports of a small number of tertiary education institutions as

part of the same study. The institutions surveyed indicated that the Ministry of

Education/Parliament, internal users and other tertiary education institutions

received the majority of reports distributed by the institutions. The findings of

this study that external users are lowly represented amongst users are inconsistent

with most of the theoretical studies (reviewed in section 2.4.1) which emphasise

external users. These findings question the user profile assumed by the public

sector ‘decision-useful’ financial reporting model which specifically excludes

internal users as a target for general purpose financial reports.

The study by Clarke (2002) investigated the recipients of departmental annual

reports in Victoria, Australia. Specifically Clarke was investigating who used

those reports and the purpose for which they were used. The results of this study

need to be interpreted in the context that the study did not seek to separate use of

the annual report in general from use of general purpose financial reports in

particular. This study confirms the findings of the Coy et al., (1997) study with

respect to the identification of users. This study also identified a large number of

users who were internal to the entity and a large number of users from other like

entities21. The study also confirmed the existence of the broad user groups

identified by SAC 2 in the context of government departments.

In addition, the study found that SAC 2 does not adequately reflect the purposes

for which the annual reports of government departments are used. The results of

the study indicated that nearly one third of all respondents found annual reports

useful for reasons other than those specified by SAC 2. Clarke concludes that the

application of a common conceptual framework to both the private and public

21 That is from other government departments.


57

sectors may have failed to adequately capture the purposes for which users find

the annual reports of government departments useful. This study provides

empirical support for the normative contentions that the information needs of

public sector users would not be met by information prescribed by a private sector

based model.

Irrespective of which approach has been taken, the element of the ‘decision-

useful’ model which has been the subject of most investigation is the question of

what information users require. A common feature of the literature which

examined the information preferences of users was that individual user groups had

different information needs. Further, individual user groups had different purposes

for requiring information. With regard to the identification of users of particular

note was the conflicting views expressed by researchers as to whether or not

internal management and elected officials were users of government financial

reports.

On a general note, what is evident from reviewing this literature is that while all

studies have made a contribution to obtaining an understanding of at least one

element of the ‘decision-useful’ model there has been little consistency in

adopting a framework for research in this area. As a result, the research is

piecemeal in nature and has not been additive. Consequently, the research

conducted to date has not provided a clear identification or specification of the

individual elements of the ‘decision-useful’ model for any public sector entity

type.

2.5 SUMMARY

The first objective of this chapter was to examine the literature concerning the

competing models for general purpose financial reporting. The historical

development of the ‘decision-useful’ model was briefly described. The concept of

accountability was also examined. The literature revealed that accountability is a

complex issue that has many facets. While in general terms accountability can be


58

defined in terms of one party having a duty to report to another for the

management of some resource, a precise definition of accountability can only be

obtained within a specific context. There is evidence that the decision usefulness

paradigm may not result in appropriate disclosure to meet the needs of users in the

public sector considering the differences in accountability relationships in the

public sector and the private sector. Finally, the literature demonstrated that the

selection of a model as the basis for general purpose financial reporting is not a

neutral decision and that it has consequences for the information reported.

The second objective of this chapter was to review the extant literature that had

examined the elements of the ‘decision-useful’ model. There have been three

predominant methodologies employed in investigating the identification of users

and their information needs in the public sector. Each of these was examined.

First, the normative literature that had attempted to identify users was considered.

Next, the empirical literature that had used the classifications of users identified in

the normative literature to investigate the information requirements of users and

their purposes for requiring information was reviewed. Finally the literature that

had attempted to empirically identify both users and their information needs was

reviewed.

The review of the literature pertaining to the conceptual bases of the

‘accountability’ model and the ‘decision-useful’ model indicated that the general

purpose financial reporting model described by SAC 2, that is the ‘decision-

useful’ model, may not fully meet the needs of users in the public sector. The

review of prior research that had investigated the individual elements of the

‘decision-useful’ model also indicated that there was unlikely to be an

homogenous model that would meet the needs of all user categories from all

public sector entity types.

59

CHAPTER THREE

RESEARCH METHODOLOGY

The first chapter of this thesis provided an introduction to the research. It set out

the area of investigation and the motivation for conducting the research. It also

identified the specific research questions to be examined by the study. The second

chapter examined the extant literature surrounding those questions. This chapter

of the thesis will identify and describe how the research questions will be

answered. Section 3.1 provides an explanation in general terms for the research

approach adopted and also justifies the research approach in terms of prior

literature; section 3.2 defines the scope of the research; section 3.3 describes the

research procedures including data collection methods and data analysis; section

3.4 provides a brief summary of the chapter.

3.1 RESEARCH APPROACH

Research can be perceived as having three main objectives – to describe, to

explain and to predict (Dubin, 1978). Some research will involve all three

objectives while other research will involve only one or two objectives. One of the

determining factors in selecting a research approach will be which of these

objectives is being addressed by a particular study. It has been noted that public

sector research lacks a generally accepted framework (Cheng, 1992; Patton, 1992)

and hence most public sector research concentrates on description and explanation

rather than testing hypotheses within a particular theory.

This thesis examines the users of public sector financial reports. Empirical

research in this area in particular research that centres on identifying users within

the context of specific entities is scant (see for example, Atamian and Ganguli,

Chapter Three: Research Methodology 60

1991; Rutherford, 1992; Van Peursem and Pratt, 1992; Coy et al., 1997). This

research has, as its primary focus, the development of an empirical understanding

of who the users of general purpose financial reports in the public sector are and

what are their information requirements.

Having established the overall objective of the research, consideration must then

be given to how to go about achieving that objective within the context of the

research questions being addressed. Abdel-khalik and Ajinkya (1979) argue that

in sociology research (which they consider subsumes accounting research) there

are two distinct approaches to research – the scientific method and the naturalistic

method. The scientific method is characterised by a theoretical structure or

model, which has identifiable dependent and independent variables between

which relationships are suggested. This research is also characterised by a

structured research design and by a set of controls that maximise internal validity

and thus the predictive value of the model. The scientific approach to research has

received considerable attention among accounting researchers in the past twenty

years particularly with regard to what may be called ‘positivist’ research (Watts

and Zimmerman, 1990).

On the other hand naturalistic research is far less structured. It involves the

observation of behaviours or events in their natural environment. In contrast to the

scientific method where theory is tested, it tends to result in theories being

discovered. In this sense naturalistic research is related to grounded theory that

posits that the best way to approach theory is to discover it in the data. Schatzman

and Strauss (1973: 12) describe the nature of naturalistic research:

The discovery process and the questions raised by the researcher need not be related to any “received” or prior theory. …Nor is it necessary for him [sic] to work with explicitly formulated hypotheses, although of course he [sic] may wish to test an existing one.

The research in this thesis does not seek to manipulate any variables or impose

any controls but rather to determine what happens at a point in time. It does not

examine or test any hypothesis, it seeks to examine a situation – the use of


general-purpose financial reports – at a point in time and as far as is possible in its

natural environment. The results of the research will inform accounting policy

regulators on the basic approach being adopted in government financial reporting

prescriptions. This study falls within the bounds of the ‘naturalistic’ approach and

has therefore adopted that approach.

Within the context of a naturalistic approach, survey techniques have been

acknowledged as being particularly useful in fact-finding and descriptive type

research (Abdel-Khalil and Ajinkya, 1979). In the absence of archival data,

surveys are the one choice for generating the necessary data. However, it must be

borne in mind that survey data cannot be considered to be factual but rather the

perceptions of fact. The limited empirical research conducted on users of general

purpose financial reports has, in the main, adopted a survey approach.

The use of a survey method, as well as being recognized as an appropriate

research methodology for ‘naturalistic’ research (Abdel-Khalil and Ajinkya,

1979), also aligns with some of the calls by other researchers for more empirical

work in the area of public sector financial reporting. For example, Rutherford

(1992) is critical of previous research that has attempted to identify the users of

public sector financial reports and their information needs. He argues that this

prior research has occurred at a high level of generalisation. He suggests that to

identify users and their information needs it is necessary to conduct ‘extensive and

detailed empirical work rather than a priori theorising’. He also suggests that users

and their information needs should be identified by working ‘… outwards from

individual units…enabling users and needs to be identified in the specific context

of the activity’ (Rutherford 1992, p.279). Mignot and Dolley (2000)

acknowledged the importance and value of this approach in their study of the use

made of departmental general purpose financial reports. This research will address

these concerns by surveying actual recipients of the annual reports of specific

public sector entities.

Survey data can be collected by questioning people over the telephone, by

personal interview or by means of mailed questionnaire (Emory and Cooper,


1991). In this research context, a mail survey was deemed to be the most

appropriate way of collecting survey data due to the desirability of surveying large

numbers of people and their dispersion over a large geographic area. Mail

questionnaires have been found to provide a number of advantages over telephone

or personal interviews. Stone (1978) has argued that they gather a wide cross-

section of information in a short space of time, they can be implemented at a

relatively low cost, they allow more detailed information to be gathered, they

allow anonymity of respondents, and they overcome researcher bias problems

involved with interviews. Having established the appropriate research approach

for the study consideration was given to the scope of the study.

3.2 SCOPE OF THE STUDY

The scope of this study was determined not only to define the bounds of the

investigation, but also to address some of the methodological problems of prior

research. As Table 3.1 indicates, many of the previous empirical studies have

typically addressed only one or two of the three research questions within the

context of a single public sector entity type. This methodology does not allow for

a comprehensive assessment to be made of the financial reporting model – that is,

only individual elements of the model have been examined. Further, the research

has also been piecemeal in terms of its coverage of public sector entity types

63

TABLE 3.1 Factors investigated by prior user studies

Study Author/Date/Country Literature Direct Who are The The impact The Public sector entity type generated Access users? information of report purposes requirements format for S 2.4.2 S 2.4.3 of users requiring information Patton (1976) USA * * State government Raman (1979) USA * * Local Government Van Daniker & Maschmeyer * * State Government (1979) USA Robbins (1984) USA * * Local Government Jones et aI., (1985) USA * * * * State & Local Government Gaffney (1986) USA * * State Government Van Daniker and Kwiatowski * * State Government (1986) USA Butterworth et al., (1989) UK * * Local Government Hay and Antonio (1990) USA * * * State & Local Government Daniels and Daniels (1991) USA * * * State & Local Government Atarnian and Ganguli (1991) * * Local Government USA Collins et aI., (1991) UK * * Local Government Hay (1994) NZ * * Government Departments Coy et aI., (1997) NZ * * * T'ertiary Institutions GASB, (1995) USA * * Aliiarde (1997) Spain * * * * Local Government Jones and Puglisi (1997) * * Government Departments Australia Priest et aI., (1998) Australia * * Local Government Tayib et aI., (1999) Malaysia * * Local Government Mignot and Dolley (2000) * * * * Government Departments Australia Clarke (2001) Australia * * * State Government

Chapter Three: Research Methodology

64

At a jurisdictional level, the column headed ‘Public sector entity type’ indicates

that most prior studies have occurred at a particular level of government with only

a small number of USA studies encompassing more than one governmental level.

Consequently the prior studies provide little insight into the requirements of users

for financial information across the entire public sector for any particular

jurisdiction. This study will refine and extend the work of the previous studies. It

will address the scope and methodological limitations of previous research by

directly accessing annual report recipients to identify users; by extending the

scope of previous studies to encompass all public sector entity types;22 and by

answering all three research questions intrinsic to the ‘decision-useful’ model. It

will thus enable the ‘decision-useful’ model to be examined taking account of the

variation between accountability relationships and individual characteristics of

different public sector entity types. Further it will, as suggested by Rutherford

(1992), do this by working outwards from specific entities to enable the

identification of users and their information needs to occur within a specific

context rather than at a level of generalisation.

Australia’s federal system encompasses three levels: a central government; six

states and two territories and a large number of local government authorities

located in each state. While each jurisdiction has its own unique administrative

arrangement there are commonalities across jurisdictions. Broadly, there are five

categories of public sector entities in each jurisdiction; the whole of government;

government departments which are budget funded entities which operate either to

determine policy or implement it, government owned corporations which can be

either of a statutory or corporate nature and are generally trading entities not

funded from the budget, statutory bodies which have a wide range of activities,

are formed under an Act of Parliament and can be either funded commercially or

from the budget, or from a combination of each, whole of government that

consolidates the activities of the whole of the State or Territory, and local

22 Public sector entity types include government departments, local government authorities and government owned corporations.


government authorities, which operate under the regulatory authority of state

governments but which are autonomous operating bodies.

In relation to entity types this study excludes statutory bodies and whole of

government and confines the examination of the research questions to the

remaining three categories of public sector entities departments, government

owned corporations and local government authorities. Statutory bodies are

regarded as a separate category of entity because they have their own enabling

legislation, however they generally fall into two categories – commercialised

entities (those that raise their own revenue) or budget-funded entities (those that

receive their funding directly from government) (Ryan, Dunstan and Brown,

2002). In relation to this research, the diversity of functions and structures within

statutory bodies would make selection of a representative sample problematic.

However, prior research has confirmed that in relation to annual reporting,

budget-funded statutory bodies operate in a similar manner to departments and

non-funded statutory bodies operate in a similar manner to government owned

corporations (Ryan, Dunstan and Brown, 2002). Thus it is argued that the

inclusion of government owned corporations and departments in the research will

capture the users of annual reports for these types of entities.

Whole of government was excluded because this is not a specific entity type but

rather a consolidation of entities and as such attracts a different range of users

because of the macro picture represented in the financial reports. In addition,

whole of government reporting is the most recent form of reporting and as a

consequence whole of government annual reports are not widely distributed.23

Despite the study’s intention of expanding the scope of prior investigations by

investigating a diversity of public sector entity types, it was still necessary to limit

the scope of the investigation. The jurisdiction of Queensland was chosen as the

site for the study. The initial reason for this selection as a focus of the study was

the availability of data to the researcher. While this limits the scope of the

empirical domain and results in some possible diminution of the external validity

23 A Queensland Treasury official reported that not only are they not widely distributed but also there is also some uncertainty as to whom they are distributed (August 1999).


and thus generalisability of the results, there are two reasons that justify this

choice.

First, the accounting standards for public sector agencies – AAS 27 Financial

Reporting by Local Governments and AAS 29 Financial Reporting by Government

Departments24- apply to all government departments, at the Commonwealth level

and the state level and to all local government authorities. It was argued in the

initial promulgation of these standards that there is no reason to suspect any cross-

jurisdictional differences and this appears to be generally accepted (Greenall et al.,

1988; Micallef, Sutcliffe and Dougherty,1994). This argument is supported to the

extent that the federal government, and all of the state governments have adopted

accrual accounting and require conformity to Australian Accounting Standards in

the preparation of financial statements for government agencies. Appendix A

provides details of the enabling legislation in each state.

Second, to some extent a tradeoff has been made between the internal and external

validity of the research. While it could be argued that the external validity of the

study has been limited by selecting only one jurisdiction, the internal validity of

the study has been strengthened particularly with regard to the between levels of

government analysis. In addition, a further advantage of all the public sector

entities coming from one state is that other factors that may influence reporting

practices, for example economic circumstances or the political environment are

controlled for.

3.3 DATA COLLECTION AND ANALYSIS

The first stage of the data collection process was to select a sample of entities for

participation in the study. The second stage was to establish a database of

recipients of annual reports that could be used as the basis for the study. It is

acknowledged that a limitation of this study is that it was unable to access users

who acquired the annual report other than by direct receipt, for example, by

24 A similar argument has been advanced for AAS 31 Financial Reporting by Governments (Micallef, 1997).


borrowing it from a library or accessing it on the internet. However at this stage

there was a limited availability of reports on the internet. The third stage of the

research was to survey recipients to determine who used public sector general

purpose financial reports, what information they used and why they required that

information. The fourth stage of the research was an analysis of the survey

responses. Figure 3.1 provides a diagrammatic representation of the data

collection and analysis process.

FIGURE 3.1

Data Collection and Analysis Process

Stage 2Establishing a Database

Stage 3 Questionnaire Design

Who uses general purposefinancial reports? What information is used?

For what purpose is information used?

Stage 4Data Analysis

Stage 1Sample Selection of Entities

This research was conducted using the 1998/99 annual report mailing lists of the

entities selected for inclusion in the study. This time frame was selected for two

reasons. First, it was the annual report that was most current at the time the

research instrument was prepared. Second, at the time there were increasing


pressures to publish annual reports on the internet rather than distribute them

directly to recipients (see for example, Queensland Public Sector Annual Report

Awards, 1999). This would make the specific identification of users almost

impossible. It was timely to conduct the research before the annual reports were

widely published on the internet and thus minimized the limitation of this study

identified above.

3.3.1 Sample selection of entities

As identified earlier in this chapter, this study will survey the recipients of general

purpose financial reports from three different entity types – government

departments, local government authorities and government owned corporations.

The specific entities from these broad categories were identified for inclusion in

the study as follows.


In Australia, government departments have been classified as either central

agencies or line departments (Nicholls, 1991; Funnell and Cooper, 1998;

Fitzgerald et al., 1996). Central agencies are generally described as those

departments having the responsibility to provide advice and support to the

executive government on such issues as whole of government co-ordination and

future directions. In Queensland, there were three central agencies at the time of

the study; the Department of Premier and Cabinet, Queensland Treasury, and the

Department of State Development (Fitzgerald et al., 1996). In contrast, line

departments are primarily concerned with service delivery within the framework

established by central agencies (Funnell and Cooper, 1998). Line departments are

also referred to as ‘service departments’, reflecting their service delivery role.

This distinction is important for the purposes of this study because it is likely that

the identity of users and their needs will vary between central agencies and line

departments. Therefore, departmental entities from each of these categories were

chosen for inclusion in this study. A complete list of government departments


(with their budget allocations for 1998/1999 ranging from $50.9m to $3,701m) is

contained in Appendix B.

As the inclusion of all departments was neither practical nor deemed necessary, a

choice was made to include one central agency and four line departments in the

study so as to reflect the range of activities of departments and consequently the

range of users. The central agency chosen for the study was Queensland Treasury.

Queensland Treasury was chosen because it is the largest central agency and, in

addition, this department is the most influential financial policy making body

within the Queensland government.25

In determining which line departments to select for the research, consideration

was given to several factors. The size of the department, the nature of the

department’s activities and the structure of the department were all considered.

The overall aim was to choose departments that would be different from each

other in terms of the diversity of users of their general purpose financial reports.

The largest spending line departments in Queensland are the Departments of

Health and Education. Each of these has budget allocations of over three and a

half billion dollars each (out of a total expenditure of $17.5billion (1998/1999

Queensland Budget)). The Department of Education was discounted for inclusion

in this study because the distribution pattern for its annual report is different to

that of other departments.26 Thus the Department of Health was selected for

inclusion in the study.

The second line department selected for inclusion in the study was the Public

Works Department. The Public Works Department includes six diverse

commercial business units through which it not only has considerable private

25 Quennsland Treasury had a budget of $1,371m in 1998/99 compared to $176m for the Department of Premier and Cabinet and $148m for the Department of State Development. 26 The Department of Education compiles its annual report in two parts and only sends the financial reporting section of the report to those people or organisations that specifically request it. As this is different to all other public sector entities and because there has been a self-selection bias introduced, it was not considered appropriate to include the Department of Education in the study.


sector involvement but also actively competes with the private sector.27 It is

argued that the identification of its users and their information requirements will

cover a broad spectrum of users in comparison to other line departments that are

not structured this way. It also provides an example of a smaller department in

terms of budget allocation with an allocation of $428.8m.

Two further line departments – Department of Corrective Services and

Department of Aboriginal and Torres Strait Islander Policy – were also selected

for inclusion in the study. These two departments were selected as it was felt that

they might have different users with different information needs because of the

sensitive nature of their undertakings and because they are likely to be the subject

of media attention. The Department of Corrective Services is larger than the

Department of Works, having expenditure of approximately $431.6m and the

Department of Aboriginal and Torres Strait Islander Policy is somewhat smaller,

having expenditure of $119.5m.

In summary, five departments out of twenty two have been selected for inclusion

in the study; Queensland Treasury; Queensland Health; the Department of Public

Works; the Department of Corrective Services; and the Department of Aboriginal

and Torres Strait Islander Policy. These departments represent 34% of the

Queensland budget allocations for the 1998/1999 financial year. The selection

process has resulted in the inclusion of departmental public sector entities in the

study that will capture a diverse group of users from departments of different sizes

(in terms of budget allocation), different functions and different profiles.


There are 125 local government authorities in Queensland. The Australian

Classification of Local Governments Classifications applies to all Councils

receiving grants under the Local Government (Financial Assistance) Acts 1995.

The system classifies all local governments Australia wide into 22 categories with

27 The commercial business units for the Department of Works are Project Services, QPM Property Management, Qbuild, GoPrint, Qfleet and Sales and Distribution Services.


each category having a three character code (Institute of Municipal Management,

1999). Local government authorities are initially categorized as being either rural

(R) or urban (U). These broad categories are then further subdivided. Urban local

authorities are subdivided into capital city (CC), Fringe (F), Metropolitan (M) or

Regional (R). Rural authorities are subdivided into Agricultural (A), Remote (T)

or Significant (S). These categories are then further subdivided based on

population size, with the classifications being Extra small (X), Small (S), Medium

(M), Large (L) Very large (V) and Growth (G). The full list of Queensland local

government authorities is contained in Appendix C.

Local government authorities vary greatly in terms of physical size, population,

geographic location and activity. Kloot and Martin (2001) argue that these

differing characteristics indicate differing accountability mechanisms and

relationships. Consequently the decision was made to include all local

government authorities in the sample.


The Office of Government Owned Corporations located within Queensland

Treasury places government owned corporations into three major categories –

Energy, Transport and Other (http:www.ogoc.qld.gov.au). A full list of

government owned corporations (together with their net assets) is contained in

Appendix D. Within the ‘energy category’ entities are involved in either

generation, transmission or distribution. There are nine government owned

corporations in this classification with two wholly owned subsidiaries of other

government owned corporations in the category.28 It was decided to include a

company involved in the distribution process, as it was determined that because of

the nature of the process this would provide a larger range of users than either

generation or transmission. Also, the distribution aspect of the power industry is

the most visible and therefore likely to attract the most interest. There are two

distribution companies within this classification of government owned

28 Energex Pty Ltd is a wholly owned subsidiary of Energex Limited and Ergon Energy Pty Ltd is a wholly owned subsidiary of Ergon Energy Corp Ltd.


corporations – Ergon Energy Corp Ltd and Energex Limited. Ergon Energy Corp

Ltd and its wholly owned subsidiary Ergon Energy Pty Ltd were not considered

for inclusion in the sample as the parent company Ergon Energy Corp Ltd was not

incorporated until 1 July 1999 and did not therefore produce a report in the

1998/1999 financial year, the year for this study. As a result Energex Ltd, being

the only other energy distribution company, was chosen to participate in the study.

Transport government owned corporations cover ports and rail activities. There is

only one rail government owned corporation, Queensland Rail, and consequently

it was included in the study. There are eight port authorities classified as

government owned corporations. Townsville Port Authority was chosen for

inclusion in the study for two reasons. First, it was known to be actively seeking

to improve the profile and usability of its annual report. Second, relative to

Queensland Rail and indeed other port authorities it is a small government owned

corporation and would therefore serve in the transport category as a contrast to

Queensland Rail.29

The last category of government owned corporations is ‘Other’. Included in this

category are Queensland Investment Corporation, Golden Casket Lottery

Corporation, Brisbane Market Corporation and Sunwater. The latter two

corporations were not considered for inclusion in the study because they did not

produce an annual report for the 1998/1999 financial year, as they were not

incorporated until after that time. Queensland Investment Corporation, the

investment arm of the Queensland government, was chosen to be included in the

study because even though it is not the larger of the two remaining bodies it is

most closely linked to the financial management of the state government.

In summary, four government owned corporations out of 22 have been selected

for inclusion in the study; Energex Ltd, Queensland Rail, the Townsville Port

Authority and Queensland Investment Corporation. The selection process has

resulted in the inclusion of government owned corporations in the study that will 29 Queensland Rail has Net Assets of $2,573,836,000 and Townsville Port Authority has Net Assets of $170,190,935. Townsville Port Authority is the third smallest of the eight port authorities in terms of Net Assets.


capture a diverse group of users from corporations of different sizes, different

functions and different profiles.

3.3.2 Establishing a database

The database of recipients to be surveyed in this study was established from the

entities selected to participate in the studies. The relevant officer in each

organization was contacted and asked if they would participate in the study by

providing the distribution lists for their annual report for the year ended 30th June

1999.

All the departments and government owned corporations agreed to this request

and forwarded their mailing lists. Discussion with the officers responsible for

maintaining the annual report mailing lists determined that in all cases the lists

comprised all people to whom the entity routinely sent the annual report plus

those who had specifically requested a copy. For all government departments 130

annual reports are delivered to Parliament House for distribution to members of

parliament and parliamentary libraries. The distribution of these annual reports is

not recorded on the annual report mailing lists for departments. These recipients

receive the annual reports as a result of their position as members of parliament

rather than as a result of having a particular interest in the affairs of an individual

entity. As this research is particularly interested in identifying users and their

information needs within the context of a specific entity the recipients of these

annual reports were not included on the database. However, members of

parliament who had requested a copy of a particular annual report were included

on the database, as their individual names appeared on the mailing lists.

Ninety seven of the total of 125 local government authorities in Queensland

agreed to participate. Most entities either mailed or emailed their mailing lists.

The only exceptions were some smaller local government authorities that

produced and distributed very small numbers of their annual report and

consequently did not maintain mailing lists and therefore provided the information


verbally. The result of this process was a database of the recipients of annual

reports that could be used as a basis for a mailed survey.

3.3.3 Research instrument design

Having established a database of actual recipients of public sector annual reports,

the next step in the study was to design a research instrument to ascertain from

annual report recipients information about the three research questions posed by

this study. Specifically the survey was developed to determine from recipients;

which of the recipients actually used the report, what information in the report

they used and for what purposes they considered the information contained in

general purpose financial statements to be useful.

Two issues were considered in designing the research instrument. First, at a

general level, as the research instrument was to be distributed to recipients of

unknown and widely differing levels of sophistication in terms of accounting

knowledge, it was important that the research instrument be worded as simply and

as concisely as possible. Second, because the research instrument was being

distributed to three different types of public sector entities, it needed to be general

in nature and not refer to information contained in specific annual reports.

It was necessary to distribute the same research instrument to the recipients of all

the public sector entities in order to maintain the internal validity of the research.30

Even though the research instrument (a copy of which appears in Appendix E)

was generic in terms of the questions asked it was possible using mail-merging

techniques to refer to each entity by name in the questions. This ensured that as

far as possible the respondents were responding in terms of actual experience. The

research instrument, while not identifiably separated into parts, was partitioned by

virtue of the questions being asked. Part A, incorporating questions one to four,

sought to determine who used the annual reports; Part B, incorporating questions

30 The only exception was for government owned corporations where changes were made to questions 4, 5, 6 and 9 to allow for the presence of Chief Executive’s reports, the absence of volunteers, and the absence of budget information.


five to eight, elicited information about what information was used by the

respondents; Part C, consisting only of question nine asked respondents what use

they made of the information contained in general purpose financial reports.

Part A

As indicated, the purpose of the first four questions of the research instrument

were designed to identify the users of public sector annual reports in order to

address the first research question of this study. These questions sought to

determine whether recipients of reports were actual users, how they accessed the

annual report and if they did not use the annual report why this was the case.

Question one of the research instrument relates to the entire annual report, as this

is the publication in which the general purpose financial reports are to be found.

The question is designed to distinguish between those people who actually read

the report and those who receive it but do not actually read it. The purpose of this

question is to identify users of annual reports as an initial step in identifying users

of general purpose financial reports. The term ‘read’ was preferred to ‘use’ so as

to minimize any bias on the part of respondents as to what constituted ‘use’. It is

argued that it is necessary to read a report in order to use it.

Question two of the research instrument took the opportunity to ask questions

regarding the mode of access to the annual report by users. Although all of the

respondents will be recipients of the printed version of the annual report, other

modes of access are also a possibility, and respondents were given the opportunity

to indicate more than one access medium. This question may reveal information

regarding access via the internet, which is becoming an increasingly important

method of information distribution in the public sector.

Question three of the research instrument allows respondents to indicate their

reason for not reading the annual report. The third question of the research

instrument will shed some light on the reasons that some people do not use annual

reports and as well may indicate their interest in the affairs of the organisation in


terms of decision making or accountability. Prior studies have suggested that there

is little interest in the general purpose financial reports of public sector bodies

particularly from individual taxpayers and citizens (Rutherford, 1992; Jones,

1992; Mayston, 1992). These studies have indicated that instead, individuals rely

on other collective organisations such as lobby groups or the media to highlight

information for them. As well, it has been claimed that there are few users of

general purpose financial reports because they do not contain information that is

useful to users (Rutherford, 1992; Sutcliffe, 1985).

At this point in the research instrument participants were able to discontinue

answering questions if they had indicated that they did not read the annual report.

Only those recipients who identified themselves as ‘users’ were requested to

continue with the remaining questions.

Question four asked participants to identify their relationship with the entity by

selecting from among a number of classifications the classification that they

thought best fitted their primary association with the entity. Prior studies have, in

either an empirical setting (Van Daniker and Kwiakowski, 1986; Atamian and

Ganguli, 1991; Collins et al., 1991; Alijarde, 1997; Clarke, 2002) or normatively

(NCGA, 1968; Davidson, 1971; Jones et al. 1985; AARF, 1990) identified or

designated numerous classifications of users and have associated information

needs with those classifications. This research instrument has included all the

previously identified classifications and has included an opportunity for

participants to classify themselves outside those previously identified

classifications. Responses to this question will allow an empirical determination

of the normative user categories identified by the ‘decision-useful’ model and as

well determine whether the classifications identified empirically in other studies

are also evident in an Australian setting.

In summary, the four questions in Part A of the research instrument allow a

distinction to be made between recipients and users, and, as well, identify the

category of user to which individual users see themselves as belonging. Most

importantly, the information is obtained directly from recipients and users


themselves rather than by others as proxy for users as in prior studies (see for

example, Alijarde, 1997; Jones and Puglisi, 1997; Sutcliffe et al., 1991).

Part B

The second set of questions in the research instrument was designed to address the

second research question of the identification of the information needs of users.

Obtaining this information highlighted some of the problems inherent in mail

survey research. In survey research where the researcher is not present when the

survey is being completed there can be a problem in ensuring that respondents

fully understand what is being asked of them (Emory and Cooper, 1991; Stone,

1978). In this research there was concern as to how to differentiate between

information that users might want to be disclosed but may not necessarily use and

information that they do actually put to some purpose. In addition, there was a

complicating factor in that prior research (Leftwich, 1980) has identified that

users in a costless environment will require more information than they actually

use.

The problem was resolved by asking questions which enabled participants to

address both issues directly. In question five respondents were asked to identify

on a five point Likert scale the importance of disclosing certain items of

information in the annual report. The list of items that was included was drawn

from the format of annual reports themselves, from the professional

pronouncements, and the prior literature. This question allowed respondents to

indicate in general terms, information they thought should be disclosed even if

they did not actually use it.

Question six was designed to determine what information in the annual report

respondents used. Respondents were asked to indicate, once again on a five point

Likert scale, the emphasis that they placed on information disclosed in the annual

report when they were reading it. This question used commonly employed annual

report headings and thus was more specific in nature.


Taken together questions five and six allowed a distinction to be made between

information users thought should be disclosed generally and information they

actually use. First the use of the terms ‘disclose’ and ‘emphasis’ in that order

requires the respondent to make a decision about the use made of information, and

second, the use of more specific annual report terminology in question six directs

the respondents’ attention to particular sections of the annual report. These two

questions also play a pivotal role in establishing whether the recipient is using the

general purpose financial report, which is the focus of this study, in contrast to the

more descriptive front-end of the annual report.

The seventh question of the research instrument was open ended, concerned with

identifying if there were any other information disclosures respondents would like

included in an annual report. This question was included to obtain the insight as

to what additional information participants felt should be included in annual

reports.

The last question in Part B of the research instrument, question eight, asked

respondents to indicate the importance of a number of sources of information

(once again on a five point Likert scale) about public sector entities. The purpose

of this question was to determine the importance of the annual report as an

information source. While not of direct relevance to the research questions being

addressed by this thesis the responses to this question could provide valuable

insight into the reporting environment in which each entity was operating with

regard to alternate information sources.

Part C

The final question in the research instrument was concerned with answering the

third research question of the study – why users require information. There has

been little empirical research directed at the use to which users put the information

that they acquire from general purpose financial reports. The accounting standards

have assumed that users require information for the purposes of making decisions


and accountability. However, these two uses can encompass many things and in

fact can be seen to overlap. Decisions can vary considerably between users, as can

users’ requirements or perceptions of accountability. In question nine, respondents

were asked to indicate on a five point Likert scale how useful the information

contained in the financial statements was in making a wide range of decisions and

satisfying a number of accountabilities. These accountabilities were drawn from

SAC 2, AARF sponsored discussion papers and prior literature. Responses to this

question allowed a determination from users of the use made of information

presented to them in general purpose financial reports. This question specifically

referred to the financial reports as distinct from other parts of the annual report.

Respondents had the opportunity to indicate whether there were any further uses,

other than those already identified, that they had for financial report information.

Pilot testing

Pilot testing is a technique that can be used to improve the internal validity of a

research instrument (Emory and Cooper, 1991). Pilot testing allows the researcher

to administer the instrument to a group of respondents who will not be part of the

sample in the study to determine if there are any difficulties with the ability of

participants to complete the research instrument. The research instrument for this

study was pilot tested among a disparate group of people as perusal of the annual

report mailing lists indicated that the potential participants in the study were a

divergent group. People who had public sector and non public sector backgrounds

as well as accountants and non-accountants were asked to complete the research

instrument. In all 50 research instruments were distributed for pilot testing. In

most cases the researcher was able to ask the respondents whether they had any

difficulty in filling in the research instrument either in terms of the clarity of the

instructions, the set out of the questions or in understanding the questions. No

difficulties were reported.

3.3.4 Research strategy


The responses to the research instrument form the basis for the examination of the

research questions established by this study. They will enable an empirical

determination of who uses public sector general purpose financial reports, the

information that they use and the use that they consider can be made of these

reports. An evaluation of the requirements that users have for information other

than general purpose financial information can also be made. When all of these

elements are considered this will allow an assessment of the veracity of the

‘decision-useful’ model of general purpose financial reporting adopted in the

public sector and its application to specific public sector entity types. Table 3.2

illustrates the process that will be followed to analyse the responses to the

research instrument.

TABLE 3.2

Research strategy

Research Question 1 Who are the users?

Chapter 4

Research Question 2 What information do they require?

Chapter 5

Research Question 3 For what purposes do they require information?

Chapter 6

All Public Sector Chapter 7

Public sector users Information requirements of public sector users

Purposes for which public sector users require information

Local Government Authorities Chapter 7

Local government authority users

Information requirements of local government authority users

Purposes for which local government authority users require information

Government Departments Chapter 7

Government department users

Information requirements of government department users

Purposes for which government department users require information

Government Owned Corporations Chapter 7

Government owned corporation users

Information requirements of government owned corporation users

Purposes for which government owned corporation users require information


Chapter Four will analyse the responses to Part A of the research instrument and

in doing so will respond to the first research question posed by this study – who

are the users of annual reports in the Australian public sector? The analysis will

allow an empirical assessment to be made of the identity of users of annual reports

in the public sector. Further the responses will be analysed according to entity

type so that users can be identified for government departments, government

owned corporations, and local government departments.

The second research question concerning the information needs of users will be

addressed in Chapter Five. Chapter Five will analyse the responses to Part B of

the research instrument, so that an empirical assessment of the information

requirements of users of public sector annual reports can be made. Once again, the

responses will analysed according to entity type so that the information

requirements of users from departments, government owned corporations and

local government can be separately identified. In addition, the analysis will also

be made according to the user categories identified in Chapter Four to enable an

assessment to be made of the information requirements of different user groups.

The third research question of this study ‘For what purposes do users consider the

information contained in general purpose financial statements to be useful?’ will

be addressed in Chapter Six. This chapter will report the empirical assessment of

the responses to Part C of the research instrument that seeks the views of

participants as to the purposes to which they put financial statement information.

As in Chapter Five the responses will be analysed according to entity type so that

the purposes for requiring information for users from departments, government

owned corporations and local government could be separately identified. In

addition, the analysis will also be made according to the user categories identified

in Chapter Four to enable an assessment to be made of the information

requirements of different user groups.

In Chapter Seven the results obtained in the previous three chapters will be

amalgamated to provide an empirical definition of the elements of the ‘decision-

useful’ financial reporting model for the public sector. The extended analyses that


were performed in each of those chapters will allow specific profiles of who uses

general purpose financial reports, what other information they use, and why they

use information to be developed for each level of government. This analysis will

enable the consideration of the applicability of general purpose financial reports

for each of the public sector entity types examined in this study. This chapter will

therefore address the principal research issue of this study.

3.3.5 Preliminary data analysis

Entity Response Rates

The five departments and four government owned corporations included in this

study agreed to do so. Of the 125 local government authorities in Queensland,

information was obtained from 97 local authorities representing 78% of the

population. All the classifications of local government authorities identified

earlier in this chapter were represented with the exception of the Capital City

classification. Table 3.3 illustrates the response rate by local government type.

Brisbane City Council did not agree to be part of the study. However, the

characteristics of Brisbane City Council meant that it would have been

inappropriate to include it. It is the largest local government authority in

Queensland (and Australia) and is the largest capital city in Australia (excluding

the Australian Capital Territory) by a factor of ten in terms of population and is

nearly five times larger than the next closest in terms of revenue. 31 It is not a

typical local government authority. It is argued that on these grounds its exclusion

is warranted. Of the 28 authorities that did not supply the requested information,

only one authority refused to supply information. Three were omitted from the

research because of anomalies in the manner in which they distributed their

annual reports32. A further council was omitted because it had not produced an

31 For example while Brisbane City Council has a population of 818,100 and a budget of $1 billion dollars, Sydney City Council has a population of 8,300 and a budget of $124,800,000. 32 For example one local authority placed an advertisement in the local paper to say that the annual reports were available and only distributed annual reports by request (other than the legislatively required distribution) and did not maintain records of any requests. The authority indicated that very few requests were received.


annual report for two years and the remainder, while agreeing to provide the

information, failed to do so before the cut off date for inclusion in the study.

TABLE 3.3

Response rate by local authority type

Local Authority Classification Number of Authorities

Number that Supplied

Information

Percent Response

Rate Urban Capital City 1 0 0.0 Urban Metropolitan Small 0 na na Urban Metropolitan Medium 1 1 100.0 Urban Metropolitan Large 0 na na Urban Metropolitan Very Large 1 1 100.0 Urban Regional Small 4 4 100.0 Urban Regional Medium 5 4 80.0 Urban Regional Large 4 2 50.0 Urban Regional Very Large 1 1 100.0 Urban Fringe Small 1 1 100.0 Urban Fringe Medium 3 2 66.7 Urban Fringe Large 3 2 66.7 Urban Fringe Very Large 1 1 100.0 Rural Agricultural Very Large 14 12 86.0 Rural Agricultural Large 10 7 70.0 Rural Agricultural Medium 5 4 80.0 Rural Agricultural Small 6 6 100.0 Rural Remote Large 24 17 71.0 Rural Remote Medium 24 18 75.0 Rural Remote Small 6 5 83.0 Rural Remote Extra Small 2 1 50.0 Rural Significant Growth 9 8 89.0 Total 125 97 78.0

Participant Response Rate

The response rates to the survey are reported in Table 3.4. In total 4,711 research

instruments were sent to recipients of annual reports produced by public sector

entities in Queensland. Overall a response rate of 21.9 % was achieved which

compares favourably with response rates achieved by other surveys of this type

(Jones et. al., 1985 – 10%; Priest et al., 1999 – 19%, Coy et al., 1997 – 56%).33 As

33 In the Coy (1997) study the response rate reflects the fact that the research instrument was sent to people who had already indicated their willingness to participate in the research by supplying their contact details to the researchers.


the table indicates there were better response rates from recipients of annual

reports for departments and local government authorities (24.6% and 23.7%) than

for government owned corporations (16.5%).

TABLE 3.4

Survey response rates

Public Sector Entity Type Number of Research

Instruments Distributed

Number of Responses

Percent Response

Rates


1,262

289

24.6%


2,295

544

23.7%


1,038

172

16.5%

Total

4,595

1005

21.9%

A technique that can be used to improve response rates to mailed surveys is to

send follow up notices (Emory and Cooper, 1991). In this instance this technique

was not used. First, the quantum of responses was large, ensuring that there were

sufficient responses to perform valid statistical analysis. Second, the fact that

participants responded anonymously meant that a complete mail out would have

to be done again and as the response rate was comparable to similar surveys, it

was felt that sending follow up notices would not necessarily improve the

response numbers/response rate sufficiently to justify the cost.

Finally, analysis of early and late responses was carried out.34 Wallace and Mellor

(1988) have indicated that inferences from responses to mailed questionnaires can

be biased in the situation where a large proportion of the sample has not

responded to the research instrument. Oppenheim (1966) has indicated that

respondents who return the research instrument late are similar to non-

respondents. Comparisons of the mean responses to the individual elements of

34 The first one hundred responses were classified as early responses and the last one hundred responses were classified as late responses for this analysis.


questions five, six and nine by early respondents and late respondents indicated

that there were no significant differences between the two groups.

Basic Data Analysis

While it would not be normal practice to include data analysis in a research

methods chapter there are a few basic details that are relevant to report in this

chapter and which, while informing the next three results chapters, do not form

part of those results. The first point concerns what recipients do with annual

reports. The first question sought to discover whether respondents read the annual

report. All of the respondents indicated that they did read the annual report. The

second point concerns the methods used by recipients to access annual reports.

Question two asked respondents to indicate how they accessed the report. For this

question, respondents were able to provide more than one response. The results

are contained in Table 3.5.

TABLE 3.5

Modes of access by recipients of annual reports

Public Sector Entity Type Receive Directly

Borrow from

Someonelse

Library Internet

Government Department

272

12

1

14

Local Government Association

528

12

2

11

Government Owned Corporation

165

4

1

8

Total

965

28

4

33

Even though all of the participants were accessed via mailing lists supplied by the

relevant public sector entity 40 participants indicated that they did not receive the

annual report directly.35 One possible explanation for this is that annual report

recipients who shared or passed on their annual report to other users also passed

35 These 40 respondents who indicated that they did not receive the annual report directly represent the difference between the ‘Number of Responses’ total in Table 3.3 and ‘Receive Directly’ total in Table 3.4.


on a copy of the research instrument that was completed by the secondary

recipients. The third point concerned non-use of the annual report. The third

question of the research instrument asked participants to indicate why they did not

read the annual report if they had indicated in question one that they did not do so.

As all respondents indicated that they did read the annual report there were no

responses to this question.

The responses to the first three questions indicated that all participants in this

study did in fact read the annual report and that the printed version was the mode

of access that they preferred although there is some evidence of participants using

other modes of access.

3.4 SUMMARY

This chapter has explained the research methodology. It has defined the scope of

the research both in terms of the jurisdiction chosen and the individual entities

chosen. The data collection and analysis methods were reported. The next four

chapters will be concerned with analyzing the results obtained from the

administration of the research instrument.

Chapter Four: The Users of General Purpose Financial Reports in the Public Sector

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CHAPTER FOUR

THE USERS OF GENERAL PURPOSE FINANCIAL REPORTS

IN THE PUBLIC SECTOR

The purpose of this chapter is to identify the users of public sector general

purpose financial reports, as the first element in the ‘decision-useful’ general

purpose financial reporting model. It will address the first research question of this

study.35 The chapter has three main sections. Section 4.1 deals with issues

concerning user classifications. Section 4.2 contains an analysis of participant

responses to question four of the research instrument.36 This analysis is initially

carried out for the entire sample as the ‘decision-useful’ model applies across all

public sector entity types and will respond to part (a) of research question one.

The analysis also breaks down the responses separately for each public sector

entity type to determine if there are any cross-sectional variations between entity

types, thus addressing part (b) of research question one. Section 4.3 contains a

discussion of the results of the analysis.

4.1 CLASSIFICATION OF RESPONDENTS

Question four of the research instrument asked respondents to identify their

association with the particular public sector entity about which they were being

surveyed. As indicated in the previous chapter, the associations into which 35 Research Question 1 (a) Who are the users of general purpose finacnail reports in the Australian public sector? (b) Are there cross-sectional variations in the user profiles of different public sector entity types? 36 Q4. Please circle the one classification which best describes your primary association with (name of entity): taxpayer or ratepayer; supplier of goods or services; competitor supplier of goods or services; supplier of finance; consumer of services; elected official of the state government; other elected official; member of an oversight body; regulator or auditor; member of management of the department; representative or employee of another public sector entity; donor of funds to one or more programmes or activities of the department; voluntary provider of time,


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respondents could self-select were determined by including any user category

referred to in prior empirical studies, normative literature or pronouncements from

the accounting profession. As a consequence, there was a large number of

associations - 14 for respondents from departments and local government

authorities and 12 for respondents from government owned corporations.37 A

significant advantage of the provision of a large number of precise associations

for respondents to choose from was an increased confidence that their choices

would be more accurate and less subject to interpretation. This adds to the internal

validity of the research instrument.

However, a large number of association classifications also pose some problems.

First, it is difficult to attach particular meaning to, or conceptualise any patterns of

differences when comparisons are made over such a large number of

classifications. Moreover, statistical analysis of any differences in user profiles

among the different entity types is problematic when there is a large number of

classifications to be compared. Second, in order to interpret the responses to the

research instrument in terms of the model adopted by SAC 2 it is preferable to

have respondents in user categories that more closely reflect those identified in

SAC 2. Consequently, it was decided to categorise and collapse the 14 association

classifications in the research instrument to a smaller number of user categories.

The initial basis for collapsing the association classifications into a smaller

number of user categories was to establish the two broad categories described by

SAC 2, ‘dependent’ and ‘non-dependent’ users. These categories were established

by SAC 2 to differentiate between users who are dependent on general purpose

financial information for information about an entity needs and users who are not

dependent on this type of information because they are able to command the

preparation of special purpose financial information.

goods or services to one or more programmes or activities of the department; other (please specify). 37 Two categories ‘donor of funds’ and ‘voluntary provider of time’ were omitted for government owned corporations as it was felt that the commercial nature of government owned corporations would largely preclude these categories. These minor variations in the research instrument are consistent with the adoption in this study of a methodology that is context dependent.


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Further synthesis was necessary with regard to dependent users. The Accounting

Theory Monograph ‘Financial Reporting in the Public Sector – A Framework for

Analysis and Identification of Issues’, SAC 2 and the AARF discussion papers

‘Financial Reporting by Local Governments’ and ‘Financial Reporting by

Government Departments’ all identify three subcategories of ‘dependent’ users for

public sector bodies – ‘providers of resources’, ‘recipients of goods and services’

and ‘parties performing a review service’. These sub-categories of ‘dependent’

users were used as a further basis for collapsing the association classifications into

a smaller number of categories. However, using these categories directly was

problematic as they resulted in a loss of precision for developing user profiles for

public sector entities. Specifically, ‘elected officials’ and ‘taxpayers’ appear as

examples of ‘providers of resources or their representatives’, as ‘recipients of

services or their representatives’ and as ‘parties performing a review service’.

In the case of ‘elected officials’, SAC 2 does not recognize them as being able to

command special purpose reports and therefore classifies them as being

‘dependent’ users in each of its ‘dependent’ user categories. However, Harris

(1995) argues that because of their position within the governance structure of

public sector agencies, elected officials are able to secure information outside

normal external reporting mechanisms. Moreover, senior members of parliament

and public sector managers and regulators identified elected officials as being

non-dependent users.38 Councillors in local government authorities are able to

request any information at all from council officers. Likewise, the institution of

‘questions on notice’ in the Queensland Parliament requires a minister to respond

to any question put by any member of parliament within one month (Queensland

Parliament, 2001). Additionally, the committee structure of the Queensland

Parliament also allows members of parliament access to other information

sources. Prior studies have also argued that ‘elected officials’ are ‘non-dependent’

users. Collins et al., (1991) when investigating the use made of local authority

annual reports and accounts, classified ‘elected officials’ along with management

as internal (non-dependent) users. Similarly, Taylor and Rosair (2000) and Cheng

38This was verified by a range of telephone conversations I had with Members of parliament, local government authority councillors and senior public servants.


91

(1994) have also identified ‘elected officials’ as internal (non-dependent) users

having access to information outside the scope of general purpose financial

reports. Consequently, in this study, ‘elected officials’ are regarded as a category

of ‘non-dependent’ users.

The position of ‘taxpayers’ in terms of their user categorisation was also

considered. Ratepayer/taxpayer are ‘resource providers’ as a consequence of their

non-voluntary financial contribution to public sector entities. They are also

‘resource recipients’ because they consume goods and services provided by public

sector agencies. Further, they may, from time to time, act in a review capacity on

behalf of other resource recipients or resource providers. Because of the multiple

relationships ratepayers/taxpayers have with the public sector it was decided that

they should be regarded as a separate ‘dependent’ user category alongside the

three groups identified by SAC 2 - ‘other resource providers’, ‘other recipients of

services’ including local businesses, and ‘oversight bodies’. As a consequence of

the consideration of the user categories and their constituents as identified by SAC

2 this research has determined five user categories. Four ‘dependent’ user

categories, ‘ratepayer/taxpayer’, ‘other resource providers’, ‘other recipients of

services’ and ‘oversight bodies’ and one ‘non-dependent’ user category, ‘elected

officials’ have been established.

Empirical research has identified a further group of users, which is not recognized

by SAC 2 as ‘dependent’ users – ‘other like entities’. Atamian and Ganguli (1991)

found that local government authorities in the USA routinely distributed copies of

their annual report to other local government authorities. In an Australian context,

Clark (2002) also identified ‘other like entities’ as a significant recipient of the

annual reports of Victorian government department annual reports. As part of the

motivation for this study was driven by an attempt to obtain as exhaustive a list of

users as possible, a further refinement to the number of user categories was made

based on the results of this previous empirical research. The user category ‘other

like entities’ was included as a ‘dependent’ user category.


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TABLE 4.1

Reclassification of recipient associations to user categories Recipient Association Classifications

as per Question 4 Category

Dependent users

Ratepayer/taxpayer Ratepayer/taxpayer

Supplier of goods and services39

Competitor supplier of goods and services

Supplier of finance Other resource providers

Donor of funds

Voluntary donor of time

Member of an oversight body40 Oversight body

Regulator or auditor

Representative or employee of another public sector entity

Other like entity

Consumer of goods or services41 Other recipients of services

Non-dependent users

Management Internal management

Elected official of this entity Elected official

Other elected official42

Other Other

In relation to ‘non-dependent’ users, ‘internal management’ is acknowledged by

SAC 2 as a ‘non-dependent’ user. Further, empirical research by Coy et al.,

(1997) has identified the internal management of tertiary institutions as a

significant user of the annual reports of those institutions. This category was also

included. This brought the total number of user categories to seven – five

categories of ‘dependent’ users and two categories of ‘non-dependent’ users. The

‘dependent’ user categories for the purposes of this research are;

‘ratepayers/taxpayers’, ‘other resource providers’, ‘other recipients of services’,

39 SAC 2 identifies the following as examples of ‘suppliers of goods and services’ - creditors, employees, suppliers, professional bodies. 40 For example the media, government agencies, resident and ratepayer organizations. 41 SAC 2 identifies the following as examples of ‘consumers of goods and services’ - businesses, professional organizations, customers. 42 For example an elected official of another entity.


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‘oversight bodies’, and ‘other like entities’. The ‘non-dependent’ user categories

for the purpose of this research are ‘elected officials’ and ‘internal management’.

Having established the final users categories for this research, the 14 association

classifications that were identified in the research instrument were reclassified

into those eight categories. Although several of the association classifications

translated directly to user categories, there were some instances in which

judgments had to be made about which user category was the most appropriate for

the association classification. First, in relation to ‘dependent’ users, the

association classifications ‘suppliers of goods and services’, ‘competitor suppliers

of goods and services’, ‘suppliers of finance’, ‘donors of funds’ and ‘voluntary

donors of time’ were all collapsed into the user category ‘other resource

providers’. It is argued that these associations were indicative of the supply of a

resource to the entity in terms of either time, money or goods either for payment

or voluntarily. Second, regulators, auditors and members of ‘oversight bodies’

were classified as ‘oversight bodies’. All share a common feature in that they have

a responsibility to either formally or informally review the operations of the

entity. They were grouped together as ‘oversight bodies’. Third, consumers of

goods and services are categorised as ‘other recipients of services’ as their

association is one of service receipt. The effect of the reclassification process is

displayed in Table 4.1.

4.2 ANALYSIS OF RESPONDENTS

Table 4.2 shows for each user category the number of respondents who identified

themselves as belonging to that category as a consequence of their response to

question four of the research instrument. This analysis informs part (a) of research

question one which seeks to identify the users of public sector general purpose

financial reports. Several observations can be made from examination of this

table. First, all of the categories of users identified by the ‘decision-useful’ model

and the empirical and normative literature are represented among the respondents.

Second, ‘dependent’ and ‘non-dependent’ users are evenly represented with


94

‘dependent’ users accounting for 54% of all users and ‘non-dependent’ users

accounting for 46%.

TABLE 4.2

Frequency of responses by user category

Category

Whole Sample n (%)

Dependent users 541(53.7%)

Ratepayer/Taxpayer 127(12.6%)

Other Resource Provider 125(12.4%)

Oversight Bodies 102(10.1%)

Other Like Entities 110(10.9%)

Other Recipients of Services 77(7.7%)

Non-dependent users 464(46.3%)

Internal Management 184(18.3%)

Elected Officials 268(26.7%)

Other 12(1.3%)

Total 1005(100%)

Third, ‘elected officials’, with 26.7% of respondents indicating that this is their

primary association with the entity, is the category that has the largest number of

respondents.43 The smallest category is ‘other recipients of services’ with 7.7% of

respondents indicating that this is their primary association with the entity. The

final observation that can be made is that overall, the two user groups not

identified by standard setters as being reliant on general purpose financial reports

‘internal management’ and ‘other like entities’ account for nearly 30% of all

respondents.

The results reported above reflect the analysis for all users of public sector general

purpose financial reports in terms of the user categories represented and the

numbers of respondents in each category. Further analysis was performed to

43 This result needs to be considered in the context that for reasons explained in chapter three of this thesis, members of parliament, a primary class of ‘elected officials’ for government departments, were not included in the sample.


95

determine whether there was consistency in the identification of user categories

and the numbers in each category across public sector entity types.

4.2.1 Analysis of respondents by entity type

The responses to question four were further analysed according to the entity type

to which they related. This analysis informs part (b) of research question one of

this study which seeks to identify any cross-sectional variations in the user

profiles of different public sector entity types. Table 4.3 reports the results of the

analysis of respondents based on entity type.44

TABLE 4.3

Frequency of responses by entity type and user category

Classification Whole Sample Government

departments Local

government authorities

Government owned

corporations Dependent users 541(53.7%) 189 (65.4%) 196 (36.0%) 156 (90.6%)

Ratepayer/taxpayer 127 (12.6%) 25 (8.7%) 72 (13.2%) 30 (17.4%)

Other resource provider

125 (12.4%) 38 (13.1%) 44 (8.1%) 43 (25%)

Oversight bodies 102 (10.1%) 60 (20.8%) 17 (3.1%) 25 (14.5%)

Other like entities 110 (10.9%) 59 (20.4%) 42 (7.7%) 9 (5.2%)

Other recipients of services

77 (7.7%) 7 (2.4%) 21 (3.9%) 49 (28.5%)

Non-dependent users

464(46.2%) 100 (34.6%) 348 (64.0%) 16(9.3%)

Internal management

184 (18.3%) 86 (29.8%) 96 (17.6%) 2 (1.2%)

Elected officials 268 (26.7%) 14 (4.8%) 249 (45.8%) 5 (2.9%)

Other45 12 (1.2%) 0 (0%) 3 (0.6%) 9(5.3%)

Total 1005 (100%) 289 (100%) 544 (100%) 172 (100%)

Two observations can be made from the data in Table 4.3. First, the data in Table

4.3 is indicative of the presence of cross-sectional variations in the user profiles

44 From this point on in this thesis respondents will be referred to as users. 45 Due to the small number of respondents contained within it the category ‘other’ is omitted from subsequent statistical analysis.


96

for different public sector entity types. In relation to ‘dependent’ and ‘non-

dependent’ users, 90% of users in government owned corporations are

‘dependent’ users. Government departments have 65% of users who are

‘dependent’ users while local government authorities have only 36% of users who

could be so classified.

Further evidence of cross-sectional variations in the user profiles is also found at

the individual category level. Taking each entity type separately, for government

department respondents there are more users classified as ‘other like entities’ than

there are for local government authorities and government owned corporations.

For local government authorities there are a larger number of users classified as

‘elected officials’ than there are for government departments and government

owned corporations. However, users who are classified as ‘oversight bodies’, are

less numerous for local government authorities than for the other two entity types.

For government owned corporations there are more users classified as ‘other

resource providers’ and ‘other recipients of services’ than for either of the other

two entity types. In addition, there are fewer users in the ‘internal management’

classification for government owned corporations than for the other two entity

types.

Second, when the responses were analysed as a whole the two user groups not

identified by the standard setters, ‘internal management’ and ‘other like entities’

were found together to represent nearly 30% of all respondents. The

disaggregation of the responses by entity types indicates that there is cross-

sectional variation in this result. Half (50%) of the users for departments identify

themselves as being either ‘internal management’ or ‘other like entities’ while for

local government authorities this proportion drops to one quarter (25%) and for

government owned corporations the proportion is only six percent (6%).

A series of Chi square tests, in which the user categories for each entity type is

compared to the user categories for each other entity type, was performed to

determine if these apparent cross-sectional variations are significant. The results


97

of the first of these tests, which sought to determine if there was a difference in

the overall user profile for each entity type, are shown in Table 4.4.

TABLE 4.4

Comparison of user profiles for public sector entity types

* p<.001

The results indicate that there are significant differences between individual

public sector entity types with regard to the composition of their overall user

profile. However, it does not distinguish in which specific user category or

categories those differences lie. In order to arrive at a more precise analysis of

differences in the user profiles, further testing for differences in each user

category and between each public sector entity type was conducted. The results of

these tests are recorded in Tables 4.5, 4.6 and 4.7.

A comparison of the allocation of respondents to individual user categories for

government departments and local government authorities is shown in Table 4.5.

The results indicate that the larger proportion of ‘dependent’ users reported for

government departments than for local government authorities is significant.

Further, government departments have a significantly higher representation of

‘other resource providers’, ‘oversight bodies’, ‘other like entities’ and ‘internal

management’ in their user profiles than local government authorities. They have a

significantly lower representation of ‘ratepayer/taxpayer’ and ‘elected officials’

All user categories Chi Square Significance Level

Government departments and local government authorities 210.512 .000*

Government departments and government owned corporations

143.946 .000*

Local government authorities and government owned corporations

243.049 .000*


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than local government authorities.46 The proportion of ‘other recipients of

services’ in the user profile is the same for both entity types.

TABLE 4.5

Comparison of user profiles for government departments and local

government authorities

User Category Government departments Number of

respondents (% of total respondents for

entity type)

Local government authorities Number of

respondents (% of total respondents for

entity type)

Pearson Chi

square

Probability(Sig 2 sided)

Dependent users 189 (65.4%) 196 (36%) 64.445 .000** Ratepayer/taxpayer 25 (8.7%) 72 (13.2%) 3.960 .047*

. Other resource providers

38 (13.1%) 44 (8.1%) 5.323 .021*

Oversight bodies 60 (20.8%) 17 (3.1%) 69.478 .000** Other like entities 59 (20.4%) 42 (7.7%) 28.212 .000** Other recipients of services

7 (2.4%) 21 (3.9%) 1.231 .267

Non-dependent users

100(34.6%) 348(64.0%) 64.445 .000**

Internal management

86 (29.8%) 96 (17.6%) 15.879 .000**

Elected officials 14 (4.8%) 249 (45.8%) 147.584 .000** ** p< .001 * p<.05 Table 4.6 shows the comparison between government departments and

government owned corporations. These results indicate that the proportion of

‘dependent’ users noted for government owned corporations is significantly

higher than that found for government departments. Similarly to the comparison

between users of departmental annual reports and local government annual reports

there are significant differences in the proportion of users in more than half of the

categories. Departments had a significantly smaller proportion of users in the

‘ratepayer/taxpayer’, ‘other resource providers’ and ‘other recipients of services’

categories than did government owned corporation. However, they had a

significantly greater proportion of respondents in the ‘internal management’ and

46 This result needs to be interpreted with caution, as for reasons explained in chapter three of this thesis, members of parliament, a primary class of ‘elected officials’ for government departments, were not included in the sample.


99

‘other like entity’ categories. For two user categories, ‘elected officials’ and

‘oversight bodies’, there was no difference between the two entity types in the

proportion of users in those categories.47

TABLE 4.6

Comparison of user profiles for government departments and government owned corporations

User Category Government

departments Number of

respondents (% of total respondents for entity type)

Government owned corporations

Number of respondents (% of total respondents for entity type)

Pearson Chi

square


Dependent users 189 (65.4%) 156 (90.6%) 52.981 .000** Ratepayers/taxpayers 25(8.7%) 30 (17.4%) 9.278 .002*

. Other resource providers

38 (13.1%) 43 (25%) 12.405 .000**

Oversight bodies

60 (20.8%) 25(14.5%) 2.008 .156

Other like entities 59 (20.4%) 9(5.2%) 18.088 .000** Other recipients of services

7 (2.4%) 49 (28.5%) 73.349 .000**

Non-dependent users 100 (34.6%) 16 (9.3%) 52.981 .000** Internal management 86 (29.8%) 2 (1.2%) 54.109 .000** Elected officials 14(4.8%) 5 (2.9%) .817 .366 ** p< .001 * p<.05

Table 4.7 shows the comparison between local government authorities and

government owned corporations. The results reported in Table 4.7 indicate that

there are significantly more ‘dependent’ users for government owned corporations

than there are for local government authorities. Government owned corporations

report a significantly larger proportion of users in three of the five ‘dependent’

user categories, ‘other resource providers’, ‘oversight bodies’ and ‘other recipients

of services’ than local government authorities. They report a significantly lower

proportion of users in the ‘non-dependent’ user categories than local government

authorities.

47 For the same reasons as in the previous analysis the result regarding ‘elected officials’ needs to be treated with caution.


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TABLE 4.7

Comparison of user profiles for local government authorities and government owned corporations

User Category Local government

authorities Number of

respondents (% of total respondents for entity type)


Number of respondents (% of total respondents for entity type)

Pearson Chi

square


Dependent users 196 (36.0%) 156 (90.6%) 177.239 .000* Ratepayers/taxpayers 72 (13.3%) 30 (18.4%) 2.626 .105 Other resource providers

44 (8.1%) 43 (26.4%) 38.508 .000*

Oversight bodies 17 (3.2%) 25(15.3%) 33.206 .000* Other like entities 42 (7.8%) 9(5.5%) .937 .333 Other recipients of services

21 (3.9%) 49 (30.1%) 95.873 .000*

Non-dependent users 348 (64.0%) 16 (9.3%) 177.239 .000* Internal management 96 (17.7%) 2 (1.2%) 28.521 .000* Elected officials 249(46%) 5 (3.1%) 100.232 .000* * p< .001

4.3 ANALYSIS OF RESULTS

The preceding analysis reveals several insights into the identification of users of

general purpose financial reports in the Australian public sector. There are four

main findings from this chapter. The first three inform part (a) of research

question one which sought to identify who were the users of general purpose

financial reports in the Australian public sector. First, all of the user categories

identified by the ‘decision-useful’ model in SAC 2 were empirically identified.

Second, the user group ‘other like entities’ identified by prior studies but not

identified by SAC 2 have been identified in this research. This group comprises

11% of all respondents. The identification of ‘other like entities’ as a significant

user category in this research was consistent with prior empirical research.

Atamian and Ganguli (1991) found ‘other municipalities' (other like entities) were

a significant category of user in a local government context. Coy et al., (1997)

also identified other tertiary institutions as recipients of the annual reports of New

Zealand tertiary institutions. Clarke (2002: 19) confirmed the findings of both Coy

et al., (1997) and Atamian and Ganguli (1991) in a government department


101

context when he argued that ‘the most common category of users were those in

sister or competitor organizations’.

The third finding was that 46% of users identified are ‘non-dependent’ users, that

is, users who are not dependent on general purpose financial information to meet

their information needs. The identification of ‘internal management’ as a

significant ‘non-dependent’ user group (nearly 20% of users) confirmed the

findings of prior normative and empirical research. The identification of ‘internal

management’ as a significant user category is consistent with early normative

research which sought to identify the users of public sector financial reports. The

US National Committee on Governmental Accounting (1968) identified ‘internal

management’ as a primary user of government financial reports although in their

later pronouncement they excluded this category of user. The 1978 study by

Coopers and Lybrand also identified municipal management as a user of local

government financial reports. This finding is also consistent with prior empirical

research that has identified ‘internal management’ as a user of public sector

general purpose financial reports. In particular, Van Daniker and Kwiatkowski

(1986) established that ‘internal management’ was a user of governmental

financial reports. In a local government context, studies in the US (Atamian and

Ganguli, 1991) and Spain (Alijarde, 1997) identified ‘internal management’ as

users of financial reports. In a New Zealand study of tertiary institutions (Coy et

al., 1997) senior management were identified as a user of the annual reports of

New Zealand Tertiary institutions.

The fourth finding of this chapter informs part (b) of research question one which

sought to determine if there were any cross-sectional variations in the user profiles

of different public sector entity types. This research has found that there are

significant differences in the user profiles for each of the entity types considered.

Out of an available 21 possibilities (7 user categories by 3 entity types) for

commonality to exist there were only five instances where this occurred. Some

patterns emerged regarding the differences for each entity type with local

government authorities and departments showing similar differences from

government owned corporations on some related user categories and departments


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and government owned corporations reflecting differences with local government

authorities on other related user categories. These results were consistent with the

findings of Atamian and Ganguli (1991) that there are cross sectional variations in

the user profiles of local government municipalities, concluding that not all

individual municipalities will necessarily have the same categories of users for

their financial reports.

While the ‘decision-useful’ model for general purpose financial reporting does not

specify or imply any expectations with regard to the importance of, or even

relative numbers of, users who may comprise each category, these cross-sectional

results have implications for the applicability of the model to all public sector

entity types. The results are initial support for the claim that it is unlikely,

because of the diversity in size, structure, objectives and accountability

relationships in the public sector that the private sector model could be

successfully imposed on the public sector and that indeed there would need to be

accommodation of these factors when developing a reporting framework for the

public sector (Walker, 1989, 2000; Guthrie, 1998; Ma and Mathews, 1993;

Stanton and Stanton, 1998; Conn, 1996; Rutherford, 1992; van Peursem and Pratt,

1992).

4.4 SUMMARY

The purpose of this chapter was to investigate the first research question of this

research – the identification of users of public sector annual reports. This chapter

analysed the responses by participants to the question four of the research

instrument.

Overall, the findings of the analysis of the responses by participants with regard to

their association with public sector entities has determined that the user profile

established by the Australian standard setters is incomplete. The classification of

‘dependent’ users of public sector annual reports as normatively described and

accepted by SAC 2 is not exhaustive. In particular, it has identified one user


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category, ‘other like entities’, not recognized by the standard setters, as a

significant user category for all public sector entity types. This finding is

consistent with prior research in Australia, USA and New Zealand. Significantly,

‘non-dependent’ users, a group whose information needs is not specifically

considered by the standard setters, comprise a large proportion of users. The

analysis has also found cross-sectional variations between public sector entity

types in terms of their user profiles. These results are not consistent with the

assumptions that there exists a homogeneous set of users for all public sector

entity types.


104

105

CHAPTER FIVE

THE INFORMATION REQUIREMENTS OF USERS OF

ANNUAL REPORTS IN THE PUBLIC SECTOR

The previous chapter identified the users of public sector general purpose

financial statements (the first element of the ‘decision-useful’ model) as a

response to the first research question posed by this study. This chapter will

address the second research question by examining the information requirements

of the users of annual reports and in particular general purpose financial reports.48

It will empirically inform the second element of the ‘decision-useful’ model – the

information needs of users.

In addressing the issue of what information respondents use in the annual report

there were two factors to consider. The first factor was the potential difficulty for

respondents to decide on the meaning of ‘use’. The second factor was how to

differentiate between information that users might want to be disclosed but may

not necessarily use themselves, and information that they do actually put to some

purpose. Consideration of this factor is complicated by the findings of prior

research which identified that users in a costless environment will require more

information than they actually use (Leftwich, 1980).

To overcome these difficulties, two separate questions were included in the

research instrument. Respondents were asked to indicate the importance they

placed on the disclosure of information in question five, and in question six, were

asked to indicate the emphasis they placed on information. The provision of two

48 Research Question 2 (a) What emphasis do users place on information contained in general purpose financial statements and is there any cross-sectional variation between user categories? (b) What emphasis do users place on other information contained in the annual reports of public sector entities and is there any cross-ssectional variation between user categories? (c) Are there cross-sectional variations in the emphasis placed on the information contained in annual reports by users from different public sector entity types?

Chapter Five: The Information Requirements of Users of Annual Reports in the Public Sector

106

questions enabled respondents to address both issues (disclosure and use) thus

allowing a distinction to be made between information users thought should be

available (importance) and information they actually use (emphasis). Further, the

use of the terms ‘emphasis’ and ‘importance of disclosure’ reduced the necessity

for respondents to make a judgement about the definition of ‘use’. The distinction

between disclosure and emphasis is important as the focus of this research is to

identify information that is actually used by users. In effect then, question five

operated as a screening device by providing respondents the opportunity to

express the importance of information items even if they did not use them.

Consequently, the responses to question five were not considered in this research,

and the responses of users to question six of the research instrument will be

analysed to determine what information they use. 49

The remainder of this chapter has two sections. Section 5.1 will analyse the

responses to question six of the research instrument. This analysis is initially

conducted for all users and for each user classification, and will respond to parts

(a) and (b) of research question two. The analysis also breaks down the responses

separately for each public sector entity type. This allows a determination of any

cross-sectional variations between entity types addressing part (c) of research

question two. Section 5.2 contains a discussion of the results of the analysis.

5.1 ANALYSIS OF RESPONSES

Question six of the research instrument asked participants to indicate on a Likert

scale of one to five (where one was no emphasis and five was strong emphasis)

how much emphasis they placed on certain items contained in the annual report

they received. The research instrument distributed to recipients of government

49Question 6: When reading the annual report of (name of the entity) how much emphasis do you place on: the overview of the department’s operations; the descriptive section of the annual report before the financial statements; the operating statement; the balance sheet; the cash flow statement; the notes to the financial statements; the auditors’ report; performance indicators; the chief executive officer’s report; summary facts, figures and key statistics; financial overview and analysis; disclosure of actual versus budget and variance information; the remuneration of executive officers.


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department and local government authority annual reports asked respondents to

indicate the emphasis that they placed on 13 information items commonly found

in annual reports for these entities, while the recipients of the annual reports of

government owned corporations were given 16 information items.

The difference in the number of information items reflects differences in

disclosures required by government owned corporations compared to government

departments and local government authorities. In designing the information items

for the government owned corporations research instrument the starting point was

the 13 items used for the research instrument for government departments and

local government authorities. The information item ‘disclosure of actual versus

budget information’ was not included in the research instrument distributed to

government owned corporation annual report recipients as government owned

corporations are not part of the public budget appropriation process and hence not

required to disclose this information. However, four additional items were

included. ‘The chairman’s report’ and ‘remuneration of board members’ were

added as these items appear in the annual reports of government owned

corporations because of their corporate structure. ‘Corporate governance

disclosures’ and ‘social responsibility disclosures’ were included in the research

instrument for government owned corporations because the annual reports of

government owned corporations specifically included these headings.50

The large amount of data collected – over 1,000 responses to 13 or more items is

difficult to concisely describe or evaluate without some reduction in, or

simplification of, the data. Further, analysis to determine whether there are any

significant differences between respondents from different user categories or

entity types is problematic when there is a large number of variables.

Consequently, a means of making the data more manageable so that description

and analysis could be undertaken was sought.

50 At the time the research instrument was distributed while ‘corporate governance disclosures’ and ‘social responsibility disclosures’ were made in the annual reports of local government authorities and government departments they were not made under those specific headings. These disclosures were instead made in other section of the annual reports. To have included them in the research instrument distributed to local government authority and government department recipients had the potential to be confusing and ambiguous.


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One of the primary aims of factor analysis is to determine whether participant

responses to a large number of specific questions can be reduced to a smaller

number of more general variables (factors) that underlie those responses (Hair et

al., 1995; de Vaus, 1995; Kline, 1994). Consequently, it was chosen as a means of

managing the data for this question. Factor analysis can be either confirmatory or

exploratory. Confirmatory factor analysis is used to confirm an hypothesised

factor structure, whereas exploratory factor analysis is used where there is no a

priori hypothesis about the factor structure (Heck, 1998). In this research, because

there is no a priori hypothesis about the composition of factors, exploratory factor

analysis was used.

5.1.1 Factor analysis

Factor analysis was performed on the responses by participants to question six of

the research instrument to ascertain whether the disclosure items in question six

could be reduced to a smaller number of variables that reflected common

themes.51 Two issues are commonly considered when undertaking a factor

analysis (Heck, 1998). First, consideration needs to be made of which variables

should be included in the factor analysis (Heck, 1998). Not all items in question

six (13 for the government department and local government authority instrument

and 16 for the government owned corporation instrument) were included in the

factor analysis. ‘Remuneration of executive officers’ which appeared in both

research instruments and ‘remuneration of board members’ which appeared in the

government owned corporation research instrument were omitted for two reasons.

First, on closer inspection it was deemed they are a subset of the ‘notes to the

financial statements’ item. Second, these two items are at a level of specificity

that differs greatly from the remaining items. These omissions left 12 variables for

consideration from the question for government departments and local

government authorities and 14 variables for government owned corporations.

51 The mean scores for the responses to question six for all users, and classified by user category and entity type, are contained in Appendix F.


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Once the variables have been decided, the second issue that requires consideration

is the determination of the optimal number of factors (Hair et al., 1995; Heck,

1998). Several authors (see for example Kline, 1994; Comrey and Lee, 1992; Kim

and Mueller, 1978; Cattell, 1978) have indicated that the determination of the

number of factors extracted in a factor analysis is a question that has no definitive

answer. It is likely, that to arrive at an appropriate solution, several criteria will

need to be examined. Three criteria that are frequently cited for consideration are;

the eigenvalue greater than one test, the scree test, and whether the factors ‘make

sense’ (Heck, 1998; Hair et al., 1995; Kline, 1994; Comrey and Lee, 1992; Kim

and Mueller, 1978; Cattell, 1978).

Identification of factors

As there were different numbers of variables in question six for the research

instrument for government departments and local government authorities and the

research instrument for government owned corporations it was not possible to run

a single factor analysis for all of the data. One factor analysis was run for

government departments and local government authorities and a separate one was

run for government owned corporations.

An initial factor analysis was conducted on government department and local

government authority data, using the eigenvalue greater than one criterion for

determining the number of factors. This produced two factors explaining 62% of

the variance. Investigation of these factors indicated that while there was some

integrity in terms of the variables of which they were comprised, there were also

some inconsistencies. For example, the variable ‘disclosure of actual versus

budget and variance information’ was included in the same factor as the general

purpose financial statement variables, even though this item does not form part of

those statements. Examples such as this, together with assertions that there is a

tendency for this criterion to extract too few factors when there are less than 20

variables (Hair et al., 1995), prompted further investigation through an

examination of the scree test.


110

The scree test indicated that the variables could be reduced to three factors.52

Consequently, a further factor analysis was run based on the extraction of three

factors. The three factor solution was more robust than the two factor solution for

two reasons.53 First, it explained more of the variance (69%) than the two factor

solution. Second, the factors had greater integrity in that the variables of which

they were comprised ‘made sense’ together (Heck, 1998; Kline, 1994; Cattell,

1978).54

This process was repeated for the government owned corporations data. An initial

factor analysis using the eigenvalue greater than one test for determining the

number of factors produced four factors explaining 71% of the variance. 55 Three

factors were common with those that were identified in the analysis performed on

government department and local government authority data.56 The fourth factor

comprised two of the additional variables that were included in the research

instrument for government owned corporations.

Description of factors

As a result of the factor analyses three factors common to all three entity types

have been identified and a fourth factor has been identified for government owned

corporations.57 The factors are shown in Table 5.1.

52 The scree test determines that the number of factors to be extracted is that number at which the graph of the eigenvalues begins to ‘level off’, forming a straight line (Hair et al., 1995; Kline, 1978). 53 The assumptions that needed to be met for reliance on the results of the factor analysis, the determinant, Kaiser-Meyer-Olkin Measure of Sampling Adequacy and the Bartlett test of Sphericity were all met (Norusis, 1998). 54 The factors also had Cronbach alpha scores greater than 7 indicating that they were reliable. 55 The assumptions that needed to be met for reliance on the results of the factor analysis, the determinant, Kaiser-Meyer-Olkin Measure of Sampling Adequacy and the Bartlett test of Sphericity were all met (Norusis, 1998). Details of the factor analysis are contained in Appendix G. 56 One of additional variables included in the government owned corporations research instrument combined with related variables in a factor which was otherwise identical to one identified by the analysis performed on government departments and local government authorities. 57 Details of the factor analysis are contained in Appendix G.


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TABLE 5.1

Identification of factors and the variables that comprise them

Factor Variables for Government Departments and Local Government Authorities

Variables for Government Owned Corporations

General Purpose Financial Information

Balance Sheet Cash Flow Statement

Notes to Financial Statements Operating Statement

Auditors Report

Balance Sheet Cash Flow Statement

Notes to Financial Statements Operating Statement

Auditors Report Performance Information

Summary facts figures & key statistics

Financial Overview & Analysis Performance Indicators

Budget v Actual

Summary facts figures & key statistics

Financial Overview & Analysis Performance Indicators

Narrative Information Overview of entities operations Description before financial

statements CEO’s Report

Overview of entities operations Description before financial

statements CEO’s Report

Chairman’s Report Social Disclosure Information

N/A Corporate Governance Disclosures

Social Responsibility Disclosures

Each of these factors reflects identifiably different information types or themes.

The first factor includes the individual elements of the general purpose financial

reports required to be produced by the three entity types and is named general

purpose financial information.58 The second factor comprises information items

that have both numeric and narrative elements and which, when taken together,

provide an overview of entity performance beyond (but including) financial

performance. It is named performance information. The third factor comprises

information items that are narrative in nature and has been named narrative

information. The last factor social disclosure information, applies only to

government owned corporations, and comprises disclosures that indicate the

nature and characteristics of the entity’s interaction with the community and its

stakeholders.

58 These being operating statement, balance sheet, cash flow statement, notes to financial statements, and auditors report


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The identification of meaningful factors allowed a score for each factor for each

respondent to be calculated. One of the simplest methods of obtaining a factor

score is to sum the scores on each of the variables that comprise the factor

(Comrey and Lee, 1992).59 In this instance, to allow for the differences in the

variables that comprised each factor for respondents from different entity types an

average score was calculated.60 The factor scores were used in the analysis of all

users, individual user categories and entity types.

5.1.2 Analysis based on user categories

Table 5.2 reports the mean scores for each factor for all users and for each user

category. It should be noted that the factor social disclosure information applies

only to government owned corporations. Consequently, although for

completeness the results for this factor are reported, they are not considered in the

discussion of the table. Information contained within this table was analysed in

absolute terms for each user category and for each factor. A comparative analysis

was also conducted between the two broad categories of ‘dependent’ and ‘non-

dependent’ users and for individual user categories.61 These analyses will inform

research question two (a) and (b).

Emphasis placed on information

Research question two (a) seeks to determine the use of general purpose financial

information by users in the public sector. All users place some emphasis, but not

strong emphasis, on general purpose financial information (a score of 3.84 out of

a possible 5).62 This result holds when the results are partitioned to reflect the

views of ‘dependent’ and ‘non-dependent’ users. However, ‘dependent’ users

59 Kline (1994) notes that this method also correlates well with more complex procedures such as multiple regression techniques. 60 For example for Factor 1 General Purpose Financial Statements the factor score for each respondent was calculated by summing the scores for each of the items included in the factor by the respondent and dividing that total by the number of items. 61 ‘Non-dependent’ users are ‘elected officials’ and ‘internal management’ with ‘dependent’ users comprising the remaining categories. 62 A score of 2-3 was regarded as little emphasis, a score of 3-4 was regarded as some emphasis and a score of 4-5 was regarded as strong emphasis.


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place less emphasis (3.77) on general purpose financial information than ‘non-

dependent’ users (3.92).

When the data is further partitioned for each user category, one user category,

‘elected officials’, indicate that they place strong emphasis (4.14) on general

purpose financial information with the remaining categories indicating that they

place some emphasis on general purpose financial information. Of the seven user

categories, four rate general purpose financial information, as second in terms of

the emphasis they place on information contained in the annual report.63

TABLE 5.2

Mean factor scores* for the emphasis placed on information by user category User Category General

Purpose Financial

Information

Performance Information

Narrative Information

Social Disclosure

Information**

All Users 3.84 3.96 3.81 3.42

Dependent users 3.77 3.94 3.68 3.46 Ratepayer/taxpayer n = 127

3.82 3.97 3.68 3.68

Other resource provider n = 125

3.80 3.85 3.67 3.50

Oversight bodies n = 102

3.95 4.01 3.73 3.32

Other like entities n = 110

3.51 3.85 3.58 3.61

Other recipients of services n = 77

3.77 4.07 3.76 3.32

Non - Dependent Users 3.92 3.99 3.98 3.29 Internal management n = 184

3.60 3.80 3.72 3.50

Elected official n = 268

4.14 4.13 4.16 4.20

* where 1 is no emphasis, 3 is neutral and 5 is strong emphasis ** where social disclosures have only been recorded for government owned corporations

Research question two (b) seeks to determine users’ use of information, other than

general purpose financial information, in the annual report. There are no

63 These are ‘ratepayer/taxpayer’, ‘other resource provider’, ‘oversight bodies’, ‘other recipients of services’.


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information factors on which all users place strong emphasis, although all users

place some emphasis on all of the factors.64 Further, the results reported in Table

5.2 indicate that performance information is the information on which all users

place the most emphasis with general purpose financial information being the

factor on which they place the second most emphasis.

When the results are partitioned to reflect the views of ‘dependent’ and ‘non-

dependent’ users, there are no factors on which either ‘dependent’ or ‘non-

dependent’ users place strong emphasis. Both ‘dependent’ (3.94) and ‘non-

dependent’ (3.99) users place most emphasis on performance information.

General purpose financial information still ranks as the information factor on

which the second greatest emphasis is placed for ‘dependent’ users (3.77) but falls

to third place for ‘non-dependent’ users (3.92). For all factors ‘non-dependent’

users report higher means than ‘dependent’ users.

When the data is further partitioned for each user category, performance

information is the information factor on which the most emphasis is placed for all

user categories except ‘elected officials’. ‘Elected officials’ report placing strong

emphasis on all the information factors. Only two other user categories,

‘oversight bodies’ and ‘other recipients of services’, indicate that they place

strong emphasis on any of the factors. Both categories place strong emphasis on

performance information. The remaining user categories place some emphasis on

all of the information factors.

As well as providing information about the importance that users place on

individual factors, Table 5.2 also allows profiles of the emphasis placed on the

information factors to be constructed for each user category. ‘Resource

providers’, ‘recipients of services’ and ‘oversight bodies’ all place the four

information factors in the same order while the remaining user categories have

slightly different profiles.

64 Including general purpose financial information.


115

Comparison between user categories

While an examination based on inspection of the means gives an illustration of the

relative importance of the information factors to users, to determine if there were

any statistical differences in the emphasis placed on the information factors by

user categories, Mann-Whitney tests were performed for each factor.65 Table 5.3

reports the results of comparing the mean factor scores for the two broad

categories of ‘dependent’ and ‘non-dependent’ users.66

While ‘non-dependent’ users indicate that they place greater emphasis on general

purpose financial information and performance information in absolute terms,

statistically there was no significant difference from ‘dependent’ users. Narrative

information is the only factor for which ‘non-dependent’ and ‘dependent’ users

show a significant difference. ‘Non-dependent’ users indicate that they place

significantly more emphasis on narrative information than do ‘dependent’ users.

It should be noted that even though ‘non-dependent users’ place significantly

more emphasis on narrative information than ‘dependent users’ they still only

place some emphasis on that information.

TABLE 5.3

Comparisons between mean factor scores for the emphasis placed on information by ‘dependent’ and ‘non-dependent’ users of public sector

general purpose financial reports

General Purpose

Financial Information



Social Disclosure

Information

Dependent Users Mean 3.77 3.94 3.68 3.46 Non-Dependent Users Mean

3.92

3.99

3.98

3.29

Z statistic -1.952 -.844 -5.407 -.233 Significance .051 .399 .000* .816 *p<.001

65 The nonparametric Mann-Whitney test was used, as the data is not normally distributed. 66 As previously noted the factor social disclosures applies only to government owned corporations and consequently although for completeness the results for this factor are reported, they are not considered in the discussion of the table.


116

This analysis was further extended to compare the factor scores for each

individual user category. Table 5.4 reports the significance level of the Mann-

Whitney tests between each user category for each of the information factors.67

TABLE 5.4

Mann-Whitney significance levels for comparing mean factor scores for the emphasis placed on information between user categories

General

Purpose Financial

Information



Social Disclosure

Information

Ratepayer/taxpayer Resource provider .673 .199 .984 .350 Elected officials .012** .076 .000*** .485 Recipients of services .344 .672 .861 .106 Oversight bodies .421 .553 .502 .157 Internal management .013* .027* .711 .722 Other like entities .018* .275 .512 .772 Resource providers Elected officials .001** .000*** .000*** .784 Recipients of services .537 .084 .830 .404 Oversight bodies .196 .060 .435 .500 Internal management .031* .398 .781 .933 Other like entities .036* .796 .449 .721 Elected officials Recipients of services .000*** .246 .000*** .964 Oversight bodies .135 .365 .000*** .977 Internal management .000*** .000*** .000*** 1.00 Other like entities .000*** .002** .000*** .681 Recipients of services Oversight bodies .078 .822 .742 .995 Internal management .156 .011* .916 .805 Other like entities .154 .177 .353 .400 Oversight bodies Internal management .000*** .005** .630 .886 Other like entities .002** .099 .205 .469 Internal management Other like entities .733 .296 .277 .811 *** p< 0.001 ** p<.01 * p<.05

67 As previously noted the factor social disclosure information applies only to government owned corporations and consequently although for completeness the results for this factor are reported, they are not considered in the discussion of the table.


117

The table is abridged to eliminate duplicate reporting.68 The shaded cells indicate

those cases where there is a significant difference in the importance placed on

information factors between user categories.

In 11 cases (out of a possible 21) there are significant differences between user

categories in the amount of emphasis that is placed on general purpose financial

information. In addition, there are differences in six cases (out of a possible 21)

for the amount of emphasis placed on performance information and narrative

information.

From Table 5.4 it is possible to determine those user categories that report most

differences from other user categories. The two ‘non-dependent’ user categories

‘elected officials’ and ‘internal management’ were the two user categories

demonstrating the most differences from the remaining user categories. ‘Elected

officials’ place significantly higher emphasis on general purpose financial

information, performance information and narrative information than ‘internal

management’, ‘other like entities’ and ‘resource providers’. They also place

significantly higher emphasis on general purpose information and narrative

information than ‘recipients of services’ and ‘taxpayers’. ‘Internal management’

place a significantly lower level of emphasis on general purpose financial

information and performance information than did ‘oversight bodies’ and

‘taxpayers’.

5.1.3 Analysis based on entity type

The previous subsection found some support for the proposition that different user

categories have differing information needs. Prior literature has also suggested

that users from different entity types will also have different information needs.

This section will empirically investigate these claims by comparing the

information needs of users from different entity types. This analysis will inform

research question two (c).

68 The details of the Mann-Whitney tests are reported in Appendix H along with the full table.


118

Table 5.5 reports the mean factor scores for all users from each entity type and for

‘dependent’ and ‘non-dependent’ users for each entity type.69 Again, it should be

noted that the factor social disclosures applies only to government owned

corporations. Consequently, although for completeness the results for this factor

are reported, they are not considered in the discussion of this table or in

subsequent tables for this section. Information contained in this table was

analysed in absolute and comparative terms (Table 5.6) for each factor for all

three entity types. Finally, for each of government departments and local

government authorities an analysis of the mean scores for ‘dependent’ and ‘non-

dependent’ users was undertaken (Table 5.7 and Table 5.8).70

Emphasis placed on information

The results reported in Table 5.5 indicate that some emphasis is placed on general

purpose financial information by all users from each entity type and by

‘dependent’ users from each entity type. However, local government authority

‘non-dependent’ users are the only users to place strong emphasis on general

purpose financial information.

Performance information is the information factor on which all users and

‘dependent’ users from each entity type place the most emphasis. Further, all

users from local government authorities and government owned corporations and

‘dependent’ users from government owned corporations place strong emphasis on

performance information. While government department and government owned

corporation ‘non-dependent’ users place most emphasis on performance

information local government authority ‘non-dependent’ users place most

emphasis on narrative information.

69 A comparison at individual user category level was not possible because of small numbers in some of the user categories in some of the entity types. 70 An analysis of the mean scores for ‘dependent’ and ‘non-dependent’ users for government owned corporations was not undertaken because of the small number (7) of ‘non-dependent’ users for government owned corporations.


119

TABLE 5.5

Mean factor scores for the emphasis placed on information for each entity type

Entity Type General

Purpose Financial

Information



Social Disclosure

Information

All Users

Government departments

3.57 3.82 3.59 na

Local government authorities

3.98 4.02

3.98 na


3.86 4.04

3.71

3.42

Dependent users


3.62 3.85 3.60 na


3.81 3.93 3.73 na


3.90 4.06 3.71 3.46

Non-dependent users


3.45 3.77 3.57 na


4.06 4.06 4.11 na


3.54 3.71 3.71 3.29

Comparison between entity types

The analysis was further extended to determine whether any of these apparent

differences in the factor scores between entity types are significant. The results of

this testing are reported in Table 5.6.71

71 Social disclosure information was not examined in this context as this factor only applied to government owned corporations.


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TABLE 5.6

Comparison of means of factor scores for the emphasis placed on information between individual entity types

Mann-Whitney test

Entity Comparisons General Purpose Financial

Information



All users Mean - Government departments Local government authorities Z statistic Significance

3.57 3.98

-5.914

.000***

3.82 4.02

-3.258 .001**

3.59 3.98

-5.109

.000*** Mean -Government departments Government owned corporations Z statistic Significance

3.57 3.86

-3.220 .001**

3.82 4.04

-2.499 .012*

3.59 3.71

-3.10 .757

Mean -Local government authorities -Government owned corporations Z statistic Significance

3.98

3.86

-1.098 .272

4.02

4.04

-.104 .918

3.98

3.71

-4.569 .000***

Dependent users Mean - Government departments Local government authorities Z statistic Significance

3.62 3.81

-1.596 .111

3.85 3.93

-.424 .671

3.60 3.73

-.683 524

Mean -Government departments Government owned corporations Z statistic Significance

3.62 3.90

-2.335 .020*

3.85 4.06

-1.784 .074

3.60 3.71

-.024 .757

Mean -Local government authorities -Government owned corporations Z statistic Significance

3.81

3.90

-.969 .332

3.93

4.06

-1.318 .187

3.73

3.71

-.823 .410

Non-dependent users72 Mean - Government departments Local government authorities Z statistic Significance

3.45 4.06

-6.388

.000***

3.77 4.06

-3.901

.000***

3.57 4.11

-5.316

.000*** *** p<.000 ** p<.001 * p<.05

72 Comparisons between ‘non-dependent’ users from government owned corporations and ‘non-dependent’ users from the other two entity types were not considered because of the small number (7) of government owned corporation ‘non-dependent’ users.


121

When the responses of all users from each entity type are considered, the results

reported in Table 5.6 indicate that there are significant differences in the emphasis

placed on the information factors by users from different entity types. For all

users, the results indicate that government department users place significantly

less emphasis on all of the information factors than users from either local

government authorities or government owned corporations. Users from local

government authorities and government owned corporations do not place a

significantly different emphasis on general purpose information or performance

information however, local government authority users place significantly more

emphasis on narrative information than user from government owned

corporations. These results are indicative of a systematic difference in the

emphasis placed on information by users from government departments compared

to those from local government authorities and government owned corporations.

When a comparison of the emphasis placed on information factors by ‘dependent’

users from each entity is made the results indicate that the only significant

difference reported is that ‘dependent’ users from government owned corporations

place significantly more emphasis on general purpose financial information than

‘dependent’ users from government departments. However, ‘non-dependent’

users from local government authorities place significantly more emphasis on all

three information factors than ‘non-dependent’ users from government

departments.

In subsection 5.1.2 the factor scores reported by ‘dependent’ and ‘non-dependent’

users were investigated to determine whether there were any statistically

significant differences in the emphasis that they placed on the information factors

identified by this research. This analysis was also undertaken to determine if there

were any differences in the emphasis placed on the information factors by

‘dependent’ and ‘non-dependent’ users for each entity type. Table 5.7 reports the

result of the comparison between the emphasis placed on the factors by

‘dependent’ and ‘non-dependent’ users from local government authorities, and

Table 5.8 reports those results for ‘dependent’ and ‘non-dependent’ users from


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government departments. Government owned corporations were not considered

here, as there were too few ‘non-dependent’ users to undertake the analysis.

TABLE 5.7

Comparisons between mean factor scores for the emphasis placed on information by ‘dependent’ and ‘non-dependent’ users of local government

authority annual reports

General Purpose Financial

Information



Dependent users mean 3.81 3.93 3.73 Non –dependent users mean 4.06 4.06 4.11 Z statistic -2.959 -2.046 -5.014 Significance .003* .041* .000** **p<. 000 *p<. 05 For all of the information factors, ‘dependent’ and ‘non-dependent’ users of local

government authority annual reports indicate significant differences on the

emphasis which they place on the factors. In all cases, ‘non-dependent’ users

place more emphasis on the factors than ‘dependent’ users.

TABLE 5.8

Comparisons between mean factor scores for the emphasis placed on information by ‘dependent’ and ‘non-dependent’ users of government

department annual reports

General Purpose Financial

Information



Dependent Users Mean 3.62 3.85 3.60 Non-dependent Users Mean 3.45 3.77 3.57 Z statistic -1.834 -1.530 -.637 Significance .067 .126 .524

For government departments there are no significant differences in the emphasis

placed on the information factors by ‘dependent’ users compared to ‘non-


123

dependent’ users. This was the only analysis in which all of the information

factors had more emphasis placed on them by ‘dependent’ users than ‘non-

dependent’ users.


Four factors were identified from the analysis of the responses to question six of

the research instrument, which asked respondents to indicate the emphasis placed

by them on general purpose financial information and other information presented

in the annual report. These factors were general purpose financial information,

narrative information, performance information and social disclosure

information. Social disclosure information was relevant only for government

owned corporations. Responses to question six, when taken as a whole and when

partitioned to reflect the views of user categories and entity types informed the

three parts of research question two.

There are three major findings from the results of the analysis of the emphasis

placed on information contained in the annual report by public sector users.73

First, the results indicated that all users placed some emphasis on general purpose

financial information and that there were differences amongst user categories in

the amount of emphasis placed on information items. One user category, ‘elected

officials’, indicated that strong emphasis was placed on general purpose financial

information. There were significant differences in the emphasis placed on general

purpose financial information between user categories in 11 out of 21 cases. In

particular, ‘elected officials’ reported that they placed significantly more

emphasis on general purpose financial information than all user categories other

than ‘oversight bodies’.

Second, performance information was the factor on which most emphasis is

placed by all user categories. Further, several user categories (‘oversight bodies’, 73 An inflated type I error rate can occur as a result of multiple comparisons. However, in this case the consistent pattern of results mitigates against the likelihood of the results being misleading or mis-interpreted.


124

‘other recipients of services’ and ‘elected officials’) indicated that they placed

strong emphasis on performance information with the remaining user catgegories

placing some emphasis on it. There are significant differences between user

categories on the emphasis placed on performance information and narrative

information.

These results support the prior empirical and normative research that has

emphasised the importance of performance information to public sector users (see

for example, Daniels and Daniels, 1991; GASB, 1995; Alijarde, 1997; Collins et

al., 1991; Walker, 2002; Carlin and Guthrie, 2001; Sharp and Carpenter, 1998).

Further, these results contribute to a growing body of research that indicates the

importance of information other than general purpose financial information in the

public sector. Particularly it confirms the importance of performance information

to public sector users. Further, these results are consistent with prior empirical

research that has identified differences in the information preferences of

individual user categories (Jones et al., 1985; Daniels and Daniels, 1991; GASB,

1995; Alijarde, 1997).

Third, this research has found that users from different public sector entity types

placed different emphasis on information items. This research provided evidence

of a systematic difference in the information requirements of users of government

department annual reports compared to the users of annual reports for the other

two entities. Users from government departments placed significantly less

emphasis on all of the information factors than users from local government

authorities and significantly less emphasis on general purpose financial

information and performance information than users from government owned

corporations. While there are no prior empirical studies that have conducted a cross-sectional

analysis between entity types, the results of this study are consistent with the

normative assessments that the private-sector ‘decision-useful’ model for general

purpose financial reporting would not meet the needs of public sector

organisations with differing operating structures, sources of financing, operating


125

motives and accountability obligations (Walker, 1989; Aiken, 1994; English

2003).

These results raise two issues that will be addressed in the final chapter of this

research. First, the results could be interpreted as suggesting that performance

information is of particular interest to users and that there is some support for the

inclusion of performance reporting as part of general purpose financial reporting.

Second, these results challenge the applicability of the ‘decision-useful’ model to

the whole of the public sector regardless of the individual characteristics of each

entity type.

5.3 SUMMARY

This purpose of this chapter was to inform the second research question of this

thesis – the information requirements of users of public sector general purpose

financial reports. It analysed the responses of survey participants to question six

of the survey instrument that sought the opinions of respondents as to the

emphasis that they placed on financial statement information as well as other

information contained within the annual report.

Factor analysis was performed on the data to make the large amount of data more

manageable and to enable meaningful analysis. Three information factors

common to all entity types were identified with a fourth factor being identified for

government owned corporations. These factors were then compared between

individual user categories and then between each of the three entity types included

in this research.

There were differences in the degree of emphasis placed on information factors by

both entity types and user categories. In particular, with regard to user categories

‘elected officials’ and ‘internal managers’ showed different emphases on the

information factors. With regard to entity types, users of the annual reports of

government departments indicated that they placed less emphasis on the


126

information factors than users of the annual reports of local government

authorities and government owned corporations. Overall, the results appear to

indicate that the information requirements for users of public sector annual reports

vary depending on the entity type and on the user category. This is consistent with

prior research that has suggested that the users of annual reports and financial

reports from different entity types and different user categories will have different

information needs.

128

CHAPTER SIX

THE UTILITY OF FINANCIAL STATEMENT

INFORMATION

The previous two chapters identified the users of general purpose financial

statements and the information requirements of those users (the first two elements

of the ‘decision-useful’ model’) in response to the first two research questions of

this thesis. This chapter will address the third research question by examining the

purposes for which users find general purpose financial statements useful.74 It will

empirically inform the third and final element of the ‘decision-useful’ model.

The chapter has two main sections. The first section will analyse the uses made of

general purpose financial information from information derived from the

responses of participants to question nine of the research instrument. This analysis

is initially conducted for all users and for each user classification and will respond

to part (a) of research question three. The analysis will then break down the

responses separately for each public sector entity type to determine if there is any

cross-sectional variation between entity types addressing part (b) of research

question three. The second section contains a discussion of the results of the

analysis.

74 Research Question 3 (a) For what purposes do users consider the information contained in general purpose financial statements to be useful and is there any cross-sectional variation between user categories?(b) Are there cross-sectional variations in the purposes for which users from different public sector entity types find financial statement information to be useful?

Chapter Six: The Utility of Financial Statement Information 129

6.1 ANALYSIS OF RESPONSES

Question nine75 of the research instrument asked participants to indicate, on a

Likert scale of one to five (where one was not useful and five was very useful),

how useful information contained in the financial statements was in making

judgements or decisions. The research instrument presented a wide range of

alternative decisions and judgements to respondents. These were drawn from a

variety of sources including SAC 2, AARF sponsored discussion papers and prior

literature. SAC 2 has placed great emphasis on the ‘decision-usefulness’ role of

general purpose financial statements, relegating accountability to a secondary

purpose by determining that the provision of financial statements that are

decision-useful will also meet the accountability requirements of entities. One of

the aims of question nine was to examine the validity of this assumption by

allowing users to indicate the purposes for which they use financial statement

information. The question allowed respondents to indicate any purpose they have

for information that was not previously identified.

In all, the research instrument distributed to government department and local

government authority annual report recipients, presented respondents with 23

judgements or decisions. However, five of these items were omitted from the

75 Question 9: Information from the financial statements of (name of entity) is useful for the following: as a basis for making representations to the department for funding for specific programmes; to decide whether resources have been used in the manner intended; to determine the financial viability of the department; to determine whether public monies have been used appropriately; to determine whether the department has adhered to its budget; to decide on continued use of department services; to determine the effect of the current operations of the department on future generations; to decide to commence using department services; to determine whether the department can meet its long term liabilities; to determine whether the department has conducted its operations effectively; to assess the likelihood of increased rate or tax charges; to decide how to vote in elections; to assess the likelihood of increased service charges; to determine whether the department has operated in the best interest of the community it serves; to determine whether to make representations to the department for an alteration to the mix of services provided; to inform my decisions as a supplier of goods, services or finance to the department; to determine satisfaction with current level of service; to decide whether to make representations to the department for the provision of specific programmes; to determine whether the department has conducted its operations efficiently; to decide whether or not to support specific departmental decisions; to compare the results of the department with other similar departments; to determine whether the department has met its stated objectives; to determine whether the department can meet its short term liabilities; other (please specify).


research instrument distributed to recipients of government owned corporation

annual reports. These items were omitted as they did not apply to government

owned corporations because of their corporate structure and their largely self-

funding nature. An example is the item ‘to determine if information in the

financial statements was useful to decide whether to make representations for

funding’.76

Consistent with the approach adopted in the previous chapter factor analysis was

undertaken to simplify the data and make it more manageable. Exploratory factor

analysis was used as this research has not considered an a priori hypothesis about

the composition of the factors.

6.1.1 Factor analysis

Identification of Factors

The objective of the factor analysis was to determine whether the twenty-three

judgements and decisions presented in question nine could be reduced, based on

the responses given by the respondents, to a smaller number of variables that

reflect some common themes.77 All of the variables included in question nine

were included in the factor analysis. The same methods for determining the

optimal number of factors were considered in these analyses as were considered in

Chapter Five (the eigenvalue greater than one test, the scree test, and whether the

factors ‘make sense’).

The difference in the number of items included in question nine for the

government department and local government authority research instrument

compared to the instrument used for government owned corporations again meant

that it was not possible to run one factor analysis for all of the data. One factor 76 Similarly the usefulness of information ‘to determine the adherence to the budget’, ‘to determine whether public monies had been used appropriately’, ‘to determine the likelihood of increased taxes or charges’ and ‘to decide whether to support the organizations decisions’ were omitted from the research instrument distributed to recipients of government owned corporation annual reports. 77 The mean scores recorded for each judgement/decision classified by user category and entity type are contained in Appendix I.


analyses was run for government departments and local government authorities

and a separate one was run for government owned corporations. Both of these

factor analyses resulted in the extraction of three factors with eigenvalues greater

than one with confirmation from the scree tests in both cases that three factors

were appropriate.78 79

While both factor analyses identified three factors, there were some minor

variations in the variables included in each factor for the two analyses. Three

items that were common to both research instruments had their highest loading on

different factors in the factor analyses.80 The effect of this was that the factors in

each factor analysis were comprised of slightly different variables.

The solution suggested by the government department and local government

authority factor analysis was preferred for three reasons. First, the number of

observations in the factor analysis executed for government departments and local

government authorities was four times the number in the factor analysis for

government owned corporations making it a more powerful solution. Second, in

all instances where there was a discrepancy, the variable had loaded on both

factors in both factor analyses, indicating that the variable had some association

with both factors. Third, the variables logically and conceptually were most

appropriately connected to the factors resulting from the analysis for departments

and local government authorities and many researchers have stressed the

importance of the factors ‘making sense’ (see for example, Kim and Mueller,

1978; Heck, 1998; Marcoulides, 1998).

78 Details of the factor analyses are contained in Appendix J. 79 The assumptions that need to be met for reliance on the results of the factor analysis, the determinant, Kaiser-Meyer-Olkin Measure of Sampling Adequacy and the Bartlett test of Sphericity were all met for both analyses. 80 The judgement item ‘to determine whether resources were used as intended’ loaded on the financial accountability factor for government owned corporations whereas it loaded on the public accountability factor for departments and local government authorities. Similarly ‘to determine the likelihood of increased service charges’ and ‘to compare results with other similar organisations’ both loaded on public accountability for government owned corporations but loaded on decision useful and financial accountability for departments and local government authorities.


Description of Factors

The factors that emerged as a result of the factor analyses and the variables of

which they are composed are shown in Table 6.1.81

TABLE 6.1

Identification of factors and the variables that comprise them

Factor Variables for Government Departments and Local Government Authorities

Variables for Government Owned Corporations

Financial Accountability

To determine financial viability To determine if organization can meet its short term liabilities To determine if organization can meet its long term liabilities To determine if organisation has adhered to budget To determine if organization has met its objectives To compare results with other similar organization

To determine financial viability To determine if organization can meet its short term liabilities To determine if organization can meet its long term liabilities To determine if organization has met its objectives To compare results with other similar organization

Public Accountability

To determine if organization has operated in best interest of community If organisation has conducted its operations effectively If organization has conducted its operations efficiently To decide if resources used as intended To determine effect of current operations on future generations To determine if public money used appropriately To determine the effect of current operations on future funding Make representations for funding

To determine if organization has operated in best interest of community If organisation has conducted its operations effectively If organization has conducted its operations efficiently To decide if resources used as intended To determine effect of current operations on future generations To determine the effect of current operations on future funding Make representations for funding

Decision-making To decide to make representations re provision of specific programs How to vote To determine likelihood of increased service charges To inform a decision as a supplier of goods, services or finance Commence use of services To decide on continued use of organization services To determine likelihood of increased taxes or charges To decide whether to make representations to alter mix of services To decide whether or not to support organization decisions

To decide to make representations re provision of specific programs How to vote To inform a decision as a supplier of goods, services or finance Commence use of services To decide on continued use of organization services To determine likelihood of increased taxes or charges To decide whether to make representations to alter mix of services

81 All three factors had high reliability scores (cronbach alpha greater than 7).


The elements of the first factor can be characterised as having a basis in the

financial operations and financial performance of the entity including comparisons

with other organizations. This first factor was titled ‘financial accountability’. The

second factor included decisions/judgements that relate to overall or general

accountability for the operations of the entity. The variables in this factor reflect a

community interest or perspective. For example whilst a particular individual may

have no direct interest in the operations of the Health department they may still

have an interest in aspects of its performance, both financial and non-financial,

and knowing that public monies are being used as intended. This factor was titled

‘public accountability’. The third factor included decisions that users may make

as a result of the information presented in the financial statements and is related to

the ‘decision-usefulness’ concept. It was titled ‘decision-making’.

The establishment of meaningful factors to describe the variables in question nine

allowed a score for each factor to be calculated for each respondent.82 The factor

scores will be used in the analyses of all users, individual user categories and

entity types.

6.1.2 Analysis based on user categories

Table 6.2 reports the mean scores for each factor for all users and for each user

category. Information contained within this table was analysed in absolute terms

for both user categories and for each factor. A comparative analysis was also

conducted between the two broad categories of ‘dependent’ and ‘non-dependent’

users and for individual user categories. These analyses will inform research

question three (a).

Use of general purpose financial reports

Research question three (a) seeks to determine the use made of financial statement

information by users. The results reported in Table 6.2 indicate that all users

‘dependent’ users and ‘non-dependent’ users find financial statement information

82 Factor scores were calculated in the same way as in Chapter Five.


most useful for the purpose of financial accountability and least useful for

decision-making. Further, they do not find financial statement information very

useful for any of the three purposes.83

TABLE 6.2

Mean factor scores for the use made of financial statement information by user category

Financial

Accountability Public

Accountability Decision-making

All Users

3.81 3.74 3.05

Dependent users 3.69 3.61 2.92 Ratepayer/taxpayer n = 127

3.72 3.68 3.01

Other resource providers n = 125

3.75 3.57 3.03

Oversight bodies n = 102

3.72 3.68 2.80

Other like entities n = 110

3.44 3.40 2.71

Recipients of services n = 77

3.85 3.76 3.03

Non-dependent users 3.97 3.91 3.24 Internal management n = 184

3.67 3.56 2.88

Elected official n = 268

4.18 4.16 3.52

The data was further partitioned to reflect the use made of financial statement

information by individual user categories. Each individual user category indicated

that financial statement information was most useful for financial accountability

and least useful for decision-making. Three user categories, ‘oversight bodies’,

‘other like entities’ and ‘internal management’, indicated that they found financial

statement information not very useful for decision-making purposes. ‘Elected

officials’ (4.18) are the only user category to find financial statement information

very useful for any of the purposes identified. They find financial statement

information very useful for the purposes of financial accountability and public

accountability but not for decision-making. While an analysis of these results will 83 A score of 2-3 was regarded as not very useful. A score of 3-4 was regarded as useful. A score of 4-5 was regarded as very useful.


be made later in the chapter it would appear that these results do not substantiate

the decision useful model, which identifies the making of economic decisions as

the primary use of financial statement information.

Comparisons between user categories

An examination based on inspection of the means provides information about the

relative use of financial statement information. To determine whether any of the

differences noted in the above analysis are significant, Mann-Whitney Tests84

were carried out on the scores. Table 6.3 reports the results of comparing the

mean factor scores for participants classified as either ‘dependent’ or ‘non-

dependent’.

TABLE 6.3

Comparison of the mean factor scores for the use made of financial statement

information by ‘dependent’ and ‘non-dependent’ users of public sector annual reports

Financial


Accountability Decision-making

Dependent users 3.69 3.61 2.92 Non – dependent users 3.97 3.91 3.24 Z Statistic -5.566 -5.933 -4.915 Significance .000* .000* .000*

*p<.000

Financial accountability and public accountability are both rated more highly

than decision-making for both categories of user. ‘Non-dependent’ users find

financial statement information significantly more useful for public

accountability, financial accountability and decision-making than ‘dependent’

users. ‘Dependent’ users do not find financial statement information to be useful

for decision-making. This result is contradictory to the assertion of SAC 2 that

financial statement information is used by dependent users for making decisions

and will be more fully discussed and developed in Chapter Seven.

84 The non-parametric Mann-Whitney test was used, as the data is not normally distributed.


Table 6.4 reports the results of comparing the mean factor scores for all three

factors between each user type.85 The first observation that can be made is that

there is a significant difference between user categories, in the importance of

financial statement information for the purposes identified, in 44% of cases.

TABLE 6.4 Mann-Whitney significance levels for comparing mean factor scores for the

use made of financial statement information between user categories



Decision-making

Ratepayer/taxpayer Resource provider .825 .331 .969 Elected officials .000*** .000*** .000*** Recipients of services .354 .547 .973 Oversight bodies .765 .592 .130 Internal management .565 .076 .151 Other like entities .008** .012** .039* Resource Providers Elected officials .000*** .000*** .000*** Recipients of services .502 .164 .922 Oversight bodies .999 .143 .093 Internal management .465 .538 .079 Other like entities .005*** .119 .030* Elected Officials . Recipients of services .000*** .000*** .000*** Oversight bodies .000*** .000*** .000*** Internal management .000*** .000*** .000*** Other like entities .000*** .000*** .000*** Recipients of Services Oversight bodies .627 .945 .126 Internal management .157 .033* .129 Other like entities .001** .005** .054 Oversight Bodies Internal management .495 .046* .738 Other like entities .007** .009** .741 Internal Management Other like entities .025* .181 .438 ***p<.000 **p<.01 *p<.05

85 To avoid the repetition of information and to simplify the table the comparisons between each user category and all of the remaining categories are not shown in this table. As an example, the comparison between taxpayers and internal management is only shown once in the taxpayer comparison and not repeated in the internal management comparison. The full table and the details of the Mann-Whitney tests are found in Appendix K.


Two user categories indicate that they have significant differences from the

remaining user categories in terms of how useful they rate financial statement

information. ‘Elected officials’ indicate that they find financial statement

information significantly more useful for all three purposes, public accountability,

financial accountability and decision-making than all of the other user categories.

‘Other like entities’ find financial statement information significantly less useful

for financial accountability than all of the other user categories and they find it

less useful for the purpose of public accountability, than all of the categories

except ‘resource providers’ and ‘internal management’.

6.1.3 Analysis based on entity type

Table 6.5 reports the mean scores for all users, ‘dependent’ users and ‘non-

dependent’ users from each entity type for each of the identified factors.86

Information contained in this table was analysed in absolute and comparative

terms (Table 6.6) for each factor for all three entity types. An analysis of the mean

scores for ‘dependent’ and ‘non-dependent’ users for government departments and

local government authorities was also undertaken (Table 6.7 and Table 6.8).87

These analyses will inform research question three (b).

Use of information

An initial inspection of the results reported in Table 6.5 indicates that financial

statement information is regarded as being more useful for discharging financial

accountability and public accountability than for decision-making by all users,

‘dependent’ users and ‘non-dependent’ users from all entity types. Users from

local government authorities regard financial statement information to be useful

for all three purposes. However, users from departments and government owned

86 A comparison at individual user category was not possible because of small numbers in some of the user categories for some entity types. 87 An analysis of the mean scores for ‘dependent’ and ‘non-dependent’ users for government owned corporations was not undertaken because of the small number (7) of ‘non-dependent’ users for government owned corporations.


corporations indicate that they do not find financial statement information useful

for decision-making.

TABLE 6.5

Mean factor scores for the use made of financial statement information by entity type

All users, ‘dependent’ users and ‘non-dependent’ users from government

departments find financial statement information most useful for the purpose of

‘public accountability’. ‘Financial accountability’ is the purpose for which all

users and ‘non-dependent’ users from local government authorities and

government owned corporations find financial statement information most useful.

However, ‘dependent’ local government authority users find financial statement

information most useful for public accountability.

In summary, for two entity types, financial statement information is not found to

be useful for decision-making and for all three entity types financial statement

information is more useful for the purposes of public and financial accountability

than for decision-making. These results are not supportive of the ‘decision-useful

model’ as a reporting framework in the public sector and the broader implications

of this will be addressed in Chapter Eight

Entity Type Financial Accountability


Decision-making

All users Government departments 3.49 3.54 2.85 Local government authorities 3.97 3.92 3.29 Government owned corporations 3.86 3.52 2.71 Dependent users Government departments 3.47 3.50 2.81 Local government authorities 3.74 3.77 3.16 Government owned corporations 3.91 3.55 2.76 Non-dependent users Government departments 3.54 3.63 2.92 Local government authorities 4.12 4.02 3.38 Government owned corporations 3.14 2.69 3.14


Comparisons between entity types

The differences between the scores were further investigated to determine if the

differences noted between the means are statistically significant. If statistically

significant differences are found between individual entity types this would

indicate that there are cross-sectional differences among users from individual

entity types for the importance placed on financial statement information. Table

6.6 reports the significance level of Mann-Whitney Tests88, which compared the

mean factor score for all three factors between each entity type for all users,

‘dependent’ users and ‘non-dependent’ users.

The results reported in Table 6.6 indicate that all users, ‘dependent’ users and

non-dependent’ users from government departments find financial statement

information significantly less useful for financial accountability, public

accountability and decision-making than users from local government authorities.

Further, all users and ‘dependent’ users (‘non-dependent’ users were not

considered) from government departments find financial statement information

significantly less useful for financial accountability than users from government

owned corporations.

All users and ‘dependent’ users from government owned corporation find

financial statement information significantly less useful for the purposes of public

accountability and for decision-making than those from local government

authorities. However ‘dependent’ users from government owned corporations find

financial statement information more useful for financial accountability than local

government authority ‘dependent’ users.

88 The non-parametric Mann-Whitney test was used, as the data is not normally distributed.


TABLE 6.6

Comparison of means of factor scores for the use made of financial statement information between individual entity types

Mann-Whitney test Entity Comparisons Financial


Accountability Decision- making

All users Mean - Government departments Local government authorities Z statistic Significance

3.49 3.97

-8.510 .000**

3.54 3.92

-6.955 .000**

2.85 3.29

-6.342 .000**

Mean - Government departments Government owned corporations Z statistic Significance

3.49 3.86

-5.141 .000**

3.54 3.52 -.315 .753

2.85 2.71

-1.666 .096

Mean - Local government authorities Government owned corporations Z statistic Significance

3.97 3.86

-1.536 .125

3.92 3.52

-5.634 .000**

3.29 2.71

-6.916 .000**

Dependent users Mean - Government departments Local government authorities Z statistic Significance

3.47 3.74

-3.490 .000**

3.50 3.77

-3.523 .000**

2.81 3.16

-3.560 .000**

Mean - Government departments Government owned corporations Z statistic Significance

3.47 3.91

-5.135 .000**

3.50 3.55

-1.029 .303

2.81 2.76 -.737 .461

Mean - Local government authorities Government owned corporations Z statistic Significance

3.74 3.91

-2.135 .033*

3.77 3.55

-2.318 .020*

3.16 2.76

-4.216 .000**

Non-dependent users89 Mean - Government departments Local government authorities Z statistic Significance

3.54 4.12

-6.665 .000**

3.63 4.02

-4.843 .000**

2.92 3.38

-4.611 .000**

**p<.000 *p<.05

In sum, users from individual entity types find financial statement information to

be useful for different purposes. Overall users from government departments find

financial statement information least useful for any of the identified purposes.

These results are not supportive of the contention that the ‘decision-useful’ model

applies equally across all public sector entity types.

89 Comparisons between ‘non-dependent’ users from government owned corporations and ‘non-dependent’ users from the other two entity types were not considered because of the small number (7) of government owned corporation ‘non-dependent’ users.


In section 6.1.2 an analysis was undertaken of the differences between non-

dependent and dependent users with regard to the purpose for which they find

financial statements useful. This analysis was conducted for each entity type, with

the exception of government owned corporations, as there were insufficient

respondents in the ‘non-dependent’ category to allow the analysis. The results of

the analysis are reported in Tables 6.7 and 6.8.

TABLE 6.7

Comparisons between mean factor scores for the use made of financial statement information by ‘dependent’ and ‘non-dependent’ users of local

government annual reports



Decision-making

Dependent users - Mean 3.74 3.77 3.16 Non-dependent users –Mean 4.12 4.02 3.38 Z statistic -5.756 -4.005 -2.460 Significance .000** .000** .014* **p<.000 *p<.05 ‘Non-dependent’ users rated financial statement information more useful for

financial accountability than for public accountability and least useful for

decision-making. While ‘dependent’ respondents also found financial statement

information the least useful for decision-making, they found it more useful for

public accountability purposes than for financial accountability. ‘Non-dependent’

local government authority users find all three uses for financial statement

information significantly more important than do ‘dependent’ users.


TABLE 6.8

Comparisons between mean factor scores for the use made of financial statement information by ‘dependent’ and ‘non-dependent’ users of

government department annual reports



Decision-making

Dependent users - Mean 3.47 3.50 2.81 Non-dependent users - Mean 3.54 3.63 2.92 Z statistic -.385 -1.013 -.553 Significance .700 .311 .580

‘Non-dependent’ and ‘dependent’ users of department annual reports rank the

usefulness of financial statement information for each of the three factors in the

same order. In absolute terms, ‘non-dependent’ users find all three uses for

financial statement information more important than do dependent users.

However, they do not find them significantly more important. Both ‘non-

dependent’ and ‘dependent’ users evaluated financial statement information as

being not very useful for decision-making.


Three factors representing identifiable purposes for which respondents found

financial statements information useful emerged from the analysis. These factors

were financial accountability, public accountability and decision-making.

Responses to question nine, when taken as a whole and when partitioned to reflect

the views of user categories and entity types informed the two parts of research

question three.

There were three findings from the results of this analysis.90 First, all users find

financial statement information useful for all three purposes identified. They find

financial statement information most useful for financial accountability purposes 90 As noted in the previous chapter an inflated type I error rate can occur as a result of multiple comparisons. However, in this case the consistent pattern of results mitigates against the likelihood of the results being misleading or mis-interpreted.


and least useful for decision-making purposes. Second, when the responses are

partitioned to reflect the views of ‘dependent’ and ‘non-dependent’ users and

individual user categories only ‘non-dependent’ users and four categories of user,

‘ratepayers/taxpayers’, ‘other resource providers’, ‘elected officials’ and

‘recipients of services’, reported that they found financial statement information

useful for decision-making. In addition, significant differences were found in the

use made of financial statement information between ‘dependent’ and ‘non-

dependent’ users and between several user categories.

There has been limited empirical research that has attempted to identify the

purposes for which public sector users require financial statement information.

This research confirms the findings by Clarke (2002) that financial statement

information is not used for the purposes identified by SAC 2. The results of this

research also support the findings of Jones et al., (1985) and Alijarde, (1997) who

found that different user categories had different uses for information. They also

support the US research of Daniels and Daniels (1991) and Gaffney (1986) who

found that the user groups that they investigated did not find financial statement

information useful. The results from this current research add to a growing body

of research identifying differences in the information needs of public sector users.

These findings provide empirical support for the normative assessments that as

the objectives of the activities of the public sector are more complex than the

private sector, a reporting framework that emphasises the provision of information

for the purposes of making economic decisions is not appropriate in the public

sector (Walker, 1989, 2000; Guthrie, 1998; Ma and Mathews, 1993; Stanton and

Stanton, 1998; Conn, 1996; Rutherford, 1992; van Peursem and Pratt, 1992). They

also add some support to the notion that financial statement information that has,

as its focus, the determination of profit is not useful information in the public

sector (Ijiri, 1983; Gjesdal, 1981; Ghobadian and Ashworth, 1994; Kloot and

Martin, 2000).

The third finding of this analysis relates to the use made of financial statements by

users from individual entity types. When the responses were analysed according


to entity type, local government authority users were the only users who found

financial statement information to be useful for the purposes of decision-making.

Local government authority and government owned corporation users found

financial statement information most useful for financial accountability purposes

while government department users found this information most useful for the

purpose of public accountability. There were significant differences between all

entity types with regard to the use made of financial statement information by

their users.

There are no previous empirical studies that have investigated cross-sectional

differences between entity types for the use made of financial statement

information. The results of this study however provide empirical support for the

normative claims that the private sector ‘decision-useful’ model does not meet the

needs of users in the public sector (Walker, 1989; Aiken, 1994; English, 2003).

Overall the results reported in this chapter are indicative of a low level of interest

by respondents in the use of financial statements or financial statement

information as a decision-making tool and raise significant concerns about the

veracity of the ‘decision-useful’ model. Further, these results are consistent with

the results of question six (analysed in Chapter Five) which indicate that users

place more emphasis on performance information which is essentially an

accountability mechanism than they do on general purpose financial statements.

The preceding analysis of the responses by participants to the question that sought

information about the use that they made of financial information has produced

results that have implications for the specification of the ‘decision-useful’ model

itself and its application to individual public sector entity types and will be

investigated in the final chapters of this thesis.

6.3 SUMMARY

The purpose of this chapter was to inform the third research question of this thesis

– the purposes for which users of public sector annual reports find financial


statement information useful. Factor analysis was employed to make the large

amount of data more manageable and to enable meaningful analysis. Factor

analysis identified three purposes for the use of financial information - financial

accountability, public accountability and decision-making. These factors were

compared both for individual user categories and between each of the three entity

types included in this research.

The results of this analysis indicated that there were differences between both

individual user groups and entity types as to the purposes for which they found

financial statement information useful. Significantly, only four user categories and

one entity type found financial statement information to be useful for decision-

making. All user categories and all entity types found financial statement

information to be less useful for decision-making purposes than for public

accountability and financial accountability purposes. These results cast further

doubt on the applicability of the ‘decision-useful’ model for general purpose

financial reporting that has been adopted in the Australian public sector.

146

CHAPTER SEVEN

FINDINGS

The primary purpose of this research has been to determine whether the ‘decision-

useful’ general purpose financial reporting model as described by SAC 2 and

adopted in the Australian public sector is applicable to the public sector and its

constituent entity types. In order to achieve this objective it has separately

examined each of the elements of the general purpose financial reporting model

within the context of public sector entities.

The elements of the decision-useful model were documented but also an analysis

for individual user categories and entity types within the public sector was

conducted. This enabled individual profiles of users and their information needs

for each public sector entity type included in the study to be constructed, allowing

comparisons to be made including the identification of any cross-sectional

variations.

Chapter Four addressed research question one and identified the users of general

purpose financial reports in the public sector and their relationship to public sector

entities. Chapter Five addressed research question two and identified the

information that was used. Chapter Six addressed research question three and

identified the purposes for which users found information contained within

general purpose financial reports to be useful.

This chapter will draw on the information acquired in the previous three chapters

to provide an overall insight into the ‘decision-useful’ model in the public sector.

There are four sections to this chapter. Section 7.1 will briefly review the

‘decision-useful model’ adopted in the public sector. Sections 7.2 and 7.3 will

address the central research issue of this study – the applicability of the general

Chapter Seven: Findings 147

purpose financial reporting model as described by SAC 2 to the public sector and

to its constituent entity types. Section 7.2 will provide the findings for all

respondents and compare the results to the model as specified in the Statements of

Accounting Concepts. Section 7.3 will provide the findings for each public sector

entity type, thus allowing an assessment of the applicability of the model to public

sector entities, which have different organizational structures and functions. The

fourth section is a brief summary.

7.1 THE GENERAL PURPOSE FINANCIAL REPORTING MODEL

The general purpose financial reporting model as defined in the conceptual

framework and operationalised through the Statements of Accounting Concepts,

applies to all reporting entities including most public sector entities. SAC 2

identifies the users of general purpose financial reports and the purposes for

which users may require information before prescribing the types of information

that users will require. The model is diagrammatically represented in Figure 7.1

(this diagram was also presented as Figure 1.2 in Chapter One).

SAC 2 establishes two broad categories of users of general purpose financial

reports – those users who are dependent on the information provided by general

purpose financial reports for their information needs, and those who are able to

command special purpose financial reports - non-dependent users. The

information needs of these non-dependent users are deemed to be outside the

scope of SAC 2. SAC 2 identifies three classes of dependent users - resource

providers, resource recipients and review and oversight bodies.


FIGURE 7.1

Public sector ‘decision-useful’ model for financial reporting

General purpose Financial reports

(what)

Re porting Entities

Whole of Government



Statutory Bodies

Local Governme nt Authorities

* Resource providers(eg taxpayers)

* Resource recpients(eg pensioners)

* Review & overs ightbodies (eg auditors)

Purposes for Re quiring Info rmation

*Economic dec is ion making

*Accountability

Classes of De pe nde nt Use rs (who)

The concept statement determines that in view of the information needs of the

users identified in the statement, the objective of general purpose financial

reporting is ‘to provide information to users that is useful for making and

evaluating decisions about the allocation of scarce resources’ (SAC 2, para 26). It

is argued that when general purpose financial reports meet this objective they will

also enable entities to discharge their accountability requirements. SAC 2 is

prescribing a ‘decision-useful’ role for general purpose financial reporting within

an overall framework of user needs.

In brief, SAC 2 prescribes a financial reporting model that has three elements,

dependent users, requiring general purpose financial information for the purposes

of making economic decisions. The purpose of this research has been to determine

the applicability of this model to the public sector and its constituent entity types.

In discussing the results of this research, the next section will examine the model


as it relates to the entire public sector and the following section (7.3) will examine

the model as it relates to different entity types.

7.2 FINDINGS FOR THE MODEL

This section will consider the findings for the entire model as indicated in the

shaded area in the research strategy diagram.

Research Strategy

Research Question 1

Who are the users?

Chapter 4

Research Question 2

What information do they require?

Chapter 5

Research Question 3

For what purposes do they require information?

Chapter 6
















Table 7.1 summarises the results from the previous three chapters for the three

elements of the ‘decision-useful’ general purpose financial reporting model in

order to assess the applicability of the model to the public sector.


TABLE 7.1

Users of public sector general purpose financial reports and their information needs

Users Information used

(mean factor score) Purposes for which financial statement information is used (mean factor score)

All users 100% Dependent users 53.7% Ratepayer/taxpayer 12.6% Other resource providers 12.4% Oversight bodies 10.1% Other like entities 10.9% Other recipients of services 7.7% Non-dependent users 46.3% Internal management 18.3% Elected officials 26.7% Other 1.3%

Performance Information (3.96) General Purpose Financial Information (3.84) Narrative Information (3.81) Social Disclosures (3.42) Performance Information (3.94) General Purpose Financial Information (3.77) Narrative Information (3.68) Social Disclosures (3.46) Performance Information (3.99) Narrative Information (3.98)* General Purpose Financial Information (3.92) Social Disclosures (3.29)

Financial Accountability (3.81) Public Accountability (3.74) Decision-making (3.05) Financial Accountability (3.69) Public Accountability (3.61) Decision-making (2.92) Financial Accountability (3.97)* Public Accountability (3.91)* Decision-making (3.24)*

* statistically significantly different from the corresponding factor for dependent users

In relation to users, the results first indicate that all of the user groups identified

by SAC 2 were empirically identified.91 Second, ‘other like entities’, a user group

that had been identified in prior empirical studies in New Zealand and the USA,

was identified in this study.

Third, only slightly more than half of all users were ‘dependent’ users (53.7%).

The two largest categories of users ‘elected officials’ (26.7%) and ‘internal

management’ (18.3%) were ‘non-dependent’ users. The primary dependent users

91 Including internal management, the group classified by SAC 2 as non-dependent users.


of public sector general purpose financial reports were ‘ratepayers/taxpayers’ and

‘resource providers’ comprising in total 25% of users.

In relation to the second element of the ‘decision-useful’ model, the information

that users use, the results indicate that only moderate emphasis was placed on all

of the information factors identified by this study. Second, the information factor

on which most emphasis was placed was performance information. Third, the

information item that is central to the ‘decision-useful’ model, general purpose

financial information, ranked second.

The final element of the ‘decision-useful’ model is the purpose for which users

find financial statement information useful. First, financial statement information

was not found to be very useful for any of the three purposes identified by this

research. Second, financial accountability was the purpose for which all users

found financial statement information to be the most useful. Third, decision-

making was the purpose for which financial statements were found to be the least

useful. Fourth, when the users were disaggregated to reflect the views of

‘dependent’ or ‘non-dependent’ users although the same rank order of importance

was found for both groups, ‘non-dependent’ users found financial statement

information to be significantly more important for all three purposes. However, it

should be noted that despite finding financial statement information to be

significantly more important than ‘dependent’ users, ‘non-dependent’ users still

only found them useful. Financial statement information was found to be not very

useful for decision-making by ‘dependent’ users.

The model as it is currently specified identifies dependent users, who need general

purpose financial reports for the purposes of decision making. However, the

results reported in this research offer little support for the applicability of the

‘decision-useful’ model in the Australian public sector on each of these three

elements. First, the list of users identified by the model is not exhaustive and

includes a large proportion of ‘non-dependent’ users to whom the model does not

apply. Second, the results indicate that users are primarily interested in

performance information. Third, for both ‘dependent’ and ‘non-dependent’ users


general purpose financial statements are found to be more useful for the purposes

of financial accountability and public accountability than they are for decision

making. The notion that general purpose financial statements are useful for

decision-making is not supported for ‘dependent’ users and for ‘non-dependent’

users there is only weak support. In short, the ‘decision-useful model’ is

misspecified in terms of the identification of dependent users, their information

requirements and the purposes for which they require information.

7.3 APPLICATION OF THE ‘DECISION-USEFUL’ MODEL TO INDIVIDUAL PUBLIC SECTOR ENTITY TYPES

Having considered the applicability of the model for the entire public sector, the

second aspect of the central research issue of this thesis, the applicability of the

‘decision-useful’ model to the individual entity types that make up the public

sector, will be assessed. For each public sector entity type included in this

research – local government authorities, government departments and government

owned corporations – a profile similar to that constructed in the previous section

will be constructed to allow a comparison with the model as defined in SAC 2.

The profiles will be compared not only to identify any cross-sectional variations

in the application of the model across public sector entity types but also any

divergence in those variations.

7.3.1. Local government authorities

This section considers local government authorities, the shaded area in the

research strategy diagram.


Research Strategy

Research Question 1

Who are the users?

Chapter 4

Research Question 2


Chapter 5

Research Question 3


Chapter 6
















Table 7.2 summarises the results from the previous three chapters for the

recipients of local government authority general purpose financial reports in terms

of the three elements of the ‘decision-useful’ general purpose financial reporting

model.

The results reported in Table 7.2 in relation to users identified by this research

indicate that, consistent with the results for the whole of the public sector, all of

the user groups identified by SAC 2 were empirically identified. Nearly two thirds

of users (64%) were ‘non-dependent’ users, a group not considered by the

accounting standard setters in the development of the public sector general

purpose financial reporting model. Moreover, the two largest categories of users,

‘elected officials’ and ‘internal management’ are ‘non-dependent’ users. ‘Elected

officials’ are twice as numerous for local government authorities as they are for

the whole of the public sector. The primary dependent users of the general

purpose financial reports of local government authorities are

‘ratepayers/taxpayers.’


TABLE 7.2

Users of local government authority general purpose financial reports and their information needs

Users % Information used


All Users 100% Dependent users 36.0% Ratepayer/taxpayer 13.2% Other resource providers 8.1% Oversight bodies 3.1% Other like entities 7.7% Other recipients of services 3.9% Non-dependent Users 64.0% Internal management 17.6% Elected officials 45.8% Other .6%

Performance Information (4.02) General Purpose Financial Information (3.98) Narrative Information (3.98) Performance Information (3.93) General Purpose Financial Information (3.81) Narrative Information (3.73) Narrative Information (4.11)* Performance Information (4.06)* General Purpose Financial Information (4.06)*

Financial Accountability (3.97) Public Accountability (3.92) Decision-making (3.29) Public Accountability (3.77) Financial Accountability (3.74) Decision-making (3.16) Financial Accountability (4.12)* Public Accountability (4.02)* Decision-making (3.38)*

*statistically significant different from means for dependent users

With regard to the second element of the ‘decision-useful’ model, the results

reported in Table 7.2 indicate that, consistent with the results for the whole of the

public sector, all users of local government authority general purpose financial

reports place most emphasis on performance information. This is the only

information factor on which strong emphasis is placed. General purpose financial

information is ranked as the second most important information factor in the

annual report along with narrative information.

When the results are broken down to reflect the views of ‘dependent’ and ‘non-

dependent’ local government authority users, ‘dependent’ users still place most

emphasis on performance information, however ‘non-dependent’ users place most

emphasis on narrative information. Both user categories rank general purpose


financial information second. ‘Non-dependent’ users place strong emphasis on all

of the factors and significantly more emphasis on them than ‘dependent’ users.

For the final element of the ‘decision-useful’ model, Table 7.2 reports that all

users of local government general purpose financial reports found financial

statement information to be most useful for financial accountability. Decision-

making was the purpose for which they found financial statement information

least useful. While ‘dependent’ users found financial statement information useful

for all three purposes ‘non-dependent’ users found them to be very useful for all

three purposes.

Consistent with the findings for the whole of the public sector, the identification

of users, their requirements for information and the purposes for which they

require that information for the local government authority sector is not consistent

with the ‘decision-useful model’. In particular, ‘non-dependent’ users comprised

nearly two thirds of all users. In addition, performance information is the

information that users indicate that they place most emphasis on and they find

financial statement information most useful to discharge financial accountability.

This differs from the ‘decision-useful’ model that emphasizes the importance of

general purpose financial information for decision-making purposes.

7.3.2 Government departments

This section considers government departments, the shaded area in the research

strategy diagram.


Research Strategy

Research Question 1

Who are the users?

Chapter 4

Research Question 2


Chapter 5

Research Question 3


Chapter 6

















recipients of government department general purpose financial reports in terms of

the three elements of the ‘decision-useful’ general purpose financial reporting

model. With respect to the identification of users, the results in Table 7.3 indicate

that all of the user groups identified by SAC 2 are identified for government

departments. This is consistent with the results for the whole of the public sector

and local government authorities. ‘Dependent’ users comprise 66% of all users.

This is a significantly larger proportion than the 36% of ‘dependent’ users

reported for local government authorities. Although ‘dependent’ users comprise

the majority of users, the largest single user group is a ‘non-dependent’ user group

– ‘internal management’. ‘Other like entities’, a group not identified by the

standard setters comprise 20% of users of government department general purpose

financial reports.

In relation to the second element of the ‘decision-useful’ model the information

that users use, Table 7.3 indicates that users of government department general


purpose financial reports place moderate emphasis on all the factors identified in

this research. They place most emphasis on performance information.

‘Dependent’ users place the second most emphasis on general purpose financial

information whereas ‘non-dependent’ users place least emphasis on it.

TABLE 7.3

Users of government department general purpose financial reports and their information needs

Users % Information used


All Users 100% Dependent Users 65.4% Ratepayer/Taxpayer 8.7% Other Resource Providers 13.1% Oversight Bodies 20.8% Other Like Entities 20.4% Other Recipients of Services 2.4% Non-dependent Users 34.6% Internal Management 29.8% Elected Officials 4.8% Other 0%

Performance Information (3.82) Narrative Information (3.59) General Purpose Financial Information (3.57) Performance Information (3.85) General Purpose Financial Information (3.62) Narrative Information (3.60) Performance Information (3.77) Narrative Information (3.57) General Purpose Financial Information (3.45)

Public Accountability (3.54) Financial Accountability (3.49) Decision Usefulness (2.85) Public Accountability (3.50) Financial Accountability (3.47) Decision Usefulness (2.81) Public Accountability (3.63) Financial Accountability (3.54) Decision Usefulness (2.92)

General purpose financial statement information was not found to be very useful

for the purposes of decision making by government department users. Rather they

found financial statement information useful for public and financial

accountability purposes.

The identification of users, their requirements for information and the purposes

for which they require that information for government departments is not

consistent with the ‘decision-useful’ model. With regard to the identification of


users, ‘non-dependent’ comprise nearly one third of all users. As well, ‘other like

entities’ not identified by SAC 2 but identified in prior research are identified as

significant government department users in this research representing one fifth of

all users. General purpose information is the information item on which least

emphasis is placed and this type of information is not found to be useful for

decision-making. Rather, users from government departments find financial

statement information to be useful for public accountability purposes. This is in

direct contradiction to the ‘decision-useful’ model that emphasizes the importance

of financial statement information for decision-making purposes.

7.3.3 Government owned corporations

This section considers government owned corporations, the shaded area in the

research strategy diagram.

Research Strategy

Research Question 1

Who are the users?

Chapter 4

Research Question 2


Chapter 5

Research Question 3


Chapter 6


















recipients of government owned corporations general purpose financial reports in

terms of the three elements of the ‘decision-useful’ general purpose financial

reporting model.

TABLE 7.4

Users of government owned corporation general purpose financial reports

and their information needs

Users Information used (mean factor score)

Purposes for which financial statement information is used (mean factor score)

All Users 100% Dependent Users 90.6% Ratepayer/Taxpayer 17.4% Other Resource Providers 25.0% Oversight Bodies 14.5% Other Like Entities 5.2% Other Recipients of Services 28.5% Non-dependent Users 9.4% Internal Management 1.3% Elected Officials 2.9% Other 5.2%

Performance Information (4.04) General Purpose Financial Information (3.86) Narrative Information (3.71) Social Disclosures (3.42) Performance Information (4.06) General Purpose Financial Information (3.90) Narrative Information (3.71) Social Disclosures (3.46) Performance Information (3.71) Narrative Information (3.71) General Purpose Financial Information (3.54) Social Disclosures (3.29)

Financial Accountability (3.86) Public Accountability (3.52) Decision Making (2.71) Financial Accountability (3.91) Public Accountability (3.55) Decision Making (2.76) Financial Accountability (3.14) Public Accountability (2.69) Decision Making (3.14)

All user groups identified by SAC 2 are identified for government owned

corporations. These results are consistent with those for the whole of the public

sector and for the specific entity types - local government authorities and

government departments. For government owned corporations 90% of users are

‘dependent’ users. This is contrary to the results found for local government

authorities and government departments where ‘dependent’ users represented 36%

and 65% respectively of all users. The largest group of users of government


owned corporation general purpose financial reports is ‘other recipients of

services’, a ‘dependent’ user group. This is a group not strongly represented in the

user profiles of local government authorities and government owned corporations.

Users of government owned corporation general purpose financial reports place

strong emphasis on performance information. They place some emphasis on the

remaining three information factors. General purpose financial information is the

factor on which they place the second most emphasis.

In relation to the use made of financial statement information, users of

government owned corporation general purpose financial reports do not find

financial statement information to be useful for decision-making. Rather they find

this information most useful for the purposes of financial accountability.

With regard to the identification of users, the user profile for government owned

corporations indicates a pre-dominance of ‘dependent’ users. While government

owned corporation users place some emphasis on general purpose financial

information they place strong emphasis on performance information. Further, they

find financial statement information to be useful for financial accountability

purposes.

7.3.4 Differences between entity types The previous three subsections of this chapter considered each entity type

separately and constructed profiles of users, their information requirements and

the purposes for which they find financial statement information to be useful. It

was concluded that the general purpose financial reporting ‘decision-useful’

model is misspecified for the whole of the public sector and for its constituent

entity types.

While each of the three entity types have been considered separately in the

preceding sections of this chapter, the purpose of this section of the chapter is to

determine whether there are cross-sectional variations between the individual


entity types. This analysis will determine whether the misspecification of the

model for individual entity types is consistent across all entity types.

Comparison of user profiles for entities

Table 7.5 reports the number and percentage of users in each category for each

entity type. In addition, any significant differences between entities in the

proportion of users in each user category are reported.

TABLE 7.5

Comparison of user profiles for government departments, local government authorities and government owned corporations

User Category Government

departments



Statistically Significant Differences

Dependent users 189 (65.4%) 196 (36.0%) 156 (90.6%) Lga & Dept Dept & Goc Lga & Goc

Ratepayer/taxpayer 25 (8.7%) 72 (13.2%) 30 (17.4%) Lga & Dept Dept &Goc

Other resource providers 38 (13.1%) 44 (8.1%) 43 (25%) Lga & Depts Lga & Goc Dept & Goc

Oversight bodies 60 (20.8%) 17 (3.1%) 25(14.5%) Lga & Dept Lga & Goc

Other like entities 59 (20.4%) 42 (7.7%) 9(5.2%) Lga & Dept Dept & Goc

Other recipients of services

7 (2.4%) 21 (3.9%) 49 (28.5%) Lga & Goc Dept & Goc

Non-dependent users 100 (34.6%) 348 (64.0%) 16 (9.3) Lga & Dept Dept & Goc Lga & Goc

Internal management 86 (29.8%) 96 (17.6%) 2 (1.2%) Lga &Dept Lga & Goc Dept & Goc

Elected officials 14 (4.8%) 249 (45.8%) 5 (2.9%) Lga & Dept Lga & goc

Other 0 3 (0.6%) 9 (5.3%)

The first observation that can be made from this table is that there is a wide

variation in the number of dependent users identified for each entity type. A

significantly larger proportion of dependent users are identified for government

owned corporations than for either government departments or local government


authorities. Further, government departments report a significantly larger

proportion of these users than local government authorities do.

Second, a larger proportion of ‘other resource providers’ and ‘other recipients of

services’ are identified for government owned corporations than for either of the

other two entity types. Third government departments have significantly higher

proportions of ‘oversight bodies’, other like entities’ and ‘internal management’ in

their user profile than either government owned corporations or local government

authorities. Fourth, ‘elected officials’ are significantly more strongly represented

in the local government authority user profile than they are for the other two entity

types. Finally, government departments report a smaller proportion of

‘ratepayer/taxpayer’ than local government authorities and government owned

corporations.

Comparison of information used by users from each entity type

Table 7.6 reports the mean scores for each information factor for users from the

three entity types considered in this study. Further, any significant differences

between entities in the use of information by user categories is reported. Panel A

reports this information for all users for each entity, Panel B reports the

information for dependent users for each entity and Panel C reports the

information for ‘non-dependent’ users for each entity.


TABLE 7.6

Comparison of information used by users from government departments, local government authorities and government owned corporations92

General Purpose

Financial Information

Mean (entities from which means differ

statistically )


Mean (entities from which means differ

statistically)


Mean (entities

from which means differ statistically)

Panel A – All Users Government departments

3.57 (government owned corporations and local government authorities)

3.82 (local government authorities and government owned corporations )

3.59 (local government authorities)


3.98 (government departments)


3.98 (government departments and government owned corporations)




3.71 (local government authorities0

Panel B – Dependent users


3.62 (government owned corporations)

3.85 3.60


3.81 3.93 3.73



4.06 3.71

Panel C – Non-dependent users










3.54* 3.71* 3.71*

* no comparisons were made for government owned corporations because of the small number of respondents

First, in relation to general purpose financial information the results reported in

Table 7.6 indicate that all users from government departments place significantly

less emphasis on general purpose financial information than all users from both

local government authorities and government owned corporations. ‘Dependent’

users from government departments only place significantly less emphasis on this


information than ‘dependent’ users from government owned corporations, while

‘non-dependent’ government department users place significantly less emphasis

on it than local government authority ‘non-dependent’ users.

Second, with regard to performance information while all users government

department general purpose financial reports place significantly less emphasis on

performance information than users from either local government authorities or

government owned corporations, there are no significant differences in the

emphasis placed on performance information by ‘dependent’ users from each

entity.

Third, while all local government authority users place more emphasis on

narrative information than all users from government departments and

government owned corporations, for ‘dependent’ users there are no differences

between the entities on the emphasis placed on this factor. However, ‘non-

dependent’ local government authority users place more emphasis on narrative

information than ‘non-dependent’ government department users.

Comparison of use made of financial statement information by users from each

entity type

For each entity type the mean scores for each purpose for which financial

statement information is found useful by users is reported in Table 7.7. As well,

any significant differences between entities in the use made of financial statement

information by user categories are reported. Panel A reports this information for

all users for each entity, Panel B reports the information for ‘dependent’ users for

each entity and Panel C reports the information for ‘non-dependent’ users for each

entity.

92 Social disclosures are not considered here as they apply only to government owned corporations.


TABLE 7.7

Comparison of purposes for which financial statement information is found useful by users from government departments, local government authorities

and government owned corporations


Mean (entities



Mean (entities


Decision-Making

Mean (entities from which means differ statistically)

Panel A – All Users Government Departments












Panel B – Dependent Users










3.91 (government departments and local government authorities)



Panel C – Non-dependent Users










3.14* 2.69* 3.14*

* no comparisons were made for government owned corporations because of the small number of respondents


First, for financial accountability, users from government departments find

financial statement information to be less useful for financial accountability

purposes than users from either government departments or government owned

corporations. However, ‘dependent users’ from government owned corporations

find financial statement information more useful for financial accountability than

both local government authority ‘dependent’ users and government department

‘dependent’ users.

Second, in relation to public accountability users from local government

authorities (all users, ‘dependent’ users and ‘non-dependent’ users) find financial

statement information to be more useful for the purposes of public accountability

than users from the other two entity types. Third with regard to decision making,

local government authority users (all users, ‘dependent’ users and ‘non-

dependent’ users) are the only users who find financial statement information

useful for decision-making. Further, they find financial statement information

significantly more useful for decision making than users however classified from

government departments and government owned corporations.

The public sector financial reporting model as it is currently specified is applied to

all public sector entity types. However, the results reported here offer little

support for this universal application. Individual public sector entity types differ

on all the elements that comprise the general purpose financial reporting model.

They differ in terms of their user profiles, the emphasis that users place on the

information contained within the annual report and the purposes for which they

find financial statement information useful. These results have implications for the

applicability of the public sector general purpose financial reporting model to the

range of public sector entity types irrespective of their differing objectives and

structures.


7.4 SUMMARY

In this chapter the information from the previous three chapters has been

amalgamated to construct profiles of users and their information needs for the

public sector as a whole. This enabled an assessment of the veracity of the

‘decision-useful’ model for general purpose financial reporting model in the

public sector. In addition, profiles of users and their information needs were

constructed for each public sector entity type represented in this study, allowing

the identification of cross-sectional variations. This enabled an assessment of the

applicability of the model to public sector entity types with differing corporate

structures and funding sources.

168

CHAPTER EIGHT

CONCLUSIONS

This chapter will discuss the purpose of this research and summarise the major

findings. It then discusses the implications of the findings before detailing the

limitations of the study and offering some avenues for further research.

8.1 PURPOSE OF THE RESEARCH

The changes that have occurred in the public sector over recent decades have

resulted in the adoption of private sector style organizational structures (Pollitt,

1990; Wanna, O’Faircheallaigh and Weller, 1992). Further, public sector

managers are now held accountable not only for the manner in which appropriated

funds are dispersed but also for the efficiency and effectiveness with which those

funds are used (Guthrie, 1998).

Accrual accounting was promoted for the public sector as the medium by which

public sector agencies would improve their accountability and manage their

finances more efficiently (Chua and Sinclair, 1994; Ryan, 1998; Guthrie, 1998).

The public sector financial reporting model that emerged was based on the

assumption that there was no difference between the two sectors in terms of the

classifications of dependent users or their information needs. Consequently, the

public sector financial reporting model was effectively the same as the private

sector model. The model has been criticised as lacking empirical substantiation

and ignoring the diversity and complexity of public sector institutions (see for

example, Walker, 1989; Aiken, 1994; English, 2003).

Chapter 8: Conclusions 169

The purpose of this research was to determine the applicability of the ‘decision-

useful model’ to the public sector by empirically identifying users of public sector

general purpose financial reports and their information requirements. Prior

empirical research has been piecemeal in terms of both scope and research

method. As a result, it has not been cumulative and has not enabled a

comprehensive profile of users and their information needs for particular public

entity types to be constructed. Consequently, this research refined and extended

the work of previous studies. In terms of scope, it encompassed all public sector

entity types and addressed all elements of the ‘decision-useful model’. In terms of

research method, this research adopted an approach that directly accessed users.

Consequenctly, an assessment was made of the applicability of the ‘decision-

useful model’ in general and its application to specific public sector entity types.

8.2 SUMMARY OF FINDINGS

There are four major findings from this research. First, the research has

determined that the dependent user profile established by the Australian standard

setters is incomplete. The classification of ‘dependent’ users of public sector

general purpose financial reports as normatively described and accepted by SAC 2

is not exhaustive. In particular it has identified a group of users not recognized by

the standard setters (‘other like entities’) as a significant user category for all

public sector entity types. This finding is consistent with prior research in

Australia, USA and New Zealand. Further the research has established that there

is a large representation of ‘non-dependent’ users in the user profiles of public

sector entities.

The second major finding of the research concerns the information requirements

of users. This research has found that the users of public sector general purpose

financial reports do not place most emphasis on general purpose financial

information. Rather, the information that they place most emphasis on is

performance information.


Third, the users of public sector general purpose financial reports find financial

statement information most useful for the purpose of financial accountability.

Significantly, for an assessment of the general purpose financial reporting model

there is limited empirical support for the use of financial statements for decision-

making.

Fourth, this research has established that there are differences between the entity

types in terms of their user profiles, the information preferences of users and the

purposes for which they find financial statement information useful. This is

indicative of cross-sectional variations amongst the entity types in terms of their

users and their information requirements.

When the findings are taken together the research indicates that the ‘decision-

useful’ model for public sector general purpose financial reporting as adopted by

the accounting profession through SAC 2 and as subsequently embraced by public

sector regulators is misspecified in the public sector. The first three findings

challenge the applicability of the ‘decision-useful’ model for the general purpose

financial reporting model adopted in the Australian public sector. The last finding

contests the application of the ‘decision-useful’ model to all public sector entity

types irrespective of their differing operating structures, sources of financing,

operating motives and accountability obligations.

8.3 IMPLICATIONS OF THE RESEARCH

The findings of this research that the ‘decision-useful’ model for general purpose

financial reporting is misspecified in the public sector and that there are cross-

sectional variations between entities has four immediate implications. The first

implication is for the identification of users, the second implication concerns the

content of general purpose financial reports, the third implication is for the basis

under which those reports are prepared and the fourth implication is for the

assumption that one model will meet the needs of all public sector entity types.

These implications are elaborated in turn.


The first two implications are interwoven, a discussion of the identification of

users impacts on the issue addressing the information requirements of users to the

extent that the existence of specific user groups can be a function of the

information supplied. As a consequence, the determination of the content of

financial reports based on assumptions about who users are may not result in the

provision of appropriate information for actual users. Moreover, the provision of

further and/or different information may lead to the identification of different

user categories.

The identification of additional user categories taken together with the finding

that non-dependent users comprise a significant proportion of users for all entity

types93 challenges the veracity of a general purpose financial model which is

based on user needs. The findings of this research confirm the results of previous

studies, both normative and empirical, that have suggested that the commonly

accepted user profile for public sector reports is inaccurate (see for example,

NCGA, 1968; Van Daniker and Kwiatowski, 1986; Coy et al., 1997; Clarke,

2002).

The major implication of these findings regarding the identification of users in the

public sector is that as a result of misspecifying the audience for general purpose

financial reports it is possible that the contents of those reports are also

misspecified. A consequence of their being a mix of dependent and non-

dependent users for general purpose financial reports in the public sector is that

either the content of the reports will need to accommodate the needs of both

categories of users or specific purpose reports are required for each category. This

notion has been suggested by Lapsley (1992) in the context of local authority

reporting in the UK.

The findings of this research that performance information is preferred to general

purpose financial information offers some support for the notion that the content

93 other than government owned corporations.


of general purpose financial reports may be misspecified. Further, it supports the

normative assessments of a growing number of researchers (Walker, 2002; Carlin

and Guthrie, 2001; Sharp and Carpenter, 1998; Rutherford, 1992) that the

information contained within general purpose financial reports as they are

currently constructed is insufficient to satisfy the needs of users in the public

sector and that performance information is also required.

Indeed regulators appear to be acknowledging the deficiencies of the general

purpose financial reporting model in terms of the information supplied and are

making moves at the margins to remedy this. For example, in Western Australia,

government departments include audited performance information in their annual

reports. In Queensland the Public Accounts Committee (2001) has recommended

that ministers encourage agencies to disclose performance information as part of

their annual report. Further, Queensland local government authorities are required,

from the end of the 2003 financial year, to produce community financial reports.

The introduction of community financial reports is in part motivated by a desire to

make local government annual reports more ‘user friendly’ (Cunningham, 2001).

Further, the Public Accounts Committee in New South Wales is investigating the

appropriateness of current reporting requirements for small agencies (NSWPAC,

2003).94

The third implication of this research concerns the basis from which general

purpose financial reports are prepared. The preference for performance

information and the use of financial statement information to discharge financial

accountability and public accountability rather than for decision-making is

indicative of users having an accountability focus rather than a ‘decision-useful’

focus. Reports prepared from an accountability paradigm would contain different

information than those prepared from a ‘decision-useful’ paradigm (Williams,

94 The current regulatory framework does not prevent the disclosure of performance information. The public sector accounting standards AAS 27, AAS 29 and AAS 31, all encourage the publication of performance indicators. Indeed AAS 27 acknowledges that performance information is relevant information for assessing the economy, efficiency and effectiveness of the operations of local government authorities. AAS 31 asserts that performance information is needed to assess the same criteria for whole of government. The standards however provide no guidance as to what types of performance measures might be appropriate or how they would be reported.


1987; Parker and Gould, 1999; Coy et al., 2001). The provision of information

concerning profit and loss and financial position is not so critical in the public

sector that is devoid of a profit motive. The findings that users are more interested

in performance information and that they find financial information more useful to

satisfy financial and public accountability support the above proposition. In short,

the implications of this research are that the identification of alternate

accountability reporting frameworks as suggested by several authors (Coy et al.,

2001; Barton 1998; Pallot, 1999) should be further developed.

The fourth implication concerns the applicability of the ‘decision-useful’ general

purpose financial reporting model across all public sector entity types regardless

of their diverse nature. This research has supported the normative arguments

against the homogenous model put forward by researchers both before the model

was adopted and subsequent to its adoption (see for example, Walker, 1989;

Aiken, 1994; English, 2003). In particular, this research has found that while there

are differences in the application of the model for all public sector entity types,

government departments appear to be systematically different from both local

government authorities or government owned corporations. It is apparent that the

complexity of public sector entities in terms of not only their operating focus, but

also their financing sources, their accountability relationships and their operating

structure mean that their users and information needs are also different.

In sum, the results of this research provide empirical support to the argument that

the simplicity of the private sector general purpose financial reporting model is

inappropriate for the public sector with its complex mix of operating structures,

sources of financing, operating motives and accountability obligations (see for

example, English, 1999, 2003; Carnegie and Wolnizer, 1995; Guthrie 1998;

Walker 1989). The identification of cross-sectional variations amongst different

public sector entity types supports claims that the public sector should have its

own unique set of accounting standards and reporting framework (Walker, 1989,

2000; Guthrie, 1998; Ma and Mathews, 1993; Stanton and Stanton, 1998; Conn,

1996; Rutherford, 1992; Van Peursem and Pratt, 1992). The development of such


a framework would accommodate the differing characteristics of public sector

entity types.

This research has implications beyond the public sector. In particular this research

has implications for the development of a reporting model in the not-for-profit

sector. The not-for-profit sector, like the public sector, has a wider range of

objectives and motives for its operations than does the private sector. Hyndman

(1990) has identified that the information that donors (the largest supplier of funds

to the not-for-profit sector) are most interested in is non-financial information that

can be used for assessing performance. As in the public sector, entities

encompassed in the not-for-profit sector are diverse in terms of their size, methods

of operation, organizational structure, accountability relationships and sources of

funding. These are all conditions which the results of this research indicate would

require the development of reporting models that accommodate these diversities.

8.4 LIMITATIONS OF THE RESEARCH

This research has provided an empirical understanding of the identity of users of

general purpose financial reports and their information requirements in the

Australian public sector. Moreover, it has addressed these issues within the

context of different public sector entity types. However, in any research

endeavour there will inevitably be limitations. There are two limitations of this

research.

The first limitation lies in its reliance on the use of a mailed survey as the data

collection method. Survey techniques have been acknowledged as being

particularly useful in fact-finding and descriptive type research (Abdel-Khalil and

Ajinkya, 1979) and in the absence of archival data, surveys are the only choice for

generating the necessary data. However, there are limitations that must be

recognized when using a survey method of data collection. First, it must be borne

in mind that survey data cannot be considered factual but rather the perceptions of

fact by the respondents. Second, there is no guarantee that the person to whom the


research instrument was sent is the person who actually completed the survey.

Third, the use of a mailed survey leaves open the possibility that the respondents

did not understand the questions properly and this could affect their answers.

Despite these limitations for the reasons explained in Chapter Three, a mailed

survey was considered the most appropriate research technique for this study.

The second limitation to this research concerns the way that users of general

purpose financial reports have been identified in this research. As discussed in

Chapter Three there have been differing approaches employed in the identification

of the users of public sector annual reports. Even though the approach adopted by

this study was taken in an effort to identify as many users as possible by working

from the distribution lists of individual public sector entities, it is not possible to

guarantee that all users have been identified. Users who have accessed the annual

report by borrowing it from a library, another user, or obtaining it from the

internet have not been identified. Although it is argued that at the time of this

research these users would only represent a small number of users, it remains a

limiting factor to the research.

8.5 FUTURE RESEARCH POSSIBILITIES The findings of this study provide a rich foundation for future research. There are

two main avenues for future research. First, the findings of this research that users

do not find financial statement information to be ‘decision-useful’ and that there

are differences between entity types invites further investigation of the reporting

paradigm that serves as the basis for compiling general purpose financial reports.

As has already been noted there is diversity in terms of the operating structure,

operating motives, accountability relationships and funding sources between

individual entity types within the public sector. The establishment of differences

in users and their information needs between these entity types indicates the

necessity for research to explain the impact of these factors on the development of

an alternate reporting framework that is appropriate for public sector entities.


Second, this research has gone some way to address the calls for further empirical

research in the context of particular entities (Rutherford, 1992). This research has

identified that the existing knowledge of users of annual reports and the general

purpose financial reports contained within them is incomplete and that it varies

from entity type to entity type. Further empirical research within the context of

specific entities is of value in particular for informing the debate surrounding an

appropriate reporting framework. Methodologies that could be employed include

focus groups and case studies. Both of these methodologies would enable a

rigorous examination of reporting practices to more accurately identify users and

their information needs.

177

APPENDIX A Australian Legislative and Regulatory requirements to adopt Australian Accounting Standards (as at 30/4/03) Jurisdiction Legislation Federal Financial Management and Accountability Act 1997

Financial Management and Accountability Regulations 1997 Commonwealth Authorities and Companies Act 1997 Finance Minster’s Orders

Queensland Financial Administration and Audit Act 1977 Financial Management Standard 1997 Government Owned Corporations Act 1993 Local Government Act 1993 Local Government Finance Standard 1994

New South Wales Public Finance and Audit Act 1983 Treasurer’s Directions State Owned Corporations Act 1989 Local Government Act 1993

Victoria Financial management Act 1994 Directions of Minister for Finance Local Government Act 1989 Local Government (Consequential Provisions) Act 1989

South Australia Public Sector Management Act 1995 Public Finance and Audit Act 1987 Treasurer’s Instructions Public Corporations Act 1993 Local Government Act 1999 Local Government (Financial Management) Regulation 1999

Northern Territory Local Government Act (1973) Local Government (Accounting) Regulations (1973)

Tasmania Financial Management and Audit Act 1990 Treasurer’s Instructions Local Government Act 1993

Western Australia Financial and Administration Act 1985 Local Government Act 1995

178

APPENDIX B Queensland Government Departments

This table is not available online.

Please consult the hardcopy thesis

available at the QUT Library.

Source: Queensland State Budget 1998-1999, Queensland Treasury, Brisbane.

179

APPENDIX C Queensland Local Government Authorities Aramac Shire Council Atherton Shire Council Aurukun Shire Council Balonne Shire Council Banana Shire Council Barcaldine Shire Council Barcoo Shire Council Bauhinia Shire Council Beaudesert Shire Council Belyando Shire Council Bendemere Shire Council Biggenden Shire Council Blackall Shire Council Boonah Shire Council Booringa Shire Council Boulia Shire Council Bowen Shire Council Brisbane City Council Broadsound Shire Council Bulloo Shire Council Bundaberg City Council Bungil Shire Council Burdekin Shire Council Burke Shire Council Burnett Shire Council Caboolture Shire Council Cairns City Council Calliope Shire Council Caloundra City Council Cambooya Shire Council Cardwell Shire Council Carpentaria Shire Council Charters Towers City Council Chinchilla Shire Council Clifton Shire Council Cloncurry Shire Council Cook Shire Council Cooloola Shire Council Crow’s Nest Shire Council Croydon Shire Council Dalby Town Council Dalrymple Shire Council Diamantina Shire Council

Douglas Shire Council Duaringa Shire Council Eacham Shire Council Eidsvold Shire Council Emerald Shire Council Esk Shire Council Etheridge Shire Council Fitzroy Shire Council Flinders Shire Council Gatton Shire Council Gayndah Shire Council Gladstone City Council Gold Coast City Council Goondiwindi Town Council Herberton Shire Council Hervey Bay City Council Hinchinbrook Shire Council Ilfracrombe Shire Council Inglewood Shire Council Ipswich City Council Isis Shire Council Isisford Shire Council Jericho Shire Council Johnstone Shire Council Jondaryan Shire Council Kilcoy Shire Council Kilkivan Shire Council Kingaroy Shire Council Kolan Shire Council Laidley Shire Council Livingstone Shire Council Logan City Council Longreach Shire Council Mackay City Council Mareeba Shire Council Maroochy Shire Council Maryborough City Council McKinley Shire Council Milmerran Shire Council Mirani Shire Council Miriam Vale Shire Council Monto Shire Council Mornington Shire Council

Mount Isa City Council Mount Morgan Shire Council Mundubbera Shire Council Murgon Shire Council Murilla Shire Council Murweh Shire Council Nanango Shire Council Nebo Shire Council Noosa Shire Council Paroo Shire Council Peak Downs Shire Council Perry Shire Council Pine Rivers Shire Council Pittsworth Shire Council Quilpie Shire Council Redcliffe City Council Redland Shire Council Richmond Shire Council Rockhampton City Council Roma Town Council Rosalie Shire Council Sarina Shire Council Stanthorpe Shire Council Tambo Shire Council Tara Shire Council Taroom Shire Council Thuringowa City Council Tiaro Shire Council Toowoomba City Council Torres Shire Council Townsville City Council Waggamba Shire Council Wambo Shire Council Warroo Shire Council Warwick Shire Council Whitsunday Shire Council Winton Shire Council Wondai Shire Council Woocoo Shire Council

Source: Local Government Authority Guide, Department of Communication and Information, Local Government and Planning and Sport (1999).

180

APPENDIX D Government Owned Corporations

This table is not available online.

Please consult the hardcopy thesis

available at the QUT Library.

Source: Office of Government Owned Corporations website. http://www.ogoc.qld.gov.au/cgoc.htm, August 1999.

181

APPENDIX E

Queensland University of Technology A project supported by the Financial Reporting Research

Concentration of the School of Accountancy Instructions This questionnaire consists of 9 questions. In some instances you may give more than one answer. If more

than one answer is permissible this is clearly indicated at the beginning of the question. Several of the

questions require you to respond to a series of statements on a numbered scale. In these questions please

circle the number that best reflects your view. Please ensure that you respond to each statement contained

in the question.

Please circle your response to the following questions

Q. 1 Do you currently read the annual report of ***** ? Yes No

If you answered yes please proceed to Q2. If you answered no please proceed to Q3

Q. 2 How do you access the annual report of **** ? (you may indicate more than one source) (a) I receive it directly (b) I borrow it from someone else (c) I borrow it from a public library (d) I access it on the internet Please proceed to Q4 and complete the remainder of the questionnaire Q.3 I do not read the annual report of because: (you may give more than one answer) (a) I do not receive it (b) I am not interested in the affairs of the department (c) I rely on others to make me aware of anything relevant to my decisions (d) I rely on others to monitor the activities of the department (e) The contents of the annual report do not contribute to my information needs (f) I have other sources of information about the department sufficient for my needs (g) Other (please specify)

_____________________________________________________________________________________________________________________________________________

Please proceed to Q4 and complete the remainder of the questions

Q. 4 Please circle the one classification which best describes your primary association with *****: Please circle only one response (a) taxpayer or ratepayer (b) supplier of goods or services (c) competitior supplier of goods or services (d) supplier of finance (e) consumer of services (f) elected official of the state government (g) other elected official (h) member of an oversight body (i) regulator or auditor (j) member of management of the department (k) representative or employee of another public sector entity (l) donor of funds to one or more programmes or activities of the department (m) voluntary provider of time, goods or services to one or more programmes or activities of the

department (n) other (please specify) _____________________________________________________________ ___________________________________________________________________________________ Q. 5 I believe that it is important for the annual report of ****** to disclose the following information:

Please circle one response to every part of this question

Not

Im

porta

nt

Neu

tral

Ver

y Im

porta

nt

(a) balance sheet 1 2 3 4 5 (b) profit and loss statement 1 2 3 4 5 (c ) cash flow statement 1 2 3 4 5 (d) financial performance information 1 2 3 4 5 (e) non-financial performance information 1 2 3 4 5 (f) descriptive overview of operations and activities of the department 1 2 3 4 5 (g) comparative information 1 2 3 4 5 (h) actual to budget and variance information 1 2 3 4 5 (i) income and expense analysis by programme 1 2 3 4 5 (j) whether the department can maintain its current level of service 1 2 3 4 5 (k) whether my interests are being represented by the department 1 2 3 4 5 (l) narrative summaries on such issues as compliance, viability,

performance, and cost of services

1

2

3

4

5

Q.6 When reading the annual report of *****how much emphasis do you place on: Please circle one response to every part of this question

No

Emph

asis

Stro

ng

Emph

asis

(a) the overview of the department’s operations 1 2 3 4 5 (b) the descriptive section of the annual report before the financial

statements

1

2

3

4

5 (c) the operating statement 1 2 3 4 5 (d) the balance sheet 1 2 3 4 5 (e) the cash flow statement 1 2 3 4 5 (f) the notes to the financial statements 1 2 3 4 5 (g) the auditors report 1 2 3 4 5 (h) performance indicators 1 2 3 4 5 (i) the Chief Executive Officer’s Report 1 2 3 4 5 (j) summary facts, figures and key statistics 1 2 3 4 5 (k) financial overview and analysis 1 2 3 4 5 (l) disclosure of actual versus budget and variance information 1 2 3 4 5 (m the remuneration of executive officers 1 2 3 4 5 Q.7 What information other than that already presented in the annual report would you find useful? ____________________________________________________________________________________________ ____________________________________________________________________________________________ ____________________________________________________________________________________________ Q.8 Please indicate on a scale of 1 to 5 how important the following sources of information about the activities of ****** are to you?

Not

Im

porta

nt

Neu

tral

Ver

y Im

porta

nt

(a) newspapers 1 2 3 4 5 (b) television/radio 1 2 3 4 5 (c) budget Papers 1 2 3 4 5 (d) annual Report 1 2 3 4 5 (e) personal contact with officers of the department 1 2 3 4 5 (f) internet 1 2 3 4 5 (g) other (please specify) ___________________________________________________________________________________

184

Q. 9 Information from the financial statements of ***** would be useful for the following: Please circle one response to every part of this question

Not

U

sefu

l

Neu

tral

Ver

y U

sefu

l

a) as a basis for making representations to the department for funding for specific programmes

1

2

3

4

5

(b) to decide whether resources have been used in the manner intended

1

2

3

4

5

(c) to determine the financial viability of the department 1 2 3 4 5 (d) to determine whether public monies have been used appropriatly

1

2

3

4

5

(e) to determine whether the department has adhered to its budget 1 2 3 4 5 (f ) to decide on continued use of department services 1 2 3 4 5 (g) to determine the effect of the current operations of the department on future generations

1

2

3

4

5

(h) to decide to commence using department services 1 2 3 4 5 (i) to determine whether the department can meet its long term

liabilities

1

2

3

4

5

(j) to determine whether the department has conducted its operations effectively

1

2

3

4

5

(k) to assess the likelihood of increased rate or tax charges 1 2 3 4 5 (l) to decide how to vote in elections 1 2 3 4 5 (m) to assess the likelihood of increased service charges 1 2 3 4 5 (o) to determine whether the department has operated in the best

interest of the community it serves

1

2

3

4

5

(p) to determine whether to make representations to the department for an alteration to the mix of services provided

1

2

3

4

5

(q) to inform my decisions as a supplier of goods, services or finance to the department

1

2

3

4

5

(q) to determine satisfaction with current level of service 1 2 3 4 5 (r) to decide whether to make representations to the department for

the provision of specific programmes

1

2

3

4

5 (s) to determine whether the department has conducted its

operations efficiently

1

2

3

4

5 (t) to decide whether or not to support specific departmental decisions

1 2 3 4 5

(t) to compare the results of the department with other similar departments

1 2 3 4 5

(v) to determine whether the department has met its stated objectives

1 2 3 4 5

(w) to determine whether the department can meet its short term liabilities

1

2

3

4

5

(x) other (please specify) ___________________________________________________________________________________

185

Queensland University of Technology A project supported by the Financial Reporting Research

Concentration of the School of Accountancy Instructions This questionnaire consists of 9 questions. In some instances you may give more than one answer. If

more than one answer is permissible this is clearly indicated at the beginning of the question. Several of

the questions require you to respond to a series of statements on a numbered scale. In these questions

please circle the number that best reflects your view. Please ensure that you respond to each statement

contained in the question.

Please circle your response to the following questions

Q. 1 Do you currently read the annual report of xxx? Yes N If you answered yes please proceed to Q2. If you answered no please proceed to Q3 Q. 2 How do you access the annual report of xxx? (you may indicate more than one source) I receive it directly I borrow it from someone else I borrow it from a public library I access it on the internet Please proceed to Q4 and complete the remainder of the questionnaire Q.3 I do not read the annual report of xxx because: (you may give more than one answer) (a) I do not receive it (h) I am not interested in the affairs of Queensland Rail (i) I rely on others to make me aware of anything relevant to my decisions (j) I rely on others to monitor the activities of Queensland Rail (k) The contents of the annual report do not contribute to my information needs (l) I have other sources of information about Queensland Rail sufficient for my needs (m) Other (please specify) _____________________________________________________________ ________________________________________________________________________________ Please proceed to Q4 and complete the remainder of the questions

Q. 4 Please circle the one classification which best describes your primary association with xxx: Please circle only one response (a) taxpayer or ratepayer (b) supplier of goods or services (c) competitor supplier of goods or services (d) supplier of finance (e) consumer of services (f) elected official of the state government (g) other elected official (h) member of an oversight body (i) regulator or auditor (j) member of management of xxx (k) representative or employee of another similar organisation (l) other (please specify) _____________________________________________________________ ___________________________________________________________________________________ Q. 5 I believe that it is important for the annual report of xxx to disclose the following information:

Please circle one response to every part of this question

N

ot

Impo

rtant

Neu

tral

Ver

y Im

porta

nt

(a) balance sheet 1 2 3 4 5 (b) profit and loss statement 1 2 3 4 5 (c) cash flow statement 1 2 3 4 5 (d) financial performance information 1 2 3 4 5 (e) non-financial performance information 1 2 3 4 5 (f) descriptive overview of operations and activities of the department 1 2 3 4 5 (g) comparative information 1 2 3 4 5 (h) whether Queensland Rail can maintain its current level of service 1 2 3 4 5 (i) whether my interests are being represented by Queensland Rail 1 2 3 4 5 (j) narrative summaries on such issues as compliance, viability,

performance, and cost of services

1

2

3

4

5

187

Q.6 When reading the annual report of xxx how much emphasis do you place on: Please circle one response to every part of this question

No

Emph

asis

Stro

ng

Emph

asis

(a) the overview of the xxx operations 1 2 3 4 5 (b) the descriptive section of the annual report before the financial

statements

1

2

3

4

5 (c) chairman’s report (d) the operating statement 1 2 3 4 5 (e) the balance sheet 1 2 3 4 5 (f) the cash flow statement 1 2 3 4 5 (g) the notes to the financial statements 1 2 3 4 5 (h) the auditors report 1 2 3 4 5 (i) performance indicators 1 2 3 4 5 (j) the Chief Executive Officer’s Report 1 2 3 4 5 (k) summary facts, figures and key statistics 1 2 3 4 5 (l) financial overview and analysis 1 2 3 4 5 (m) the remuneration of executive officers 1 2 3 4 5 (n) the remuneration of Board members 1 2 3 4 5 (o) corporate governance disclosures 1 2 3 4 5 (p) social responsibility (environment, community) disclosures 1 2 3 4 5 Q.7 What information other than that already presented in the annual report would you find useful? ____________________________________________________________________________________________ ___________________________________________________________________________________ ___________________________________________________________________________________ Q.8 Please indicate on a scale of 1 to 5 how important the following sources of information about the activities of xxx are to you?

Not

Im

porta

nt

Neu

tral

Ver

y Im

porta

nt

(a) newspapers 1 2 3 4 5 (b) television/radio 1 2 3 4 5 (c) annual Report 1 2 3 4 5 (d) personal contact with officers of Queensland Rail 1 2 3 4 5 (e) internet 1 2 3 4 5 (f) other (please specify) ___________________________________________________________________________________

188

Q. 9 Information from the financial statements of xxx would be useful for the following: Please circle one response to every part of this question

Not

U

sefu

l

Neu

tral

Ver

y U

sefu

l

(a) to decide whether resources have been used in the manner intended

1

2

3

4

5

(b) to determine the financial viability of xxx 1 2 3 4 5 (c) to decide on continued use of the services of xxx 1 2 3 4 5 (d) to determine the effect of the current operations of xxx on future generations

1

2

3

4

5

(e) to decide to commence using the services of xxx 1 2 3 4 5 (f) to determine whether xxx can meet its long term liabilities

1

2

3

4

5 (g) to determine whether xxx has conducted its operations effectively

1

2

3

4

5

(h) to decide how to vote in elections 1 2 3 4 5 (i) to assess the likelihood of increased service/product charges 1 2 3 4 5 (j) to determine whether xxx has operated in the best interest of the community it serves

1

2

3

4

5

(k) to determine whether to make representations to xxx for an alteration to the mix of services provided

1

2

3

4

5

(l) to inform my decisions as a supplier of goods, services or finance to xxxl

1

2

3

4

5

(m) to determine satisfaction with current level of service 1 2 3 4 5 (n) to decide whether to make representations to xxx for the provision of specific services/products

1

2

3

4

5

(o) to determine whether xxx has conducted its operations efficiently

1

2

3

4

5

(p) to compare the results of xxx with other similar organisations 1 2 3 4 5 (q) to determine whether xxx has met its stated objectives 1 2 3 4 5 (r) to determine whether xxx can meet its short term liabilities

1

2

3

4

5 (s) other (please specify) ___________________________________________________________________________________

189

APPENDIX F Emphasis placed on disclosure items by user categories

Disclosure Item All

Users

n =1005

Taxpayer

n =127

Resource Provider

n =125

Elected Official

n =268

Recipients of Services

n =77

Oversight Bodies

n =102

Internal Management

n = 184

Like Entities

n = 110

Overview of operations

4.07 3.90 3.93 4.48 3.98 4.03 3.90 3.79

Descriptives before Financials

3.64 3.50 3.51 3.86 3.56 3.68 3.64 3.43

Chairman’s Report

3.44 3.57 3.51 3.60 3.59 2.80 4.00 3.56

Operating Statement

3.96 3.84 3.90 4.26 3.79 4.05 3.80 3.71

Balance Sheet 4.04 4.03 3.98 4.37 4.01 4.19 3.77 3.72 Cash Flow Statement

3.81 3.80 3.82 4.18 3.83 3.86 3.45 3.49

Notes to Financial Statements

3.73 3.74 3.72 3.98 3.71 3.99 3.49 3.34

Auditors Report

3.64 3.74 3.62 3.92 3.49 3.67 3.48 3.28

Performance Indicators

4.04 3.97 3.93 4.17 4.12 4.16 3.89 3.98

Chief Executive Officers Report

3.79 3.72 3.69 4.14 3.79 3.67 3.61 3.52

Summary facts & figures

4.02 4.02 3.93 4.06 4.10 4.05 3.93 4.08

Financial Overview & Analysis

3.94 3.94 3.82 4.12 4.05 3.97 3.82 3.74

Actual versus budget information

3.81 3.92 3.61 4.17 3.75 3.79 3.52 3.55

Remuneration of executive officers

3.21 3.56 3.08 3.55 3.24 3.18 2.79 2.90

Remuneration of Board Members

2.95 3.43 2.88 2.4 2.94 2.80 4.00 2.89

Corporate Governance Disclosures

3.41 3.67 3.47 3.2 3.37 3.40 3.00 3.67

Social Responsibility Disclosures

3.42 3.70 3.53 3.2 3.27 3.24 4.00 3.56

*Where 1 is no emphasis, 3 is neutral and 5 is strong emphasis

190

Emphasis Placed on Disclosure items by Entity Type

Disclosure Item All Users

n =1005

Government

Departments

n = 289


n = 544

Government Owned

Corporations n = 172

Overview of operations 4.07 3.80 4.24 4.00

Descriptives before Financials 3.64 3.44 3.76 3.63

Chairman’s Report 3.44 na na 3.44

Operating Statement 3.96 3.68 4.11 3.98

Balance Sheet 4.04 3.73 4.22 4.05

Cash Flow Statement 3.81 3.45 3.97 3.94

Notes to Financial Statements 3.73 3.47 3.85 3.81

Auditors Report 3.64 3.51 3.76 3.52

Performance Indicators 4.04 4.02 4.03 4.09

Chief Executive Officers Report 3.79 3.54 3.93 3.78

Summary facts & figures 4.02 3.91 4.07 4.08

Financial Overview & Analysis 3.94 3.70 4.06 3.96

Actual versus budget information 3.81 3.65 3.91 na

Remuneration of executive

officers

3.21 3.12 3.30 3.07

Remuneration of Board Members 2.95 na na 2.95

Corporate Governance

Disclosures

3.41 na na 3.41

Social Responsibility Disclosures 3.42 na na 3.42

*Where 1 is no emphasis, 3 is neutral and 5 is strong emphasis

191

APPENDIX G Factor Analysis Q6 - Local government authorities and government departments Total Variance Explained Component Initial Eigenvalues Total % of Variance Cumulative % 1 5.143 42.861 42.8612 2.237 18.639 61.5013 .872 7.267 68.7684 .701 5.844 74.6115 .552 4.596 79.2086 .517 4.308 83.5167 .470 3.914 87.4308 .369 3.074 90.5049 .339 2.826 93.33010 .333 2.776 96.10611 .264 2.196 98.30212 .204 1.698 100.000

Extraction Method: Principal Component Analysis.

Scree Plot

Component Number

121110987654321

Eige

nval

ue

6

5

4

3

2

1

0

192

Rotated Component Matrix

Component 1 2 emphasis on balance sheet

.884

emphasis on cash flow .876 emphasis on notes to fin stat .831

emphasis on operating statement .814

emphasis on auditors report .681

emphasis on budget v actual .566 .461

emphasis on overview of departments operation .783

emphasis on description before fin stat .750

emphasis on ceo's report .748emphasis on summary facts figures & key stats .732

emphasis on financial overview & analysis .382 .670

emphasis om performance indicators .352 .609

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 3 iterations. KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .880

Approx. Chi-Square 4813.441df 66

Bartlett's Test of Sphericity

Sig. .000

193

Factor Analysis -Q6 3 factors - local government authorities and departments Total Variance Explained Component Initial Eigenvalues Total % of Variance Cumulative % 1 5.143 42.861 42.8612 2.237 18.639 61.5013 .872 7.267 68.7684 .701 5.844 74.6115 .552 4.596 79.2086 .517 4.308 83.5167 .470 3.914 87.4308 .369 3.074 90.5049 .339 2.826 93.33010 .333 2.776 96.10611 .264 2.196 98.30212 .204 1.698 100.000


Scree Plot

Component Number

121110987654321

Eige

nval

ue

6

5

4

3

2

1

0

194

Rotated Component Matrix(a)

Component 1 2 3 emphasis on balance sheet

.879

emphasis on cash flow .870 emphasis on operating statement .829

emphasis on notes to fin stat .812

emphasis on auditors report .673

emphasis on summary facts,figures & key stats .787

emphasis on financial overview & analysis .767

emphasis on budget v actual .479 .623

emphasis om performance indicators .617


emphasis on description befor fin stat .788

emphasis on ceo's report .745Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 6 iterations.

KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .880



Sig. .000

195

Factor Analysis Q6 Government Owned Corporations 4 factors Total Variance Explained Component Initial Eigenvalues Total % of Variance Cumulative % 1 4.689 33.494 33.4942 2.665 19.035 52.5283 1.338 9.557 62.0854 1.250 8.926 71.0115 .839 5.992 77.0036 .614 4.383 81.3867 .519 3.709 85.0958 .455 3.248 88.3439 .416 2.973 91.31610 .380 2.718 94.03311 .284 2.027 96.06112 .282 2.015 98.07513 .156 1.113 99.18814 .114 .812 100.000


Scree Plot

Component Number

1413121110987654321

Eige

nval

ue

5

4

3

2

1

0

196


Component 1 2 3 4 emphasis on balance sheet

.925

emphasis on cash flow .905 emphasis on notes to fin stat .872

emphasis on operating statement .736

emphasis on auditors report .628 .599

emphasis on description befor fin stat .798

emphasis on chairmans report .777


emphasis on ceo's report .510 .432 emphasis on summary facts,figures & key stats .861

emphasis on financial overview & analysis .496 .693

emphasis om performance indicators .658 .301

emphasis on corporate governance disclosures .811

emphasis on social responsibility disclosures .743

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 6 iterations. KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .804



Sig. .000

197

Appendix H Mann-Whitney significance levels for comparing mean factor scores for each User

Category General

Purpose Financial

Information



Social Information

Taxpayer - Resource Provider .673 .199 .984 .350 Elected Officials .012** .076 .000*** .485 Recipients of Services .344 .672 .861 .106 Oversight Bodies .421 .553 .502 .157 Internal Management .013* .027* .711 .722 Other Like Entities .018* .275 .512 .772 Resource Providers – Taxpayers .673 .199 .984 .350 Elected Officials .001** .000*** .000*** .784 Recipients of Services .537 .084 .830 .404 Oversight Bodies .196 .060 .435 .500 Internal Management .031* .398 .781 .933 Other Like Entities .036* .796 .449 .721 Elected Officials-- Taxpayer .012* .076 .000*** .485 Resource Providers .001** .000*** .000*** .784 Recipients of services .000*** .246 .000*** .964 Oversight Bodies .135 .365 .000*** .977 Internal Management .000*** .000*** .000*** 1.00 Other Like Entities .000*** .002** .000*** .681 Recipients of Services - Taxpayer .344 .672 .861 .106 Resource Providers .537 .084 .830 .404 Elected Officials .000*** .246 .000*** .964 Oversight Bodies .078 .822 .742 .995 Internal Management .156 .011* .916 .805 Other Like Entities .154 .177 .353 .400 Oversight Bodies - Taxpayers .421 .553 .502 .157 Resource Providers .196 .060 .435 .500 Elected Officials .135 .365 .000*** .977 Recipients of services .078 .822 .742 .995 Internal Management .000*** .005** .630 .886 Other Like Entities .002** .099 .205 .469 Internal Management - Taxpayers .013* .027* .711 .722 Resource Providers .031* .398 .781 .933 Elected Officials .000*** .000*** .000*** 1.00 Recipients of Services .156 .011* .916 .805 Oversight Bodies .000*** .005** .630 .886 Other like Entities .733 .296 .277 .811 Other Like Entities - Taxpayer .018* .275 .512 .772 Resource Provider .036* .796 .449 .721 Elected Officials .000*** .002** .000*** .681 Recipients of Services .154 .177 .353 .400 Oversight Bodies .002** .099 .205 .469 Internal Management .733 .296 .277 .811 *** p< 0.001 * p<.05 ** p<.01

198

Mann-Whitney Tests - Test Statistics dependent - non-dependent Test Statistics GPFR6 PERFINF6 NARRAT GOVERN Mann-Whitney U 106034.50

0 110766.000 92629.500 518.000

Wilcoxon W 242015.500 246747.000 229655.50

0 546.000

Z -1.952 -.844 -5.407 -.233Asymp. Sig. (2-tailed) .051 .399 .000 .816

Grouping Variable: INT.EXT Taxpayers - Other resource providers Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 6855.500 6455.500 7248.500 563.000Wilcoxon W 14236.500 13836.500 14751.500 1509.000Z -.422 -1.285 -.020 -.934Asymp. Sig. (2-tailed) .673 .199 .984 .350

Grouping Variable: USERTYPE taxpayers - elected officials Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 12718.000 13602.500 10501.500 60.500Wilcoxon W 19621.000 20623.500 17641.500 75.500Z -2.509 -1.777 -5.239 -.698Asymp. Sig. (2-tailed) .012 .076 .000 .485Exact Sig. [2*(1-tailed Sig.)] .506(a)

a Not corrected for ties. Grouping Variable: USERTYPE

199

taxpayers – other recipients of services Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 4144.000 4380.500 4514.000 577.500Wilcoxon W 7147.000 11401.500 11654.000 1802.500Z -.946 -.424 -.175 -1.618Asymp. Sig. (2-tailed) .344 .672 .861 .106

Grouping Variable: USERTYPE taxpayers - oversight bodies Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 5592.500 5683.500 5695.500 293.000Wilcoxon W 12495.500 12704.500 12835.500 618.000Z -.805 -.593 -.671 -1.415Asymp. Sig. (2-tailed) .421 .553 .502 .157

Grouping Variable: USERTYPE taxpayers - internal management Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 8747.000 8964.500 10383.000 25.500Wilcoxon W 25037.000 25074.500 17523.000 28.500Z -2.473 -2.216 -.370 -.356Asymp. Sig. (2-tailed) .013 .027 .711 .722Exact Sig. [2*(1-tailed Sig.)] .734(a)


200

taxpayers - other like entities Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 4969.500 5617.500 5874.500 126.500Wilcoxon W 10429.500 11077.500 11334.500 171.500Z -2.357 -1.091 -.656 -.289Asymp. Sig. (2-tailed) .018 .275 .512 .772Exact Sig. [2*(1-tailed Sig.)] .781(a)

a Not corrected for ties. Grouping Variable: USERTYPE other resource providers - elected officials Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 12421.000 12223.500 10570.500 99.500Wilcoxon W 19802.000 19604.500 18073.500 114.500Z -3.274 -3.524 -5.475 -.274Asymp. Sig. (2-tailed) .001 .000 .000 .784Exact Sig. [2*(1-tailed Sig.)] .793(a)

a Not corrected for ties. Grouping Variable: USERTYPE other resource providers - recipients of services Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 4416.500 3982.000 4612.500 948.500Wilcoxon W 7419.500 11363.000 12115.500 2173.500Z -.618 -1.728 -.215 -.835Asymp. Sig. (2-tailed) .537 .084 .830 .404

Grouping Variable: USERTYPE other resource providers - oversight bodies Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 5553.000 5219.500 5788.000 485.500Wilcoxon W 12934.000 12600.500 13291.000 810.500Z -1.293 -1.878 -.781 -.674Asymp. Sig. (2-tailed) .196 .060 .435 .500

Grouping Variable: USERTYPE

201

other resource providers - internal management Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 9296.000 10209.500 10714.500 41.500Wilcoxon W 25586.000 26319.500 18217.500 44.500Z -2.160 -.846 -.278 -.084Asymp. Sig. (2-tailed) .031 .398 .781 .933Exact Sig. [2*(1-tailed Sig.)] .933(a)

a Not corrected for ties. Grouping Variable: USE RTYPE other resource providers - other like entities Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 5272.000 6166.500 5975.000 179.000Wilcoxon W 10732.000 13547.500 11435.000 1125.000Z -2.102 -.259 -.758 -.357Asymp. Sig. (2-tailed) .036 .796 .449 .721Exact Sig. [2*(1-tailed Sig.)] .739(a)

a Not corrected for ties. Grouping Variable: USERTYPE elected officials - other recipients of services Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 7279.500 9144.000 6966.000 121.000Wilcoxon W 10282.500 12147.000 9969.000 136.000Z -3.615 -1.160 -4.238 -.046Asymp. Sig. (2-tailed) .000 .246 .000 .964Exact Sig. [2*(1-tailed Sig.)] .977(a)

a Not corrected for ties. Grouping Variable: USERTY PE

202

elected officials - oversight bodies Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 11881.500 12329.000 9979.000 62.000Wilcoxon W 17134.500 17480.000 15130.000 77.000Z -1.496 -.906 -3.754 -.029Asymp. Sig. (2-tailed) .135 .365 .000 .977Exact Sig. [2*(1-tailed Sig.)] 1.000(a)

a Not corrected for ties. Grouping Variable: USERTYPE elected officials – internal management Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 14746.500 16682.000 16166.500 5.000Wilcoxon W 31036.500 32792.000 32276.500 8.000Z -6.575 -5.073 -5.699 .000Asymp. Sig. (2-tailed) .000 .000 .000 1.000Exact Sig. [2*(1-tailed Sig.)] 1.000(a)

a Not corrected for ties. Grouping Variable: USERTYPE elected officials - other like entities Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 8622.000 10748.500 8737.500 19.500Wilcoxon W 14082.000 16208.500 14197.500 34.500Z -5.385 -3.076 -5.486 -.411Asymp. Sig. (2-tailed) .000 .002 .000 .681Exact Sig. [2*(1-tailed Sig.)] .699(a)


203

recipients of services - oversight bodies Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 3324.000 3812.000 3777.000 612.000Wilcoxon W 6327.000 6815.000 6780.000 937.000Z -1.763 -.226 -.329 -.006Asymp. Sig. (2-tailed) .078 .822 .742 .995

Grouping Variable: USERTYPE recipients of services - internal management Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 6157.500 5511.500 6834.500 44.000Wilcoxon W 22447.500 21621.500 9837.500 1269.000Z -1.419 -2.551 -.106 -.247Asymp. Sig. (2-tailed) .156 .011 .916 .805Exact Sig. [2*(1-tailed Sig.)] .830(a)

a Not corrected for ties. Grouping Variable: USERTYPE recipients of services - other like entities Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 3508.500 3535.000 3682.500 182.000Wilcoxon W 8968.500 8995.000 9142.500 1407.000Z -1.426 -1.350 -.928 -.841Asymp. Sig. (2-tailed) .154 .177 .353 .400

Grouping Variable: USERTYPE

204

oversight bodies - internal management Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 6880.000 7237.000 8728.000 23.500Wilcoxon W 23170.000 23347.000 24838.000 348.500Z -3.506 -2.784 -.482 -.143Asymp. Sig. (2-tailed) .000 .005 .630 .886Exact Sig. [2*(1-tailed Sig.)] .889(a)

a Not corrected for ties. Grouping Variable: USERTYPE oversight bodies - other like entities Test Statistics GPFR6 PERFINF6 NONFIN6 SOCINF6 Mann-Whitney U 3952.500 4555.500 4717.000 94.500Wilcoxon W 9412.500 10015.500 10177.000 419.500Z -3.170 -1.648 -1.267 -.724Asymp. Sig. (2-tailed) .002 .099 .205 .469Exact Sig. [2*(1-tailed Sig.)] .489(a)

a Not corrected for ties. Grouping Variable: USERTYPE internal management - other like entities Ranks USERTYPE N Mean Rank Sum of Ranks

5.00 102 164.05 16733.006.00 180 128.72 23170.00

GPFR6

Total 282 5.00 101 158.35 15993.006.00 179 130.43 23347.00

PERFINF6

Total 280 5.00 101 143.58 14502.006.00 179 138.76 24838.00

NONFIN6

Total 280 5.00 25 13.94 348.506.00 2 14.75 29.50

SOCINF6

Total 27

205

APPENDIX I Use made of financial statement information by user categories and entity types Decision/judgement Taxpayer Resource

Provider Elected Official

RecipientsOf

Services

Oversight Bodies

Internal Users

Like Entities

Make represent for

funding 3.61 3.62 4.03 3.70 3.68 3.48 3.14

Decide if resources used as intended

3.93 3.62 4.28 3.91 3.87 3.84 3.47

Determine Entity’s Financial Viability

3.99 3.93 4.48 4.08 3.91 3.92 3.57

Determine if public monies used appro.

4.07 3.81 4.52 4.14 4.11 3.77 3.67

Determine adherence to budget

4.06 3.75 4.26 3.96 3.92 3.80 3.59

Decide contd use of entity’s services

3.28 3.12 3.81 3.49 3.13 3.33 2.91

Effect of current operations on future generations

3.47 3.40 4.05 3.59 3.37 3.48 3.19

Decide commence use of services

2.89 2.76 3.37 2.78 2.65 2.86 2.59

Entity can meet its long term liabilities

3.66 3.99 4.38 3.87 3.73 3.72 3.34

Entity has operated effectively

3.98 3.81 4.33 4.04 3.94 3.75 3.63

Increased taxes or charges likely

3.55 3.06 3.82 3.38 2.95 2.93 2.83

Decide how to vote in elections

2.78 2.47 3.06 2.25 2.23 2.29 2.16

Increased service charges likely

3.29 2.94 3.74 3.58 2.81 2.81 2.76

Entity has operated in best interest of community

3.95 3.55 4.22 3.70 3.83 3.56 3.69

Make represent to alter service mix

3.07 3.15 3.65 3.12 3.22 3.04 2.95

To inform decision as a supplier of goods, services or finance

2.49 3.58 3.05 2.65 2.41 2.66 2.59

Satisfied with service level

3.12 3.18 3.64 3.29 3.05 3.09 2.94

Make represent re provision specific programmes

2.99 3.34 3.63 3.29 3.09 3.09 2.99

Entity has operated efficiently

3.81 3.7 4.21 3.93 3.86 3.55 3.48

Whether to support entity decisions

3.35 3.06 3.72 3.11 3.23 2.96 2.81

Compare results with similar organizations

3.31 3.51 3.71 3.72 3.51 3.38 3.42

Determine if organization has met its objectives

3.80 3.65 4.18 3.83 3.81 3.73 3.53

Determine if entity can meet its short term liabilities

3.64 3.68 4.25 3.49 3.56 3.61 3.18

206

Decision/judgement All data Departments Local Government Authorities


Making representations for funding 3.66 3.49 3.76 na

Decide if resources used as intended

3.90 3.74 4.09 3.59

Determine Financial Viability of Entity

4.05 3.52 4.31 4.15

Determine if public monies used appropriately

4.08 3.8 4.23 na

Determine adherence to budget 3.96 3.74 4.08 na

Decide on contd use of entity’s services

3.37 3.12 3.58 3.13

Effect of current operations on future generations

3.59 3.28 3.80 3.43

Decide to commence use of services 2.93 2.79 3.07 2.71

Decide if entity can meet its long term liabilities

3.89 3.44 4.12 3.93

Determine if entity has conducted operations effectively

3.97 3.67 4.15 3.93

Determine likelihood of increased taxes or charges

3.30 2.70 3.63 na

Decide how to vote in elections 2.55 2.27 2.92 1.83

Determine likelihood of increased service charges

3.18 2.73 3.48 3.00

Determine if entity has operated in best interest of community

3.83 3.71 4.01 3.47

Decide whether to make representations to alter mix of services

3.22 3.19 3.39 2.72

To inform decision as a supplier of goods, services or finance

2.82 2.67 2.93 2.75

Determine satisfaction with current service level

3.24 3.06 3.46 2.86

Decide to make representations re the provision of specific programmes

3.25 3.12 3.42 2.93

Determine if entity has conducted its operations efficiently

3.83 3.60 3.94 3.88

To decide whether or not to support entity decisions

3.26 3.08 3.36 na

To compare results with other similar organisations

3.52 3.31 3.53 3.87

Determine if organization has met its objectives

3.84 3.66 3.98 3.71

Determine if entity can meet its short term liabilities

3.72 3.3 3.99 3.64

207

APPENDIX J Factor Analysis Q9 local government authorities and department Total Variance Explained Component Initial Eigenvalues Total % of Variance Cumulative % 1 10.312 44.835 44.8352 1.900 8.260 53.0943 1.246 5.419 58.5134 .984 4.279 62.7925 .954 4.147 66.9396 .749 3.254 70.1937 .733 3.188 73.3828 .643 2.794 76.1769 .562 2.444 78.62010 .521 2.266 80.88611 .480 2.086 82.97212 .473 2.056 85.02813 .426 1.854 86.88214 .410 1.783 88.66515 .368 1.599 90.26416 .351 1.524 91.78817 .331 1.441 93.22918 .299 1.299 94.52919 .279 1.213 95.74220 .273 1.189 96.93121 .258 1.122 98.05322 .250 1.086 99.14023 .198 .860 100.000


208

Scree Plot

Component Number

2321191715131197531

Eige

nval

ue12

10

8

6

4

2

0




Sig. .000

209


Component 1 2 3 to determine likliehood of increased service charges

.717 .385

to decide to commence use of services .694

to decide how to vote in elections .676

to decide to make representations re prov of specific programs

.647 .524

to inform dec as a supplier of goods,services or finance

.647

to determine whether to make representations to alter mix of services

.613 .504

to determine likliehood of inc taxes or charges .603 .469

to decide whether or not to support org decisions .593 .420

to decide on continued use of org services .545 .372 .305

to determine financial viability of org .785

to determine if org can meet short term liablities .749

to determine if org has adahered to budget .694 .373

to decide if org can meet long term liabilities .691

to determine if org has met its objectives .558 .520

to compare results with other similar org .331 .423

to determine if org has operated in best interest of comm

.747

to determine if org has conducted operations effeciently

.380 .683

if dept has conducted operations effectively .419 .623

decide if resources used as intended .473 .622

to determine if public monies used approp .548 .567

210

to determine satisfaction with current service level .531 .541

making representationsfor funding

.443 .486

to determine effect of current operations on future gen

.414 .404 .435

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 22 iterations.

211

Factor Analysis Q9 government owned corporations Total Variance Explained Component Initial Eigenvalues Total % of Variance Cumulative % 1 7.643 42.459 42.4592 2.093 11.629 54.0883 1.205 6.693 60.7824 .963 5.351 66.1335 .854 4.745 70.8786 .751 4.174 75.0527 .668 3.713 78.7648 .569 3.162 81.9269 .558 3.098 85.02410 .405 2.251 87.27511 .391 2.175 89.45012 .386 2.144 91.59413 .337 1.874 93.46714 .286 1.590 95.05815 .251 1.392 96.45016 .234 1.302 97.75217 .221 1.231 98.98318 .183 1.017 100.000


212

Scree Plot

Component Number

181716151413121110987654321

Eige

nval

ue10

8

6

4

2

0




Sig. .000

213


Component 1 2 3 to determine financial viability of org .823

to decide if org can meet long term liabilities .809

to determine if org can meet short term liablities .805

to determine if org has met its objectives .647 .518

decide if resources used as intended .626 .496

to determine satisfaction with current service level .701 .428

to determine if org has conducted operations effeciently

.506 .679

to determine likliehood of increased service charges .672 .395

to determine if org has operated in best interest of comm

.638

if dept has conducted operations effectively .515 .581

to compare results with other similar org .303 .562

to determine effect of current operations on future gen

.416 .483 .409

to determine whether to make representations to alter mix of services

.322 .707

to decide how to vote in elections .695

to decide to make representations re prov of specific programs

.694

to decide to commence use of services .685

to inform dec as a supplier of goods,services or finance

.666

to decide on continued use of org services .377 .614

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 9 iterations.

214

APPENDIX K Mann-Whitney significance levels for comparing mean factor scores for each User

category



Decision Usefulness

Taxpayer - Resource Provider .331 .825 .969 Elected Officials .000*** .000*** .000*** Recipients of Services .547 .354 .973 Oversight Bodies .592 .765 .130 Internal Management .076 .565 .151 Other Like Entities .012** .008** .039 Resource Providers – Taxpayers .331 .825 .969 Elected Officials .000*** .000*** .000*** Recipients of Services .164 .502 .922 Oversight Bodies .143 .999 .093 Internal Management .538 .465 .079 Other Like Entities .119 .005** .030* Elected Officials-- Taxpayer .000*** .000*** .000*** Resource Providers .000*** .000*** .000*** Recipients of services .000*** .000*** .000*** Oversight Bodies .000*** .000*** .000*** Internal Management .000*** .000*** .000*** Other Like Entities .000*** .000*** .000*** Recipients of Services - Taxpayer .547 .354 .973 Resource Providers .164 .502 .922 Elected Officials .000*** .000*** .000*** Oversight Bodies .945 .627 .126 Internal Management .033* .157 .129 Other Like Entities .005** .001** .054 Oversight Bodies - Taxpayers .592 .765 .130 Resource Providers .143 .999 .093 Elected Officials .000*** .000*** .000*** Recipients of services .945 .627 .126 Internal Management .046* .495 .738 Other Like Entities .009** .007** .741 Internal Management - Taxpayers .076 .565 .151 Resource Providers .538 .465 .079 Elected Officials .000*** .000*** .000*** Recipients of Services .055 .710 .078 Oversight Bodies .046* .495 .738 Other like Entities .181 .025* .438 Other Like Entities - Taxpayer .012** .008** .039* Resource Provider .119 .005** .030* Elected Officials .000*** .000*** .000*** Recipients of Services .005** .001** .054 Oversight Bodies .009** .007** .741 Internal Management .181 .025** .438 ***p<.000 **p<.01 *p<.05

215

dependent - non-dependent Test Statistics(a) PA FA DU Mann-Whitney U 83156.000 85022.000 82691.500Wilcoxon W 213461.00

0216350.00

0210456.50

0Z -5.933 -5.566 -4.915Asymp. Sig. (2-tailed) .000 .000 .000

a Grouping Variable: INT.EXT taxpayers - other resource providers Test Statistics(a) PA FA DU Mann-Whitney U 6340.500 6963.000 6592.500Wilcoxon W 13480.500 14223.000 13147.500Z -.972 -.221 -.039Asymp. Sig. (2-tailed) .331 .825 .969

a Grouping Variable: Usertype taxpayers - elected officials Test Statistics(a) PA FA DU Mann-Whitney U 8383.500 9516.500 9021.500Wilcoxon W 15053.500 16776.500 15576.500Z -6.248 -5.445 -4.664Asymp. Sig. (2-tailed) .000 .000 .000

a Grouping Variable: Usertype taxpayers – other recipients of services Test Statistics(a) PA FA DU Mann-Whitney U 4034.500 3975.000 4205.500Wilcoxon W 10704.500 11235.000 10760.500Z -.602 -.927 -.034Asymp. Sig. (2-tailed) .547 .354 .973

a Grouping Variable: Usertype

216

taxpayers - oversight bodies Test Statistics(a) PA FA DU Mann-Whitney U 5339.500 5624.000 4808.000Wilcoxon W 12009.500 12884.000 9464.000Z -.536 -.299 -1.515Asymp. Sig. (2-tailed) .592 .765 .130

a Grouping Variable: Usertype taxpayers - internal management Test Statistics(a) PA FA DU Mann-Whitney U 8826.000 10202.500 8978.000Wilcoxon W 24226.000 25955.500 24378.000Z -1.774 -.576 -1.437Asymp. Sig. (2-tailed) .076 .565 .151

a Grouping Variable: Usertype taxpayers - other like entities Test Statistics(a) PA FA DU Mann-Whitney U 4857.000 5069.000 5019.000Wilcoxon W 10422.000 10740.000 10584.000Z -2.508 -2.638 -2.064Asymp. Sig. (2-tailed) .012 .008 .039

a Grouping Variable: Usertype other resource providers - elected officials Test Statistics(a) PA FA DU Mann-Whitney U 7715.000 9597.000 8757.500Wilcoxon W 14855.000 16618.000 15543.500Z -7.338 -5.157 -5.174Asymp. Sig. (2-tailed) .000 .000 .000


217

other resource providers - recipients of services Test Statistics(a) PA FA DU Mann-Whitney U 3878.000 4001.500 4256.000Wilcoxon W 11018.000 11022.500 11042.000Z -1.393 -.672 -.098Asymp. Sig. (2-tailed) .164 .502 .922

a Grouping Variable: Usertype other resource providers - oversight bodies Test Statistics(a) PA FA DU Mann-Whitney U 5102.500 5663.500 4823.000Wilcoxon W 12242.500 10319.500 9479.000Z -1.466 -.001 -1.678Asymp. Sig. (2-tailed) .143 .999 .093

a Grouping Variable: Usertype other resource providers - internal management Test Statistics(a) PA FA DU Mann-Whitney U 9972.500 9919.500 8918.000Wilcoxon W 25372.500 25672.500 24318.000Z -.616 -.731 -1.755Asymp. Sig. (2-tailed) .538 .465 .079

a Grouping Variable: Usertype other resource providers - other like entities Test Statistics(a) PA FA DU Mann-Whitney U 5494.000 4906.500 5064.000Wilcoxon W 11059.000 10577.500 10629.000Z -1.559 -2.788 -2.164Asymp. Sig. (2-tailed) .119 .005 .030


218

elected officials - other recipients of services Test Statistics(a) PA FA DU Mann-Whitney U 5710.500 6137.000 5587.000Wilcoxon W 8485.500 8765.000 8362.000Z -4.869 -3.898 -4.408Asymp. Sig. (2-tailed) .000 .000 .000

a Grouping Variable: Usertype elected officials - oversight bodies Test Statistics(a) PA FA DU Mann-Whitney U 7753.000 7807.500 6361.000Wilcoxon W 12506.000 12463.500 11017.000Z -5.062 -4.801 -5.997Asymp. Sig. (2-tailed) .000 .000 .000

a Grouping Variable: Usertype elected officials – internal management Test Statistics(a) PA FA DU Mann-Whitney U 10744.000 13442.000 11275.000Wilcoxon W 26144.000 29195.000 26675.000Z -8.776 -6.633 -7.541Asymp. Sig. (2-tailed) .000 .000 .000

a Grouping Variable: Usertype elected officials - other like entities Test Statistics(a) PA FA DU Mann-Whitney U 5821.000 6050.000 6474.500Wilcoxon W 11386.000 11721.000 12039.500Z -8.164 -7.934 -6.778Asymp. Sig. (2-tailed) .000 .000 .000


219

recipients of services - oversight bodies Test Statistics(a) PA FA DU Mann-Whitney U 3567.000 3304.500 3065.500Wilcoxon W 8320.000 7960.500 7721.500Z -.069 -.487 -1.531Asymp. Sig. (2-tailed) .945 .627 .126

a Grouping Variable: Usertype recipients of services - internal management Test Statistics(a) PA FA DU Mann-Whitney U 5368.500 5644.000 5687.500Wilcoxon W 20768.500 21397.000 21087.500Z -2.134 -1.416 -1.518Asymp. Sig. (2-tailed) .033 .157 .129

a Grouping Variable: Usertype recipients of services - other like entities Test Statistics(a) PA FA DU Mann-Whitney U 2929.500 2698.500 3229.000Wilcoxon W 8494.500 8369.500 8794.000Z -2.803 -3.319 -1.924Asymp. Sig. (2-tailed) .005 .001 .054

a Grouping Variable: Usertype oversight bodies - internal management Test Statistics(a) PA FA DU Mann-Whitney U 7247.500 8071.500 8194.000Wilcoxon W 22647.500 23824.500 12850.000Z -1.999 -.683 -.334Asymp. Sig. (2-tailed) .046 .495 .738


220

oversight bodies - other like entities Test Statistics(a) PA FA DU Mann-Whitney U 4006.000 3976.500 4904.000Wilcoxon W 9571.000 9647.500 10469.000Z -2.621 -2.685 -.331Asymp. Sig. (2-tailed) .009 .007 .741

a Grouping Variable: Usertype internal management - other like entities Test Statistics(a) PA FA DU Mann-Whitney U 8312.500 7889.500 8679.500Wilcoxon W 13877.500 13560.500 14244.500Z -1.337 -2.244 -.776Asymp. Sig. (2-tailed) .181 .025 .438


221

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