The starting point of our selection of articles is papers published in a special issue of Public Money and Management in 2016 (Vol. (2010), “Decision usefulness of cash and accrual information: public sector managers’ perceptions”, Australian Accounting Review, Vol. (2004), “Politicians in search of performance information? Public companies are generally much larger (in terms of annual sales and total assets) than private companies, as you would expect. Furthermore, we found that there is a strong need to connect the different variables which were so far mostly studied separately: user groups – user needs – usability of AI – intensity of information use. May 2, 2020 There are various different users of financial statements, each with different information needs. Opposite to the users are the preparers, i.e. A main disadvantage of the survey method is that it implicitly assumes some knowledge about accounting items on the side of respondents. 478-495. https://doi.org/10.1108/JPBAFM-10-2018-0124, Copyright © 2019, Emerald Publishing Limited. 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). 507-514, (*). In accordance with the target objective several kinds of audit can be defined in Public Sector. Blöndal, J.R. (2003), “Accrual accounting and budgeting; key issues and recent developments”, OECD Journal on Budgeting, Vol. 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. 7, pp. 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. These “strong” oversight bodies can, for example, be found in the case of a funding relationship between the European Union and EU member states, or between central government ministries and local governments. 5 No. 4, pp. Ezzamel et al. DOI: 10.1108/jpbafm-10-2018-0124 Corpus ID: 211744569. 455-456; van Helden, 2016, pp. In general, we observe a slow but steady shift of the overall reporting perspective: from a pure “accountants view” toward a more balanced mix of professional and needs-driven perception of financial information. (2010), “Struggling with ambiguity: public managers as users of NPM-oriented management instruments”, Public Administration, Vol. Public sector accounting and the post-NPM: out of the Golden (C) age? Basically, a certain AI has to meet the actual information needs of the user. Barton, A. The aim is to involve different types of stakeholders in order to achieve broad support for these renewed standards. Then the use of AI can potentially be supportive to the solution or at least the dissolution of these problems or the partly removal of these worries. Prospective investors need information to assess the company's potential for success and profitability. Assess accountability of elected officials Assess whether government is funding oods and services from current taxes. The current section describes and assesses the pros and cons of five approaches for engaging users in the design of accounting documents. 4, pp. The IPSAS-Board, for instance, issues regularly proposals (exposure drafts) for new or updated accounting standards and asks for comments and feedback (e.g. The first purpose relates to compliance with existing rules and regulations and ensures legitimacy toward external stakeholders and accountees. 18 No. Financial statements are important to investors because they can provide enormous information about a company's revenue, expenses, profitability, … 38-59. Certain antecedents can be assumed to be influential at the organizational level, for instance: the higher the tax rate, the larger the interest in AI (Buylen and Christiaens, 2016), or: in certain types of departments the use of AI is more intensive than in others (Mack and Ryan, 2006). This approach copes with the drawback of other approaches that implicitly assume some extent of existing knowledge about AI on the side of its potential users. 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). 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. municipalities and provinces, have been renewed in 2015–2016 (MBZK, 2015), and were subsequently introduced in 2017. 491-498, (*). However, this does not exclude that in other countries budget regulations are very strict, especially when central government wishes to constrain opportunities for fiscal policy-making at the local government level. Various stakeholders, especially representatives of countries taking part in the application of IPSAS, but also public sector accounting researchers[3], have the opportunity for giving reactions on the proposal in question, which potentially can lead to revisions of this proposal. This theme attempts to provoke the conventional wisdom of accounting documents containing information that is of interest to all thinkable types of user groups. The indications for the relative importance of each accounting issue to the various user groups are based on the (hopefully) common sense of the authors. Depending on their interests and underlying information needs, different user groups perceive the usability of certain kinds of AI differently. Cascino et al., 2014), this is not the case in public sector organizations, which also points to a new research route. In general, according to the reviewed articles, both purposes of AI use are empirically equally relevant. 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. With regard to the actual use of AI, some antecedents have been mentioned, e.g. 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. Investors will likely require financial statements to be provided, since they are the owners … Relevance and reliability are primary characteristics relating to content together with the threshold quality, and van Helden, G.J. Pettersen and Solstad, 2014; Vakkuri, 2010). (2005), “Conflict and rationality: accounting in the Northern-Ireland’s devolved assembly”, Financial Accountability and Management, Vol. Notes to Financial Statements Users and their potential uses of information USERS. The review of recently published articles on the issue of “use of accounting information” presents an actual picture of the academic debate on purposes of use, user types, needs of various user groups and factors influencing the usability and the actual use of AI. These financial statements are formal reports providing information on a company’s financial position, cash inflows and outflows, and the results of operations. 3, pp. Do laymen users, for example, know what full accrual costs are, or what the differences are between capital expenditures and depreciation? 22-31. 370-391, (*). Use is defined as the actual consultation, which can include the reading and analysis, of the information in an accounting document by its users for supporting their decision making or accountability. Two major purposes are frequently mentioned: rendering accountability to various stakeholders and supporting decision making. disclosure of financial information to the various stakeholders about the financial performance and financial position of the organization over a specified period of time With regard to the literature, there seems to be a lack of appropriate methods informing about user needs. Table I lists seven exemplary issues of AI and estimates for each the relative importance to six user groups. to estimate cash flow needs, to assess performance or to calculate the cost of services (Andriani et al., 2010; Kober et al., 2010; Mack and Ryan, 2006). Hence, there does not seem to be much room for differentiation in financial reports according to the diverging needs of the various user groups. However, the 2018 Conceptual Framework has cut this back to just three key groups. Subsequently, these users are asked to reflect on their experiences, and then consider proposals for improving these documents. Ezzamel, M., Hyndman, N., Johnsen, Å., Lapsley, I. and Pallot, J. 31 No. 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. A user need can be defined as a desirable characteristic of information included in an accounting document, as expressed by the potential users of this document. 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. Making sense of the users of public sector accounting information and their needs @article{Helden2019MakingSO, title={Making sense of the users of public sector accounting information and their needs}, author={J. V. Helden and C. Reichard}, journal={Journal of Public Budgeting, Accounting & Financial Management}, year={2019}, … As a result, public sector financial statements must meet the needs of a broad range of users. Did the business reinvest all its profit? Legislators and standard-setters have the task of ensuring a minimum level and balance various stakeholders’ interests. Alternatively, pairwise comparisons of accounting items for particular groups of accounting users are a possible concept. Accounting standards are often important in identifying various types of users and their needs for AI. 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. 1, pp. 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. IPSASB (2006), “Public sector conceptual framework”, International Public Sector Accounting Standards Board, Toronto, December. This comparison is to be made on the same basis of accounting as adopted for the budget, even if that basis is different We also discussed opportunities to support users in engaging more in the design of financial documents according to their specific interests and needs. the individual decision maker, the organization and the country or society at large. However, this is an all too simple picture, as will be clarified below. This section aims to deepen our insight into how the user perspective is laid down in accounting standards, which types of user groups can be distinguished and how diverging needs of user groups can be linked to accounting issues. 5, pp. Articles, Clarence Street, Dun Laoghaire, Co. Dublin, Ireland 1, pp. Jones (1992) highlights that users and needs debated in the various documents are not based on empirical research but just on normative assumptions (“hypothesized” users and their needs). Or, should we give priority to user preferences, even if the accounting profession believes that “better” accounting standards are available? 31 No. The implication of the importance of budgets in the public sector for the user perspective is that budgetary issues, such as a balanced budget and the planned full costs of programs, are an important part of user needs (see, e.g., Liguori et al., 2012; Buylen and Christiaens, 2016). 1, pp. The issues do not only relate to financial reports but also to budgeting documents. It aims to stimulate research on the conditions or contexts that are contributive to the use of AI. 02-240, Washington, DC, New development: the conceptual underpinnings of international public sector accounting, Conflict and rationality: accounting in the Northern-Ireland’s devolved assembly, Contextualizing politicians’ uses of accounting information: accounting as reassuring and ammunition machine, The day after: newly-elected politicians and the use of accounting information, International Public Sector Accounting Standards Board, Toronto, December, Conceptual framework for general purpose financial reporting by public sector entities: presentation in general purpose financial reports, Consultation Paper, International Public Sector Accounting Standards Board, Toronto, January, The development of conceptual frameworks of accounting for the public sector, Information brokers and the use of budgetary and financial information by politicians: the case of Portugal, Mind your accrual: perceived usefulness of financial information in the Australian public sector under different accounting systems, An investigation of the information requirements of the users of Australian public sector financial reports, Reflections on the theoretical underpinnings of the general purpose financial reports, Insight into performance-based budgeting in the public sector: a literature review and a research agenda, Hoofdlijnen vernieuwing Besluit Begroting en Verantwoording, Ministerie van Binnenlandse Zaken en Koninkrijkrelaties, Den Haag. Generally, AI can focus at past, present or future periods. the exposure draft 63 on social benefits issued in October 2017; www.ipsasb.org/projects/social-benefits). and Pandey, S.K. 1, pp. (1992), “Elements of a theoretical framework for public sector accounting”, Accounting, Auditing and Accountability Journal, Vol. Required: i) In relation to the Conceptual Framework, which category of users is regarded as primary users of the GPFRs of public sector entities? Figure 1 depicts the basic links of the chain between user needs, usability and use of accounting documents in the public sector. The big question for performance management: why do managers use performance information? If your entity’s A restriction of the review to the last 15 years is appropriate because other reviews (Buylen and Christiaens, 2016, pp. Another partly similar way to measure user needs is interviewing (potential) users of AI. Demaj, L. and Summermatter, L. (2012), “What should we know about politicians’ performance information need and use?”, International Public Management Review, Vol. 36 No. 1, pp. ; the case of Japan”, in Jorge, S. Acknowledging that financial reports have to adhere to a common format for providing comprehensive information does, however, not exclude that different user groups will be interested in diverging accounting issues and each of these issues has to be presented in an understandable, that is, user-friendly manner. Other interesting methods are observational studies or experiments. From a formal point of view, a distinction among “recipients” and “users” may be appropriate, where the former are the addressees of certain AI but not necessarily also “using” such information for certain purposes (Mack and Ryan, 2006). The paper presents results of reviewing recent literature on the issue of “use of accounting information” and provides some insight into specific aspects of this issue. 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). They have been mentioned as follows: Analysing the presence of financial information in councilors’ speech during the budget debate in Flemish municipal councils”, International Public Management Journal, Vol. Stockholders of corporations need financial information to help them make decisions on what to do with their investments (shares of stock), i.e. Evidence from capital providers”, Accounting in Europe, Vol. A highly contested issue is the preference of certain actors for cash or accrual-based accounting data. Users of accounting information are either internal or external to the organization. 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. Accounting financial statements are of use to those organizations which contain a substantial degree of knowledge of the business, economic and accounting activities and have a willingness to study the same for their respective purposes either financially or academically. Public. Analysing the presence of financial information in councilors’ speech during the budget debate in Flemish municipal councils, The use and non-use of the government financial report by Maltese members of parliament, Accounting, Auditing and Accountability Journal, Who uses financial reports and for what purpose? Paulson, G. (2006), “Accrual accounting in the public sector: experiences from central government in Sweden”, Financial Accountability and Management, Vol. Under these circumstances an oversight body mostly requires specific reports for accountability purposes, which not only entail financial information but also information as to whether the public sector organization delivers what is agreed upon. 38-55. We emphasized that there are quite different user groups in the public sector with varying needs and interests. 363-382, (*). 36 No. The level of perceived usability of AI is depending on several supply factors, e.g. The same applies to potential users such as private or nonprofit suppliers of goods and services to the public. Steccolini, I. Liguori, M., Sicilia, M. and Steccolini, I. In addition, we are largely disregarding a discussion of the possible consequences of the use or non-use of accounting information, for example, directly by avoiding interference of oversight bodies, and indirectly through impacts on reputation, performance evaluation and public relations. Before proceeding, it is appropriate to define what is meant with AI throughout this paper. This example shows how users (councilors) and producers (staff members) of budgetary information were involved in the re-design of a program budget, supported by external consultant-researchers. There are so many people using the accounting information for so many diverse purposes, thus, the purpose of financial statements is to cater for the needs of the users … The most preferred concept seems to be institutionalism in its different variants, e.g. The older conceptual frameworks identified groups such as government and general public as primary users. Moynihan, D.P. Anthony, R. (1980), “Developments in state and municipal accounting”, Government Accountants Journal, Winter, pp. (a) Investors. Below are the major variables being relevant to describe and understand AI use as included in the reviewed articles. 14 No. They rather emphasized what AI potential users ought to need for rational-economic decision making. 31 No. citizens in their various roles as voters, tax payers, service consumers, donors or volunteers can be seen as the most important interest group. IPSASB (2012), “Conceptual framework for general purpose financial reporting by public sector entities: presentation in general purpose financial reports”, Consultation Paper, International Public Sector Accounting Standards Board, Toronto, January. (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. 287-315, (*). Apart from the general types of users already mentioned, specific user groups may enter the arena, depending on the governmental level. In addition, the use of AI by oversight bodies, inspectorates and auditors is a promising route for research. Some authors assess the usability of AI as perceived by certain user groups and find that managers, as well as politicians, are quite positive about the usability of AI (ter Bogt et al., 2015; Kober et al., 2010; Liguori et al., 2012). 89-113. (2012) about the use of financial and non-financial indicators (such as current expenditure by nature, capital expenditure by nature, cost of activities, liabilities) by politicians and managers in larger Italian municipalities is a good example. Despite recent efforts to promote “popular reporting” (Cohen and Karatzimas, 2015), citizens are usually in a quite remote position to their municipality, province, state or central government and only a minority of them will sometimes be confronted with AI through mass and social media (newspapers, radio, television, twitter). 7, pp. However, on the other hand, the review does not reveal a coherent body of knowledge about the perception of usability and the intensity of use of public sector AI, including underlying antecedents. (2018), “The use and non-use of the government financial report by Maltese members of parliament”, Accounting, Auditing and Accountability Journal, Vol. 249-264. There are various different users of financial statements, each with different information needs. Information will have relevance if it influences the decisions of the users. (2018), “Governmental accounting practitioners: cardigan removed, research agenda revealed”, Accounting, Auditing and Accountability Journal, Vol. 85-105. 31 No. ), Implementing Reforms in Public Sector Accounting, Coimbra University Press, Coimbra, pp. in Anglo-Saxon countries where the democratic legislator mandates accounting bodies for setting up accounting standards. Another option is arranging committees comprising diverging stakeholders which discuss alternatives for the new standards and ultimately come to a shared advice to the body in charge of deciding about these standards. The literature review in Section 2 indicates that surveys and interviews with (potential) users of AI are the predominant methods of measuring user needs. of budget debates in councils) are rather exceptional (Buylen and Christiaens, 2016; ter Bogt et al., 2015). 02-240, Washington, DC. 19 No. While professional accountants as users expect clear and distinct figures and are able to comprehend and interpret them, laymen-users face the risk of getting lost in such situations and depend on further explanation and illustration, eventually at the expense of concision and lucidity. 12 No. Brusca, I. and Montesinos, V. (2013), “From rhetoric to practice: the case of Spanish local government reforms”, Financial Accountability and Management, Vol. The passage of Wisconsin’s Act 10, Managerialism and profession-based logic: the use of accounting information in changing hospitals. and Drum, D. (2016), “Budget repair or budget spectacle? Another issue: although the use of AI by capital providers and creditors is well-researched in the private sector context (e.g. If, for example, user groups (i.e., service users and resource providers), as well as objectives (i.e. 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.”. Pallot, J. Giacomini, D., Sicilia, M. and Steccolini, I. Association of Chartered Certified Accountants, London (*), Decision usefulness of cash and accrual information: public sector managers’ perceptions, Developments in state and municipal accounting, Public and private sector accounting – the non-identical twins, Accrual accounting and budgeting; key issues and recent developments, From rhetoric to practice: the case of Spanish local government reforms, Talking numbers? Outliers in a negative direction (related to underlying goals) can be an incentive for taking corrective actions. the accountants who produce all kinds of AI such as annual reports. Furthermore, we searched in Google Scholar (search terms: users, user needs, use – always connected with accounting/financial information and always restricted to public sector). Pettersen, I.J. The reviewed literature in Section 2 suggests that, in general, a lower extent of usability and use of AI is observed in studies based on interviews than when surveys were conducted. The empirical results about preferences concerning budgets or financial reports differ, obviously because of varying underlying purposes and motivations of the diverging user groups. First, although municipalities and provinces have a large extent of freedom to structure their budget into programs, they additionally have to present a budget according to a pre-defined set of policy fields with prescribed performance indicators. 1, pp. That is the crucial role of budgets (see, e.g., IPSASB, 2006, p. 10). An interesting dilemma then emerges: Should we rely on certain accounting standards, supported by the accounting profession, at the expense of user preferences? 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. (2012), “Some like it non-financial…”, Public Management Review, Vol. the labor unions and the business sector), as well as the consultancy industry. Journal of Public Administration Research and Theory, How do politicians shape and use budgets to govern public sector organizations? Cascino, S., Clatworthy, M., Garcia Osma, B., Gassen, J., Imam, S. and Jeanjean, T. (2014), “Who uses financial reports and for what purpose? This will be illustrated by a case study about a renewal of budgetary information in the province of Groningen, the Netherlands, where two consultant-researchers were involved (ter Bogt and van Helden, 2011; ter Bogt et al., 2015). For these selected services the budget amount is equal to the number of units multiplied by the cost per unit (direct performance budgeting; OECD, 2007, p. 21). This paper presents promising routes for future research. hold, sell, or buy more. Some articles present quite detailed lists of specific use purposes of AI, e.g. There are so many people using the accounting information for so many diverse purposes, thus, the purpose of financial statements is to cater for the needs of the users that could lead them to make better financial decisions. The applied methods may have an impact on the findings of the respective research: it is for instance quite plausible that respondents in a survey or interview give more positive answers on the intensity of AI use, compared with the observation of political debates or other methods used (see further Section 4). The differing objectives and stakeholders result in fundamental differences in how financial operations are carried out. When the information in an accounting document is usable, this does not automatically lead to an actual use of this document. more efficient operation. The reviewed literature offers a broad picture of users of AI. As will be discussed more explicitly in Section 5, usability and actual use of AI should be separated. The literature review in Section 2 indicates that most of the empirical research is dedicated to politicians and managers as users of public sector AI. It has to be acknowledged that the redesigning activities are subtle collaboration processes in which consultant-researchers may face the risk of being too dominant. 8 No. However, the 2018 Conceptual Framework has cut this back to just three key groups. (2004), “An investigation of the information requirements of the users of Australian public sector financial reports”, PhD-thesis QUT, Brisbane, (*). First, user needs are to be measured at the level in the governmental system where accounting standards are established. 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. At past, present or future periods, van Helden, G.J a prominent position in using AI levels. Point, so far, mostly user surveys, interviews and consultations of stakeholders in order to broad. From those in the private sector context ( e.g conceptual reflections for trajectories. 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