The Impact of IFRS Adoption on Public Sector Financial Statements

Following a sector neutral approach to standard setting for about a decade, New Zealand adopted International Financial Reporting Standards (IFRS) for profit‐oriented entities and all other sectors including the public sector, from 2007 with the option to adopt early in 2005. Some studies have examined the impact of IFRS adoption on the accounts of profit‐oriented entities and found that this change had a significant impact on assets, liabilities and equity. This study examines the impact of adoption of IFRS on New Zealand public sector entities’ financial statements. We analyse and compare the reconciliation notes of IFRS and pre‐IFRS New Zealand Generally Accepted Accounting Principles (NZ GAAP) reported in the first IFRS annual reports of all New Zealand public sector entities. The results indicate that there have been some significant increases in assets and liabilities, and significant decreases to overall equity in some sub‐sectors of the public sector. The primary causes of such changes were recognition of employee entitlements (IAS 19) and recognition of derivative financial instruments (IAS 39) for many public sector entities, as well as remeasurement of deferred taxation for public sector commercial enterprises (IAS 12). In addition, public sector entities made many reclassifications between current and non‐current financial statement elements that did not impact on the aggregate balances of the entities’ balance sheets. In general, the findings of this study are similar to findings of studies that examined the impact of IFRS on private enterprises. The findings of this study contribute to the understanding of the implication of IFRS adoption and might be useful to policy makers and regulators who are currently reviewing the applicability of IFRS to public sectors in Australia and New Zealand and other countries.     

Defining the Reporting Entity in the Not‐for‐profit Public Sector: Implementation Issues Associated with the Control Test

This paper reports the main findings of a research project carried out on behalf of the Australian Accounting Standards Board (AASB) and the New Zealand Financial Reporting Standards Board. The purpose of the research is to inform standard setters about implementation issues that had been encountered in the not‐for‐profit (NFP) public sector when applying the control concept in AASB 127, Consolidated and Separate Financial Statements. The intention is to use the findings to inform proposed implementation guidance for AASB 10, Consolidated Financial Statements. Data were collected via a literature review and meetings with various NFP public sector constituents. Identified issues were either conceptual in nature (for example, who are the relevant users of NFP public sector general purpose financial statements and what are their needs?) or related to implementation concerns (for example, is the power exerted by one NFP public sector entity over another of an ‘ownership’ or a ‘regulatory’ form?). The findings give rise to several suggested actions that standard setters could take in providing useful guidance to NFP public sector constituents.     

GAAP,GFS and AASB 1049: perceptions of public sector stakeholders

Efforts by Australian standard‐setters to harmonise public sector financial reporting resulted in AASB 1049, which sought to bridge the divide between generally accepted accounting principles (GAAP)‐based and government finance statistics (GFS)‐based financial statements. However, whether AASB 1049 has resulted in information that is considered appropriate for the public sector has not been examined. We explore this issue by comparing the requirements of AASB 1049 with the responses from a survey of public sector stakeholders on the appropriate accounting treatment and presentation of selected financial items. The analysis suggests consensus with AASB 1049 on presentation issues but less consensus on accounting treatments.     

Decision Usefulness of Cash and Accrual Information: Public Sector Managers’ Perceptions

This study examines the usefulness of accrual accounting information for internal decision‐making contexts in the Western Australian public sector. Based on questionnaire responses of public sector managers, it was found that accrual accounting is perceived to be more useful than cash accounting in 16 of the 19 decision situations. These results suggest that the perceived usefulness of the accrual accounting system has improved with the passage of time. It may well be that perceptions of the usefulness of information derived from an accounting system will change over time as users gain familiarity and experience with a system.     

Does it Pay to Work in the Public Sector? Evidence from Three Decades of Econometric Analyses

Evidence suggests there were some large positive pay premiums in the UK public sector between the 1970s and early 1980s, but by the end of the 1990s only female public sector workers benefited from working in the public sector. The gradual erosion of other traditional benefits of working in the sector, such as greater job security and more generous pension entitlements, reinforces this conclusion. In addition to indicating where further research is required, this article presents a full taxonomy of the econometric results and addresses New Labour's renewed emphasis on regional pay (to reflect the regional cost of living) that should be of interest to practising managers concerned with recruitment, retention and motivation of public sector employees.     

Adoption of activity management practices in public sector organizations

This paper examines the extent to which activity management practices are adopted by Australian public sector organizations at each of Gosselin's (1997) levels of Activity Analysis, Activity Cost Analysis, and Activity‐based Costing. The present paper replicates Baird et al. (2004), thereby enabling a comparison of the extent of adoption of activity management in the public sector with that reported in the private sector in Baird et al. (2004). The results reveal that the adoption of higher level activity management practices (Activity Cost Analysis and Activity‐based Costing) is less prevalent in public sector organizations, whereas they adopt Activity Analysis to the same extent as the private sector.     

House prices, non-fundamental components and interstate spillovers: The Australian experience

Using Australian capital city data from 1984Q3--2008Q2, this paper utilizes a dynamic present value model within a VAR framework to construct time series of house prices depicting what aggregate house prices should be given expectations of future real disposable income - the “fundamental price” - and continues by comparing capital city fundamental prices with actual prices. The extent to which revealed capital city “non-fundamental” components spillover from state to state, as well as their long-term impact is also investigated. Results provide evidence of periods of sustained deviations of house prices from values warranted by income for all state capitals with the greatest deviations arising in the NSW market and starting around 2000. In general NSW is relatively more susceptible to spillovers transmitted from other states while ACT and WA are most isolated from the rest of the country.     

Changes in perceptions of risk and competence among beginning scuba divers

The adventure experience paradigm theorizes that individuals engaging in high‐risk recreation exhibit changes in perceptions of risk and competence. While previous research has examined changes in perceptions for individuals engaged in short‐term, high‐risk recreation, there is no research examining patterns of perceptual change through extended involvement in risk recreation activities. The purpose of this study was to examine changes in perceived risk and perceived competence throughout a 14‐week basic scuba diving course. Participants (n = 57) completed the dimensions of an adventure experience (DAE) at the start and end of the course as well as before and after their first time on scuba, first open water dive, and first off shore dive. Changes in perceived risk and perceived competence were examined. Results indicated a significant decrease in perceived risk and a significant increase in both competence factors (attitudes and abilities) pre‐to‐post course and at most time intervals. Although statistically significant, changes in perceived risk and attitude may be of less practical significance (around 0.6 on a 10‐point scale). However, perceived ability increased more noticeably (2.6 on a 10‐point scale). The findings of this study support and further confirm the literature, which indicates repeated involvement in high‐risk recreation decreases participants' perceptions of risk and increases perceptions of competence. Recommendations include further study of DAE psychometrics and research on how changes in perceptions of risk and competence are related to outcomes in adventure recreation.     

An Assessment of the Impact of IFRS Adoption on Public Sector Audit Fees and Audit Effort – Some Evidence of the Transition Costs on Changes in Reporting Regimes

While many countries have adopted International Financial Reporting Standards (IFRS) for private sector enterprises, New Zealand (NZ), Australia and the United Kingdom adopted IFRS for all sectors, including the public sector. This approach is consistent with the concept of sector‐neutral accounting standards that gained wide acceptance in NZ and Australia in the early 1990s. Although a number of studies have assessed the impact of IFRS adoption in the private sector, and the public sector has provided some evidence as to the effects of IFRS adoption on financial statements, the costs of adopting IFRS have not been examined. One measure of cost is the change in audit fees in an IFRS reporting environment. The authors examine the impact of IFRS adoption in the NZ public sector on audit fees and audit effort. They obtained data regarding audit fees and audit effort in the NZ public sector and compared the pre‐adoption year with the first year of adoption for all segments. Their results indicate a substantial increase in audit fees and audit effort in the first year of IFRS adoption for all segments, with some variation across the segments. Two sectors, local authorities and energy companies, have had significant increases in audit fees and audit effort. These findings provide some empirical evidence regarding the cost of transition to IFRS and are of interest to researchers and regulators in countries that are currently considering transitioning to IFRS or IFRS‐based International Public Sector Accounting Standards standards in reporting for the public sector.     

Leader–member exchange,affective commitment,engagement, wellbeing,and intention to leave: public versus private sector Italian nurses

In the context of nurse shortages and budget constraints in hospitals, retaining skilled nurses is crucial. This paper investigates the impact of supervisor–nurse relationships on engagement, wellbeing, affective commitment and turnover intention for Italian private and public sector nurses. Private sector nurses in Italy were found to be more committed, engaged and had higher perceptions of wellbeing than public sector nurses. Based on these results, public managers need to do more to sustain the motivation of nurses in public sector hospitals.     

Joined‐Up Government and the Challenges to Accounting and Accountability Researchers

Abstract: Collaborative working between public sector bodies in the UK, sometimes involving partnerships with private sector and not‐for‐profit organisations, was promoted heavily by the Labour Government (1997–2010) under what is sometimes labelled ‘Joined‐Up Government’. The Conservative – Liberal Democrat Coalition Government, elected in 2010, appears likely to continue to promote such policies. The objective of this paper is to raise awareness of what may be seen as an important and developing agenda in public services in which accounting and accountability researchers are barely visible. The paper reviews the meanings and motivations of joined‐up government and its development in the UK. A number of challenges are presented, including the need to refocus research from an entity to a network perspective; to assess whether joined‐up government delivers value‐for‐money services; to join the debate on the development of related accounting techniques; to seek precision in specifying accountability mechanisms and to adapt our research methods.     

The Euro and the Changing Face of European Banking: Evidence from Mergers and Acquisitions

During the last fifteen years, the European banking industry has experienced considerable consolidation through mergers and acquisitions against the background of the introduction of the single currency and reductions in cross‐border barriers. This paper investigates whether these changes impacted on announcement period gains of the banks acquiring targets by examining the pre‐euro, run‐up to the euro and post euro eras. Evidence suggests bidders' gains have fallen with the development of economic and monetary union. It also reveals significant differences in the gains from acquisitions within and outside the eurozone. These results are consistent with increased competition among bidders and increased integration of the market in the eurozone area in the post‐euro era. However, differing results relating to focused and diversifying bids suggest that the level of market integration is sector dependent.     

Technologies of government in public sector's networks: In search of cooperation through management control innovations

In recent years, the public sector has been the subject of a thorough reassessment in a significant number of countries. During this process of modernization, issues such as inter-organizational collaboration and managerial innovation have been progressively placed at the forefront of practice and research. In particular, a number of countries have recently re-organized their public sectors around more or less formalized networks or hybrid inter-organizational forms, which are often led by a regulatory body and governed by a cooperation agreement. The literature on inter-organizational relationships in the public sector has evolved alongside the development of such cooperation agreements and innovative forms of organizing. Nevertheless, despite the fact that networks formed by public organizations, not-for-profit organizations, and private firms provide important services to their relevant communities, limited attention has been dedicated to studying the role of management control practices within inter-organizational relationships in public organizations. This is an important gap in the existing literature that this Special Issue intends to address. For this reason, and most importantly because public sector forms of inter-organizational collaborations are likely to differ significantly from those observed in the private sector, in the first part of this Editorial we draw attention to some of the themes that characterize the management and control of inter-organizational relations in the domain of public administration. Next, we introduce the six papers which comprise this Special Issue, and we briefly illustrate how each of them enhances our understanding of the role of control systems within public sector networks. Building on the empirical evidence and theoretical arguments offered by these studies, and after a brief review on the possible alternative ways of conceptualizing the process of adopting new management practices, we point to the further research that needs to be done if we are to understand the role that management control practices play in public sector networks. In particular, we suggest that there is a need to look inside management control practices, to explore what these practices are and, how and why they enable the cooperative “ideal” to become real, as well as to stimulate or hinder opportunities for public sector managerial innovation. It is concluded that there are a number of issues yet to be explored if we are to deepen our understanding of the formal and informal mechanisms of control which are the active elements of the so-called “regulatory hybrids” in the public sector.     

A Consulting Giant; a Disgruntled Client: A ‘Failed’ Attempt to Change Management Controls in a Public Sector Organisation

There has been very little research into management consulting interventions in public sector organisations, especially in emerging economies. This paper aims to fill this void by narrating the empirics of a consulting assignment carried out by a large international consulting firm in a Pakistani public sector organisation. The study found that consultants’ recommendations of ‘businesslike’ management controls, such as a modern performance measurement system and a ‘state‐of‐the‐art’ information system, were rejected outright by the client management. Employing a critical realist perspective that focuses on the structural conditions facing both the client and the consultants, and on the strategies adopted by both parties, the study aims to explain the empirics of the case. Through structural and strategic analysis, this paper aims to enhance our understanding of the dynamics of management consulting in public sector organisations, especially in emerging economies.     

Hired Guns: Local Government Mergers in New South Wales and the KPMG Modelling Report

Across the developed world, including Australia, public policymaking now rests heavily on commissioned reports generated by for‐profit consultants, contrasting starkly with the earlier customary reliance on the civil service to provide informed policy advice to political decision makers. Dependence on commercial consultants is problematic, especially given the moral hazards involved in ‘hired guns’ providing support for policy ‘solutions’ desired by their political paymasters. This paper provides a vivid illustration of some of the dangers flowing from the use of consultants by examining the methodology employed by KPMG in its empirical analysis of the pecuniary consequences of proposed municipal mergers as part of the New South Wales’ (NSW) Government's Fit for the Future local government reform program. We show that the KPMG (2016) modelling methodology is awash with errors which render its conclusions on the financial viability of the NSW merger proposals fatally flawed.     

Commentary: IFRS and the Domestic Standard Setter – Is the Mourning Period Over?

The introduction of International Financial Reporting Standards (IFRS) has changed but not lessened the roles of domestic standard setters. After a grieving period, they are now coming to realise that they have fundamental roles supporting international standard setters and ongoing roles in the public and not‐for‐profit sectors. The International Accounting Standards Board (IASB) has focused on for‐profit reporting, and the International Public Sector Standards Board (IPSASB) is a developing standard setter in the public sector. Domestic standard setters can help fill the gaps, support the development of the international standard setters and assist at the coalface when standards are applied.     

The meta‐governance of risk and new technologies: GM crops and mobile telephones

The stylistic shift from government to governance in the regulation of risks associated with new technologies is often portrayed as an attempt to reach a deeper consensus over public controversies and to avoid future risk management failures. Stakeholder involvement in decision‐making through more inclusive and learning styles is seen as increasingly necessary in order to correct the steering deficit of the state, to rebuild trust in state institutions, and to obviate problems caused by uncertainty and different value perspectives in risk assessments. In this paper we scrutinise this model of risk and governance in the light of recent developments in the UK, focusing in particular on the regulation of genetically modified crops and mobile telecommunications technology. We conclude that the shift to governance is best understood in terms of the accommodative response of the state to a number of new challenges: primarily posed by the changing role of the private sector; by pressures on government to engender public trust in the face of shifting social values; and by the related difficulty in taking decisions with confidence and legitimacy. There is a perceived need within government for a more deliberative approach to regulation and standard‐setting, achieved by a creative combination of managed scientific order and the establishment of deliberative cooperative institutions. However the creation of deliberative mechanisms and institutions is not an easy passage, especially if it is accelerated by uncontrollable political events. Indeed, we caution against romantic interpretations of governance as indicating a uniform popular trend towards the democratisation of state decision‐making, despite the very real opportunities for reform that it affords. Rather, we suggest that a more plausible account is provided by seeing governance as a form of adaptive management necessitated by a series of interlocking economic and social changes, and responses to successive risk management crises.     

Effect of outsourcing public sector audits on cost‐efficiency

This study compares the cost‐efficiency of ‘in‐house’ and outsourced to private sector audit supplier arrangements to deliver financial audits in the public sector by examining audit cost‐efficiency within the context of the public sector arrangement at one state in Australia (Western Australia). The results for 178 public agencies show that outsourced audits are, in general, more costly than in‐house audits, but this result is conditional on the type and size of public agency. Specifically, outsourced audits are more costly than in‐house audits for small statutory authority audits, whereas for specialist audits (i.e. hospitals) and large and complex statutory authority audits, the in‐house supply is equally efficient as the outsourced service.     

Innovation, Futures Thinking and Leadership

There are at least three strands of innovation: generating value from putting ideas into practice; creativity and inventive space; and macro-level social change. Recognizing the sources of and barriers to innovation in the public sector, this article reflects on how innovation and creativity in these senses can be nurtured and how the public sector can improve its policy and organizational processes to increase innovation.     

Sell-side analysts’ career concerns during banking stresses

We propose a new approach to examine sell-side analysts’ career concerns by relating their forecast boldness to their employers’ news flows. Specifically, we use banking sector news to proxy for the severity of career concerns. Analysts follow more closely the consensus forecast when the prospects of the banking sector are negative (and vice versa). The effect is both economically and statistically significant after controlling for various firm, analyst, brokerage house, and forecasting characteristics, as well as sector and economy wide effects. The more established analysts, in terms of reputation and experience, are generally unaffected by banking sector news. In contrast, their less established peers tend to cluster their forecasts near the consensus after a sequence of negative news flows for banks. Collectively, our results support the notion that during banking stresses when job security is low analysts’ tendency to imitate others increases.