An investigation of municipal financial report format, user preference, and decision making
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Abstract
The adoption of corporate-style, consolidated financial statements has been advocated by critics of the current, fund-by-fund municipal reporting format. In the past, research to test format preferences had at least one of two limitations. In some cases, subjects were not representative of all users of municipal statements, but were familiar with, and biased toward, particular practice. In other cases, statements, if included in the study at all, were hypothetical with less complexity than real statements.
This study included subjects from the three user groups identified by the Governmental Accounting Standards Board - citizens, investor/creditors, and legislative/oversight officials. They were given the general purpose financial statements of two, similar-size, Connecticut cities in either the fund-by-fund format (as published, but with names disguised) or the consolidated format. The accompanying survey instrument was tailored to the subject's user group.
Subjects were asked about: 1) the usefulness of providing four types of information - compliance, viability, operating performance and cost of services - in statements; 2) the adequacy of the statements in presenting each of the four types of information and 3) the part of the statements most useful in making the decision about adequacy. Subjects also ranked the two cities in terms of financial condition. Since the cities had different bond ratings, the accuracy of the rankings could be determined. Finally, a mean usefulness score was calculated for each format.
Legislative/oversight subjects felt the consolidated format provided more adequate information on cost of services. This information was very useful to them. Also, the mean usefulness score showed the legislative/oversight group judged the consolidated format significantly more useful in assessing overall financial condition.
Format did not affect: 1) the part of the statements used to determine adequacy of information, nor 2) the accuracy in ranking the cities for any user group. Each user group prefers different changes in municipal reporting. Citizens consider neither format satisfactory. They prefer information presented in easy-to-understand written form. Investor/creditors find either format satisfactory. They want additional information included: such as, five-year trends. Legislative/oversight officials would welcome a change in format, if a comparison of budget to actual is retained for judging compliance, performance and cost of service.
Description
Dissertation (D.B.A.)--Boston University
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