Academic journal article Australasian Accounting Business & Finance Journal

Compliance in the First Four Years of AAS 27 Financial Reporting by Local Government: A Study of the New South Wales Experience

Academic journal article Australasian Accounting Business & Finance Journal

Compliance in the First Four Years of AAS 27 Financial Reporting by Local Government: A Study of the New South Wales Experience

Article excerpt


This paper reports on a longitudinal study of the levels of compliance for the first four years (1994 to1997) following the introduction of the Australian Accounting Standard (AAS 27). The annual reports of all 177 local government councils in NSW were analysed revealing a high level of compliance with the standard. The main cause for non-compliance was the complexity of the recognition and treatment of assets. In addition a number of problems were identified, in particular the timeliness of the reports and the disproportionately high levels of depreciation expenses reported in the operating statement. The increased complexities of the financial management in Local Government imposed by AAS 27 required professional accounting competencies more appropriately derived from a degree level education which contributed to a high turnover of accounting staff during the four years. Finally, the paper questions the viability of the proposed dismantling of AAS 27 and the possible impact this might have upon the sector.

Key Words:

Local Government Accounting, Australian Accounting Standard 27, Financial Reporting Compliance


Financial reporting by local government, in Australia has now been operating on the accrual basis of accounting for some thirteen years (taking effect from 1st July 1993). However, research since that time has tended to focus on specific aspects of the application of the local government accounting standard AAS 27 (Walker, Clarke & Dean, 1999; Stepnick, 2001) and the implications for public sector reform (Hoque & Moll, 2001; Klumpes, 2001). The literature prior to the introduction of the standard was of a normative nature that informed debate on the perceived negative aspects of the underlying assumptions of AAS 27 (Falk & Neilson, 1993; Neilson, 1993), the cost of implementation and the questionable relevance of the information to the community and local government management (Spencer,1994: Cromrie & Hope,1994). This paper seeks to address the gap in the literature by examining the four years following the introduction of the standard with the focus on compliance issues as they relate to the intended improvement of financial reporting. This review is timely in light of the proposed withdrawal of AAS 27 (Shying, 2006) and the experiences gained from the implementation period may help guide the conversion phase of accounting in the local government sector.

Local government accounting has attracted the attention of researchers in other parts of the world. Berry and Jacobs (1981) examined the influence of external parties on the acceptance and subsequent compliance with accounting standards in the USA. The research focused on the extent to which external parties can influence the private sector as compared to the public sector, thereby providing insight into the driving forces for adoption and compliance. Ingram and Robbins (1987) conducted a survey of the disclosure practices of local government in the USA. They found that 75 percent of regulated cities conformed to GAAP (generally accepted accounting principles). Allen and Sanders (1994) conducted a similar survey and found that only seven years later, the level of acceptance had only slightly increased with 77 percent of the regulated cities conforming to GAAP. They concluded that greater attention and instructions were required to achieve uniformity in the accounting and reporting practices of local government throughout the USA.

The cash basis and related fund system of accounting has traditionally dominated local government accounting. A major problem with the cash basis of accounting was simply the way in which spending of funds was recorded without generating an appropriate asset base. In the UK attempts to change and standardise the accounting practices of local government started in the early part of the 1980s. Local government budgeting and its implications for financial administration became a focus for reform in the UK (Pendlebury,1994). …

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