An investigation of the information requirements of users of Australian public sector financial reports

The emergence of new public management has been implicated in the changes that have occurred in the public sectors of western democracies. One outcome of these changes is that the public sector is expected to operate in a more commercial manner and that it be accountable not only for the money that it spends but also for the effectiveness with which it spends those funds. In response to these expectations, changes have occurred in both the accounting technologies and reporting mechanisms for the public sector. The Treasuries and Departments of Finance for each jurisdiction in Australia set accounting and financial reporting policy for the public sector. However, since the establishment of the Public Sector Accounting Standards Board in 1983, the commonwealth and state governments have shown a willingness to adopt standards issued by the accounting profession. The adoption of three specific public sector accounting standards developed by the accounting profession in accordance with the conceptual framework, mean that a financial reporting model, based on the private sector 'decision-useful model', has been adopted in the Australian public sector. The 'decision-useful model' incorporates dependent users who are reliant on general purpose financial reports to make economic decisions. The decision to adopt this model for all public sector reporting entities, did not receive unanimous support. The complexities of the public sector formed the foundation for critics to question the applicability of this model to the public sector. In addition, critics argued that the model lacked empirical substantiation. The purpose of this research is to determine the applicability of the 'decision-useful model' to the public sector by empirically identifying users of public sector general purpose financial reports and their information requirements. Prior empirical research has been piecemeal in terms of both scope and research method. As a result, it has not been cumulative. This research will refine and extend the work of previous studies in two ways. First, in terms of scope, it will encompass all public sector entity types and will address all three elements of the 'decision-useful model' - the identity of users, what information they use and their purposes for requiring information. Second, this research will adopt a method which directly accesses users across public sector entity types. As a consequence, an assessment is able to be made of the applicability of the 'decision-useful model' in general and its application to specific public sector entity types. The findings of this research indicate that the 'decision-useful model' is misspecified in the public sector and that there are significant differences among public sector entity types in terms of users and their information requirements. First, the classification of users as normatively determined is not exhaustive and includes a large representation of non-dependant users. Second, all users preferred performance information and narrative information was preferred over general purpose financial reports. Further, users considered that general purpose financial information was more useful for accountability purposes than for decision making. These results should be useful to policymakers and accounting standard setters in the future prescription of the contents of financial reports for public sector entities.