Reporting on the state of infrastructure by local government

Abstract

The Australian accounting profession has advocated that infrastructure should be accounted for by reporting it at current written down replacement values, on the basis that these financial disclosures would provide relevant information to stakeholders. While local councils are required to apply the profession’s asset valuation and accrual standards in preparing general purpose financial reports, the State of New South Wales has gone further by requiring local councils to also present information about the physical condition of infrastructure, together with estimates of the cost of bringing that infrastructure to a satisfactory condition, and the annual costs of maintaining infrastructure at that standard thereafter. This paper examines how this information was reported for 1995‐96. Analysis of reporting practices suggest that while there are some anomalies and uncertainties surrounding the rating of physical condition and the concept of “satisfactory condition”, the disclosures provided by NSW local government are more informative and arguably more relevant to external stakeholders and those responsible for asset management in local government than the information currently prescribed by accounting standards.

The quality and conservatism of the accounting earnings of local governments

“…Even so, the economic benefits of applying existing GAAP to these entities continues to be debated (e.g. Barton, 1999Barton, , 2005Walker et al, 1999Walker et al, , 2000. Resistance in the US to GASB-led initiatives to expand GAAP disclosure requirements for government entities is based on the costs of implementing and monitoring the expanded disclosures and questions about whether sufficient demand exists for this information (Barton, 1999;Copley et al, 1997;Jones and Puglisi, 1997;Rowles et al, 1998).…”

How Well Does Accrual Accounting Fit the Public Sector?

“…Accountability within the public sector must embrace a much broader discourse than the narrow and generally agreed upon financial emphasis which dominates within the arena of commerce. (See Mulgan (2000) for a comparison of accountability in the public and private sectors; Walker 2002 for a general discussion of the need for a range of performance indicators within the public sector; Walker et al (1999Walker et al ( , 2000 for options on reporting on government infrastructure; Carnegie and Wolnizer (1996) for proposals to enable enhanced systems of accountability within public museums).…”

Community Asset Valuations by Non‐profit Government Entities

“…While LGA reporting practices suggest that there could be some anomalies and uncertainties surrounding the rating of the physical condition of infrastructure assets, Walker et al. () conclude that these statutory disclosures provided by NSW local government are informative and more relevant to external stakeholders and those responsible for asset management in local government. Pilcher () finds that up to 98% of LGAs recorded an error in depreciation of some component of transport infrastructure assets during 1999–2000 and 2002–03.…”

“…The final, and potentially most contentious, issue in financial reporting by public sector entities relates to the measurement and recognition of infrastructure assets (Walker et al 1999(Walker et al , 2004Pilcher 2005Pilcher , 2006Pilcher , 2009Walker and Jones 2012) and assets used for cultural, heritage and community purposes (Barton 2000(Barton , 2005Broadbent and Guthrie 2008;Christiaens and Rommel 2008;FRC 2012;Aversano and Christiaens 2014). These are asset categories that are largely unique to the public sector.…”