Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Preparer Perspectives of Infrastructure Reporting by
Australian Local Governments
Ha Pham* and Gabriel Donleavy**
This study examines the views of local government councils’ annual
report preparers on the influence of different factors on the contents
of infrastructure reporting, the adequacy and effectiveness of
current disclosure, and the most important criteria for asset
disclosure by councils. A questionnaire survey was undertaken of
304 senior accountants and engineers from 152 councils in the
Australian State of New South Wales (NSW). The results reveal that
legislative requirements, accounting and reporting guidelines are the
strongest determinants of public asset reporting in NSW councils
while community members and the administrative monitoring
mechanism of elected officers are rated as being the least influential.
NSW report preparers perceived that there is currently a gap
between the existing disclosure practice and meeting the information
needs of local communities, so there is a need for improvement in
reporting practice. Finally, a list of the most important criteria for
annual reporting on infrastructure assets is derived. This study
contributes to reporting practice by identifying the nature of
widespread dissatisfaction with the status quo and by suggesting
the general nature of widely supported improvements to it.
JEL Codes: M41, H79
1. Introduction
This study examines infrastructure reporting by 152 local councils in NSW. As at
30 June 2012, NSW councils were the custodians of approximately $81 billion in net
value of infrastructure assets including public buildings, local roads, bridges,
footpaths, recreational facilities, parks, drainage and sewerage systems (NSW
Division of Local Government, 2013). Despite Australian reporting entities having
been well aware of the issues in infrastructure accounting, its disclosure in their
annual reports continues to be problematic (Walker et al., 1999, Walker and Jones,
2011).
Previous studies have looked at selected factors affecting accounting information
disclosure in local authorities (Giroux and McLelland, 2003, Laswad et al., 2005,
Oylan et al., 2010, Pérez et al., 2008, Ryan et al., 2002), but none have taken a zero
base approach before this study. Lee (1999), Walker et al. (1999) and Walker and
Jones (2011) all suggested that reporting on the physical state of assets, performance
measurement and maintenance was required by stakeholders in addition to traditional
accounting information which mainly focuses on the valuation of assets.
The NSW Government has gone further than other state governments in promoting
reporting requirements chiefly though the enactment of the NSW Local Government
Act 1993 and Local Government Amendment (Planning and Reporting) Act 2009.
The 1993 Act requires councils to disclose information about asset condition,
*Ha Pham, School of Business, University of Western Sydney, Australia.
Email: 17141619@student.uws.edu.au
**Prof. Gabriel Donleavy, School of Business, University of Western Sydney, Australia.
Email: g.don@uws.edu.au
1
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
calculate the projected expenditure to bring the assets to a satisfactory condition,
and calculate the amount of annual cost to maintain assets at that condition, while
the 2009 Act requires councils to follow a new integrated planning and reporting
framework when planning for and reporting on infrastructure assets. The current
study considers how different factors affect the contents of infrastructure reporting
and whether the new framework has been successful.
More particularly the study seeks to answer the following questions:
1. What factors affect the contents of infrastructure disclosure in NSW councils’
annual reports?
2. How do NSW councils’ senior staff view the adequacy and effectiveness of
current infrastructure asset disclosure in meeting community needs?
3. What are the most important criteria for infrastructure asset disclosure in NSW
councils’ annual reports?
In the following sections, we review previous studies of factors influencing the
disclosure of accounting information, of infrastructure disclosure, and reporting
guidelines in Australia. Then we report our own research process and results. In the
final section, conclusions, limitations and future research directions are presented.
2. Literature Review
2.1 Factors
Government
Influencing
Accounting
Information
Disclosure
in
Local
A number of authors have investigated the incentives and factors that support or
hinder accounting information disclosure by local governments. Some studies
indicated a significant relationship between legislative requirements, reporting
regulations and local government disclosure, for example Chatterjee et al. (2012),
Gore (2004), and Ingram and DeJong (1987). On the other hand, Oylan et al.’s study
(2010) showed significant effects of differences in backgrounds of the mayor and the
council CEO on disclosure decisions. Others found negligible influence arising from
political power on information disclosure (Giroux, 1989, Pérez et al., 2008).
Mixed results were found when previous authors examined the influence of other
factors such as local authorities’ financial condition, government size, population
size, the competencies of report preparers and managerial positions, reliance on
debt, and the transfer of federal or state funds to local governments.
In NSW, asset disclosure by councils complies with legislation at the state level, with
Commonwealth’s regulations and with accounting standards. A review of documents
issued by the state and federal governments as well as public sector professional
institutions also identified a number of factors that appear to affect the contents of
asset reporting such as council’s plans and strategies, demographics and culture of
the council area (NSW Division of Local Government, 2010), resource providers and
recipients of infrastructure services (Australian Accounting Research Foundation,
1990).
2.2 Previous studies of infrastructure reporting
The conceptual framework of accounting and reporting practices in Australia
suggests that reporting entities should provide relevant information to stakeholders for
2
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
decision making and resource allocation. The conceptual framework further suggests
disclosure of how boards of management and government agencies have discharged
their duties of accountability (Australian Accounting Research Foundation, 1990).
Lee (1999), Walker et al. (1999), Walker and Jones (2003, 2011) found a preference
of replacement cost over historical cost accounting to value infrastructure assets.
Nevertheless, the valuation of infrastructure assets may not adequately address the
fundamental issues of asset management (Walker et al., 2000a). The Independent
Inquiry (2006) noted that irregular estimates of the fair value of infrastructure assets
could lead councils to understate the extent of their infrastructure problem.
Infrastructure reporting is also dealt with from a non-financial perspective in studies
by Walker et al. (1999), Eddie and Lee (2001), Walker and Jones (2003, 2011).
These studies indicated that the physical state of assets, condition assessment,
maintenance information, asset planning and management practices would provide
stakeholders with useful and appropriate information, and such information meets
the expectations of external users possibly better than information officially stated by
accounting standards. Walker et al. (2000a, 2000b) also argued that the most
suitable mode of reporting would involve a financial statement in combination with
supplemental non-financial information which encompasses descriptive information,
asset condition ratings and assumption about the uses of assets in the future.
Lee and Fisher (2004) found inadequately scoped, but overly varied, treatments in
infrastructure disclosures by Australian public agencies, particularly in regard to the
asset condition, maintenance and performance information. Lee (1999) found a large
gap between users’ information needs and actual disclosures in the annual reports.
Walker and Jones (2011) found an overwhelming preference by users for reporting
on the assets’ condition, combined with disclosure of the expenditure necessary to
bring the assets up to a satisfactory condition. Jones et al. (2012) suggested that the
overall usefulness of asset information could be enhanced by a combination of
condition assessments with replacement costs.
The arguments regarding the best method of infrastructure disclosure have also
been addressed by scholars from other countries. The major foci are the usefulness
of information disclosures and the preferred method of asset disclosure. In the US,
Van Daniker and Kwiatkowski (1986) found a preference for replacement cost over
asset valuation, and the usefulness of engineering information for asset reporting.
Van Daniker and Harris (1999) found the needs of report users relating to the
amount spent on maintenance and expansion of services was not met. A more
recent work by Vermeer et al. (2011) suggested local governments consider the
feasibility of providing a list of acceptable measurement scales and condition levels
for assets. In New Zealand, Pallot (1987) supported the idea of reporting nonfinancial information. A more recent work by Chatterjee et al. (2012) showed that
local governments did not report on the information required by the report users.
Thus, determining the best method of asset disclosure has been the focus of
attention for many scholars. Although a few studies have focused on local councils in
NSW, for example, Walker et al. (1999, 2004), no study has explicitly extruded a list
of the most important criteria for asset disclosure while putting local community’s
information needs at the centre of the reporting process. And while extensive
discussions exist in the literature, the most important criteria for asset disclosure in
3
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
local governments’ annual reports remain problematic, and are little informed by
available economic, engineering or other theory.
2.3 Reporting change and reporting guidance in Australia
Australian public sector accounting and reporting have experienced considerable
reform since the 1990s with the aim of enhancing the accountability of entities’
performance. Accrual accounting was first introduced, followed by the promulgation
of accounting standards AAS27, AAS29, and AAS31, which provided instructions for
local governments to deal with practical issues for the benefit of asset reporting.
Since there is no specific standard for infrastructure asset disclosure, asset reporting
of local councils has been mainly guided by the accounting principles of AAS27
(Financial Reporting by Local Governments) and by the Australian Accounting
Standards Board AASB116 (Property, Plant and Equipment).
Legislation at the state level required local councils to present infrastructure
information in compliance with the Commonwealth’s regulations and accounting
standards. Although public sector infrastructure disclosure has been recognised as a
significant issue (Walker et al., 1999), the state regulations and guidance have mainly
focused on asset valuation as a result of adopting accrual accounting as part of the
reform process. It is important to note that, with the exception of NSW, in most
Australian state legislation and guidance there are no explicit reporting requirements
for presenting information about physical condition, maintenance, performance
indicators, asset planning and management in local governments’ annual reports.
The 2009 NSW local government legislation requires each council to have a
Community Strategic Plan, a Delivery Program, and an Operational Plan that
establish strategic objectives and detail activities to be undertaken to achieve the
objectives set out for each financial year. The major accountability mechanism
between a council and its community is the mandatory preparation of an annual
report with a main focus on council’s implementation of its Delivery Program and
Operational Plan.
NSW local councils have recently reported on infrastructure assets in compliance
with local government statutes. However, such compliance does not involve a
standard format for asset reporting. Apart from financial information in council’s
financial statements, there is no regulation or guideline that proposes a list of
information items for infrastructure reporting in annual reports, especially nonfinancial information. This results in a noticeably wide variation in infrastructure
reporting practice in NSW.
3. Research Methodology
3.1 Sample selection
The sample for this study was drawn from 152 NSW councils. For each council, the
heads of finance and engineering divisions were considered to be appropriate
participants since they play a key role in preparing annual reports. The role of
managers as stated by NSW legislation, regulations, and the study of Walker et al.
(2004) were adopted as a guide for selecting these two groups of participants.
4
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
In order to get the most exact list of respondents, the researcher first accessed the
councils’ websites to search through their reports and documents in order to
establish the best initial list of potential respondents. The resulting list contains their
name, work position, mailing address and contact number. All 152 councils were
then contacted by telephone to confirm the name and title of their potential
participants. If a senior staff member was not suitable or the position was vacant, the
researcher contacted the council’s public officer for referral to the appropriate officer.
Overall, the researcher had a sample of 304 respondents from 152 councils.
3.2 Methodology
Questionnaire Design and Pilot Testing
A questionnaire was prepared based on discussions in the literature, the legislative
requirements, accounting and reporting regulations in NSW, and a trawl through the
information in the councils’ 2011/2012 annual reports. The questionnaire has three
sections.
The first section was designed to explore the influence of different factors on the
contents of asset disclosure in councils’ annual reports. This section provided each
respondent with a list of factors then asked them to indicate the influence of each
factor using a four-point Likert scale ranging between ‘had no effect’ and ‘had a great
effect’. The list of factors was classified into internal and external factors.
The second section investigated the viewpoints of respondents on the adequacy and
effectiveness of existing asset disclosure in serving the community’s needs. The first
question asked participants to rate the perceived adequacy through the use of a
Likert scale with five points ranging from ‘already very good’ through ‘need some
improvement’ to ‘need complete overhaul’. The second question asked participants
about how they viewed the perceived effectiveness by employing a five-point Likert
scale ranging from ‘ineffective’ to ‘very effective’. These questions provided further
insight into the issue of council infrastructure disclosure.
The third section asked respondents to demonstrate levels of agreement or
disagreement with a list of 61 items that represent their understanding of what they
saw as the most important criteria for asset disclosure in their councils’ annual
reports. Items in this list were categorised according to seven areas of information
including asset valuation, depreciation, maintenance, physical condition, council
performance and measurement indicators, asset planning and management, and
other information. This list was ranked by using a five-point Likert scale ranging from
‘strongly disagree’ to ‘strongly agree’. The 61 items were randomised throughout the
questionnaire section with the aim of helping avoid order effect biases and the halo
effect which could potentially occur if all items in a specific area were clustered
together in the question order.
The questionnaire design followed Dillman (2000) and responding would only take
approximately 15 minutes. The draft questionnaire went through a pilot-testing phase
by one senior academic and eight senior staff from NSW councils. After this phase,
the questionnaire was revised for final administration.
5
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Administration of the Survey
In the present study, the Tailored Design Method as suggested by Dillman (2000) was
predominantly applied for the administration of the questionnaire, as it was expected
that the pre-notice letter and follow-ups employed would maximise the response rate.
Additionally, an internet survey instrument was chosen as a method for data collection
as an alternative to the postal questionnaire. This mixed-mode survey could help to
increase the response rate by providing respondents with more convenient options to
answer the questionnaire. The web-based questionnaire was designed and set up
using Survey Monkey, at their website at https://www.surveymonkey.com.
The questionnaire was mailed to 304 respondents from the middle of February 2013.
A brief pre-notice letter and three follow-ups were conducted, all by mail. The
questionnaire mailing and the mail follow-ups also included a cover letter that
indicated that respondents could answer the questionnaire by visiting
http://www.surveymonkey.com/s/CXS5KSL if they would prefer to complete the
survey online. By printing an identification number on the front cover of each
questionnaire, the researchers could identify non-respondents for follow up. Overall,
the mailing survey process was administered in a period of seven weeks from start
to finish. During this period, there were no special events that were able to influence
responses, for example, natural disasters or infrastructure system failures.
Out of 304 respondents, 158 valid responses were achieved, providing a usable
response rate of 52.49%. This response rate was significantly higher than other
comprehensive postal surveys that investigated the opinions of Australian local
governments’ senior staff, for example, 29.3% by Kloot and Martin (2001), 28.8% by
Carnegie et al. (2011), and 26.3% by Siriwardhane and Taylor (2012).
Data analysis
Survey responses were analysed using SPSS. The Cronbach alpha coefficients
were 0.933 and 0.954 respectively, indicating that the scales used for measuring
factors affecting asset disclosure and the most important criteria for asset disclosure
are highly reliable within the sample. As recommended by Wallace and Mellor
(1988), both the Kolmogorov-Smirnov test and the (non-parametric) Mann-Whitney U
test were employed to test for non-response bias. These tests were conducted to
compare the ten early and ten late responses as well as the first and the last twenty
responses. All tests showed no statistically significant difference between the first
and last responses within these groups. Thus the conclusion was made that major
non-response bias did not exist within the data gathered for the study.
4. Findings and Discussions
4.1 The influence of factors on infrastructure asset disclosure
The survey questionnaire asked respondents to indicate the influence of internal and
external factors on the contents of infrastructure asset disclosure in councils’ annual
reports. The results are shown in Tables 4.1 and 4.2.
6
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Internal factors
In general, the most influential internal factors were the professional expertise of the
council’s engineering staff, council’s asset management plans, council’s asset
management strategy, council’s long-term financial plan, professional expertise of
council’s senior staff, and the council’s concept of ‘satisfactory condition’ of
infrastructure. The experience of councillors and the administrative monitoring
mechanism of councillors were rated as having least influence of the internal factors.
Table 4.1: Internal Factors Affecting Infrastructure Asset Disclosure
Factors





















Professional expertise of council’s engineering staff
Council’s Asset Management Plans
Council’s Asset Management Strategy
Council’s Long-term Financial Plan
Professional expertise of council’s senior staff
The council’s concept of ‘satisfactory condition’ of infrastructure
Council’s Annual Operational Plan
Council’s Delivery Program
Professional expertise of council’s accounting staff
The collaboration of engineers and accountants in report preparation
Report preparers’ professional judgements
Council’s Community Strategic Plan
Council’s financial condition
Council’s accounting disclosure level
Council size (total assets, total revenues)
Internal users of reports
The council’s auditor (for internal audit)
The personal background of the council’s senior staff
Influence of councillors
Experience of councillors
Administrative monitoring mechanism of councillors
Mean
SD*
3.24
3.20
3.16
3.11
3.08
3.06
2.95
2.92
2.92
2.89
2.80
2.74
2.72
2.65
2.56
2.49
2.39
2.38
2.00
1.88
1.83
0.72
0.65
0.76
0.83
0.84
0.81
0.81
0.90
0.81
0.86
0.91
0.88
1.06
0.94
0.95
0.85
0.99
0.95
0.98
0.93
0.83
* Standard Deviation; (1 = Had no effect; 4 = Had a great effect)
External factors
Among the 17 external factors, the three factors which appeared to be the most
influential factors were legislative requirements, accounting and reporting guidelines,
and accounting and reporting regulations. It is important to note that the three most
influential factors are associated with reporting requirements from legislation,
regulations and guidelines. Among the other external factors, the four factors which
had a negative influence on asset reporting were demographics and culture of the
council area; resource providers such as taxpayers, suppliers, lenders; public media;
7
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
and community members. While the NSW guidelines emphasise that the annual
report is a report to the community and is an important part of transparent and
accountable local government (NSW Division of Local Government, 2010), the low
ranking of the influence of community members raises the question of how councils
have discharged their accountability obligations of infrastructure asset management
when the community has only little influence on asset disclosure.
Table 4.2 External factors affecting infrastructure asset disclosure
Factors

















Legislative requirements
Accounting and reporting guidelines
Accounting and reporting regulations
Grants provided for infrastructure from State funding
Grants provided for infrastructure from Commonwealth funding
Grants provided for infrastructure from other organisations
Audit quality (outside audit)
State disclosure practices
Council’s borrowings
Population size
External parties performing a review or oversight function
Recipients of infrastructure services
Geographical location of the council area
Demographics and culture of the council area
Resource providers such as taxpayers, suppliers, lenders
Public media
Community members
Mean
SD
3.34
3.34
3.20
2.58
2.56
2.48
2.40
2.34
2.08
2.06
2.06
2.05
2.03
1.96
1.90
1.87
1.85
0.84
0.78
0.84
1.00
1.07
1.03
0.96
0.97
1.04
0.97
0.89
0.83
1.01
0.94
0.87
0.82
0.85
(1 = Had no effect; 4 = Had a great effect)
4.2. The adequacy and effectiveness of current disclosure
The adequacy of current disclosure
The questionnaire survey asked respondents to rate the perceived adequacy of
current asset reporting in meeting the information needs of the local community. The
data in Table 4.3 show that the overall adequacy was rated at a mean score of 2.86,
indicating considerable room exists for improvement to present reporting practices.
Overall, more than 46% of respondents indicated that there should be some
improvement, and more than 22% of participants felt that a considerable
improvement should be made in the present disclosure practices. It was found that
only 10.8% of report preparers thought that existing disclosure is already quite
adequate. However, a very tiny minority of participants (1.9%) did assert that there
should be a complete overhaul.
The above finding supports the result of the latest infrastructure audit in NSW which
concluded that while asset data has improved since the introduction of the new
8
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
framework, 37% of councils still need to improve their infrastructure management
practices and procedures (NSW Division of Local Government, 2013). The findings
also showed that only a small number of participants believed that current disclosure
has already adequately served the local community’s needs. In contrast, a majority
of participants (approximately 90%) perceived different levels of necessity for
improvement in existing disclosure, and over two thirds of respondents indicated that
it is necessary to carry out some or considerable improvement.
Table 4.3 Perceived adequacy of current disclosure in NSW
N = 157*
Mean
2.86
SD
0.95
No. of cases
Percentage
Already very good
17
10.8
Need slight improvement
29
18.5
Need some improvement
73
46.5
Need considerable improvement
35
22.3
Need complete overhaul
3
1.9
157
100.0
The adequacy of current disclosure:
* One missing value; (1 = Already very good; 5 = Need complete overhaul)
The effectiveness of current disclosure
The mail survey also requested respondents to rate how they view the effectiveness
of present disclosure in serving the community’s needs. For this question, the current
practice in infrastructure asset disclosure was ranked as being of moderate
effectiveness by NSW respondents (mean = 3.03). It was found that only around
23% of participants thought that current disclosure is effective, and only 6.3% felt
that they are very effective. In contrast, approximately two thirds of report preparers
perceived that current disclosure is a little effective or moderately effective.
The ranking of effectiveness of councils’ report preparers suggests that asset
information disclosed in their annual reports is somewhat unsatisfactory. There is
currently a gap between the existing disclosure and meeting the information needs of
the community, and there is a need for improvement in current reporting practices.
9
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Table 4.4 Perceived effectiveness of current disclosure in NSW
N = 158
Mean
3.03
SD
0.96
No. of cases
Percentage
Ineffective
9
5.7
A little effective
33
20.9
Moderately effective
70
44.3
Effective
36
22.8
Very effective
10
6.3
158
100.0
The effectiveness of current disclosure:
(1 = Ineffective; 5 = Very effective)
4.3 The most important criteria for infrastructure asset disclosure
One of the main aims of this study is to facilitate consideration of how current
infrastructure reporting could be improved. Respondents were asked to indicate their
level of agreement or disagreement with a list of information items of what should be
the most important criteria for asset disclosure in their councils’ annual reports.
The most important criteria were determined by identifying the level of agreement
with the list of 61 information items provided by respondents based on mean
response to each item. A mean score of above 4 indicates a high level of agreement
by respondents. Those items with a mean rating of above 4 were selected for
inclusion in the list of the most important criteria for reporting on infrastructure
assets. This list is presented in Table 4.5, in the order of level of agreement.
According to the viewpoints of respondents, of the seven information areas, the most
important areas for asset reporting are: asset valuation, physical condition,
maintenance, and asset planning and management.
‘Valuation of assets at fair value’ is an important element in asset reporting by
councils. In contrast, ‘valuation of assets at cost’ received little support from
respondents. This result is consistent with prior work in Australia (Lee, 1999, Walker
and Jones, 2003, 2011) which indicated that historical cost accounting was not
supported by public sector agencies.
With regard to the area of maintenance, ‘difference between required and actual
maintenance expenditure of current year’ is an important element and considered to
be more relevant than other types of maintenance information. This supports a
previous study conducted by Stepnick (2001) which found support for having local
governments annually report this information. A NSW based study conducted by
Lee (1999) found support for the inclusion of maintenance information for
stakeholders.
10
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Table 4.5 The most important criteria for annual asset reporting in NSW
Information items

Condition of assets at the end of the year
 Significant changes in the condition of assets
 Explanation of the condition of assets
 Key assets requiring immediate treatment or attention
 Valuation of assets at fair value
 Required annual cost to maintain assets at a satisfactory condition
 Difference between required and actual maintenance expenditure
of current year
 Asset management plans
 An estimate of the cost to bring assets up to a satisfactory condition
Mean
4.19
4.16
4.12
4.11
4.09
4.08
4.04
4.04
4.02
(1 = Strongly Disagree; 2 = Disagree; 3 = Not Sure; 4 = Agree; 5 = Strongly Agree)
In the area of asset planning and management, the most useful disclosure appears
to be ‘key assets requiring immediate treatment or attention’. This result is consistent
with a study by Walker and Jones (2011) which reported a widespread opinion that
Australian public sector agencies would improve current reporting practice if they
report on assets requiring urgent repair. This result also supports the recent
infrastructure audit in NSW (NSW Division of Local Government, 2013) suggesting
councils report on actions to be taken on assets in a poor or unserviceable condition.
A previous study by Lee (1999) which indicated a high regard for the usefulness of
management plans for infrastructure assets in appraising the effectiveness of asset
management in public sector entities, is also supported by the views of the
respondents to our study.
Information on asset condition at the end of the year is rated the most important
criteria for asset reporting. NSW respondents considered non-financial information to
be very important in reporting on infrastructure assets. Overall, NSW senior staff
overwhelmingly appreciated reporting information which shed light on infrastructure
assets’ condition. The high levels of agreement with information items in this area
support prior studies concerned with this type of information (Walker et al., 1999,
2000b, Walker and Jones, 2011). This also indicates a strong support of NSW
councils’ managers for the requirements of reporting on infrastructure condition
anchored in the current Local Government Act.
The existence of significant differences in the viewpoints of accountants and
engineers was tested by performing the Mann-Whitney U tests. The results show
agreement on the most important criteria across NSW councils. No significant
differences exist between the two professional groups regarding all nine items (at the
5% significance level), as shown in Table 4.6.
11
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Table 4.6 Result of test for consensus between two groups
The most important criteria
Condition of assets at the end of the year
Significant changes in the condition of assets
Explanation of the condition of assets
Key assets requiring immediate treatment or
attention
Valuation of assets at fair value
Required annual cost to maintain assets at a
satisfactory condition
Difference between required and actual
maintenance expenditure of current year
Asset management plans
An estimate of the cost to bring assets up to
a satisfactory condition
Mean
Mean
M-W
accounting engineering
test
[p value]
group
group
4.16
4.10
4.14
4.10
4.21
4.20
4.10
4.12
0.423
0.230
0.935
0.840
3.94
4.00
4.20
4.15
0.188
0.336
3.91
4.13
0.051
4.04
3.97
4.04
4.06
0.702
0.443
5. Conclusions
Our study aimed to achieve two main objectives. The first was to investigate the
NSW respondents’ opinions of a wide range of internal and external factors that are
likely to affect the contents of infrastructure asset disclosure in their councils’ annual
reports. The second was to examine how councils’ senior staff view the adequacy
and effectiveness of existing asset disclosure in serving the community’s needs and
what should be the most important elements of asset disclosure in councils’ annual
reports.
For the first objective, the findings showed the strongest influence was legislative
requirements, accounting and reporting guidelines on the contents of asset reporting
in NSW councils. Community members and the administrative monitoring
mechanism of elected councillors were the weakest determinants. While a council’s
annual report is regarded as a report to its community, this result implies that
community salience is too weak to make councils see accounting in annual reports
as having very much to do with the need to display good stewardship of their assets.
For the second objective, the findings indicated that current practice in asset
disclosure was found to be in need of considerable improvement. Around 70% of
respondents thought that current disclosure practice needs at least some
improvement. Approximately two thirds of report preparers perceived that current
disclosure is only a little effective or moderately effective. The findings indicate that
current asset information disclosed in councils’ annual reports is unsatisfactory. It also
suggests that asset disclosure under the new framework has not yet really been
successful after the disclosure reforms of the NSW Government. There is still a gap
between the disclosures supplied and the information demands or needs of the local
communities.
12
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Finally, this study reports a list of the most important enhancements required in NSW
councils’ annual reports. NSW councils’ senior staff members suggest a balance
between traditional financial and non-financial information for asset reporting.
However, they put stronger emphasis on non-financial information, and there is a
wide agreement on the need to disclose publicly the condition of infrastructure
assets.
This study contributes to practice by highlighting the most important changes to
asset disclosure that will assist local governments to continue improving the quality
of reporting.
There are two main limitations of this study. First, this study limits itself to NSW. The
legal reporting requirements for local councils under the new framework are unique
to NSW and different from those found in other Australian states and other countries.
This may make it inappropriate to compare the results of this study with results of
other studies carried out in other research sites with different statutory regulations.
Second, in the questionnaire survey this study only seeks the views of report
preparers within local governments, while other potential report users are not
considered in this study. As an annual report is a report to the community, it would be
worthwhile conducting future research on the viewpoints of community members
themselves about the most important criteria for public asset reporting, and to do so
in Australian states and territories other than the context of NSW local government.
References
Australian Accounting Research Foundation 1990. Statement of Accounting
Concepts SAC 2: Objective of General Purpose Financial Reporting.
Carnegie, G. D., Tuck, J. & West, B. 2011. Price Setting Practices in Australian Local
Government. Australian Accounting Review, 21, 193-201.
Chatterjee, B., Mir, M. Z. & Eddie, I. 2012. Infrastructure Reporting by Local
Governments-An investigation of the perceptions of annual report recipients
and preparers. 2012 Accounting & Finance Association of Australia and New
Zealand (AFAANZ). Accounting and Finance Association of Australia and
New Zealand, 1-33.
Dillman, D. A. 2000. Mail and Internet Surveys: The Tailored Design Method,
NewYork, John Wiley & Sons, Inc.
Eddie, I. & Lee, J. 2001. Regulatory and Reporting Changes in Australian
Infrastructure Industries. Public Fund Digest, Research Supplement, 1(2), 4556.
Giroux, G. 1989. Political interests and governmental accounting disclosure. Journal
of Accounting and Public Policy, 8, 199-217.
Giroux, G. & McLelland, A. J. 2003. Governance structures and accounting at large
municipalities. Journal of Accounting and Public Policy, 22, 203-230.
Gore, A. K. 2004. The effects of GAAP regulation and bond market interaction on
local government disclosure. Journal of Accounting and Public Policy, 23, 2352.
Independent Inquiry into the Financial Sustainability of NSW Local Government
2006. Are Councils Sustainable? Final Report: Findings and
Recommendations. Local Government and Shires Associations of NSW.
Ingram, R. W. & Dejong, D. V. 1987. The effect of regulation on local government
disclosure practices. Journal of Accounting and Public Policy, 6, 245-270.
13
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Jones, S., Hensher, D. A., Rose, J. & Walker, R. G. 2012. Infrastructure Asset
Reporting Options: A Stated Preference Experiment. Accounting Horizons,
26, 465-491.
Kloot, L. & Martin, J. 2001. Local government accountability: explaining differences.
Accounting, Accountability & Performance, 7, 51-72.
Laswad, F., Fisher, R. & Oyelere, P. 2005. Determinants of voluntary Internet
financial reporting by local government authorities. Journal of Accounting and
Public Policy, 24, 101-121.
Lee, J. 1999. The reporting of economic infrastructure assets by public sector
entities in New South Wales: An exploratory study. Accounting, Accountability
and Performance, 15, 17-39.
Lee, J. & Fisher, G. 2004. Infrastructure assets disclosure in Australian public sector
annual reports. Accounting Forum, 349-367.
NSW Division of Local Government 2010. Planning and Reporting Manual for local
government in NSW.
NSW Division of Local Government 2013. Local Government Infrastructure Audit.
Division of Local Government.
Oylan, L., Taylor, D. & Xing, Y. 2010. Institutional influences on disclosures of
infrastructure and community assets in local governement. 2010 Accounting
& Finance Association of Australia and New Zealand (AFAANZ). Accounting
and Finance Association of Australia and New Zealand, 1-31.
Pallot, J. 1987. Are Public Sector Assets Different? Accountants’ Journal, May, 4145.
Pérez, C. C., Bolivar, M. P. R. & Hernández, A. M. L. 2008. e-Government process
and incentives for online public financial information. Online Information
Review, 32, 379-400.
Ryan, C., Stanley, T. & Nelson, M. 2002. Accountability disclosures by Queensland
local government councils: 1997–1999. Financial Accountability &
Management, 18, 261-289.
Siriwardhane, P. & Taylor, D. 2012. Stakeholder prioritisation by Mayors compared
to CEOs: evidence concerning local government infrastructure assets
decisions. 2012 Accounting & Finance Association of Australia and New
Zealand (AFAANZ). Accounting and Finance Association of Australia and
New Zealand, 1-27.
Stepnick, E. W. 2001. Changes in Accounting Standards for Capital Assets Can Help
Preserve the Infrastructure. Journal of Government Financial Management,
50, 42-49.
Van Daniker, R. & Harris, J. 1999. Reporting about Infrastructure: A Preparer
Perspective. Public Budgeting & Finance, 19, 111-117.
Van Daniker, R. & Kwiatkowski, V. E. 1986. Infrastructure assets: An assessment of
user needs and recommendations for financial reporting. Connecticut, USA:
Government Accounting Standards Board.
Vermeer, T. E., Patton, T. K. & Styles, A. K. 2011. Reporting of General
Infrastructure Assets under GASB Statement No. 34. Accounting Horizons,
25, 381-407.
Walker, R. G., Clarke, F. L. & Dean, G. W. 1999. Reporting on the State of
Infrastructure by Local Government. Accounting, Auditing and Accountability,
12, 441-458.
Walker, R. G., Clarke, F. L. & Dean, G. W. 2000a. Use of CCA in the Public Sector:
Lessons from Australia's Experience with Public Utilities. Financial
Accountability and Management, 16, 1-32.
14
Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Walker, R. G., Clarke, F. L. & Dean, G. W. 2000b. Options for Infrastructure
Reporting. Abacus, 36, 123-159.
Walker, R. G., Dean, G. W. & Edwards, P. J. 2004. Infrastructure Reporting - Uses
and Attitudes of Preparers and Potential Users. Financial Accountability and
Management, 20, 351-375.
Walker, R. G. & Jones, S. 2003. Measurement: A way forward. Abacus, 39, 356-374.
Walker, R. G. & Jones, S. 2011. Reporting on Infrastructure in Australia: Practices
and Management Preferences. Abacus, 1-27.
Wallace, R. S. O. & Mellor, C. 1988. Nonresponse bias in mail accounting surveys: a
pedagogical note. The British Accounting Review, 20, 131-139.
15