Financial reporting and local government reform - a (mis)match?

Abstract

Purpose – The aim of this paper is to examine whether there is potential for political parties to use flawed financial figures in performance measures designed to assist them in determining the viability and autonomy of New South Wales (NSW) local councils (NSW is the largest of Australia's eight states and territories). If in fact this is the case, then a mis-match between the original objectives of the reform process (efficiency, effectiveness and accountability), current reporting practices and the manner in which decisions are made can be said to exist. Design/methodology/approach – Initial analytical analysis was carried out on all NSW local councils (170), followed by a more detailed study of 56 councils. The method adopted included archival research combined with interviews and case study analysis. Valuation and depreciation practices as applied to transport infrastructure assets were used as exemplars to investigate the study objective. Findings – Inconsistent asset value and depreciation practices were found to impact on key financial performance indicators included as part of the financial health check criteria which, in turn, were used by decision-makers in their examination of a council's ability to continue as a viable going concern. Practical implications – Findings pave the way for future research to determine if any causal relationship exists between decisions regarding accounting for transport infrastructure assets and political policies current at the time. Originality/value – Very little research has occurred in Australia examining the accuracy of figures included in decision‐making. This paper lays the foundation for future research in other countries where local government reported figures are used in anyway by various stakeholders for political or other decision making.