Editorial: Public sector reporting in different countries—challenges and opportunities

In a civil society, citizens require information to assist them in understanding and monitoring how public resources are managed. Accounting information produced by public sector managers allows this monitoring and enables transparency and accountability in the public sector. Accounting information also helps citizens to participate in the political process. In addition, there is a perceived requirement that public sector accounting information should enable greater fiscal responsibility and sustainability in public spending and in managing public resources. Accounting information therefore has a social and economic influence in the political process and the public resources management process. How that accounting information is gathered, processed and presented has been a topic of many research papers and discussions over the past 30 years. Debates continue on the merits of accrual accounting over cash accounting, the benefits and drawbacks of the IPSAS and EPSAS reporting frameworks, and whether any lessons can be learnt from international experiences in jurisdictions that are on different paths and in different stages of reform and transformation in their public sectors.

Of particular interest to researchers and practitioners in the public sector setting is whether the preparers of financial information in the public sector fully understand and respond to the needs and demands of information users. Also of interest is whether information users can be better acquainted with the nature and quality of accounting information provided to them and how the gap between the production of the financial/accounting information in the public sector and the use of such information can be reduced. There are also questions about the role of accounting and financial reporting in public sector budgeting and spending decision-making as financial reporting has long been criticised for being disconnected from the financial management processes in the public sector. In addition, there are the effects of political, social, educational and cultural characteristics in individual countries, resulting in constraints and obstacles to accounting in government accounting systems that need further research and understanding—particularly with the increasing pressure to harmonize and converge public sector processes and accounting around the globe. Finally, there are new frontiers opening in the financial reporting in the public sector, with the increasing importance of sustainable practices and accountability of those practices.

In this Public Money & Management theme, we present six papers that deliver findings and discussions on the issues of reporting frameworks and what can be learnt from reporting processes in different countries, on the usefulness of accounting information in public sector reports for decision-making and budgeting and findings of the research of the relatively new, but increasingly important, frontier of sustainable reporting.

Our first paper, by Ehalaiye et al. (2021), examines whether publicly-available accounting information about infrastructural assets and other information in New Zealand local government’s financial statements is useful for users to assess investment in infrastructural assets. The findings of this study indicate that information on annual net investments for infrastructural assets is useful in understanding the level and type of infrastructural assets investments and how these assets are funded. In addition, the authors of this study provide evidence that local government investment is focused more on visible infrastructural assets than on invisible infrastructural assets and therefore the authors provide evidence of moral hazard in their setting. That is, local politicians seem to be prioritizing infrastructure investments that can be seen by their electorate as evidence of their performance in government, presenting a more favourable picture that leads to politicians’ election or re-election on local government bodies.

Still within the realm of usefulness of accounting information, the second paper in our theme, by Jovanović and Vašiček (2021), investigates the role and application of accounting and budgeting information, as well as the reporting of the national budgeting process in Slovenia. The results of their research in this paper reveal the limited usefulness of the information offered by the accounting system for budgeting purposes and several other collateral findings. These collateral findings present evidence of uselessness of dual reporting (budgetary and financial reporting) without a clear goal and purpose of financial reporting in public sector. The collateral findings also show the limitations of the extent to which the economic concepts adopted for macroeconomic management can be applied to government accounting at the micro level, especially in reference to the inadequate use of accounting information by political decision-makers.

The third paper, by Cuadrado-Ballesteros and Bisogno (2021), explores the benefits of the IPSAS reporting framework in the wider context of governance, with an emphasis on accountability and government effectiveness. The authors investigated a sample of 33 Organisation for Economic Co-operation and Development (OECD) countries from 2010 to 2014. Their results suggest that states which have implemented public sector accounting reforms (through the adoption of accrual-based accounting systems and the implementation of IPSAS) have a higher level of governance quality, and that there is a positive influence of IPSAS adoption on the level of accountability, government effectiveness, regulation quality, the rule of law, and on controlling corruption.

Within the discussion of the benefits of adopting reporting frameworks, but with the view of what can be learnt from the processes and experiences in different countries, Roje and Botica Redmayne (2021), in the fourth paper, analyse management and financial reporting for state assets, in two countries: Croatia and New Zealand. They compare a ‘novice country’ (Croatia), when it comes to public sector assets’ treatment with a country with a ‘mature’ public sector management and reporting environment—New Zealand. The results of their study point out that the possibility of applying developed countries’ experiences (i.e. New Zealand), and wider international trends for state assets management as examples of good practice into the so-called ‘transitioning countries’ (i.e. Croatia), depends greatly on a variety of factors that have influenced the development of those countries and factors that encompass both specific national and international forces.

These findings are reinforced by Dabbicco and Mattei (2021) in the fifth paper in the theme. Their paper presents findings from a comparative study of Italian and UK systems for reconciling public sector reporting for budgeting with financial reporting. The two countries have had processes of change that have developed along different paths. Their findings suggest that, to be successful, accounting processes need a clear and non-rhetorical response and support from practitioners, policy-makers and researchers behind resources and technical capacity. That also includes time and more flexible legal systems.

The final paper in our theme, by Nicolo et al. (2021), examines the case of state-owned enterprises (SOEs), focusing on their use of integrated reports (IRs) as an accountability tool in public sector reporting. Their findings show a fair degree of compliance with the IR framework. The authors also identify size, social and environmental sensitivity and conciseness as relevant determinants when it comes to the adoption of IR framework in SOEs/public sector reporting. The authors suggest that formulating specific guidelines for public sector entities’ integrated reporting would be a desirable next step.

Overall, this Public Money & Management theme provides interesting research findings on the developments and recent trends in public sector accounting and fiscal responsibility. This research comes from a number of countries and shows how accounting information could become more relevant for decision-making in the public sector. The papers in our Public Money & Management theme provide a number of important lessons, as well as outline the challenges and future opportunities for both practice and research.

Disclosure statement

No potential conflict of interest was reported by the author(s).