Could fair value accounting be useful, under NPM models, for users of financial information?
| DOI | 10.1177/0020852307081153 |
| Author | Manuel Pedro Rodríguez Bolívar,Andrés Navarro Galera |
| Published date | 01 September 2007 |
| Date | 01 September 2007 |
| Subject Matter | Articles |
Review of
Administrative
Sciences
Could fair value accounting be useful, under NPM models, for
users of financial information?
Manuel Pedro Rodríguez Bolívar and Andrés Navarro Galera
Abstract
International Public Sector Accounting Standards (IPSAS) are an essential quality-
control factor for Public Sector Accounting Systems in European Union member
states. The compliance of the latter systems with IPSAS could be influenced to a
large degree by perceptions of how useful these standards are in enabling the
needs of financial information users to be met. Therefore, the aim of this article is
to investigate the capability of fair value accounting to improve the usefulness of
governmental financial information so that administrative reforms may be under-
taken with the implementation of New Public Management (NPM) postulates.
The theoretical section of the article studies the relevance of fair value accounting
with respect to meeting the information requirements for implementing NPM
models. This is followed by the results of empirical research carried out to deter-
mine the opinions of one of the main groups of information users concerning the
practicality of fair value accounting and its association with the solvency and
feasibility of fair value measures. To achieve this aim, we applied the χ2 test and
the ρ Spearman test and obtained findings about the capability of fair value
accounting to meet the new information requirements under NPM models more
effectively than under historical cost accounting.
Points for practitioners
Our contribution in this article for the public administrators’ practitioners is three-
fold. First, this article reveals the opinion of municipal officers about the practicality
of FVA and its contribution to the usefulness of government financial statements
in meeting the new information requirements under NPM models. Second, the
Manuel Pedro Rodríguez Bolívar and Andrés Navarro Galera are at the Department of
Accounting and Finance, University of Granada, Spain.
Copyright © 2007 IIAS, SAGE Publications (Los Angeles, London, New Delhi and Singapore)
Vol 73(3):473–502 [DOI:10.1177/0020852307081153]
474 International Review of Administrative Sciences 73(3)
article could contribute to understanding main factors that influence the useful-
ness of FVA to meet the information required under NPM postulates. Finally, the
article may be a useful instrument for the public administrators to identify the main
determinants factors of implementing fair value measures compared to the use of
historical cost accounting.
Keywords: Fair Value Accounting, governmental accounting, NPM models,
public assets
1. Introduction
Although New Public Management (NPM) postulates have gained ground in the
Anglo-American administrative culture model (Aucoin, 1990; Pollitt, 1990; Hood,
1991), supranational organizations and bodies (OECD, the World Bank, IMF) have
spread the Anglo-American experience all over the world. European Union countries
have been pressured by the external context to introduce changes in their public
administration in accordance with the NPM doctrine (Torres and Pina, 2004).
Indeed, although one of the most important claims currently made is that public
sector reforms have been more successfully implemented in majoritarian than in con-
sensus democracies, Yesilkatagit and De Vries (2004) show that far-reaching reforms
can be implemented in consensus systems too.
In any case, the reform of public management systems has been characterized by
a move towards a new management culture, inspired by various currents of opinion,
with proposals such as opening up public sector entities to competition, placing a
greater emphasis on citizens’ satisfaction and on quality, providing more transparent
information and modernizing control mechanisms, thus enhancing the accountability
of public entities. Information transparency is a key factor in achieving the latter
objective.
A major impediment to the achievement of enhanced accountability and the
financial transparency of governments and their agencies in many jurisdictions is the
absence of generally accepted financial reporting standards (Sutcliffe, 2003).
Consequently, the new public management systems require financial information
that is more comparable, relevant and useful for decision taking within public sector
entities.
Accounting practices are, therefore, an essential part of the successful imple-
mentation of NPM models (Norman, 1995; Lapsley, 1999; Yamamoto, 1999; Lapsley
and Pallot, 2000; Chan, 2003). A relevant factor in this is the capability of accounting
practices to effect change and the potential for complex interactions between
accounting, public sector managers and public policy-makers (Lapsley, 1999). In this
milieu, the move to accrual based accounting must be repositioned within the con-
text of global public policy reform (Marty et al., 2006).
The endorsement of an international set of accounting standards could provide a
clear and appropriate benchmark for improving the quality of financial reporting in
this context. It is likely that users of the financial statements published by public
sector entities and those concerned about financial transparency will benefit from
the development and adoption of the IPSAS of the International Federation of
Rodríguez Bolívar and Navarro Galera Fair value accounting under NPM models 475
Accountants (IFAC). Nonetheless, careful analysis of its usefulness for accounting
information users must first be made. In particular, we should identify the improve-
ment that might be gained in the utility of government accounting information, with
respect to information users’ needs, in the NPM environment.
The model based on users’ needs, together with the usefulness paradigm of
accounting, are relevant in this matter (GASB, 1987; AARF, 1990; CICA, 1990).
Indeed, it is now broadly recognized that the opinions of the users of governmental
financial statements play a key role in the endorsement of accounting standards
(Christiaens, 2003; IFAC, 2005) and there have been many calls for greater user
involvement in the standard-setting process to boost the usefulness of decision
taking (Balmford, 1977; Masel, 1983; Rahman, 1991; Harding and McKinnon, 1997).
The quest to raise the quality of accounting standards is the foundation on which the
users’ needs model is built. This is of overriding consequence because in order to
attain the transparency claimed for the NPM approach, financial reporting must be of
high quality and must report and reflect economic reality (SEC, 2001).
The basis for accounting measurement is a cornerstone in this ongoing process of
modernizing governmental management, in the light of new information require-
ments under NPM models. In fact, it can be highly relevant in enabling the needs of
a wide spectrum of users of accounting information to be met. Nonetheless,
although in recent years international pronouncements on public sector accounting
have been issued to answer the need for a framework in which the measurement
bases of accounting for public sector assets are applied, users have not been asked
their opinion by the standard-setting bodies about the application and usefulness of
these measurement bases. Therefore, it would be interesting to compile and analyse
evidence on the relevance, reliability and practicality of the main measurement bases
for primary groups of governmental financial information users.
In this context, although reforms based on fair value accounting (FVA) have been
proposed to improve the usefulness, relevance and reliability of financial statements
(Razaee and Lee, 1995), no research has been done to empirically test the possibility
of introducing criteria other than historical cost accounting (HCA) (habitually used in
many countries) to value assets in public sector entities. Currently, this question could
be of crucial importance because of the new information requirements established
under NPM models.
In view of the foregoing, the purpose of this article is to analyse whether FVA
performs better than HCA in meeting the new information requirements of NPM
models. Concretely, based on the opinions of one of the primary groups of financial
information users, this study seeks to: (a) determine the practicality of FVA and its
contribution to the usefulness of government financial statements in assessing
solvency – this should be understood, under the NPM framework, as the capability of
public sector bodies to finance their future investment programmes; (b) determine
whether the viability of FVA is associated with the solvency of public sector entities
under NPM models; and (c) determine whether FVA may feasibly be associated with
financial audits as instruments for enhancing the information transparency required
under NPM models.
The remainder of this article is structured as follows: in Section 2 we analyse the
capability of accounting measurement bases to meet the new information require-
476 International Review of Administrative Sciences 73(3)
ments under the NPM framework. The next section of the article presents the results
of empirical research designed to identify the opinion on FVA of the financial officers
in all Spanish municipalities with a population of over 50,000. Statistical tests includ-
ing the χ2 test and the ρ Spearman test are applied to four research propositions
about the primary municipal financial officers’ information needs. The findings of this
study are detailed in the empirical results section. Some...
To continue reading
Request your trial