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Public Sector Consolidated Statements - An Assessment


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Judgments potentially made by various participants in (or observers of) the public sector on the basis of aggregative financial information about governments are reviewed. Distinctions are drawn between judgments that are made routinely, or under certain conditions, by decision makers or observers. It is recognized that (in Australia) the financial information that is relevant to the majority of these judgments is already supplied by other sources (principally budget documents, or in Government Finance Statistics) rather than by public sector consolidated statements. It is concluded that a number of routine judgments could be based on financial information presented in the form of consolidated statements (of varying scope). Alternative criteria for determining the scope of consolidated statements are reviewed. Accountability and control are noted as potential bases. Depending on the adopted objective, it is concluded that tests of control are either not relevant, or inappropriate. It is contended that prior studies that have recommended use of control have focused on processes (trying to find a suitable test for determining the ambit of consolidated statements) rather than on objectives, and examining in some detail what information would be relevant to different users and uses.
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Public Sector Consolidated Statements—an
Assessmentabac_282 171..220
Judgments potentially made by various participants in (or observers of) the
public sector on the basis of aggregative financial information about gov-
ernments are reviewed. Distinctions are drawn between judgments that are
made routinely, or under certain conditions, by decision makers or observ-
ers. It is recognized that (in Australia) the financial information that is
relevant to the majority of these judgments is already supplied by other
sources (principally budget documents, or in Government Finance Statis-
tics) rather than by public sector consolidated statements. It is concluded
that a number of routine judgments could be based on financial informa-
tion presented in the form of consolidated statements (of varying scope).
Alternative criteria for determining the scope of consolidated statements
are reviewed. Accountability and control are noted as potential bases.
Depending on the adopted objective, it is concluded that tests of control
are either not relevant, or inappropriate. It is contended that prior studies
that have recommended use of control have focused on processes (trying to
find a suitable test for determining the ambit of consolidated statements)
rather than on objectives, and examining in some detail what information
would be relevant to different users and uses.
Key words: Accountability; Area of consolidation; Control; Government
finance statistics; Inter-sector transactions; Public sector consolidated
statements; Users; Whole of government.
Governments have experimented with, or produced, whole of government consoli-
dated financial statements on an accrual accounting basis for more than three
decades. The US Treasury prepared prototype consolidated financial statements in
1976 (Bowsher, 1988, p. 42) and have published annual reports in that format since
1995 (and audited statements since 1997).1Similarly, Canada has been producing its
‘public accounts’ in the form of consolidated statements since 1995 (though initially
these had a limited scope and only reflected the partial application of accrual
1These reports are available from
2The 1995 Public Accounts of Canada did not encompass ‘enterprise Crown corporations’ that raised
a substantial portion of their revenues from commercial business activities,‘while the costs of acquiring
land, buildings, structures, equipment and other capital property are recorded as expenditures at the
time of acquisition or construction’, and ‘capital leases’ were not recorded as asset acquisitions. Public
Accounts of Canada (1995), Volume 1, Summary Report and Financial Statements, Government of
Canada, pp. 1.4, 1.17 and 1.24–1.26.
R. G. Walker ( is a Professor in the Discipline of Accounting at The Uni-
versity of Sydney.
Work on this article was supported by the Australian Research Council (project DP0558644).
ABACUS, Vol. 45, No. 2, 2009 doi: 10.1111/j.1467-6281.2009.00282.x
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
In Australia, a government-appointed ‘commission of audit’ in the state of New
South Wales produced consolidated reports for the year ended 1987, and these were
formally published by that state after 1989 and subject to full audits from 1993. By
the end of the 1990s, the profession had issued an accounting standard AAS 31,
Financial Reporting by Governments (June 1998), while the Commonwealth and all
state governments were publishing consolidated statements.
New Zealand has published whole of government consolidated statements since
1993, apparently on the basis of procedures developed by N.Z. Treasury. Some
European countries have reportedly prepared variants of consolidated statements
since the late 1980s.3In the U.K., HM Treasury proposed to produce unaudited
whole of government accounts for 2003–04, and a full set of audited accounts in
2005–06 (HM Treasury, 1998). This followed publication by the U.K. government of
aCode for Fiscal Stability (1998) that was subsequently given a statutory basis in the
1998 Finance Act. The code stated that the government shall ‘produce accounts for
the whole public sector and that these should be produced on a consolidated basis
where reasonably practicable’ (HM Treasury, 1998, p. 8). However, implementation
has been deferred.4
Despite this experience, the literature on public sector consolidation accounting is
sparse. Two decades ago it was suggested that ‘in the few cases where governments
actually prepare comprehensive financial statements, there are no generally
accepted accounting standards for them to apply’ (Egol, 1988,p.181). Certainly,until
recently there has only been limited discussion of the theoretical rationale for the
production of whole of government consolidated reports. Most contributions have
come from professional bodies, notably from the Canadian Institute (CICA, 1980),
the Australian Society of CPAs (ASCPA, 1993), an Australian Accounting Research
Foundation (AARF) monograph (Micallef et al., 1994), and a series of studies pro-
duced by the International Federation of Accountants (IFAC, 1991. 1993, 1996). To
this brief list can be added the U.K.’s HM Treasury discussion paper on whole of
government accounts (1998), and the U.S. Federal Financial Accounting Standards
Advisory Board (FASAB) discussion paper on issues associated with the prepara-
tion of whole of government consolidated statements (FASAB, 2003).
As noted above, an accounting standard on public sector consolidated statements
was issued in Australia in 1998. The U.S.A.’s FASAB issued a standard (SFFAS 24,
2003) which nominated what previously issued standards were to be applied in the
consolidated financial report of the U.S. government. This preceded the issue of
Statement of Federal Financial Accounting Concepts No. 4, Intended Audience and
Qualitative Characteristics for the Consolidated Financial Report of the United States
Government (FASAB,2004). Mention might also be made of the contributions of the
3It has been reported that ‘whole of government’ consolidated statements have been prepared by
Austria (Luder, 1988, p. 99) and Poland (Jaruga, 1988, p. 114). HM Treasury (1998) suggests that
Sweden, Iceland and Portugal have also produced a form of consolidated report (p. 145).
4See HM Treasury, ‘Delivering the Benefits of Accruals Accounting for the Whole Public Sector’,
December 2005,, accessed 19
April 2007.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
U.S.’s Governmental Accounting Standards Board (GASB), whose Statement 14,
The Financial Reporting Entity (1991) which, while not dealing directly with public
sector consolidated statements, established guidelines for the identification of the
scope of financial reports for state governments. The GASB prescribed alternative
forms of multi-column presentations of information about ‘primary government’
and ‘financially accountable component units’ in a ‘fund accounting’ context. These
modes of reporting are similar to multi-column consolidated statements as are
commonly used in the private sector (in that case, to present financial information
about parent and group entities). The above-mentioned IFAC discussion papers can
be regarded as precursors to attempts to standardize practice, at least for those
countries that adopt accrual accounting in financial reports for the public sector.
IFAC has issued two standards,IPSAS 6, Consolidated and Separate Financial State-
ments (2000), which is intended to apply to both the public and private sectors, and
IPSAS 22, Disclosure of Financial Information About the General Government
Sector (2006).
These various accounting standards and discussion papers are in several impor-
tant respects inconsistent. This article reviews and assesses the general case for the
presentation of consolidated statements encompassing whole of government,
general government (or other sets of governments or government agencies). The
main focus is on the identification of the objectives of this form of reporting, and
hence the delineation of the reporting entity (or area of consolidation) for public
sector consolidated statements, and the scope of accompanying consolidations of
sub-sectors of the public sector. The analysis proceeds by considering claims about
the potential users of aggregated financial data about the financial position and
performance of governments, and the judgments likely to be made on the basis of
that information and whether those judgments are routine, or whether the need to
make those judgments would only arise under certain conditions or in exceptional
circumstances.It is concluded that a number of routine judgments could be based on
financial information presented in the form of consolidated statements but that
these would not necessarily be consolidated statements encompassing the whole of
government (or, to be more specific, statements encompassing the whole of a specific
tier of government). Prior studies or standards have prescribed or recommended
that the test of control be applied to determine the scope of public sector consoli-
dated statements (e.g., IFAC, 2005; and standards IPSAS 6, 2000; AASB 127, 2004;
AASB 1049, 2007). This article proposes alternative criteria for determining the
scope of consolidated statements.
While accounting standards in some jurisdictions have required the pre-
paration of consolidated statements for individual agencies,5or local govern-
5The Australian profession also issued Statement of Accounting Standards AAS 29 (1998) which
prescribes that reports on government departments should take the form of consolidated statements.
Since departments are mere administrative units of government (Ma and Mathews, 1993), the reports
prescribed by the latter standards are analogous to the compilation of separate statements for divi-
sions of a corporate entity. Subsequently AAS 29 was withdrawn, along with other public sector
standards AAS 27 and AAS 31, after a review that saw the incorporation of equivalent content in
‘sector neutral’ standards, including AASB 127, Consolidated and Separate Financial Statements (July
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
ments,6the focus here is on the use and design of consolidated statements for nations
or states. The term ‘public sector consolidated statements’ is used to relate to
aggregative reports dealing with any set of public sector agencies within a particular
tier of government (national or state). The term ‘whole of government accounts’ is
used to apply to consolidated statements that purport to deal with all agencies within
either a single tier of government (national or state) or, in some circumstances,
several tiers of government.
While there is widespread support for the proposition that governments should
produce whole of government financial statements on an accrual basis,there remains
disagreement in the advocacy literature as to the target readership of those reports,
and what judgments they are intended to inform—matters which would shape the
scope of those reports and the technical practices to be undertaken in their
IFAC (2000) summarized much of the debate by suggesting that there were four
approaches to the identification of a public sector reporting entity: depending on
whether the focus of attention was to be on ‘the authorized allocation of funds’, the
‘legal entity’, ‘political accountability’ relationships, or ‘control’ (p. 16). It neither
prescribed nor recommended particular treatments; nor did it present a detailed
analysis of the specific objectives these differing concepts of whole of government
reporting might serve—beyond acknowledging that adoption of one rather than an
another approach could produce different results. Rather, IFAC offered a general-
ized statement, namely that ‘the overriding objective of financial reporting is to
communicate reliable information which is relevant to the decision making and
accountability needs of users’ (1996, p. 2). However, there may be inconsistencies
between the objectives of providing public or private sector information to assist
decision making, and providing information relevant to accountability (Walker,
2003). Without some analysis of how potential users might seek to use financial
information for different purposes, it is not possible to maintain the claim that both
objectives could be accommodated in a single set of financial reports.
Curiously, most published commentaries have promoted the preparation of a
single set of consolidated statements encompassing the whole of government. Yet
those governments which have been preparing public sector consolidated state-
ments have often chosen to accompany whole of government reports with suites of
consolidated reports which encompass separate sub-sets of government agencies,
disaggregated in terms of institutional sectors, for example as defined in Standard
Economic Sector Classifications of Australia (ABS, 1998) for the purposes of
6For example,Australian Accounting Standard AAS 27 (1990); GASB Statement No. 27, Accounting
for Pensions by State and Local Government Employees (1994); and Statement No. 34, Basic Financial
Statements—and Management’s Discussion and Analysis—for State and Local Governments (1999).
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Government Finance Statistics. If there is a case for whole of government reports,
there may also be a case for alternative or supplementary presentations—yet the
relative merits of the alternatives have only been minimally debated.
The structure adopted here proceeds from an initial consideration of both the
target audience (existing or potential) of public sector financial reports, and the way
that information may be used or be useful. In other words, it considers who are the
users of those reports, and what judgments they may make on the basis of the
information contained in public sector consolidated statements.But before doing so,
some prior literature is reviewed to indicate how there does not appear to be a
unified view on either who are the potential users of these reports,or on what are the
potential uses of that information.
There is a distinct contrast between the claims made in studies published by the
accounting profession, and those produced by independent academic researchers.
A pioneering U.S. study by Anthony (1978) presented a list of the predominant
classes of potential users of public sector accounting reports (while acknowledging
that such a list reflects the judgments of the person who compiles it (p. 41). Later
authors have commonly appealed to the authority of prior studies—occasionally
adding another group, or rearranging lists of users into new classifications. Jones
et al. (1985) provided a convenient review of a series of studies of this genre, and
then explained that they had developed their own list of primary users by examining
selected studies and accounting literature.7Other authors have relied on literature-
generated lists of users to sustain normative proposals about the design or content
of financial reports. For example, Sutcliffe et al. (1991) referred to the authority of
AARF’s SAC 2 to identify the main categories of users; they then asserted that
particular categories of users ‘will be concerned’ with certain issues, or ‘will require’
particular kinds of information (pp.29–31)—without offering any evidence or analy-
sis in support of these assertions.That enabled the authors to claim that the need of
users would be satisfied by ‘general purpose financial reports’—a circular argument,
since a ‘general purpose financial report’ was defined in SAC 2 (1990) as a financial
report that was intended to meet the information needs of those same major classes
of external users.
IFAC (1991) was able to assert that it could list the ‘principal users of government
financial reports’ on the basis of ‘a review of accounting literature and authoritative
pronouncements on financial reporting by governments’ (p. 7). Similarly, the Aus-
tralian profession’s AARF claimed that there was a consensus about the identity
of users of public sector reports (in general) (AARF, 1991; Micallef et al., 1994).
This assertion was based on a compilation of the opinions of eight writers—
notwithstanding that most of the opinions collated were those of ‘preparers’ rather
7In context, Jones et al. (1985) only used this approach to design a survey, which shed light on whether
assumptions about users were justified.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
than users.8Accordingly, the claim that there was a ‘consensus of opinion’ only
reflected the choice of the works cited, and the way opinions had been presented.
Indeed, the eight works surveyed byAARF did not include any of the sixteen studies
on the same topic previously cited by Jones et al. (1985).
Other projects aimed at obtaining evidence of the use of public sector financial
reports by members of the public have failed to produce compelling evidence about
readership (see Rutherford, 1992).In one study, researchers received a zero response
rate to a simple questionnaire left in copies of a local government authority’s annual
report at three library sites, for a total period of twelve months (Butterworth et al.,
1989). Similar observations about minimal usage of these reports were provided by
Crook (1993). Jones (1992) offered the startling observation that ‘the publication of
financial statements is not in the public interest because the public has no interest’.
Some limited evidence about the identity of users has come from surveys admin-
istered to different classes of respondents. Indeed, AARF itself once disclosed that
it was undertaking a survey of users of public sector financial reporting by govern-
ment departments. AARF later was compelled to reveal that responses to this
survey were ‘disappointing’ (AARF, 1991). When those results were reported, it
appeared that all responses (only thirty-seven) came from preparers and
auditors—with not a single one from an external user (Sutcliffe et al., 1991, p. 28).
As noted above, Anthony (1978) explained that the intention was to only refer to
potential users, a stance echoed by other academic contributions (e.g., Mayston,
1992), and later by the U.S.A.’s FASAB whose SFFAC 4 (2004) referred to the
‘intended audience’ of consolidated financial reports, and identified citizens and
citizen intermediaries as ‘primary audiences’.
It seems fair to summarize commentaries or research findings regarding the
identity of users of public sector financial reports as follows:
1. Different studies have claimed or concluded that certain parties are currently
using public sector financial information, or are potential users of public sector
financial information (if it was compiled differently, or presented in a more
user-friendly way);
2. Many of these claims have not been supported by evidence—some have not even
been investigated;
3. Efforts to obtain evidence through survey-based research (or other means) have
not provided strong support for claims that a wide variety of participants actually
refer to documents containing any kind of public sector financial information;
4. There are grounds to suppose that there are very few direct users of public sector
financial statements (primarily a small group of public servants in central agen-
cies, some members of parliament, and media commentators); and
8Two of the eight writers cited in this study did not make any firm statement about ‘uses’ of public sector
financial reporting, and were highly critical of prior literature. Five of the remaining publications cited
were prepared by public sector agencies, advocating the wider use of accrual accounting in different
jurisdictions, often on the basis of advice from major accounting firms. The remaining work cited had
been sponsored by a standard-setting organization. No reference was made to the views of any of the
potential users nominated by these writers.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
5. Some contributions which promote the preparation of additional forms of
financial information (such as ‘full accrual accounting reports’ for government
departments, or consolidated statements for whole of government) are essen-
tially only speculating that there will be a significant readership for this kind of
Table 1 summarizes some statements about the supposed users of public sector
financial reports. The summary is based on statements made by a range of govern-
ment agencies or professional bodies (or studies commissioned by those bodies) and
identifies nine groups of nominated users.
In context, the list of potential users is partly derived from illustrations of the
membership of supposed user groups. For example, a joint U.S.–Canadian study by
Dye and Bowsher (1986, p. 10) referred to three groupings: legislators and gov-
ernment, citizens and corporations, and the media and analysts. IFAC (1991) iden-
tified five principal classes of users: legislative and other governing bodies; the
public; investors and creditors; other governments, international agencies and
other resource providers; and economic and financial analysts. FASAB (2004) sug-
gested that users of financial information about the federal government can be
classified in four major groups: citizens, Congress, executives, and program
managers. There seems little point in quarrelling with these assertions about
But classification is a purposive activity. It appears that the purpose of these
contributions is to support claims that certain forms of financial information would
meet the needs of main classes of users. That is a matter of evidence. The authors
were essentially making assertions without providing that evidence. And, of course,
before public sector consolidated statements were actually being prepared, evidence
could not be obtained from observations of practice.
Some major differences in the claims made by different contributors may not be
immediately evident in Table 1. For example, a commonly expressed view is that
public sector consolidated reports should be aimed at external users. In a study
commissioned by the GASB, M. Ives, then Director of Research of the U.S.A.’s
GASB, noted (in a preface to Jones et al., 1985) that members of the executive
branch of government were not considered ‘primary users’ (p. iii).Similar views were
expressed in an Australian Accounting Research Foundation (AARF) study
(Micallef et al., 1994). A 1993 IFAC report noted that ‘internal reports required by
management or special reports’ were designed to meet the particular needs of
specific users,and the information likely to be contained therein ‘is too diverse to be
dealt with effectively’ (p. 1). Yet FASAB (2004) and HM Treasury (1998) saw public
sector consolidated statements as informing internal users, such as government
planners, program managers, or managers of administrative units.
Another major difference is evident from the way that several contributors have
claimed that individual governments—all tiers of government—should be regarded
as separate reporting entities. Indeed, this view was reflected in Australian account-
ing standards AAS 27 and AAS 31. Yet the HM Treasury, alone amongst this set of
contributors, saw whole of government accounts as revealing information about a
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Table 1
User Judgment Author
Public Assess accountability of elected officials FASAB (2003)
How governments have used funds provided in
current and previous years
IFAC (2000)
Whether governments are funding goods and
services from current taxes
IFAC (2000)
Members of legislative
and other governing
Assess financial position and financial
IFAC (1991, 2000)
Assess stewardship of resources Jones et al.(1985); FASAB
2003); IFAC (1991, 2000)
Scrutinize accounts HM Treasury (1998)
Whether expenses are covered by revenues Micallef et al. (1994)
Compliance with legislation IFAC (1991)
Approve budgets Micallef et al. (1994);
FASAB (2003)
Public (taxpayers),
media, other
Scrutinize government’s economic policies
(particularly fiscal policies)
HM Treasury (1998)
Effectiveness, efficiency and economy with
which services have been provided
Micallef et al. (1994)
Efficiency and effectiveness of management of
assets and liabilities
FASAB (2003)
Ability of government to provide services in
the future
Micallef et al. (1994)
Assess the costs of public services, adequacy of
revenues to meet those costs; stewardship and
efficiency of public officials in administering the
government’s financial transactions
Jones et al. (1985)
Investors/creditors Assess ability to repay debt Jones et al. (1985); IFAC
All classes of (external)
Assess compliance with budget, or modified
budget; assess trends in financial performance
Jones et al. (1985)
Other governments,
international agencies
and resource providers
Assess ability to repay debt; compliance with
terms of agreements; performance information
relating to specific projects
IFAC (2000)
Government planners
and managers
To support the conduct and monitoring of fiscal
HM Treasury (1998)
Senior management or
program managers
Analysis and decision making at a more
disaggregated level
HM Treasury (1998)
Overview of the financial affairs of the entity IFAC (2000)
Assist in improving government’s management FASAB (2003)
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
government’s national fiscal policies—with the implication that public sector con-
solidated statements should be prepared to encompass secondary (or, for some
countries, tertiary) levels of government, local or state government entities, and
bodies that ‘exercise functions of a public nature’ or that are‘entirely or substantially
funded from public money’ (HM Treasury, 1998, p. 4).
Notably several standard-setting bodies have engaged in advocacy of their prepa-
ration and publication of public sector consolidated statements before examining in
any detail the judgments likely to be made on the basis of data obtainable from those
reports (or from other sources). This is despite prior acknowledgement that such an
exercise is desirable. Indeed, some contributors to the advocacy literature seem to
have oscillated, suggesting that a short-cut to implementation was warranted. For
example, Anthony (1978) observed that the identification of users and their needs
was an important element in the standard-setting process—though later he noted
that exercise ‘does not help in determining the principles that should govern the
preparation of financial statements’ (Anthony, 1989, p. 106). And that the onus was
on others to demonstrate that the needs of users of the financial statements of public
sector and other non-business entities were such that private sector accounting was
not appropriate—but that he was ‘not aware of any such demonstration’ (p. 26).
Similarly, Sutcliffe (1985), in a study commissioned by AARF, outlined a series of
issues ‘to be resolved’ before the profession started issuing accounting standards in
the public sector.The issues identified:‘Does the identification of users as “recipients
of services”,“providers of resources” and“other parties” provide a suitable basis for
consideration of financial information disclosures to be made by public sector enti-
ties?’ (p.26). However,when some survey-based research undertaken by AARF was
inconclusive (so that those issues had definitely not been ‘resolved’), AARF then
claimed that empirical research was unnecessary as there was a ‘consensus’ about
the information needs of users (AARF, 1991, p. 3).
Overall, the literature analysing the uses which are (or might be) made of different
forms of financial reporting—particularly public sector consolidated statements—
has suffered from defects similar to those in the literature concerned with the
identification of users. Many published commentaries on whole of government
consolidated reporting have simply presented the case for that form of reporting.
They recognized few difficulties, beyond that of initially implementing accrual
accounting throughout the public sector, and in resolving a series of technical issues
(e.g., regarding the valuation of heritage or infrastructure assets). Further, while
concluding that consolidated statements would constitute general purpose reports of
relevance to a variety of users, they failed to demonstrate that argument—by indi-
cating that items of information were of common relevance to a range of users in
relation to a range of regularly confronted judgments.
More significantly, many published commentaries have failed to recognize that
existing arrangements for financial reporting already produce a wide range of infor-
mation relevant to many of the judgments faced by their list of supposed users. One
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
exception was the study by Micallef et al. (1994), which acknowledged the existence
of budget papers and other reports but then dismissed them as inadequate because
they did not meet the AARF definition of general purpose financial reports.9
At best, such claims about the information needs of certain classes of users can be
restated as hypotheses about what types of information are relevant to those users.
That restatement can then be amplified as a series of hypotheses, for example, that
one might expect to find a specified type of information used by individuals when
making certain types of judgments in certain situations, if it was available; or that in
certain situations, individuals who have to make judgments of certain kinds would
search for certain types of information if it was not routinely made available to
them—and so forth.
Further, a more detailed analysis of the uses made of particular kinds of informa-
tion would recognize that not every category of user may directly access detailed
financial reports, but rely either on summary documents or on intermediaries to
interpret complex information for them.
Moreover, the existing literature has given little or no recognition to the possibil-
ity that the way in which information is used may be contingent on external events.
In other words, certain types of information may be used or sought in some situa-
tions (such as when a government is recording persistent cash deficits), but not in
Arguably a fundamental weakness of several profession-sponsored studies is that
claims about information needs were couched in generalities, and were presented
without any detailed analysis of the types of judgments faced by individual users,and
how different types of information would be relevant to those judgments. In some
instances, simple assertions about how presumed users may employ accounting data
failed to explore the manner in which the data might actually be used. For example,
the following assertion sounds appealing, even plausible:
the public... requires financial information which... enables them to assess a govern-
ment’s performance with respect to the effectiveness, efficiency and economy with which
services have been provided during the reporting period (Micallef et al., 1994, p. 22)
But if one dissects the statement, it is exposed as virtually meaningless. First, finan-
cial information on its own is inadequate to enable a reader to ‘assess a government’s
performance’ in relation to service provision. Any such assessment would also
require information about the services provided, and to whom, and with what
effect.10 If ‘financial information’ is to be used in this evaluative process, it may well
be used as the numerator or denominator of a series of performance indicators
about issues relating to economy (e.g.,trends in material costs per unit of service) or
9Micallef et al. (1994) devoted a chapter to examining ‘current reporting practices’, but only to suggest
that other kinds of reports (such as the Australian Bureau of Statistics’ publications of Government
Finance Statistics) were special purpose rather than general purpose financial reports. They then
asserted that ‘only comprehensive, full accrual-based general purpose financial reports are designed
and prepared to disclose information about a government’s financial position, performance and
financing and investing activities’ (p. 84).
10 See Jones et al. (1985).
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
efficiency (e.g., cost per customer, cost per unit of service provided). It is unlikely
that financial information about ‘government’ will be of relevance to assessments of
effectiveness (e.g., the impact of a preventative health campaign on the well-being of
a community; or the extent to which an educational campaign improved literacy or
numeracy amongst schoolchildren).
In summary, the existing literature on the kinds of uses which might be made of
public sector financial information:
• has not presented detailed explanations or illustrations of the precise type of
judgments which might be made by these (assumed) users of financial data—and
what data may be relevant to those judgments;
has not articulated propositions about the circumstances in which postulated users
may seek to use different forms of report, the extent to which reliance is placed on
intermediaries; and
has not sought to support speculations about the uses which might be made of
financial information with research evidence—so that (with a few exceptions)
contributors have done little more than share their speculations about how infor-
mation might be used (notwithstanding stronger claims made in the professional
literature). Indeed, evidence that conflicts with the views being promoted by
profession-sponsored studies has been largely ignored.11
Without careful consideration of the prospective uses to which public sector
consolidated financial statements might be put, financial reporting practices are
unlikely to furnish information that is optimal, in the sense that it can be regularly
used to inform judgments by a wide range of stakeholders.
An effort was made to consider the way in which actors or observers of the public
sector may refer to aggregative statements about financial aspects of the activities or
circumstances of governments. The analysis follows the following four steps:
1. A list was compiled of judgments which may be made on the basis of aggregated
financial reports—aggregated in the sense that they related to the overall activi-
ties of governments,or subsets of government activities—and the parties likely to
be making each of those judgments were specified. (This list was compiled having
regard to documentary or other evidence about the way that various stakeholders
in Australian governments have cited financial data in the course of their partici-
pation in public debate);
11 For example, the finding by Jones et al. (1985) that users in three categories (investors, legislative
oversight and citizen groups) all considered that fund type statements were more useful than con-
solidated statements. While 82 per cent of these users considered that fund type statements were
useful, only 16 per cent of users thought that consolidated statements alone were useful. These
findings were not acknowledged in Micallef et al. (1994), or other reviews of the supposed merits of
public sector consolidated statements.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
2. The judgments were categorized as ‘routine’, ‘conditional’ or ‘exceptional’—
defined as follows. Routine judgments are those made regularly in the normal
course of events. Conditional judgments are not made routinely, but only under
certain, regularly-encountered conditions. Exceptional judgments are only made
under extraordinary or extreme circumstances;
3. The information which might be relevant to those judgments was specified; and
4. An attempt was made to state the types of reports within which the information
specified in #3, above, might be found. The range of reports encompassed the
types of financial reports which are currently published by governments or the
Australian Bureau of Statistics, together with alternative forms of public sector
consolidated statements (or other aggregative statements) which might be intro-
duced to provide that information.
The analysis was undertaken by referring to institutional arrangements in Australia,
and recognizing the existence of a three-tiered structure of government (Common-
wealth, state and local government), even though the focus is on reporting by
national or state governments.
A total of eighteen separate judgments were identified. Observations about these
judgments are arrayed in Table 2. Some of the items were identified by simple
observation of institutional arrangements: for example, the existence of a price
regulatory body with jurisdiction over public trading enterprises (such as the New
South Wales Independent Regulatory and Pricing Tribunal) indicates that judgments
are being made about the pricing of government services. Other items were identi-
fied by reference to the text of political debate or analysis: if a politician or com-
mentator discussed the capacity of a government to service debt, that implies that
judgments are being made about such an issue.
The identification of potential judgments was based on a similar process. The
categorization of judgments as routine, conditional or exceptional was based in part
on observation and partly on speculation. Likewise, the specification of ‘relevant
data’ is based in part on the text of political debate, lobbying activities, and press
comment. The listing of relevant data remains partly speculative, and is certainly
partial. The listing of ‘relevant reports’ refers to materials published by one or more
Australian governments or government agencies—with the exception of references
to various forms of public-sector consolidated statements (shown in bold type). The
listing of different forms of consolidated statements reflects an argument: that those
reports would convey relevant information to the nominated users in relation to
specified types of judgments.
Some explanations are provided regarding the eighteen judgments summarized in
Table 2:
1. Results and sustainability of a government’s financial management practices:
While media commentary tends to dwell on past budget results and projected
budget outcomes, this emphasis on deficit or surplus represents an inappropriate
‘search for a single measure of fiscal impact or some other relevant aspect of
budgetary and financial policy’ (Buiter, 1990, p. 2). In Australia, the customary
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Table 2
Judgment Information users Routine/contingent/exception Relevant information Relevant reports
1. Results and sustainability
of a government’s financial
management practices
Public sector managers
Participants in capital markets
Private sector managers
Media analysts, commentators
Trade unionists
Community groups (e.g.,
welfare agencies) and other
interest groups (e.g., re
industries, groups affected by
particular forms of tax)
Credit rating agencies
Routine Expenditure >,=,or<receipts
from taxes and charges, asset sales,
PTE dividends and Commonwealth
Trends in level of borrowings,
Trends in budget results, and in
categories of expenditure (related
to public sector employment,
indicators of services provided,
Budget papers
Periodic reports re budget results
(i.e., budget sector)
Special interest publications
Ministerial news releases
Media reports
Ministerial parliamentary
Reports to parliament (e.g.,
Consolidated statements—
general government
Consolidated statements—whole
of government
2. Success of a government in
implementing its overall
financial policies
Public sector managers
Participants in capital markets
Credit rating agencies
Private sector managers
Media analysts, commentators
Trade unionists
Community groups (e.g.,
welfare agencies) and other
interest groups
Exception—relevant if there
are major departures from
stated budgetary policies
Quantitative statements of policies
Reports on outcomes (e.g.,
expenditure on capital works;
outcome of fund raising activities,
reports on programs)
Budget papers
Program performance statements
Periodic results re budget sector
Periodic reports relating to
agencies affected by budget
Ministerial news releases and
parliamentary statements
Media reports
Reports to parliament (e.g., from
Auditor-General or Public
Accounts Committee)
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Table 2
Judgment Information users Routine/contingent/exception Relevant information Relevant reports
3. Capacity of a government
to continue to deliver
existing levels of services
to the community (or to
enhance those services) at
existing levels of taxes and
Corollary: whether
government needs to
either increase taxes and
charges, or reduce levels of
service in some areas,
because of financial
Cabinet (and committees)
Interest groups
Routine (periodic) For states: own-source revenues
(i.e., excluding Commonwealth
payments)—relative to aggregate
Indicators of borrowing capacity
(e.g., debt/liabilities relative to
GSP/GDP); comparisons with other
Information on policies of federal
governments regarding future
payments to states
Budget papers
ABS statistics
Premiers’ Conference outcomes
Loan Council outcomes
Public Accounts Committee
Reports on National Outlook
Consolidated statements—
general government
Consolidated statements—PTEs
Consolidated statements—whole
of government
4. Capacity of government to
provide infrastructure
which will maintain or
enhance existing levels of
services to the community
Cabinet; Budget or Capital
Works Committees
Media analysts, commentators
Special interest groups (e.g.,
public transport lobby, road
lobby, environmental groups,
sporting groups, education
Public sector managers
Participants in capital markets
Private sector managers (e.g.,
construction companies)
Trade unionists
Routine Physical assessment of state of
Costs of installing alternative
Projections of cost of asset repair
or replacement
Projections of needs (e.g.,
demographic factors for schools,
hospitals, etc; social factors re law
enforcement, welfare, etc.)
Effect of existing infrastructure on
Indicators re state of
Budget papers re capital works
Annual reports and other
publications for PTEs
Electorate reports to each
parliamentarian re public works
in his/her electorate
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
5. Performance of
government in maintaining
infrastructure required to
deliver services to the
Cabinet (or committees)
Media analysts, commentators
Special interest groups (e.g.,
public transport lobby)
Public sector managers
Participants in capital markets
Private sector managers (e.g.,
construction companies)
Trade unionists
Contingent: depends on
whether capital works are in
good condition, or ageing
and in need of attention; also
depends on past record in
the management of capital
works and maintenance
Physical assessments of state of
Costs of installing alternative
Projections of costs of asset repair
or replacement
Projections of needs (e.g.,
demographic factors for schools,
hospitals, etc; social factors re law
enforcement, welfare, etc)
Indicators re state of
Budget papers re capital works
Electorate reports to each
parliamentarian re public works
in his/her electorate
6. Manner in which
government is pricing
Departmental officers
Price regulatory agencies
Customers or consumers of
Interest groups concerned
with specific policy issues
(e.g., environment)
Interest groups representing
stakeholders or participants
in government activities (e.g.,
consumers, unions, taxpayers).
Routine Performance indicators for PTEs
(e.g., rates of return for agencies
directly selling services to the
public; indicators re quality of
Annual reports of PTEs
Reports of PTE monitoring units
or other special purpose
Budget papers re PTE charges
Reports of price regulatory
Consolidated statements
encompassing agencies which sell
services or levy charges.
7. Extent to which a
government is subsidizing
services that are sold to
the community
Welfare agencies
Private sector service
Contingent: depends on
materiality of investment or
Data re costs of service delivery
and revenues derived from those
Aggregates of CSO costs (direct
Annual reports of PTEs
Budget papers re policies on
Specific technical or policy
papers on CSOs
Public Accounts Committee
Consolidated reports for
activities which sell services to
elements of the community at
subsidized rates (e.g., public
housing; welfare agencies)
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Table 2
Judgment Information users Routine/contingent/exception Relevant information Relevant reports
8. How government has
spent taxpayers’ funds
(and any borrowings)
Public sector managers
Participants in capital markets
Private sector managers
Media analysts, commentators
Trade unionists
Community groups (e.g.,
welfare agencies)
Other interest groups (e.g.,
re land tax)
Routine Trends in recurrent spending and
capital works, for both general
government agencies and PTEs
Annual reports of budget sector
and non-budget sector agencies
Budget papers
Periodic reports re budget results
Consolidated statements—whole
of government
9. Whether a government is
incurring obligations which
will impose burdens on
future generations
Media analysts, commentators
Participants in capital markets
Parliamentary committees
Routine (periodic) Aggregate liabilities (net of
relevant financial assets)
Trends in level of aggregate
Trends in aggregate investment in
capital works
Demographic data, workforce
Budget papers
Public Accounts Committee
Reports of Auditor-General
Supplementary reports on
specific topics (e.g., unfunded
pensions, condition of
Consolidated statements—whole
of government
10. Whether there has been
compliance with
Departmental managers
Media analysts, commentators
Exception Expenditure versus
budget allocations
Budget papers
Public accounts
Reports of Auditor-General
Parliamentary committees (e.g.,
Estimates, Public Accounts)
11. What budget policies are
Formulation of feasible
budget policies
Cabinet or government
Advisers from departments of
treasury, finance, or other
central agencies
Departmental CEOs and
finance officers
Other advisers to government
Routine Projected report on budget results
(e.g., level of deficit)
Assessments of what level of
surplus/deficit are acceptable
Projections of current and potential
sources of revenue and
Projections of economic indicators
impacting on revenues and
Budget papers
Economic reports
Revenue reports
Commonwealth Grants
Commission reports
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
12. Attractiveness of investing
in issues of debt securities
offered by a government
Prospective investors
Credit rating agencies
Financial advisers
Media analysts, commentators
Routine Interest rate and duration of
Conditions attaching to premature
Returns offered by other issuers of
similar risk
Assessments of risk of default or
rescheduling of repayment
Returns available from
alternative investment
opportunities (and associated
documents e.g., prospectuses)
Schedule of timing of
commitments to repay
borrowings, or meet other
commitments or emerging
Reports on composition of
commitments (e.g., affecting debt
Budget papers—showing budget
outcomes and projected budget
Reports on relationships with
other governments (e.g.,
outcomes of Loan Council,
Premiers’ Conferences)
Reports of credit rating agencies
Consolidated statements—whole
of government
13. Attractiveness of
maintaining investment in
debt securities issued by
Existing investors
Credit rating agencies
Financial advisers
Media analysts, commentators
Contingent—if governments
are possibly encountering
financial distress
Returns available from alternative
investment opportunities of similar
Conditions attaching to premature
Assessments of risk of default or
rescheduling of repayment
Reports indicating dependence
on different sources of revenue
and stability of those revenues
Reports indicating timing of
commitments to repay
borrowings, or to meet other
Composition of commitments
(e.g., debt servicing)
Budget papers—showing past
outcomes and projected budget
Reports on relationships with
other governments (e.g.,
outcomes of Loan Council,
Premiers’ Conferences)
Consolidated statements—whole
of government
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Table 2
Judgment Information users Routine/contingent/exception Relevant information Relevant reports
14. Risk of delays in payments
to creditors
Private sector managers (of
firms doing business with
Credit rating agencies
Government lenders
Media analysts, commentators
Exception—if high risk of
Timing of commitments to repay
existing borrowings, or meet other
existing commitments or emerging
Composition of commitments (e.g.,
Past budget outcomes and
projected budget results
Relationship with other
governments which might provide
Quantum of liabilities and financial
assets controlled by government
Outcomes of Loan Council,
Premiers’ Conferences
Reports of credit rating agencies
Analysts’ reports
Consolidated statements—whole
of government
15. Oversight of levels of
borrowings by a regional
(state) government
Loan Council (or similar
Routine (Depends on criteria adopted to
regulate borrowings)
Budget outcomes for ‘general
government’ (i.e., cash deficits or
surpluses, excluding results of PTEs
other than through ‘normal’
Current and past levels of
aggregate liabilities for general
government sector
Current and past levels of financial
assets held by general government
Cash flows associated with
investment in infrastructure and
other capital assets
Indicators restating government
data on a comparative basis (e.g.,
per capita, per taxpayer, per
household) or in terms of the
financial performance of state
economies (e.g., debt relative to
gross state product).
Budget papers—indicating past
budget outcomes and basis of
preparation of that data
Periodic reports of budget results
Consolidated statements—
general government
Consolidated statements—whole
of government (excluding certain
financial institutions)
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
16. Extent to which the public
sector is drawing on
national savings
Staff of central agencies of
national and state
Loan Council (and other
agencies concerned with
national fiscal policy)
International agencies
Participants in capital markets
Media analysts, commentators
Routine (periodic) Data re public sector borrowing
requirement (PSBR)—generally
defined to exclude self-sustaining
government-owned businesses
Budget papers for all levels of
ABS statistical reports
Special reports
17. Financial circumstances of
regional (state)
governments (visàvis
other regional
Staff of central agencies
Credit rating agencies
Potential investors
Media analysts, commentators
Routine Budget strategies and outcomes
Aggregate liabilities and other
Aggregate financial assets
Qualitative data re infrastructure,
etc. and associated commitments
for maintenance, or renewal
Trends in investment in capital
Economic indicators (e.g., GDP
Demographic data)
Budget papers
Periodic reports re budget results
ABS statistical reports
National Outlook reports
Analysts’ reports
Consolidated statements—
encompassing state and local
government (together with
consolidated statements for
whole public sector, budget
sector or general government,
and PTEs)
18. Financial circumstances of
nations (visàvisother
International economic
agencies (e.g., IMF, OECD)
Staff of central agencies
Media analysts, commentators
Routine (periodic) International economic and
financial statistics
Tax regimes
Economic indicators (e.g., inflation,
demographic data)
Budget papers (federal)
ABS statistical reports, including
National Accounts
Consolidated statements—
encompassing federal, state and
local governments
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
presentation of these results has been in the form of budget papers and periodic
(monthly or quarterly) reports on budget results.At the state level in Australia, the
reporting entity for these documents has variously been the fund used to handle
recurrent payments, the consolidated fund, the consolidated fund together with
certain trust funds, or (more broadly) a set of entities described as the ‘budget’ or
‘general government sector’.
Claims about the relative performance of states of New South Wales and Victoria
became a political issue during a state election in N.S.W. in 1991 (see Walker, 1995c,
p. 113), focusing attention on this diversity in the identification of the reporting
entity for budget reporting. For example,the state of Victoria’s budget presentations
during the late 1980s encompassed entities providing public housing and public
transport, and operating area hospitals—while other states did not include these in
their consolidated fund results. One state managed its state finances through three
major funds (a Consolidated Revenue Fund, a General Loan and Capital Works
Fund, and a Trust Fund) and its annual budgets related to only the first of these (see
Independent Commission (W.A.), 1993, Vol. I, pp. 19–33).
Participants agreed at a May 1991 Premiers’ Conference to move towards stan-
dardization of state budget presentations in line with the Australian Bureau of
Statistics (ABS) Government Finance Statistics basis.12 However, the states and
territories took a considerable time to secure uniformity (see, e.g., Walker, 1993).
Indeed, some states appear to have manipulated reported budgetary data (and
budget results) by selectively excluding agencies from the scope of budgetary
reporting13—or perhaps some state treasury departments believed that alternative
presentations were more useful for their purposes. Whatever the reasons, the ABS
has undertaken material adjustments to the data published by the states for its
publication Government Financial Estimates Australia (Cat. 5501.01). Arguably, ABS
data are more consistent and reliable than the data provided in budget papers or
other documents produced by individual states.
While advocates of public sector consolidated statements have tended to focus on
reports encompassing whole of government, the high level of political and media
attention devoted to budgets and budget results suggests that data from a consoli-
dation of general government agencies would potentially be regarded as highly
relevant. Where budget papers are prepared on an accrual basis, they may include
12 At the time, GFS data was compiled on a predominately cash basis.TheABS has subsequently issued
a revised statement of concepts used in Australian Government Finance Statistics (ABS, 2005) that,
inter alia, seeks data compiled on an accrual accounting basis and incorporating definitions of sectors
of government that depart from those originally incorporated in the United Nations Statistical
Commission’s System of National Accounts (1993). Revisions to SNA 93 have recently been drafted
(see, e.g., Inter-Secretariat Working Group, 2008).
13 For example, despite claims in 1989 N.S.W. Budget Papers that supplementary reports on actual and
forecast financial information were compiled on a Government Finance Statistics basis, the ABS
disagreed, noting that the figures compiled had excluded thirteen organizations, bureaus or units that
were properly classified as part of ‘general government’. By 1993 the number of these off-budget
agencies had increased to ninety-three, employing approximately 12,500 full-time staff positions. See
Walker (1995a, pp. 113–14).
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
estimated financial results for the current year; however, the consolidated state-
ments would be compiled at a later date (and would be audited).
Note that Table 2 lists parliamentarians as potential users of this information, but
this must be qualified. In practice, parliamentarians, as a class, are not actively
involved in making decisions about resource allocation. Rather, budget strategies
are usually crafted by a small group of political leaders and their advisers, and
bureaucrats from central agencies. Most members of government have little say in
the matter (see, e.g., Nicholls, 1991a). Indeed, in Australian governments, many
ministers are ‘budget-takers’ not ‘budget-makers’. As for members of the Opposi-
tion, they generally play no role at all in these processes—beyond offering comments
in the course of parliamentary debate, or seeking to obtain political advantage from
information gleaned after the event when published budgets are considered by
Estimates Committees.
2. Whether a government has been successful in implementing its overall financial
policies: A wide range of parties may endeavour to make assessments of the
outcome of specific policies, though reports on financial activities (disaggregated by
categories of expenditure, or programs) will only be one of several sources of
information relevant to those assessments. Cash-based reports may well be the
dominant source of relevant data for assessing the likely impact of fiscal policies
(e.g., promoting employment through capital works programmes) or assessing the
outcome of plans to raise funds from specific forms of taxation. Other sources of
information include special-purpose publications (see, e.g., N.S.W. Government,
1989), or become available from performance audits undertaken by public-sector
auditors, or reviews undertaken by parliamentary committees.
If a government raises funds from user charges (such as for water or electricity
services provided by PTEs) the outcome of such activities may be reflected in part
in budget papers showing dividends and other transfers of funds from those agen-
cies. (The consideration of pricing policies is referred to below—see judgment #6.)
However, regard may also need to be had to the extent to which infrastructure held
by those PTEs has been maintained or upgraded (see judgment #5).
3. Capacity of a government to continue to deliver existing levels of services to the
community (or to enhance these services) at existing levels of taxes and charges:
Judgments about these matters may be made by parliamentarians, their advisers, and
by public sector managers.Interest groups frequently make pre-budget submissions,
or later refer to budget documents, in order to promote or criticize government
policies regarding expenditure in areas such as welfare, education, health and public
housing (see, e.g., NCOSS, 2003) or on road funding or regional development (see,
e.g., Australian Local Government Association, 2006). In some instances, interest
groups may publish proposals in order to influence the policies of competing politi-
cal parties in the lead up to elections (e.g., NCOSS, 2007).
A comprehensive assessment of the capacity of governments to maintain or
enhance services may require not only information about the overall financial posi-
tion of a government, but also about the cash flows required to meet those obliga-
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
tions (such as pensions or health care costs) not recorded as liabilities—a point made
strongly in the U.S. environment by Walker (2004). Arguably, decision makers
should also have regard to information about the physical state of infrastructure
required to deliver those services (see judgment #4), and about the projected costs
of introducing alternative equipment or processes. All of these financial and non-
financial factors would need to be assessed against projected needs arising from
demographic changes. Assessments in relation to specific services may be based on
information provided by the agencies delivering those services—though (if the
information is available) such assessments may be made in the context of the
government’s likely cash flows in the medium to long term.
4. Capacity of a government to continue to provide infrastructure which will maintain
or enhance existing levels of service to the community: Within government, judgments
about the scale of allocations of funds to capital works may be determined by the
premier and treasurer, who establish the broad parameters for a budget. While
members of parliament may be invited to nominate projects for capital works,
decisions about the allocation of funds to specific projects are generally made by the
budget committee on the advice of treasury departments, or special advisory com-
mittees set up for that purpose (see, e.g., Nicholls, 1991b; N.S.W. Treasury,June 2008;
N.S.W. Government, 2008). Government budget papers generally include a separate
volume dealing with capital works.
On occasions, interest groups advocate greater expenditure on capital works (see,
e.g., AusRAP, 2007; ACOSS, 2006; NCOSS 2008). Proposals to cut existing levels of
service, or to vary prices so as to create incentives for reduced consumption, may
also promote discussion within the community on infrastructure. Parliamentary
committees and officers with an oversight role have promoted the idea of developing
state-wide plans for future investment in infrastructure (see S.A. PAC, 1987, 1988;
N.S.W. PAC, July 1993, N.S.W. Audtor-General, 2005) and such proposals have been
implemented through the development of ‘state plans’ (see, e.g., N.S.W. Govern-
ment, 2006; N.S.W. Treasury, June 2008) or policies on ‘total asset management’
(N.S.W. Treasury, May 2008). When such exercises are undertaken experience sug-
gests that political imperatives may prevail, as published plans highlight capital
projects that are expected to have electoral appeal, often with little or no attention
being devoted to expenditure to remediate or upgrade legacy infrastructure.
5. Performance of a government in maintaining the infrastructure required to deliver
services to the community: Present reporting arrangements by governments do not
include the presentation of assessments of the physical condition of infrastructure
assets (for a review of reporting options, see Walker et al., 2000). Reports dealing
with the management of infrastructure assets have been provided by state Public
Accounts Committees (see, e.g., S.A. PAC, 1988; N.S.W. PAC, July 1993) or public
servants (e.g.,Woods, 1991).Some studies have suggested that a lack of coordination
of the plans of individual agencies could lead to peaks in demand for capital to fund
asset replacement (e.g., S.A. PAC, 1987). The Commonwealth Auditor-General has
advocated that ‘annual budget papers should highlight infrastructure spending
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
undertaken on an annual basis so as to enable the public to determine the extent to
which future generations are being asked to pay for the recurrent operations of
today’s generations’ (ANAO, 1993, p. xiii). In response, the Commonwealth Treasury
noted that there was no accepted definition of what constituted infrastructure (as
opposed to capital works; the Department of Finance noted that ‘the substantial
majority of public sector capital outlays occur at the State/local level’). The ANAO
acknowledged difficulties but observed that there is presently ‘little accountability
for the physical condition or effectiveness of use of infrastructure which can lead to
doubt whether infrastructure expenditure is maintained at appropriated levels in the
generational context’ (p. xiv). Politicians or media commentators have also referred
to problems arising from backlogs of maintenance (e.g., N.S.W. Commission of
Audit, 1988; N.S.W. Government, 1990; N.S.W. Auditor-General, 2001).
6. Manner in which a government is pricing services: Some governments have articu-
lated pricing policies for services provided by NFPTEs (e.g., price increases will be
limited to increases in the Consumer Price Index (see e.g., N.S.W. Treasury, 1991,
2001) Other governments have established agencies to review or recommend pricing
practices for their own agencies (e.g., U.K. Oftel, Ofgas; N.S.W. Independent Pricing
and Regulatory Tribunal).
While PTEs generally are treated as being outside the ‘budget sector’,government
budget papers commonly include commentaries on the performance of those enter-
prises. Further, special-purpose reports describing the performance of PTEs and
trends in prices over time have been issued by governments either individually (see
e.g., N.S.W. Treasury, 1992, 2005) or collectively (see SCONPMGTE, 1993; SCRGSP,
2005). Reports on the performance of PTEs have also been published by the Indus-
try Commission (1990, 1992), the Economic Planning Advisory Committee (EPAC,
1992) and the Productivity Commission (2005).
The presentation of budget papers that encompass both government departments
and public-sector enterprises appears to have been first adopted by a territory
government (see Northern Territory Budget Paper No. 2, 1992–93). Others have
followed suit.
7. Extent to which a government is subsidizing the cost of services that are sold to the
community: The extent of subsidization has been addressed in a range of articles or
special purpose reports dealing with specific services or industries (see, e.g., White-
man, 1988; Bureau of Transport & Communication Economics, 1989; Brew, 1991).
During the 1990s a series of reports from parliamentary committees examined the
cost of community service obligations (e.g.,Victorian Economic and Budget Review
Committee, 1991; JCPA, 1992; N.S.W. PAC, January 1993), while the Steering Com-
mittee on National Performance Monitoring of Government Trading Enterprises
produced a report on the cost of government business of providing community
services (Steering Committee, 1994).
Some Australian governments adopted the practice of identifying CSOs and then
‘funding’ them directly from budgetary allocations (see N.S.W. 1993–94 Budget
Paper No. 2). It has been claimed that the aim of this practice is to ensure that
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
managers of government agencies face ‘clear objectives’ (N.S.W. Treasury, 1993).
However, the process of identifying and then ‘costing’ CSOs may involve arbitrary
assessments (Walker, April 1992). Moreover, an activity (such as providing rail
freight for grain crops) might be regarded by one side of politics as core business,
and by the other side as a CSO. Possibly classification as a CSO means that a
particular service is subject to ongoing scrutiny of how they are defined, funded and
delivered (see e.g., Queensland Treasury, 1999, National Competition Council, 1999;
Western Australia Treasury 2000).
All general government agencies are (by definition) primarily reliant on budget-
ary allocations to provide services—but they do not necessarily sell those services to
individuals within the community. On the other hand, some government trading
enterprises (e.g., those engaged in public transport) may also be primarily reliant on
subsidies (variously described as operating grants, CSOs, or pensioner concessions)
but the extent of these subsidies may not always be apparent from the annual reports
of those agencies
8. How a government has spent taxpayer’s funds (and any borrowings): Govern-
ments have traditionally produced annual budget papers, and periodic financial
reports (monthly or quarterly) which summarize the financial results of activities,on
a cash basis (or modified cash basis).14
These statements form the basis of most media comment on government financial
activities. Indeed, even though different Australian state governments have adopted
widely different assumptions about the scope of the reporting entity when reporting
their budget results, most media commentators appear to take the figures at face
value, and even offer observations on the relative merits of budget strategies, on the
basis of data compiled in quite inconsistent ways.
The cash-based reports of past financial results which are presented in annual
budget papers are unaudited. Subsequently governments publish the public
accounts or treasurers’ annual financial statements which have been examined by
the auditor-general. However, under present arrangements these public accounts of
many states relate to the results of the consolidated fund and trust funds rather than
to the whole of the budget sector or general government. Moreover,when published,
these reports contain old news and attract little attention unless the auditor-general
discloses departures from parliamentary appropriations (see judgment #10, below).
In 1993–94 the N.S.W.Public Accounts for the first time covered the Budget Sector
and were prepared on an accrual basis. Subsequently other states and the Common-
wealth have followed suit.
9. Whether a government is incurring obligations which will impose burdens on
future generations: Arguments about inter-generational equity have mainly concen-
trated on the build-up of liabilities—a phenomenon which has not been reflected in
14 Generally Australian governments have recorded wages and salaries on an accrual basis (to avoid the
distortions arising from having varying numbers of pay periods in a calendar year). Some forms of
‘modified’ accrual accounting restricted accrual techniques to financial assets and liabilities. See
Nicholls (1991a).
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Journal compilation © 2009 Accounting Foundation, The University of Sydney
cash-based reports on budget results. Such issues have been addressed by Auditors-
General (see, e.g., ANAO, 1993). Parliamentary committees (see, e.g., N.S.W. PAC,
1984), or special reports, often commissioned by incoming governments (see, e.g.,
N.S.W. Commission of Audit, 1988; Victorian Commission of Audit, 1993; Report of
the Independent Commission, W.A., 1993).
Commonly, the significance of figures for aggregate liabilities (or net
liabilities—net of financial assets) is considered by reference to benchmarks, such as
Gross National Product or Gross State Product (see, e.g., Nicholls, 1991a).
10. Whether there has been compliance with parliamentary appropriations: The West-
minster system of government requires that allocation of resources to agencies be
subject to parliamentary oversight. IFAC (1991) claimed that a common objective of
presenting information was to enable assessments to be undertaken of ‘whether
resources were obtained and used in accordance with the legally adopted budget’
and ‘whether resources were obtained and utilized in accordance with legal and
contractual requirements, including financial limits established by appropriate leg-
islative authorities’.
Some jurisdictions provide some latitude by automatically providing supply for a
limited period, or by providing advances to the treasurer (to meet the cost of
ongoing programs prior to the budget bills going before parliament, and thereafter
for certain contingencies), or through arrangements whereby certain expenditure
can be undertaken without prior parliamentary appropriation, provided the trea-
surer brings the matter before parliament at a later date. If breaches of these
requirements occur (either by the Department of Treasury or by individual agen-
cies) the matter may be the subject of reports by the auditor-general to parliament.
Correspondingly, an auditor-general may report on departures from parliamentary
limitations on borrowings by individual agencies, either directly or in substance
through use of complex financial transactions.
11. Feasibility of budget policies: Prior to the preparation of an annual budget, the
formulation of budget strategies and policies is customarily undertaken by an inner
circle of executive government (such as an executive review committee, with the
advice of public servants from central agencies (Departments of Treasury, Finance,
Cabinet, and Premier or Prime Minister). The existence of these committees is
commonly reported in the media.
12. Attractiveness of investing in debt securities issued by governments: Potential
investors in government securities will have regard to the yields available from that
investment, relative to that available from alternative investment opportunities.
Credit rating agencies assign ratings to debt issued by governments or individual
government agencies.
The credit rating of governments may become a political issue and the subject of
ongoing commentary. Before the availability of accrual accounting data,rating agen-
cies attempted to estimate the value of major liability items (see,e.g.,S&P Australian
Ratings, December 1992).
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
In the Australian context, a key factor affecting the revenues of the states and
territories is the manner in which the Commonwealth allocates funds (via general
purposes or tied grants). As one credit rating agency observed, ‘the strong financial
support provided by the Commonwealth government through fiscal transfers to all
states’ is a key factor in establishing the rating of individual states (Moody’s Inves-
tors Service, Credit Opinion, 11 October 2007).
Because of the reliance of the states on these allocations,in practice a state’s credit
rating cannot be higher than the Commonwealth’s.Allocations of funds to the states
and territories are undertaken on the advice of the Commonwealth Grants Com-
mission, and are subject to limited negotiation at annual conferences of the heads of
Australian governments (formerly termed Premiers’ Conference, later described as
the Council of Australian Governments, and including a representative of local
Another key factor is the extent to which states can borrow further funds.
Borrowing arrangements have been regulated by the Loan Council, through the
establishment of global limits for borrowings by individual states after the Com-
monwealth has determined the overall allocation. (For a history, see Senate Select
Committee, 1993.) However, these arrangements have been changed, with a new
system of Loan Council allocations (see Loan Council, 1993).
The ratings agency Standard & Poor’s has claimed that it ‘rates about 190 sub-
sovereign governments in the developed world outside the United States and only
16% are rated AAA’ (Submission to Senate Select Committee on State Government
Financial Management, 19 March 2008).At the time of making this submission most
states and the Australian Capital Territory were rated AAA.
13. Attractiveness of maintaining investment in debt securities issued by government:
The market price of government securities establishes yields to redemption. In most
cases, a downward revision of credit ratings might signify that a ratings agency
considered that there might be some delay in redemption, rather than doubts about
ultimate repayment.
In the Australian environment, the limitations on state borrowings established
by the Loan Council have imposed a discipline that has enhanced the attractive-
ness of government paper. (However, see discussion below in relation to judgment
14. Risk of delays in payment to creditors: As noted above, there may be little risk
that governments may default in payment of their debt; there may be greater risk of
delays in repayment. For those dealing with many agencies,that risk may be remote.
However, some agencies (such as some New South Wales area health boards) have
periodically experienced cash shortages leading to complaints from suppliers about
delays in payment (though arguably these difficulties arise from financial manage-
ment practices by bodies responsible for delivery of politically sensitive services,
rather than the ultimate capacity to pay by government-funded agencies).
In some jurisdictions efforts have been made to impose fiscal disciplines on
government agencies by the inclusion in annual reporting rules of provisions for
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
reports to be provided on performance in paying accounts (see, e.g., N.S.W. Annual
Reports (Departments) Regulation 2005, Schedule 1, ‘Report of Operations’).
15. Oversight of levels of borrowings by a regional (state) government: The Loan
Council arrangements adopted after 1993 provide for quarterly reporting to the
market, supposedly to ensure transparency. However, the proliferation of forms of
off-balance sheet financing designed to avoid the restrictions imposed by the Loan
Council, created challenges. Initially the Loan Council proposed fuller disclosure of
exposures to financial arrangements involving private sector financing of projects,
but this was resisted and by 1995 this commitment to disclose contingent exposures
was abandoned (for a review of this history, see Walker and Con Walker, 2000).
These financing arrangements included BOOT schemes (arrangements whereby a
private sector consortium builds, owns and operates a tollway or other physical
infrastructure, and then transfers it back to government at the end of the defined
term). These may start out as unperformed executory contracts but at least some of
these arrangements may evolve into firm financial commitments once infrastructure
has been constructed, and are in many respects similar to finance leases.The failure of
accounting standards to require disclosure of the scale of what may be, in substance,
liabilities, remains a limitation on the usefulness of public sector consolidated state-
ments as a source of information about the scale of overall public sector indebtedness.
16. Extent to which the public sector is drawing on national savings: It has been
claimed that deficits in the public sector are at the expense of private savings and
investment (Egol, 1988, p. 179) or involve a draw-down of public savings. Such
concerns may shape long-term policy by national rather than state governments,and
policy judgments about these matters are likely to be made with regard to statistical
data concerning economy-wide savings and investing activity—not from accounting
reports. However, recent commentary suggests that sustained large budget deficits
may have a larger impact on long-term economic growth due to their effect on
market expectations and a related loss of confidence ‘both at home and abroad’
(Rubin et. al., 2004).
17. Financial circumstances of (Australian state) governments (vis à vis other Aus-
tralian state governments): Commentaries on the financial circumstances of state
governments are published in the media, while periodic comparative surveys of state
finances have been published by bodies such as the Institute of Public Affairs and
(for more than a decade) by the Evatt Foundation (see, e.g., Shiel, 2006).
18. Financial circumstances of nations (vis à vis other nations): Economic analyses of
the performance of different nations have been assisted by the preparation after
WorldWar II of national accounts,on a relatively-standardized basis.(See Blejer and
Ke-Young Chu, 1988; Guidotti and Kumar, 1991). The trading of government secu-
rities in international markets has created a market for assessments by credit rating
agencies of the capacity of governments to repay debt (and possibly to assess
currency risks).
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Financial information encompassing the general government sector of all Austra-
lian governments (Commonwealth, state, territory and local government) is rou-
tinely compiled by the Australian Bureau of Statistics (see, e.g., ABS 2006). The
information compiled includes a balance sheet, income statement, and statement of
cash flows.
Some general observations are now offered.
First,it is plain that the information which is relevant to many of the judgments set
out in Table 2 is already being provided by budget papers, the annual reports of
individual agencies, or by special-purpose or periodic reports produced by auditors-
general or parliamentary committees.Furthermore, cash-based financial statements,
or other forms of non-accounting financial reports (such as are compiled by the
Australian Bureau of Statistics), are already providing much of the information
which has been identified as routinely relevant.
Second, even for the judgments for which it is hypothesized consolidated financial
statements may convey relevant data, different forms of consolidated statement
(encompassing different sets of entities) may be relevant for different purposes.
One point of detail warranting elaboration concerns the extent to which parlia-
mentarians might be regarded as potential readers of certain kinds of financial
reports. Some contributors to the professional literature have suggested that parlia-
mentarians are insiders if they able to obtain access to financial information about
the affairs of individual agencies. For example, an AARF-sponsored study stated:
‘Collectively, members of Parliament have the power to mandate the form and
content of the financial reports of the government and to require the preparation of
financial reports which address specific matters’ (Micallef et al., 1994, p. 21).
The operative word may be ‘collectively’. In practice, many parliamentarians
(even those who are members of the party in office) do not have better access to
public sector financial reports than ordinary citizens. This is amply illustrated by
television broadcasts of Commonwealth parliamentary proceedings during the
introduction of budget bills: attendants may be seen distributing copies of the budget
papers to backbenchers on both sides of the house.
Hence it seems reasonable to suppose that parliamentarians may find that reports
which provide an overview of the financial activities in the public sector are useful as
a guide to the financial circumstances of the government of the day, and about trends
in those financial results.
The previous section reviewed judgments which might be made by prospective
classes of users, and noted some evidence concerning the way information relevant
to those judgments is currently presented—pointing to items of relevant information
that could be provided by some form of consolidated statement.This section reviews
several issues which emerge from the foregoing: (a) the scope of consolidated
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
statements and the selection of supplementary consolidated statements; and (b) the
boundaries of the government reporting entity (n.b., including whether consolida-
tion should encompass various forms of trust accounts).
If a single objective of preparing accrual accounting consolidated statements was
specified, then it would be possible to develop a clear statement about the area of
consolidation (i.e., the scope of the reporting entity). If consolidated statements are
intended to serve several purposes, then the choice of the area of consolidation may
involve trade-offs between the interests of different users of those reports.
For example, the area of consolidation could be determined by identifying what
form of presentation provides information which is relevant to:
judgments routinely made by all persons belonging to a class identified as primary
judgments routinely made by most potential users;
judgments made by most potential users—regardless of whether those judgments
are made routinely or not;
and so on. Inevitably, the presentation chosen will not provide information relevant
to some judgments faced by some parties.
However, the above observations assume that a single set of consolidated state-
ments are to be prepared—not (for example) multi-column consolidated statements
prepared on differing bases. Much of the literature on the application of consolida-
tion accounting to the private sector proceeded on the basis that only one presen-
tation could be chosen (see Walker, 1976, 1978). Since that time, private sector
financial reporting has evolved, so that company reports may present multi-column
financial statements showing results on a conventional and equity accounted basis;
components of the same data may be disaggregated in reports on the performance
of segments. Correspondingly, it may be possible to prepare sets of consolidated
statements in the public sector, possibly supplemented with accompanying sched-
ules, to ensure the presentation of information deemed relevant to most of the
judgments made by most users.
But what information is relevant to most of those judgments? Table 3 summarizes
the material from Table 2 by listing only those judgments that may be made routinely.
It has been claimed that consolidated statements for whole of government should
be regarded as general purpose financial statements. However, Tables 2 and 3 place
those claims in perspective. While it has been asserted that general purpose finan-
cial reports are relevant to a range of users making a range of judgments, closer
examination of many of the judgments identified in Table 2 indicates that the pre-
sentations of whole public sector consolidations (in the sense of reports relating to
all Commonwealth, state or territory agencies) may not be routinely relevant to all
categories of potential users.Table 2 also highlights the wide range of potential users
of financial information which have quite specialized interests in financial data about
the public sector.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
One conclusion which might be drawn from this analysis is a variant of the familiar
proposition that different forms of data are relevant for different purposes. The
variant (or, rather, extension) is that different forms and arrangements of data are
relevant for different purposes. Some of those forms or arrangements of data would
be routinely relevant to decisions faced by some users; some data would be relevant
only occasionally, or in particular situations.
Looking more closely at Table 3, several of those routine judgments (judgments
#6 and #7) might be eliminated on the basis that an aggregated report might be less
useful (and less relevant) to most stakeholders than a detailed analysis of the
accounts of individual agencies. To illustrate: interest groups concerned with (say)
public transport would obtain information relevant to their concerns from the
financial statements of agencies actually providing those services rather than from a
consolidated statement that also encompassed agencies providing public housing, or
advice to primary producers.
Table 3
Judgment Area of consolidation
1. Results and sustainability of a
government’s financial management
General government agencies
Whole (Commonwealth, state or territory) public
3. Capacity to continue to deliver existing
levels of services (or to enhance those
General government agencies
Non-financial PTEs sector
Whole public sector
6. Manner in which government is pricing
Non-financial PTEs sector, combined with other
agencies which sell or provide services
7. Extent to which a government is
funding or delivering subsidised services
All agencies that sell services and are subsidised
8. How government has spent taxpayers’
funds and any borrowings
General government agencies and all non-financial
9. Whether a government is incurring
obligations which will impose burdens
on future generations
Whole public sector
12. Attractiveness of investing in
government securities
Whole public sector
13. Attractiveness of maintaining
investment in government securities
Whole public sector
17. Financial circumstances of regional
governments vis à vis other regional
(state) governments
State public sector and local government (together
with separate consolidated statements for ‘whole
public sector’, general government sector and
non-financial PTEs sector)
18. Financial circumstances of nations vis à
vis other nations
Whole national public sector (encompassing
Commonwealth, state, territory and local
Note: numbering refers to the judgments in Table 2.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Hence it is suggested that the forms of reporting which would provide financial
information relevant to the routine judgments made by a range of prospective users
are as set out in Table 4.
Even then, it may not be cost-effective to present so many sets of financial
statements. For example, while it can be argued that a whole national public sector
consolidation would provide relevant information for the purpose of comparing the
financial circumstances of nations, it may not be considered worthwhile for indi-
vidual national governments to prepare that type of report unless there was agree-
ment that other nations would do the same. Similarly, while it can be argued that
a state public sector and local government consolidation would convey relevant
information for the purpose of comparing the performance of regional governments,
it is likely that such high level comparisons could be undertaken by reference to
some key financial aggregates or indicators (levels of liabilities, liabilities per capita
or relative to Gross State Product, percentage of revenues allocated to new invest-
ment in infrastructure as opposed to recurrent spending, and so forth). That infor-
mation may be more conveniently presented in the form of statistical data, as
available in Australia from the ABS.
However, the focus here is on the criteria for identifying the scope of each of the
main classes of consolidated statements that would produce information identified
as routinely relevant.The foregoing analysis of users and potential uses, suggests that
the optimal form of reporting by national, state and territory governments would
take the form of ‘whole public sector’ reports, accompanied by consolidated state-
ments encompassing both the general government and the non-financial public
trading enterprise sectors.
It must be recognized that competing rationales for the determination of the
scope of public sector consolidated statements have been presented. Some account-
ing standards dealing with whole of government consolidated statements have
incorporated a test of control (e.g.,Australian standard AAS 31, 1996, 1998; IPSAS
6, 2000).On the other hand, the U.S.A.’s GASB has emphasized that the appropriate
Table 4
Level of government Scope
Commonwealth Whole national public sector (Commonwealth, state, and local government)
Whole (Commonwealth) public sector
All (Commonwealth) general government agencies
All (Commonwealth) non-financial PTEs
State State public sector and local government
Whole (state) public sector
All general government sector agencies
All non-financial PTEs
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
tests for determining the scope of the government reporting entity should be based
primarily on the notion of ‘financial accountability’ (GASB Statement 14,1991). HM
Treasury, for its part, largely avoided such difficulties by discussing the potential
scope of consolidation by describing three categories of agencies or entities—central
government, local authorities and public corporations15—and noting that ‘consoli-
dation covering the whole public sector would therefore include of the order of 1,450
entities’ (1998, p. 24).
The significance of adopting one rather than another approach—determining
boundaries by reference to control or accountability—can be examined by consid-
ering which test is likely to generate relevant information. But first it is worth
recalling the rationale for the widespread use of the control test.
In the private sector, Walker (1978, pp. 261–65) observed that the techniques of
consolidation accounting were developed in response to differing concerns. In the
U.S.A., the earliest uses of consolidation accounting were intended to encourage
public investment by demonstrating that sets of companies and related trusts com-
prised a major enterprise. Later, institutional factors reinforced the view that con-
solidated statements were desirable reports, including the levying of excess profits
tax on groups of affiliated companies, thus requiring the use of a form of consoli-
dated report. The aim of providing the means of assessing the credit-worthiness of
holding companies or subsidiaries also came to be significant. The use of consoli-
dated statements had become part of U.S. practice by the 1930s, though it was only
in the late 1930s that any extended attempt was made to analyse in any detail the
aims of consolidated reports.
In contrast, in the U.K. the advocacy of consolidated statements was a response to
concerns about the limitations of financial statements in which inter-corporate
investments were valued at cost (or derivatives of cost) and revenues from those
investments were recognized only to the extent that dividends were received from
investees. Consolidation accounting was regarded as one option, along with the
separate presentation of the financial statements of holding and subsidiary compa-
nies, or what is now known as equity accounting (see Garnsey, 1923).
Again drawing on Walker (1978),during the 1920s major corporate collapses (the
Insull and Kreuger groups in the U.S.A., the Royal Mail in the U.K.) appear to have
15 Agencies to be included were as follows (pp. 22–23):
1. Central government: the core government, comprising transactions and balances relating to the
National Loans Funds and Exchange Equalization Account, funds operated by the National
Investment and Loans Office, and elements of the consolidated fund; government departments,
their on-vote executive agencies, and non-executive non-departmental public bodies (NDPBs);
executive NDPBs; central government employees’ pension schemes; National Health Service
entities not included in departmental resource accounts other than NHS trusts.
2. Local authorities: unitary councils, county councils, metropolitan borough councils, London
borough councils, the corporation of London, district councils; fire, police, probation committees;
conservation boards etc.; Scottish and Welsh unitary councils and Northern Ireland councils; local
education authority schools.
3. Public corporations: nationalized industries, other public corporations; trading funds.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
reinforced arguments about the merits of consolidation accounting as a means of
overcoming the distortions that could arise from inter-company transactions
between controlled subsidiaries and the limitations of cost-based accounting and
dividend-based revenue recognition in general.
However, the technical literature came to reflect differing views about the objec-
tives of consolidation accounting—and hence about the relevant area of consolida-
tion. Walker (1978) concluded that until the 1960s, British and Commonwealth
regulations maintained different options for the presentation of group accounts,
reflecting an ongoing view that consolidated reports were intended to amplify the
accounts of a parent company. In contrast,while U.S. technical literature initially saw
that percentage share ownership should determine the ambit of consolidation, texts
began describing these reports as analogous to branch accounting, whereby a set of
companies was treated ‘as if they were a single entity’. The analogy was then
reinterpreted as a rationale for consolidation accounting: the purpose of these
reports was said to be to present the affairs of a holding company and its subsidiaries
as if they were a single entity.
Possibly for this reason, U.S. technical debate turned to consideration of how to
identify whether a set of companies were acting in concert as a single entity, or a
single economic entity. Possibly, the New Deal political objectives of regulating
public utilities had some influence on accounting ideas, particularly in encouraging
the suggestion that the reports should concern the performance of an economic
entity. In that debate, some argued that a distinguishing feature of an economic
entity was similarity of business activities—a rationale that would later be inter-
preted as excusing parents from consolidating their finance subsidiaries (a practice
later seen as leading to the presentation of financial statements that were
misleading—see, e.g., Heian and Theis, 1989). Others argued that the appropriate
criterion for determining whether a set of companies should be regarded as a single
entity was whether they were subject to common control, regardless of the nature of
their activities.It is a matter of record that the notion that the ambit of consolidation
should be determined by reference to control has prevailed on both sides of the
Atlantic, and has been reflected in local and international accounting standards for
private sector entities (e.g., Australian standards AAS 24, 1990; AASB 127, 2008;
international standards IAS 3, 1976; IAS 27, 1989; IPSAS 6, 2000).
However, arguments that the same criteria should be translated to the public
sector (arguments implicit in claims about the need for sector neutral accounting
standards) can be seen as an illustration of confusing processes with objectives.
Arguably, one should start with a consideration of objectives, and then adopt
criteria that are consistent with the selected objective.
For example, if the objective is to present a view of the financial circumstances of
nations (judgment #18 above), then, as indicated in Table 3, it would be appropriate
to consolidate Commonwealth, state and local governments—even though Com-
monwealth governments do not control the finances or the operations of state
governments. This is consistent with the observations of the U.K.’s HM Treasury,
which saw whole of government accounts as revealing information about a govern-
ment’s national fiscal policies—with the implication that public sector consolidated
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
statements should encompass bodies that ‘exercise functions of a public nature’ or
that are ‘entirely or substantially funded from public money’ (HM Treasury, 2008,
Ch. 1 p. 3).As noted above, this would extend the ambit of consolidation to local and
devolved governments. Whether there was a relationship of control between these
different governments would not be relevant.
A second example: if the objective of public sector consolidations is to assess how
a Commonwealth or state government has spent taxpayers’ funds and any borrow-
ings (judgment #8, above), then the focus of attention would be on the financial
affairs of agencies that are part of the commonwealth or state government (such as
government departments), together with other agencies that have been established
by those governments.
A third example: if the primary focus of (some) potential users of financial
information was on comparing the financial circumstances of regional governments
(judgment #17 above) then the financial statements of state or territory governments
should be consolidated with those of local governments. In Australia, local govern-
ment has ‘a limited constitutional position... being organized under state or terri-
tory legislation’ (ABS, 2006). In summary, local governments are not really
governments, as they do not enact legislation and they are far from autonomous.
State governments can dismiss councils and appoint administrators. They may also
amalgamate councils into new entities. They can enact legislation compelling local
councils (or country councils) to acquire or divest assets or to assume certain
responsibilities. In some Australian jurisdictions (notably New South Wales) the
revenues derived by local governments from property taxes are subject to rate
pegging. In short, local governments are controlled by state governments. But the
grounds for consolidating the financial statements of local and state governments
would be derived from objectives, not a test of control.
Clearly, different criteria for identifying the scope of public sector consoli-
dated statements would be appropriate, depending upon the objectives of those
Table 4 listed eight major options for the scope of public sector consolidated
statements in order to provide information that is routinely relevant to major
judgments likely to be made by potential users of aggregative financial informa-
tion about the position and performance of different governments. Two of these
(those relating to the ‘whole national public sector’ or the ‘whole state public
sector’) reflect concerns with the overall performance of a national government
vis à vis other nations, or of regional governments vis à vis other regional
Another two of the eight major options reflect concerns with the accountability of
elected governments (and hence countenance consolidation of the whole public
sector at Commonwealth or state level).
The remaining four options are essentially supplementary reports covering the
general government or non-financial PTE sectors of those governments.
Looking in more detail at the scope of whole public sector statements, there may
be some agencies—trusts or special purpose entities—whose treatment may require
careful consideration, and be debateable. Some examples follow:
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
School maintenance accounts: Government schools may be assisted in their activi-
ties by the fund-raising efforts of parents and others to contribute to the mainte-
nance or improvement of physical infrastructure. Nominally ‘school maintenance
accounts’ are controlled by those parents and citizen committees, but those
resources are earmarked for application to the government-owned schools. Inter-
pretation: once contributed, those resources are assets of the public sector, and the
funds held in trust should be included in the accounts of the agency
providing educational services and also included in public sector consolidated
Trusts holding unclaimed moneys: Statutory requirements are that certain
unclaimed moneys are to be held in trust for a period, and if still unclaimed, then
paid to the consolidated fund. Interpretation: those trusts are controlled by govern-
ment, and government may theoretically have the power to seize those assets at an
early date through the passage of legislation. Yet political realities are that this
would be unlikely. While government is accountable for its stewardship of these
funds, the funds are not available for government use until statutory periods expire.
As previously noted, the trusts should not be consolidated.
Public guardianship trusts: Government has accepted responsibility to manage the
financial affairs of persons who, because of intellectual or other incapacity, are
unable to manage their own financial affairs. The assets of those persons are held in
trust by a ‘public guardian’ or similarly named entity. Interpretation: While these
trusts are controlled by government, and governments are accountable in a general
sense for stewardship of the resources held in trust, the public sector has no benefi-
cial interest in those resources. Those trusts should not be consolidated.
Trusts holding other assets: Trusts are often used as vehicles to manage public sector
assets, ranging from areas that might be described as national parks, some heritage
assets (such as historic buildings) and major playing fields (such as the Sydney
Cricket Ground), to local sports fields or cemeteries. Use of trusts may be a conve-
nient way to ensure local community or interest group participation in the manage-
ment of the affairs of these assets. However, they remain custodians of public assets,
and governments generally have the right to select and appoint trustees. Interpreta-
tion: These trusts should be consolidated.
Non-government organizations (NGOs) and public housing: A recent practice has
been that state government agencies have assigned public housing assets to special
purpose entities in the form of NGOs,which may be structured as cooperatives or as
incorporated charities. The NGOs then rent the properties to persons on low
incomes. Government agencies do not select members of the governing bodies of
those NGOs. However, the process of assigning housing assets to NGOs is intended
16 Similar considerations may apply to funds raised by bodies that operate as ‘friends’ of government
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Journal compilation © 2009 Accounting Foundation, The University of Sydney
to ensure that services are provided to the community, and the government agencies
may have rights to assume management control of the transferred assets. Interpre-
tation: If the majority of the assets of those NGOs were acquired using resources
contributed by taxpayers or from other charges, the financial statements of the
NGOs should be consolidated to ensure that government stakeholders are informed
about the assets and liabilities and financial performance of government. This inter-
pretation is reinforced if the NGO’s ongoing revenue stream is enhanced by statu-
tory requirements for property developers to make contributions towards low
income housing as a condition of development approval, whether those contribu-
tions come directly to the NGOs or are handled through local councils.
Entities established to manage compulsory insurance schemes: Governments may
establish insurance schemes whereby levies are imposed on employers to meet
commitments (established by statute) to injured workers. Those schemes may be
managed by government-appointed boards. Actuarial assessments may be under-
taken to assess whether resources in hand are held are adequate to meet emerging
claims and to determine whether levies (commonly expressed as a percentage of
employees’ salaries) are adequate. Those levies come primarily from private sector
employees. Interpretation: These schemes (however constituted) are controlled by
government. Governments are also accountable for the conduct of these schemes,
and the adequacy of their funding (and any government agencies that are partici-
pants in these schemes are exposed to increases in levies if resources held by the
schemes are inadequate). Those entities should be consolidated.
Public sector superannuation schemes: Governments may have established pension
schemes for public sector employees, and appointed persons to act as trustees (or
directors of incorporated trustee entities). Schemes may broadly be classified as
‘accumulation’ or ‘defined benefit’ schemes. In both accumulation and defined benefit
schemes, funds are held in trust on behalf of employees, pensioners (or their benefi-
ciaries), and the public sector has no residual interest in trust assets. In defined benefit
schemes, the government as employer has an obligation to make up any shortfall in
order to meet the fund obligations; in some circumstances over-funding in a defined
benefit scheme may revert to government control. Interpretation: While the liability
or asset associated with under- or over-funding of defined benefit schemes should be
reported as a liability or asset in the accounts of individual agencies (or in a public
sector consolidated statement), inclusion of the significant assets and liabilities of
superannuation funds in a public sector consolidated balance sheet would materially
distort representations of a government’s financial position, as those assets or liabili-
ties cannot be applied for use by any public sector agencies to provide other (non-
superannuation related) services to any section of the community.
State or Commonwealth funded universities: Many Australian universities were
established by state legislation (and as such, their governing bodies include a sig-
nificant but not a majority of government appointees). For decades,the bulk of their
funding came from government grants—from the Commonwealth rather than the
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
state governments under whose jurisdiction they fell.This division of responsibilities
establish forms of checks and balances that may well have contributed to the
operational independence of universities. However, a change in Commonwealth
government policy led to a reduction in grants to universities, compelling them to
place greater reliance on student fees (or investment income) to fund their opera-
tions.While those universities are not controlled by governments, and are no longer
financially dependent on government (in the sense of deriving a majority of their
revenues from that source), arguably the community sees universities as public
institutions, and a resource of the public sector. They may not be controlled or
financially dependent, but they remain a beneficiary of public funding and as such
would be regarded as accountable to the broader community.
Table 5 summarizes the foregoing observations about whether the inclusion of
certain agencies in public sector consolidated statements would generate informa-
tion relevant to routine decision making.The headings used partly reflect the tests of
control invoked by some accounting standards on public sector consolidation (e.g.,
AAS 31, 1998; IPSAS 6, 2000; AASB 1049, 2007), or are suggested by the specifica-
tion of the government financial reporting entity such as in GASB Statement 14
(1991) in terms of tests of financial dependency and accountability.17
The Table 5 summary suggests that tests of control of a governing body are not the
appropriate basis for determining the scope of public sector consolidated state-
ments. Nor do notions of financial dependency via budgetary allocations constitute
a necessary feature (as would be more obviously apparent if Table 5 had included
public trading enterprises, rather than focus on the treatment of contestable cases).
In any event, the notion of financial dependency is problematic. GFS tests for
dependency relate to the majority of revenues; however, an agency receiving only,
say, 10 per cent of its revenues from government budgetary allocations may be
dependent on that funding for survival.
It seems incontestable that, as a minimum, the scope of a public sector consoli-
dated statement for a state or nation government would encompass:
1. Government departments or general government agencies that are primarily
dependent on funding from taxes and related charges, via budgetary allocations;
2. Government-owned and controlled public trading enterprises (operating in both
financial and non-financial sectors) generate the majority of their own revenues
via user charges.
The foregoing analysis suggests that the following should be added:
1. Government-established entities that generate revenues from fees,levies or com-
pulsory charges (whether controlled by a government-appointed governing body,
or not);
17 GASB Statement 14 (1991) emphasizes tests of accountability, rather than control. It states that ‘the
financial reporting entity’ consists of ‘(a) the primary government, (b) organizations for which the
primary government is financially accountable, and (c) other organizations for which the nature and
significance of their relationship with the primary government are such that exclusion would cause the
reporting entity’s financial statements to be misleading or incomplete’. For a discussion, see Granof
(1998, Ch. 12).
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Table 5
Relevance of
consolidated data to
identified routine
Control: appoint
majority directors/
Control via
Community expectations
to be accountable via
reports on government
School maintenance accounts
Funds contributed by ‘friends’ of hospitals,
government libraries, etc.
#1, #3, #7 ✕✕✕ ✕
Trusts—unclaimed moneys ✕✓✕ ✕
Trusts—guardianship ✕✓✕ ✕
Trusts—holding other assets #1, #3, #7 ✓✓✕ ✓
NGOs and public housing assets #1, #3, #7 ✕✕?
Insurance schemes #6 ✓✓✕ ✓
Marketing boards #9, (#3?) ✕✓✕ ✓
Pension funds—accumulation ✓✓✕ ✕
Defined benefit ✓✓?
State universities #3, #6, #7 X ?
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
2. Entities that hold assets that have been contributed to assist government agencies
to provide services to the community (directly or indirectly);
3. Entities that have incurred obligations that will be satisfied from the resources of
These conclusions differ significantly from those reflected in prior studies that
have recommended that the test of control be applied to determine the scope of
public sector consolidated statements (IFAC,2005, p. 25; see also AASB 1049, 2007).
As noted above, this may well reflect a long tradition in accounting of focusing on
processes (trying to find a suitable test for determining the ambit of consolidated
statements) rather than focusing on objectives, and examining in some detail what
information would be relevant to different users and uses. It might be noted that
IFAC (2005) approached the issue from the perspective of harmonizing GAAP with
GFS—rather than working from first principles as to what information was relevant
to decision making.
Some of the above conclusions are similar to those reached by the U.S.A.’s GASB
in its Statement 14 specification of the scope of the government ‘financial reporting
entity’ (albeit in the context of preparing general purpose financial statements that
provided a ‘combined statements overview’ of reports on sets of funds).The GASB’s
reasoning focused not on decision-usefulness but on financial accountability.
Explanatory material in GASB 14 elaborated on the notion of financial account-
ability as follows:
a. The primary government is financially accountable if it appoints a voting
majority of the organization’s governing body and (1) it is able to impose its
will on that organization...or(2)there is a potential for the organization to
provide specific financial benefits to, or impose specific financial burdens on,
the primary government.
b. The primary government may be financially accountable if an organization is
fiscally dependent on the primary government regardless of whether the orga-
nization has (1) a separately elected governing board, (2) a governing board
appointed by a higher level of government, or (3) a jointly appointed board.
(para. 21)
Organizations that were controlled (in the sense that government could appoint the
majority of the governing board) but did not meet the two subsidiary tests outlined
in paragraph a above, were to be regarded as ‘related organizations’ but were not to
be incorporated in the primary government’s financial statements (see Granof,1998,
p. 494). Further, the standard elaborated on the concept of ‘financial benefit or
burden’, as follows:
An organization has a financial benefit or burden relationship with the primary
government if any one of these conditions exists:
a. The primary government is legally entitled to or can otherwise access the
organization’s resources.
b. The primary government is legally obligated or has otherwise assumed the obli-
gation to finance the deficits of,or provide financial support to,the organization.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
c. The primary organization is obligated in some manner for the debt of the
organization. (para. 27)
While the outcome of applying the tests embodied in GASB 14 are similar in some
respects to the conclusions reached in this article, the GASB’s analysis was based on
considerations of accountability, not the relevance of data to judgments routinely
made by stakeholders. It should not be surprising that, in some respects, those
considerations intersect.
The foregoing Table 4 analysis suggested that some judgments potentially under-
taken on a routine basis by users of public sector financial statements would be
assisted by the provision of supplementary consolidated statements encompassing a
jurisdiction’s general government sector or non-financial public trading enterprise
Recent accounting standards are consistent with this conclusion—although only
in part. But first, some background. As was discussed in judgment #1 above, the lack
of consistency between state governments in the identification of the budget report-
ing entity was the subject of some political controversy in Australia in 1991, leading
to an agreement between states to work towards consistency in presentation. In
practice, that involved some states continuing their own practices but only providing
a reconciliation of reported budget projections with those that would have been
provided had the budget encompassed all of the general government sector as
defined in Government Finance Statistics.
In 2002 Australia’s Financial Reporting Council18 noted that practices had devel-
oped whereby governments were producing financial statements (reporting actuals,
not budget projections) based on generally accepted accounting principles while
budget documents included financial results based on a GFS framework. Following
submissions by governments in Australia and other stakeholders with an interest in
public sector financial reporting, the Council directed the AASB to pursue as an
urgent priority the harmonization of Government Finance Statistics (GFS) and
Generally Accepted Accounting Principles (GAAP) reporting (FRC Bulletin
2002/5, 18 December 2002).
IFAC’s Public Sector Accounting Standards Board, for its part, also adopted as a
priority the convergence of accounting standards with ‘statistical bases of financial
reporting’ and in 2004 the re-named International Public Sector Accounting
Standards Board (IPSASB) initiated meetings of international organizations and
regional government agencies or standard-setters and some national bodies to com-
mence this process. IFAC (2005) analysed differences and proposed, inter alia, that
general government sector information should be ‘allowed’ or‘encouraged’ in whole
of government general purposes financial statements, and that in these reports,
18 The Financial Reporting Council was a Commonwealth body established by theAustralian Securities
and Investments Commission Act 2001 to determine the broad strategic directions of the Australian
Accounting Standards Board, and to appoint members to that body.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
‘investments in controlled entities in other sectors’ be accounted for on a partial
consolidated basis and measured at the proportional interest in net assets (p. 6). It
was also suggested that disclosures about ‘other sectors’ should be allowed or
The substantive outcome of these plans about reconciliation of standards-based
accounting with GFS reporting was the issue by the AASB of an accounting stan-
dard AASB 1049, Financial Reporting by General Government Sectors of Govern-
ment (September 2006), followed later by a revised version ofAASB 1049, Whole of
Government and General Government Financial Reporting (October 2007). The
main elements of these standards concerned the specification of different sectors of
government in terms of Australian interpretations of SNA 93, restrictions on the
publication of a general government sector (GGS) consolidation before a whole of
government consolidation was published, and the specification of how investments
by GGS entities in other government agencies were to be valued and reported. The
stated aim was to harmonize GFS and GAAP disclosures. In the event, AASB 1049
only required the provision of reconciliations of key fiscal aggregates with those that
would be calculated in terms of the ABS’s GFS Manual.
However, neither IFAC nor AASB (or other standard-setters) have yet to issue
standards covering separate consolidation of PTEs—even though, as noted here, the
case for the preparation of such as statement is equally compelling.
The case for presenting supplementary GGS and PTE sector reports was outlined
in an earlier version of this article (Walker, 1995b). The AASB and IFAC publica-
tions have proceeded on the basis of harmonizing accounting standards with GFS
(convergence) but have focused on reconciling concepts rather than arguing from
considering what information would inform decision making. However, the main
rationale for producing a GGS consolidated statement is that it could be read in
conjunction with the formal budget previously introduced in parliament by the
treasurer of the government of the day. Australian governments prepare budgets on
an accrual basis, and while these documents incorporate data about budget results,
these are unaudited estimates based on year-to-date data and projections compiled
when budgets are finalized four to eight weeks before the end of the financial year.
A consolidated statement on a GGS basis would report actual results (and those
reports could be audited).19
It seems reasonable to rely on the UN or IMF definitions of the general govern-
ment sector which are based on the extent of reliance of agencies upon funding from
taxes. However, in light of the foregoing discussion, suggesting that tests of control
are less relevant than other factors,it remains of concern that the IFAC (2005) paper
has sought to influence national accounting by proposing that the convergence
process should develop ‘common tests of control/boundary of the public sector and
GGS’ (p. 7). Application of a test of control will exclude from the boundaries of the
GGS those agencies that have been deliberately established so as to avoid
19 The treatment of the GGS not as a branch of government but as a parent entity (as advocated by
IFAC, 2005, and reflected in AASB 1049, 2007), so that interests in PTEs would be shown as
investments to be valued at net asset values rather than on the basis of equity accounting, is consistent
with this approach, since it enables readers to compare budgets with budget results.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
government control of their governing bodies—an exclusion (it is argued here) that
may not be appropriate.
The focus of much political or media attention is on annual government
budgets—and on whether they represent a surplus or deficit. Standardizing the
scope of the agencies to be encompassed by those budgets on the general govern-
ment sector may avoid year-to-year manipulations of those results, and enable users
of those reports to make considered judgments on the basis of information prepared
on a consistent basis.
However, standardizing the area of consolidation may not be sufficient to ensure
that budget projections or associated budget results are not subject to manipulation.
A common form of manipulation arises from inter-sector transactions, or the push-
down of unfunded mandates. Indeed, it is contended that it is necessary for an
understanding of government finances to be able to identify the impact of the
transfer of resources between the general government and other sectors.
To illustrate, the following are some Australian (N.S.W.) examples of inter-sector
transactions. The scale of the transactions may not seem significant, relative to the
scale of the funds reportedly located through the budget process in some countries
(or, for that matter, in contemporary Australia). But they indicate how such trans-
actions can be used in the public sector equivalent of private sector earnings
In 1987–88 the NSW Government’s receipts were outstripping those projected in its pre-
vious Budget. It chose to reduce its projected surplus using its powers under section 22 of
the Public Finance and Audit Act (designed to permit emergency payments without prior
parliamentary appropriation) by transferring sums into a series of funds accounts given
various designations, including ‘arrears of maintenance’, ‘fire risks’ and ‘computer acquisi-
tion’. Perhaps with these transactions in mind,a retired Treasury official later observed that
‘Treasurers have sometimes resorted to what is known as creative bookkeeping to limit the
size of the published surplus for the year in question. The results have been manufactured
by transferring amounts to specially established accounts within the Special Deposits
Account to meet anticipated needs in a future period. (Nicholls, 1991b, pp. 138–39)
In 1991 a public trading enterprise Elcom was required to pay a substantial dividend to the
consolidated fund; in order to make the payment, Elcom had to borrow from the Treasury
Corporation, a non-budget sector agency. (Sydney Morning Herald, 1 April 1991: Note
the N.S.W. Treasury Corporation would now be classified as a ‘financial public trading
In 1994 the Sydney Water Board was required to pay ‘special dividends’ of $200 million;
earlier the Board had stressed that requirements for dividends ‘unacceptably compro-
mised... future capital works’. (N.S.W. Public Accounts Committee, April 1992, p. xi)
For that matter, the timing of transactions can also affect budget results:
The NSW Auditor-General reported that the NSW Treasurer had in January 1992
instructed the Sydney Water Board to repay a $98.8 million loan to the consolidated fund.
The Board duly arranged loans to finance the repayment.However on 10 June 1992,the day
the repayment was to occur, the transaction was deferred to the next financial year. Had the
repayment proceeded, the aggregate indebtedness of the state public sector would have
been unchanged but the overall budget deficit would have been reduced by the amount of
the loan repayment. (Walker, 1995a)
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
Notably, some of these efforts to manage budget results could be avoided if such
‘special deposits accounts’ or ‘trusts’ were included in a GGS consolidation.
However, the allocation of trusts to either the GGS or the non-financial public
trading enterprise sector (NFPTE) may be problematic.
In 2006 the Commonwealth Government established a ‘Future Fund’ by transferring into
it the remaining government-held shares in a public trading enterprise, Telstra. The Fund
was described as being established ‘to assist futureAustralian governments meet the cost of
public sector superannuation liabilities by delivering investment returns on contribu-
tions to the Fund’. The Future Fund held assets at 30 September 2008 of $64.43 billion.
(, accessed 22 October 2008)
It might be argued that such a fund should be regarded as part of the (diminished)
NFPTE sector on the ground that it was derived from the sale of shares in a public
trading enterprise; however, investment returns were described as reducing public
sector superannuation liabilities—some of which were attributable to employees of
the agency that had been sold, and some to employees or pensioners of GGS agencies.
Further complexity arises with the establishment of other funds to support agen-
cies that (contrary to the analysis presented above) have been categorized for the
purpose of GFS as outside the scope of government—state universities:
Subsequently the Future Fund Management Agency was responsible for the investment of
a Higher Education Endowment Fund, established by the distribution of higher than
expected tax revenues in 2007. At 30 September 2008 the Fund was valued at $6.37 billion.
If the intended use of a fund was to finance universities’ investment in infrastruc-
ture, then the ‘purpose test’ would see it outside the GGS sector. But since it was
established to reduce budgetary allocations of funds to universities in future years
(and possibly allow for major grants to be undertaken selectively during the election
cycle) then it could be argued that it was appropriately included in the GGS sector.
Mention might also be made of the financial public trading enterprise (FNPTE)
sector—typically populated by one entity per jurisdiction—the entity charged with
managing fund raising for government agencies and (in the Commonwealth arena)
serving as a central bank. History suggests that the Reserve Bank of Australia has
also been called upon to contribute to the Commonwealth budget via dividends—
and that in some years, the payment of declared dividends has been held over to
subsequent years (a practice that at the time would have deferred recognition of
those dividends as a revenue of the Commonwealth’s consolidated fund) (see
‘Reserve Bank payments to government’ in Reserve Bank of Australia, Annual
Report 2005–06).
Similar observations may be made about the NFPTE sector, where reported
operating surplus or deficits on an accrual basis may be manipulated by government
grants, concessions or subsidies from a government’s annual budget. A single
example may suffice:
The 2006–07 annual report of the NSW Rail Corporation (RailCorp) disclosed government
subsidies, concessions or grants totalling $2.04 billion. That enabled RailCorp to record a
‘surplus’ for the year of $471 million. Budgetary allocations comprised 71% of RailCorp’s
reported revenues.
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
(If the ABS’s definition of the GGS sector were applied, RailCorp would be
regarded as part of the GGS sector since it is mainly financed by government. Yet in
the 2006–07 N.S.W. public sector consolidated statements, RailCorp was treated as
an NFPTE entity.20)
Given the impact of these inter-sector transactions on reported results, the ques-
tion arises: How best to ensure that stakeholders are adequately informed about the
impact of these transactions (and are not misled by focusing on headline results)?
One option may be to accompany suites of public sector consolidated statements
with note disclosures about the nature and amount of those transactions as they
occurred in the past financial year.Another may be the presentation of multi-column
consolidating statements.
In the U.S.A. in the early part of the 1930s the newly formed Securities and
Exchange Commission required public utility holding companies to accompany
their consolidated statements with ‘consolidating statements’—described at the time
as ‘formalized work sheets’ presenting the individual accounts of affiliates and
showing the elimination of inter-company accounts (Childs, 1949,p.257).This matter
is further detailed in Walker (1978, pp. 249–50, 366). For public sector reporting
purposes, consolidating statements could be less detailed, and confined to recording
by line items, material transactions between GGS, NFPTE and the FPTE sectors.
Final Observations
The foregoing analysis of users, uses, potential decisions and optimal forms of
reporting is open to further empirical investigation, but meantime it establishes a
basis for identifying the objectives of public sector consolidated statements, and
hence deriving appropriate rules for the preparation of these reports.
Chow et al. (2007) have suggested a research agenda for exploring whole of
government accounting (WGA), and they nominated three major research questions:
what is the value in use of WGA information? was WGA reform driven by political
motives? and what are the implications of the international promotion of WGA?
Arguably, a more fundamental research agenda would focus on the objectives of
preparing public sector consolidated statements more broadly (not just WGA
reports in the format advocated only by HM Treasury). It would also have regard to
the concepts for identifying sectors of government in terms of varying versions or
interpretations of Government Finance Statistics, since they influence the manner in
which governments are currently reporting and compiling financial data about their
affairs and operations. Only by identifying uses and users can one start to assess the
value of the data produced by these reports.
While this article has a limited focus—on the area of consolidation, and the
presentation of supplementary consolidated statements—it was noted that Australian
public sector practices in the preparation of public sector consolidated statements
have involved considerable diversity. Plainly there has been diversity in the manner in
which assets and liabilities are identified and measured—matters that are arguably
20 Staff have advised that the ABS has agreed to treat all government-owned public transport agencies
as not part of the GGS, regardless of the extent of subsidies (personal communication, 31 October
© 2009 The Author
Journal compilation © 2009 Accounting Foundation, The University of Sydney
common to all forms of public sector accounting, not only to public sector consoli-
dated statements.But there are some areas of interpretation that appear to be unique
to public sector consolidated statements. Some assets (such as various forms of
natural resources) have been reported when they have not previously appeared in the
accounts of individual agencies.Arguably,some of the most significant obligations of
governments—pensions and social security commitments—have not been recog-
nized as liabilities. Some other items—such as currency on issue—have been recog-
nized (when many would regard money as a unit of account, not as a liability).The
accounting treatment of taxation revenue has involved a form of accruals that are
inconsistent with other approaches to revenue and asset recognition.
While some may regard these as mere technical issues, their resolution warrants
careful investigation. Arguably, several of these issues may be resolved by consid-
ering which treatment is consistent with a specified objective of the preparation of
public sector consolidated statements. Other issues may warrant detailed investiga-
tion of what treatment is likely to inform key stakeholders while making routine
decisions. These matters will be reviewed in a later paper, examining the history of
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... Debate on local government financial statements has considerably increased over the years, also due to the various public sector accounting reforms inspired by the assumption that improving the mechanisms of public governance will result in better public sector performance (Ongaro, 2008;Hoque, 2008;Ongaro et al., 2008). Among the reporting tools implemented to measure, plan, control and communicate performance, in recent years consolidated financial statements has become increasingly important both for the practitioner and the academic debate (IFAC, 2000;IFAC, 2005;Walker, 2009;Karlsson et al., 2010;Walker, 2011;IFAC 2013). ...
... In addition it is not clear if the internal users actually read the annual report. Walker (2009), referring to Australia, links the consolidated reports with the judgment of the users in relation to the information need considered routinely relevant. ...
... However, in the light of the results obtained in the studies on the users and uses, the literature has maintained a critical attitude also towards the accountability approach. In addition to the consideration that accountability is a multifaceted and evolutionary concept (Patton, 1992;Steccolini, 2004), Walker (Walker, 2009), in his paper referring to the consolidated financial statements, argues that the conceptual framework and in general normative studies looking at the decision usefulness or accountability purpose: (i) have not presented detailed explanations or illustrations of the precise type of judgments which might be made by these (assumed) users of financial data and what data may be relevant to those judgments; (ii) have not articulated propositions about the circumstances in which postulated users may seek to use different forms of report, the extent to which reliance is placed on intermediaries; ...
Eurostat and EPSAS Expert Working Group are engaged to outline the suitability of International Public Sector Accounting Standards (IPSAS) in the process of the public sector accounting harmonisation. Part of the process is referred to the scope of the consolidated financial statements and the possible criteria to identify the public sector group's reporting entity, that is the boundaries of the group. This last point is of relevance as recalled by the recent EPSAS Conceptual Framework Reflection Paper, under which public sector reporting entities should provide financial report based on decision-making and accountability considerations. The chapter aims to contribute to the debate on consolidated financial statements both from the theoretical and empirical points of view.
... 22 However, Walker (2009) warns that other financial statements or budget reports might be more suitable for some information needs, e.g. to inform about efficiency of service delivery. Based on theoretical considerations, Walker (2009) lists the following routinely made judgements, for which CFS prepared at the central government level might deliver the necessary (decision useful) information: 23 1. Results and sustainability of a government's financial management practices; ...
... However, it needs to be stressed that these points refer to a special category of CFS and do not apply to CFS at all government levels. Thereby, Walker (2009) also stresses and criticises, that the users and addressees of CFS need to be identified first in order to figure out their information needs and thus to adjust the objectives of CFS. He suggests that even several kinds of CFS might be necessary depending on the information needs. ...
... At the same time, individual financial statements are no longer considered sufficient to show the full financial picture of an entity, public or private, if it has dependent entities (Walker, 2009). To overcome this limitation, standard setters have regulated the elaboration of consolidated financial statements (CFS) (Brusca, Grossi, & Manes-Rossi, 2018). ...
... In Spain, the general standard for consolidation in the public sector differentiates three types of entities: the economic entity (including the controlling and controlled or dependent entities), joint ventures, and associates. The definition of 'dependent entities' is based on IPSAS 6 and focuses on the concept of control for defining the group contained in the financial statements, and includes some particularities of public sector consolidation (Walker, 2009). Control is defined as the power to direct the financial and operating policies of another entity in order to obtain economic benefits or service potential. ...
Full-text available
Portugal and Spain have reformed their national standards to adapt them to the International Public Sector Accounting Standards (IPSAS). This paper explains the process of implementing the IPSAS for consolidated reporting in the two countries and the advantages and disadvantages which have emerged. The results highlight the role of the IPSAS in improving the quality and use of consolidated financial statements (CFS) and will be of interest to other countries that are intending to implement the IPSAS.
... 6 Che l'informazione consolidata sia, altresì, utile nel supportare l'ente capogruppo nell'implementazione di strategie e programmi e valutarne i loro impatti è argomento dibattuto in diversi studi accademici. Cfr., Walker (2009) ;. 7 A seconda della nozione di controllo accolta, si potrebbero avere effetti differenti sulla rappresentazione del gruppo. Ad esempio, se si protende per un'accezione di controllo di fatto si potrebbe meglio rappresentare il fenomeno aziendale sottostante, mentre nel caso di una nozione di controllo di diritto si finisce con l'offrire un'informazione di una realtà economica oggettivamente definita. ...
... 24 Sannino (2016). 25 Walker (2011);Lombrano e Zanin (2011);Walker (2009); Grossi e Steccolini (2015); Grossi e Reichard (2008); Teodori (2012). 26 Per approfondimenti sull'area di consolidamento, si veda il capitolo 2 del volume. ...
L’introduzione del bilancio consolidato del “gruppo pubblico”, che ha trovato piena applicazione con il D.Lgs. 118/2011, ha rappresentato una delle innovazioni più complesse all’interno della riforma contabile degli enti locali, in quanto si colloca in un contesto già particolarmente sollecitato da significative modificazioni, a partire dall’introduzione della contabilità economico- patrimoniale. Qualsiasi cambiamento normativo in ambito contabile deve essere esaminato sotto più punti di vista, considerando gli obiettivi attesi, le caratteristiche organizzative degli enti locali di riferimento e l’impatto prodotto, il grado di professionalità esistente, l’utilità dichiarata e percepita, i riflessi di natura sia operativa sia strategica. Il bilancio consolidato presuppone, per la sua adeguata predisposizione e per la concreta utilizzazione, l’esistenza di una cultura contabile evoluta, di capitale umano che abbia ben compreso la finalizzazione e le caratteristiche della contabilità economico-patrimoniale, su cui il bilancio consolidato si fonda. È necessario cambiare prospettiva nei rapporti con le entità partecipate, in quanto deve essere valorizzato il concetto di controllo, di collegamento, di indirizzo, non trattandosi solo di una mera questione contabile ma della rappresentazione di un’entità più ampia, di cui l’ente locale rappresenta la capogruppo, cioè il soggetto che la governa. Appare, pertanto, di grande interesse esaminare qual è, oggi e in prospettiva, la situazione italiana in merito alla comprensione e diffusione di questo importante documento, ponendo l’attenzione su alcuni macro-temi di particolare rilievo: la finalità del bilancio consolidato e la coerenza della regolamentazione; le modalità di definizione del gruppo pubblico locale; le scelte di consolidamento dei conti; gli impatti organizzativi; il confronto internazionale; le problematiche di natura operativa; le modalità valutative.Il volume ruota intorno al ruolo informativo del bilancio consolidato, alla sua concreta utilità, alla capacità di misurare le performance del gruppo pubblico, in funzione di come viene concretamente definito (e costruito). Più in dettaglio vengono affrontati, con approccio scientifico avvalorato da analisi empiriche, alcuni aspetti che permettono di meglio comprendere la reale portata, attuale e prospettica, dell’introduzione di questo documento, fornendo delle risposte alle domande di seguito riportate a titolo di esempio. Perché è stato introdotto il bilancio consolidato? Cosa si vuole conoscere? Le scelte operative attuate, che rappresentazione forniscono del gruppo pubblico locale? Quale finalità prevale (financial accountability, strumento a supporto delle decisioni, adempimento legislativo, …)? Quali sono gli impatti organizzativi prodotti dalla sua introduzione? Vi è coerenza tra il livello medio delle competenze contabili esistenti negli enti locali e quelle necessarie? Qual è l’impatto sulle relazioni tra ente capogruppo e soggetti controllati e/o partecipati? In definitiva, l’introduzione del bilancio consolidato (come delle altre modificazioni avvenute) deriva dalla necessità (volontà) di attuare un processo di cambiamento: è interessante capire, tenendo anche conto degli attori coinvolti (regulator, users e preparers), cosa sarebbe dovuto cambiare e cosa è davvero cambiato, cercando di individuarne le cause. È quindi importante, in questa prima fase applicativa, porre in essere una post implementation analysis, attraverso la quale individuare le principali difficoltà operative e organizzative e, conseguentemente, offrire utili indicazioni (policy implication) in primis ai soggetti regolatori (regulator) ma anche a chi predispone il bilancio consolidato e a chi lo utilizza (preparer e user). Dal punto di vista metodologico, l’approccio utilizzato è quali-quantitativo, con ricorso ad analisi della letteratura, analisi empiriche fondate sia sull’esame dei bilanci consolidati predisposti a partire dalla fase di sperimentazione, sia sulla somministrazione di questionari, soprattutto indirizzati ad approfondire le problematiche di natura organizzativa (intese in senso ampio) e tecnica. L’attenzione è posta esclusivamente sui Comuni identificando, in funzione della specifica problematica indagata, campioni specifici. La struttura del lavoro è la seguente. Il primo capitolo si propone di analizzare le maggiori criticità legate all’attuazione del principio nazionale per la redazione del bilancio consolidato degli enti locali: dapprima viene approfondito il quadro normativo-contabile di riferimento, anche attraverso la ricostruzione delle sue più importanti tappe evolutive, per poi trattare brevemente, in ottica comparativa, gli aspetti salienti che caratterizzano l’equivalente standard internazionale IPSAS 35. Il secondo capitolo approfondisce, con un’analisi specifica, uno degli aspetti di maggiore criticità nella predisposizione del bilancio consolidato, cioè la definizione di gruppo pubblico locale (reporting entity) e dell’area di consolidamento, sulla quale il grado di discrezionalità è ancora elevato. Il terzo capitolo è dedicato all’analisi descrittiva delle prime applicazioni empiriche emergenti dall’esame dei questionari somministrati. In particolare, dopo una parentesi sugli aspetti metodologici, l’approfondimento è relativo a due dimensioni specifiche: l’utilità percepita del bilancio consolidato e le difficoltà incontrate sia sul piano tecnico-contabile sia sul piano strettamente operativo. Il quarto capitolo affronta, sempre attraverso l’esame dei questionari, un tema di grande rilevanza, cioè l’impatto organizzativo del bilancio consolidato esaminando, tra l’altro, quali sono e saranno le ripercussioni indotte dalla sua introduzione, le modalità con cui è stata attuata, i soggetti coinvolti all’interno dell’ente locale, il grado di collaborazione delle partecipate. Il quinto capitolo sposta l’analisi sugli aspetti valutativi, partendo dalla considerazione che il bilancio consolidato va esaminato congiuntamente a quello individuale dell’ente locale. L’obiettivo è esprimere delle valutazioni sulla differente situazione economica emergente dai due bilanci, che si riflette (si potrebbe riflettere) sulla valutazione delle politiche fiscali, delle condizioni finanziarie, del grado di rischio, dell’impatto economico e sociale sul territorio di riferimento. Il sesto e ultimo capitolo riprende le tematiche dei capitoli precedenti e le sviluppa da un punto di vista empirico, valutandone l’impatto sulle differenti fattispecie di enti territoriali, evidenziando le criticità rilevate nelle fasi operative e le proposte di soluzione individuate. A conclusione del lavoro, si ringraziano tutti gli Autori per l’impegno profuso e per lo spirito di gruppo che hanno trasmesso; i Curatori dell’intero progetto di ricerca, i proff. Luca Bartocci e Riccardo Mussari, per le efficaci modalità con cui hanno coordinato i lavori; Sidrea per aver promosso e sostenuto questa linea di ricerca.
... Es wird nun argumentiert, ob öffentliche Kulturgüter überhaupt in die Bilanz aufgenommen werden sollen, und wenn ja, ob sie dem Anlagevermögen oder den Verbindlichkeiten zugerechnet werden sollen, da ein kostendeckender Betrieb oftmals unmöglich oder nur sehr schwer ist und ein Verkauf ohnehin politisch in den meisten Fällen außer Frage steht (Barton 2000, Biondi und Lapsley 2014, Hooper et al. 2005, Mautz 1988). Unterschiedlich gehandhabt wird auch die Frage, inwiefern Verpflichtungen für Pensionen oder für zukünftige soziale Verpflichtungen als Verbindlichkeiten in die Bilanz aufgenommen werden müssen, was sich entsprechend auf das Eigenkapital einer Gebietskörperschaft auswirkt (Gschiel und Seiwald 2014, Walker 2011b. ...
... Die Konsolidierung der Rechnungsabschlüsse öffentlicher Gebietskörperschaften ist ein weiteres Reformthema (Grossi und Newberry 2009, Newberry 2011, Richter 2014, Walker 2011a, Walker 2011b. In den vergangenen Jahrzehnten wurden vielfach Einheiten aus der Kernverwaltung ausgegliedert -mit unterschiedlicher Rechtsform und Autonomiegrad, wodurch eine "vielfältige öffentliche Organisationslandschaft" (Leixnering und Bramböck 2013: 170) entstanden ist. ...
Öffentliche Verwaltungen weltweit unterlagen in den letzten Jahrzehnten in allen Politikbereichen weitreichenden Reformen. Auf globaler Ebene lassen sich in der Literatur für die vergangenen drei Dekaden drei dominierende Verwaltungs- bzw. Reformparadigmen identifizieren, die Orientierung für Reformen bieten und als „‚umbrella‘ term[s]“ (von Maravić und Reichard 2003: 85) oder „(Staats-)Leitbilder“ (Beer 2011: 52 bzw. Fleischer und Jann 2011: 70) für ähnliche Ideen und Themen dienen: Public Administration (PA), New Public Management (NPM) und Public Governance (PG).
... Previous literature has investigated public sector CFS with a focus on the importance of this tool (Lande, 1998;Grossi, Mori, & Bardelli, 2004;|Wise, 2004|Wise, , 2006Heald & Georgiou, 2011;Grossi et al., 2014), while simultaneously analysing several technical issues (Brusca & Montesinos, 2009;Chow, Humphrey, & Moll, 2009;Walker, 2009;Grossi & Soverchia, 2011;Howieson, 2013;Lombrano & Zanin, 2013;Bisogno, Santis, & Tommasetti, 2015). These issues include the definition of the consolidation area, the adoption of private versus public sector accounting standards (Ryan, Guthrie, & Day, 2007), and convergence with statistical criteria (Barton, 2011). ...
This paper investigates consolidated financial statements (CFS), which have been implemented by several countries. In Italy, CFS implementation was preceded by a testing period in which local governments could participate on a voluntary basis. This paper explains why this was a useful preliminary step to implementing CFS: the local governments that took part in the testing period were able to enhance their knowledge of the topic while improving their employees’ skills.
Full-text available
This thesis is an attempt to provide academically supported answers to practically important questions and aims to capture qualitative benefits of IPSASs-like reforms. In a first and second instance, it concentrates on IPSASs implementation effects in Switzerland. The research focus pertains to Swiss states which have been currently undertaken by IPSASs-like reforms. In a third and fourth instance, the thesis examines the international adoption of the IPSASs, with the research focus being UN System Organizations and selected OECD member countries.
Full-text available
Public sector accounting (PSA) and reporting was subject to considerable national reforms during the last decades and is in the focus of the European Commission aiming to harmonize the accounting systems of its Member States by developing European Public Sector Accounting Standards (EPSAS). Therefore, the topic is of high relevance for both academia and practitioners. This book provides different views about PSA in Europe as of today. It spans topics such as history of PSA, its differences to private sector accounting and finance statistics, as well as budgeting. A main part is devoted to International Public Sector Accounting Standards (IPSAS) by addressing their spread, conceptual framework and selected public sector specific standards, including a case study. Also, consolidated financial reporting is covered by drawing examples. This textbook is not only of use for students and researchers, but interested readers that seek for broad perspectives on PSA such as practitioners and members of intergovernmental organisations. It intends to complement university teaching modules on PSA as those accessible for free under The "open access edition" of the book is available now!
This chapter seeks a deeper understanding of local government groups’ financial sustainability by analysing consolidated financial statements. Its aim is to evaluate how measures of local government financial stability change when the analysis centres on consolidated, rather than separate, financial statements.
Full-text available
The International Accounting Standards Committee issued the the International Accounting Standard 27, Consolidated and Separate Financial Statements. IAS 27 provides guidance on the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent. The standard also provides guidance on the presentation of investments in subsidiaries, jointly controlled entities and associates in separate financial statements. The objective of IAS 27 is to enhance the relevance, reliability, and comparability of the information contained in consolidated financial statements that a parent prepares for the group of entities it controls; and separate (non-consolidated) financial statements that a parent, investor, or venturer elects to provide, or is required by local regulation to provide. This article presents a closer look of the standard (objective, scope, definitions and disclosures).
The public good nature of information in the public sector means that the concept of direct‘user need’as a basis for the development of a conceptual framework for financial reporting needs to be extended to the more general concept of‘individual informational benefits’. Lack of individual demand for financial reporting information does not imply zero potential individual benefit from the use of such information. The achievement of a social optimum in the use of information is likely to require both a well-grounded conceptual framework for financial reporting and independent monitoring bodies able to make effective use of the information.
This paper offers a review of the conceptual framework projects that have been done by, or on behalf of, accounting standard-setting bodies, and that have concerned themselves with public sector accounting. Developments since 1966 in North America are the primary focus, although the UK and New Zealand are also explicitly addressed. The major theme identified is the ubiquity of the user/user needs approach, despite the continuing lack of evidence about user needs. The paper tries to explain this and concludes that standard-setting bodies have used these conceptual frameworks to establish their own legitimacy, by appealing to the public interest.
This paper argues that the search for external users of public sector financial reports, and for decisions for which users might plausibly need information that could feasibly be provided in general purpose financial statements, has failed empirically and theoretically. The implications for the construction of a conceptual framework for public sector financial reporting are examined. It is suggested that‘intermediate’users operating in an environment of‘indirect control’might form an appropriate basis for a conceptual framework. Some tentative observations about such a framework are made and its application in accounting for central government agencies is explored.
The paper reports upon an exploratory examination of certain aspects of the role played by the Annual Report in the communication process between UK Local Authorities and the general public. The paper concentrates on one specific formal (as opposed to informal) communication channel and adopts a loose communication framework (as reviewed in Adelberg, 1983), focusing upon message encoding/decoding (readability); message destination (availability of reports) and message discovery and use.