All the paragraphs have equal authority. There is also a tension between demarcating public sector accounting as distinctive from private sector accounting, on the one hand, and the guideline that public sector accounting standards should follow comparable standards in the private sector, on the other hand. 22 No. and Drum, D. (2016), “Budget repair or budget spectacle? There is poor evidence about the specifics of different formats and documents providing AI: while there is some evidence about the usability and use of for instance general purpose financial statements or budgets, we do not know much about the usability features of, e.g., mid-year reports, whole-of-government reports or various other specific formats of the provision of AI (including for instance the role of informal talks of users with experts or of variants of narratives). by explaining the intensity of AI use with existing traditions and cultural patterns or with variants of isomorphism (Buylen and Christiaens, 2016). In general, according to the reviewed articles, both purposes of AI use are empirically equally relevant. These differences are stemming from the specifics of the public sector, where rather than making profit, serving societally relevant goals is core (Pallot, 1992, pp. As a first step in introducing this budgetary form as a substitute for an input-budget, some performance information for all policy fields can be provided, but merely as background information (performance-informed budgeting; OECD, 2007, p. 21; Mauro et al., 2017). After a discussion between these consultant-researchers and councilors, it was decided that the following principles would underlie the renewed budget: selectivity (presenting performance information for only the programs or subprograms of political importance or sensitivity); and concreteness and controllability of performance information for the selected programs or subprograms. The main users (stakeholders) of financial statements are commonly grouped as follows: Investors and potential investors are interested in their potential profits and the security of their investment. However, the majority of users covered in the reviewed articles are either politicians or managers; other types of users have been largely ignored. 31 No. In this respect rather than “general purpose financial reporting,” “specific purpose financial reporting” is at stake. Therefore, this group, although important, is not of primary interest in discussing the themes as introduced in Section 1, where we highlighted the importance of users being capable of digesting AI. The table, for example, shows that the primary interest of politicians goes to the prioritization of policy fields and the achievement of a balanced budget, while employees are primarily interested in job security and labor conditions of the organization, and creditors’ and investors’ interest goes to issues of liquidity and solvency. The following review is based on literature published over the last 15 years dealing with the use of AI in the public sector from an empirical perspective. 22-31. These users need information to help them make informed or reliable decisions or judgements with regards to the organization. The proportions of dependent and independent users are varying across different types of public sector organizations (Mack, 2004). 36, Issue 7) which focused particularly on politicians’ use of AI. A main disadvantage of the survey method is that it implicitly assumes some knowledge about accounting items on the side of respondents. Generally, AI can focus at past, present or future periods. Understandability is a multidimensional phenomenon, including the format of the information as laid down in an accounting document (for instance, its structure in items, and the way in which accounting terms are explained), as well as the channels through which it is made available (e.g. The empirical results about preferences concerning budgets or financial reports differ, obviously because of varying underlying purposes and motivations of the diverging user groups. Jones, R. and Pendlebury, M. (2000), Public Sector Accounting, 5th ed., Pearson, Essex. 7, pp. Subsequently, these users are asked to reflect on their experiences, and then consider proposals for improving these documents. 20 No. 3, pp. Our thematic analysis of user needs, usability and use of public AI gives rise to some more specific suggestions for future research: There is a need for empirical studies about the antecedents of the usability and the use of AI by politicians and managers at various contextual levels, i.e. on paper or in digital form; in a comprehensive and detailed format or in a summarizing format). (2004), “An investigation of the information requirements of the users of Australian public sector financial reports”, PhD-thesis QUT, Brisbane, (*). Relevance and reliability are primary characteristics relating to content together with the threshold quality, disseminated to public sector financial statement users (both internal users and external ... to be m eeti ng the decision needs of public sector users . van Helden, G.J. OECD (2007), Performance Budgeting in OECD Countries, OECD Publishing, Paris. In this paper, however, we prefer the term “usability,” as it is more focused on the appropriateness of accounting data for users. Surveys based on items ordered along a Likert-scale were particularly often used. Correspondingly, some of the reviewed articles focus primarily on perceived usability, others on actual use (and a few of them on both issues). Two major purposes are frequently mentioned: rendering accountability to various stakeholders and supporting decision making. Such an output budget can also be used for efficiency trajectories, e.g. Van Helden (2016) compared the results of the before mentioned survey study of Liguori (et al., 2012) and the outcomes of Buylen and Christiaens’ (2016) observational study, and found that the latter study pointed to a significantly lower use than the former. Liguori, M., Sicilia, M. and Steccolini, I. The authors’ view is based on the available literature which points to unresolved or contested issues, and also on our own research experience. Whether this also implies that citizens have to be regarded as the primary group of accounting users, is, however, highly questionable (see also Jones, 1992, p. 261). They have to rely on the financial statements and annual reports, auditor’s report and directors’ report etc. balanced budget, liquidity and solvency). Additional users of central government AI are various nation-wide interest groups and their representatives (e.g. (2010), “Mind your accrual: perceived usefulness of financial information in the Australian public sector under different accounting systems”, Financial Accountability and Management, Vol. 9 No. Suppliers rely more on certain items than others, especially those … Furthermore, we searched in Google Scholar (search terms: users, user needs, use – always connected with accounting/financial information and always restricted to public sector). This normative view on user needs – what users ought to need – also underplayed that users might want certain kinds of AI for other than rational purposes, for example, for justifying their vested interests. Hence, our focus lies on the first and third group, and especially the first group is, due to its lack of accounting expertise, crucial and may also be problematic in assessing its accounting needs. Pettersen, I.J. Vakkuri, J. From a methodological point, so far mostly surveys and interviews have been used to study user needs and use intensities. This raises at least two questions: do these hypotheses about users and their needs make sense, and to what extent diverging needs of different user groups have to be distinguished? Buylen, B. and Christiaens, J. Furthermore, public companies generally are more complex — concerning employee compensation, […] Finally, intermediaries may play a role between users and preparers. Anthony, R. (1980), “Developments in state and municipal accounting”, Government Accountants Journal, Winter, pp. 28 No. 579-600. 02-240, Washington, DC. 911-931. hold, sell, or buy more. However, this is an all too simple picture, as will be clarified below. Other user groups are either government specific, such as oversight bodies, inspectorates or auditors, or overlap with user groups of private sector accounting, such as managers, employees, suppliers, creditors and investors (see also Section 2.2). We will largely disregard the perspective of preparers of AI, and we will also ignore another issue as addressed in the literature review, i.e. Opinions and preferences of the accounting profession also count, e.g. 19 No. (2002), “Performance budgeting – is accrual accounting required?”, IMF Working Paper No. This paper includes a literature review and conceptual reflections. In the three subsequent subsections, i.e. Below are the major variables being relevant to describe and understand AI use as included in the reviewed articles. 31 No. Giacomini, D., Sicilia, M. and Steccolini, I. Tensions and dilemmas of public sector accounting users are reflected in Section 6, and Section 7 presents our conclusions and reflects on future research directions. With regard to the literature, there seems to be a lack of appropriate methods informing about user needs. These renewals of the accounting standards were based on proposals prepared by an advisory committee, in which various parties were represented, especially the Association of Dutch Municipalities, the Ministry of the Interior and Kingdom Relations, as well as representatives from some municipalities and provinces. This implies that we do not pretend that the three themes we explore are comprehensive for the “usability-use” phenomenon, but that they are at least important and possibly even crucial. Moreover, citizens are represented by elected politicians in the legislative, who due to their involvement in the decision making or accountability about policy programs and projects have to be seen as a main group of AI users. Investors. The starting point of our selection of articles is papers published in a special issue of Public Money and Management in 2016 (Vol. (1992), “Elements of a theoretical framework for public sector accounting”, Accounting, Auditing and Accountability Journal, Vol. Another not widely applied option for engaging users in the design of accounting documents is the co-creation by consultants or researchers and users of renewed accounting standards or documents. 1, pp. In addition, a set of working committees was erected for elaborating each of the proposals of the advisory committee. Accountability usually has an ex-post perspective. Public Sector Financial Statement Presentation and Disclosure Checklist About this Checklist This checklist is intended to present the reporting requirements (as denoted by “PS” references) for annual financial statements of public sector entities prepared in accordance with Public Sector Accounting Standards (PSAS). Our paper is a combination of a “literature review” and a “viewpoint.” The literature review aims to give a broad overview of the findings of empirical studies on the usability and use of public sector AI, while the thematic discussion focuses on specific issues that are according to the authors relevant for further exploration. (2 marks) ii) When preparing financial reports for the Consolidated Fund of Government, identify THREE Another partly similar way to measure user needs is interviewing (potential) users of AI. 20 No. In a similar vein, accounting standards established by IPSAS can be applied in individual countries at different levels of the governmental system. There may be tensions between the accuracy and unavoidable complexity of financial reports according to the relevant accounting standards on the one side and the understandability, clearness and “digestibility” of such financial information on the other side. Although there is a general opinion that – at least in the past – preparers decide about the content and the understandability of AI (“accounting is what accountants do,” Young, 2006), there is not much research on the role and attitudes of preparers of AI (see Kober et al., 2010 who conducted their survey on perceived usability of AI not only among users but also among preparers of AI; see also Christensen et al., 2018 who analyze the role of public sector accounting practitioners as preparers and users of AI). And third, what are the antecedents of the users, their needs, the perceived usability and the actual use of accounting documents, and how do these antecedents influence the various links among these variables? the accountants who produce all kinds of AI such as annual reports. Other interesting methods are observational studies or experiments. A highly contested issue is the preference of certain actors for cash or accrual-based accounting data. 36 No. Another drawback may be the inclination of respondents to giving socially desirable responses, which can lead to an upward bias in their responses. Businesses often assume that the readers of the financial statements and other information in their financial reports are fairly knowledgeable about business and finance, in general, and understand basic accounting terminology and measurement methods, in particular. The following list presents the more likely users: Customers . (2016), “Talking numbers? External users have limited authority, ability and means to access the required information. Second, by introducing indicator values to measure the actual situation and development of an issue (e.g. Visit emeraldpublishing.com/platformupdate to discover the latest news and updates, Answers to the most commonly asked questions here, References marked with * belong to the literature review in Section 2 of the paper. via training or coaching support. the exposure draft 63 on social benefits issued in October 2017; www.ipsasb.org/projects/social-benefits). In order to trigger the interest of various user groups in accounting issues that might be potentially relevant to them, an attractive presentation is important. Other issues or more detailed issues as presented in Table I are thinkable. Second, there are more independent users like legislators or other kinds of politicians and managers who do not depend on general financial reports but are able to request specific information for their particular needs. Ezzamel, M., Hyndman, N., Johnsen, Å., Lapsley, I. and Pallot, J. Public sector user groups of AI are partly different from those in the private sector. We also discussed opportunities to support users in engaging more in the design of financial documents according to their specific interests and needs. Public sector financial statements are read and used by a broad group of readers such as elected legislators and councillors, board members, credit rating agencies, and other interested members of the public. Financial statements are important to investors because they can provide enormous information about a company's revenue, expenses, profitability, … The common wisdom about users of public sector accounting documents is articulated by Tagesson (2014, p. 7) as follows: “To produce financial reports tailored to each individual stakeholder would not be economically viable or even possible. First, user needs are to be measured at the level in the governmental system where accounting standards are established. Individual governmental organizations are often part of larger governmental systems in which accounting standards, which contain guidelines on various accounting terms, are established at a higher level than that of the individual governmental organization. This method allows a more open way of approaching respondents than surveys, which are almost always based on pre-structured answer categories for each question. They are keen to know the financial health of a business to get a fair idea of the firm’s niche market, business environment, and economic atmosphere of the country. Consultation procedures, which are used in the design of new accounting standards, and thus in the way AI is structured and presented, are also widely applied. Users of accounting information are either internal or external to the organization. However, there also may be manipulation risks related to such supporters (Jorge et al., 2016). 47-62, (*). 2, pp. 4, pp. As a result, public sector financial statements must meet the needs of a broad range of users. Required: i) In relation to the Conceptual Framework, which category of users is regarded as primary users of the GPFRs of public sector entities? Evidence from capital providers, Governmental accounting practitioners: cardigan removed, research agenda revealed, Tracing the future of reporting in the public sector: introducing integrated popular reporting, International Journal of Public Sector Management. 2, pp. Members of the second group are capable of expressing their user needs due to their accounting expertise. The other is the degree to which users have adopted some accounting knowledge necessary for an understanding of the provided AI, for example, through training or practical experience; this can be called accounting expertise (see, e.g., Buylen and Christiaens, 2016). This Standard requires that the financial statements of public sector entities that make their approved budget(s) publicly available include: (a) A comparison of actual amounts with amounts in the original and final budget. Major prospective customers will want to review a firm’s financial information to see if it is stable enough to be a long-term supplier , or if th Relevance in principle means that the type of information provided in an accounting document is aligned to what users need for their decision making or accountability. Young (2006) shows that private standard-setting bodies were not interested in the actual needs for AI of various groups of users. Consolidated government accounts: how are they used? services with a homogeneous output, such as waste water collection, refuse collection and housing permits in a local government context. The councilors ultimately showed their appreciation of the renewed budgetary information in a survey, although their actual use of the renewed budget remained limited during the annual budgetary debates. IPSASB (2006), “Public sector conceptual framework”, International Public Sector Accounting Standards Board, Toronto, December. A position-practice approach”, Public Money & Management, Vol. Cascino, S., Clatworthy, M., Garcia Osma, B., Gassen, J., Imam, S. and Jeanjean, T. (2014), “Who uses financial reports and for what purpose? A quite detailed typology of AI users has been presented by Mack (2004): at first, various – mostly external – users depending on the provision of general-purpose documents (like budgets or annual reports): for instance voters, resource providers like tax payers, lenders or donors, suppliers and consumers of goods and services, oversight bodies, regulators, auditors, rating agencies and representatives of other public sector organizations. and Nogueira, S. (2016), “Information brokers and the use of budgetary and financial information by politicians: the case of Portugal”, Public Money & Management, Vol. 185-209. That is the crucial role of budgets (see, e.g., IPSASB, 2006, p. 10). Another implication is that each of the themes can be linked to findings of the literature review, which gives these themes a broader than just a subjective justification. Here the user plays a more active role as a co-producer of AI. Ouda, H. (2017), “Towards an information fit theory based on accounting information matching between producers and users”, paper presented at the 16th CIGAR Conference June 8–9, University of Coimbra, Porto. Public companies are generally much larger (in terms of annual sales and total assets) than private companies, as you would expect. As far as we know, this approach has not been applied in practice until now. 515-520, (*). Basically, a certain AI has to meet the actual information needs of the user. (2018), “Governmental accounting practitioners: cardigan removed, research agenda revealed”, Accounting, Auditing and Accountability Journal, Vol. IPSAS 1 should be read in the context of its objective, the Basis for Conclusions, and the “Preface to International Public Sector Accounting Standards.” IPSAS 3, 8 No. Jones (1992) reviewed several activities of public sector standard setters in the Anglophone world to develop conceptual accounting frameworks for the public sector. 1-12. ter Bogt, H.J. The differing objectives and stakeholders result in fundamental differences in how financial operations are carried out. Terms & Conditions The issues do not only relate to financial reports but also to budgeting documents. 3 No. Demaj, L. and Summermatter, L. (2012), “What should we know about politicians’ performance information need and use?”, International Public Management Review, Vol. 2, pp. It is, for example, well-known that large parts of the accounting profession (especially controllers and auditors, supported by consultants and scholars) prefer accrual accounting for both budgeting and financial reporting above cash accounting (Blöndal, 2003; Warren, 2015). (2016), “Contextualizing politicians’ uses of accounting information: accounting as reassuring and ammunition machine”, Public Money & Management, Vol. Some evidence is presented about influential factors on users. The purpose of this paper is to dismantle the complex issue of “use of accounting information (AI)” by pointing to different groups of information users, diverging interests and needs of these user groups and various influential factors on the usability and the actual use of AI. All such purposes can be classified as purposeful use (Moynihan and Pandey, 2010). Observational studies (e.g. Because governments are legally allowed to raise taxes without a direct relationship with the services or tasks for which they can be a source of income, the allocation of resources to the various policies, tasks and services is a matter of political priority setting. information overload as perceived by parliamentarians (Caruana and Farrugia, 2018), size and financial position of a public sector organization (Buylen and Christiaens, 2016) or the role of intermediaries (Jorge et al., 2016). of media, to collect the necessary data (e.g. In their seminal book about public sector accounting, Jones and Pendlebury (2000, pp. This means that either the information in an accounting document is tailor-made, given the interests of a specific user group, which can be opportune for budgets and financial reports for specific groups of managers, or presented in GPFR which contain information on various accounting issues that are relevant to the decision making or accountability of diverging user groups[4]. Cohen, S. and Karatzimas, S. (2015), “Tracing the future of reporting in the public sector: introducing integrated popular reporting”, International Journal of Public Sector Management, Vol. The authors are indebted to Johan Christiaens and the two reviewers of the journal for their valuable comments on earlier versions of this paper. In the same way, small business owners need financial information to determine if the business is profitable and whether to continue, improve or drop it. (1999), “Public and private sector accounting – the non-identical twins”, Australian Accounting Review, Vol. 903-922, (*). 3, pp. and Reichard, C. (2018), “Cash or accruals for budgeting: why some countries changed their budgeting mode and others not”, OECD Journal on Budgeting, Vol. This theme is relevant because users should have their say about the design of accounting documents and the relevance and understandability of the included information. Accounting standards are often important in identifying various types of users and their needs for AI. 4, pp. Reasons to use information. Most authors used primarily a descriptive approach. To meet their basic objective financial statements must be useful; and the information relevant and reliable. (2015), “Challenging the NPM Ideas about performance management: selectivity and differentiation in outcome-oriented performance budgeting”, Financial Accountability and Management, Vol. Jones, R. (1992), “The development of conceptual frameworks of accounting for the public sector”, Financial Accountability & Management, Vol. We see a need that future researchers reflect more explicitly about theoretical arguments explaining the use (or non-use) of financial information in various situations and under different antecedents and conditions. Third, a hybrid group in-between the above groups: members of the executive or managers with some accounting expertise are belonging to this group, and probably also some media representatives as intermediaries between the public sector organization and the citizens. Pettersen and Solstad, 2014; Vakkuri, 2010). Table I is an illustration of the latter meaning of relevance. 4, pp. 20 No. In line with Steccolini’s (2019) call for a reflection on uses and users of accounting information (AI) in the public sector, the aim of our paper is to present a review of the recent literature about users of public sector AI, their needs, the perceived usefulness[1] and the actual use of such information. The most preferred concept seems to be institutionalism in its different variants, e.g. The paper emphasizes the importance of paying more attention to the specific information needs and the motivations of various stakeholder groups generally interested in using financial information. of budget debates in councils) are rather exceptional (Buylen and Christiaens, 2016; ter Bogt et al., 2015). The paper proceeds as follows. An example on performance budgeting serves as an illustration. 29 No. at the Spring Workshop of PSG XII of EGPA at Rostock/Germany, and of papers presented by I. Saliterer et al. citizens in their various roles as voters, tax payers, service consumers, donors or volunteers can be seen as the most important interest group. 7, pp. Public-sector financial management aims to satisfy the politicians and bureaucrats who have oversight of the operations of public bodies and the constituents of elected officials. In some countries budgetary standards are less restrictive, that is, give more discretion to their users than financial reporting standards (see the illustration of the local government accounting standards in the Netherlands in Section 4.2). Thus financial reporting must meet the general and common information needs of potential external users who cannot demand reports tailored to meet their specific information needs.”. Ellwood, S. and Newberry, S. (2016), “New development: the conceptual underpinnings of international public sector accounting”, Public Money & Management, Vol. Investors will likely require financial statements to be provided, since they are the owners … In contrast, user groups at the local governmental level may be less dispersed. Brusca, I. and Montesinos, V. (2013), “From rhetoric to practice: the case of Spanish local government reforms”, Financial Accountability and Management, Vol. Christensen, M., Greiling, D. and Christiaens, J. 1) Taxes These reports used for effective for operating the business by the internal users, on the other hand, the external users use the information to get a real picture of the financial state of the organization. A widely used approach to the assessment of user needs is a survey among users of accounting documents. Pernsteiner, A., Becker, D., Fish, M., Miller, W.F. Moynihan, D.P. (2005), for example, investigate the use and perceived benefits of the newly established Resource-based Accounting and Budgeting in the Northern-Ireland parliament through semi-structured interviews with politicians, senior civil servants and external experts. disclosure of financial information to the various stakeholders about the financial performance and financial position of the organization over a specified period of time Opinions of several user groups – as presented in the reviewed papers – point to a disregard of the needs and the literacy of users with respect to general purpose financial reports (GPFR). We emphasized that there are quite different user groups in the public sector with varying needs and interests. Some of them additionally – and others only – used interviews, mostly in a case study context. Notes to Financial Statements Users and their potential uses of information USERS. 36 No. van Helden, J. and Reichard, C. (2019), "Making sense of the users of public sector accounting information and their needs", Journal of Public Budgeting, Accounting & Financial Management, Vol. While several articles confirm a higher usability of accrual data (mainly for internal management decisions; Andriani et al., 2010; Kober et al., 2010; Paulson, 2006), other authors identify a higher usability of cash data (Brusca and Montesinos, 2013; ACCA, 2015; Caruana and Farrugia, 2018). 14 No. 18 No. This is good news because this theme was under-researched for a long time. From current taxes for setting up accounting standards for Dutch lower levels of government to just key. Van Helden, G.J rather than “ general purpose financial reporting Johnsen, Å., Lapsley I.. Oods and services to the literature, there is not much information available how. For public sector conceptual framework has cut this back to just three key.. Future research directions in this domain, refuse collection and housing permits in a local government context,. Future profits may be less dispersed valuable to get an in-depth understanding of issues... Relying on co-creation of adapted budgetary or financial reporting information as well the! The relevance of AI their responses judgements with regards to the governmental level Reforms public... In fundamental differences in how financial operations are carried out basically, a set of working was! Following list presents the more fundamental differences in interests between the elements of a broad picture of users mentioned. About accounting items on the governmental level may be less dispersed took notice of papers presented by Brusca. And of papers presented by I. Saliterer et al and supporting decision making or accountability i.e. Psg XII of EGPA at Rostock/Germany, and then consider proposals for accounting standards are available ( )! 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( Buylen and Christiaens, 2016 ), “ performance budgeting – is accrual accounting required? ” government... Be acknowledged that the users are asked to show their extent of appreciation, often on a long.! Solid justification of the board of directors, external users can access the required information interest groups and needs!