Examination of Statements of Service Performance of New Zealand Local Authorities: the Case of Wastewater Services
The provision of statements of service performance (SSPs) by local government in New Zealand is a product of the economic reforms carried out in the late 1980s. A statement of service performance is regarded as an important document of New Zealand local government reporting. It is statutorily required by the Local Government Act 2002 and complemented by accounting guidance provided by the New Zealand Institute of Chartered Accountants (NZICA), with the objective of strengthening accountability obligations (Local Government Act 2002, s. 98; NZICA, 2002). In spite of twenty years‟ experience in preparing statements of service performance, the Office of the Auditor-General (OAG) (2008) criticised that the quality of SSPs prepared by local authorities (and other public-sector entities) was poor. A fundamental problem of statements of service performance reporting is the lack of comprehensive authoritative requirements on their preparation and presentation (Office of the Auditor-General, 2008). Arguably, the present authoritative requirements have been written to cater for the needs of large, profit-oriented entities in the private-sector rather than for the public-sector‟s specific needs for performance reporting and pitched at a higher or more conceptual level than is typically required for financial reporting standards (Office of the Auditor-General, 2008, Webster, 2007). This may be due to the fact that the current authoritative requirements, developed in early 1990s, have been influenced by the economic framework highlighting the decision-usefulness purpose of private-sector reporting, which is not suitable for public-sector reporting (Mack, 2003; Parker & Gould, 1999). Responding to the need for more adequate guidance for non-financial performance reporting of public-sector entities, the OAG and the International Public Sector Accounting Standards Board (IPSASB) are working on improving accounting guidance applicable for the preparation for SSP reporting by public-sector entities (Office of the Auditor-General, 2010; International Public Sector Accounting Standard Board, 2010). Pallot (1992) points out that accountability is the preferred purpose for public-sector reporting since the nature of the relationship between providers and users of government is non-voluntary. Past theoretical literature has attempted to define the possible components of accountability that would be suitable for public-sector entities to adequately discharge their accountability. Among them, Stewart (1984) has developed accountability bases, which provide a platform for understanding accountability expectations and, hence desirable characteristics of any accountability documents provided by public-sector entities for the public. It is possible that accountability documents pertaining to these accountability expectations will enable the public-sector entities to adequately discharge their accountability. New Zealand local government is the important second tier of New Zealand government sector. Among the wide range of community services provided by New Zealand local authorities, wastewater services represent one of the most crucial services. New Zealand constituents could be expected to be concerned not only about the performance of wastewater services provided by their local authorities, but also with the disclosures about that performance. However, the research on SSP wastewater disclosures by New Zealand local authorities is limited (Smith & Coy, 2000). Given the criticism on the usefulness of authoritative requirements for SSP reporting and the recognition of accountability expectations by the literature, the first two objectives of this study are to examine the consistency of SSP disclosures, regarding wastewater services provided by New Zealand local authorities, with the existing authoritative requirements, and the accountability expectations, using the disclosure index as a measurement tool. To understand possible explanations for the cross-sectional differences on the extent of disclosures, according to the authoritative requirements and accountability expectations, the third objective of this study is to examine the influential factors of the disclosures, using multiple regression analysis. The study finds that the performance disclosures made by the local authorities have low levels of correspondence with the index that is based on the authoritative requirements. The result also provides evidence that the current authoritative requirements are focused on financial information reporting and pitched at a high conceptual level. This supports the view that the existing authoritative pronouncements are not providing sufficient guidance for local authorities. The index based on accountability expectations has relatively greater correspondence with the disclosures made. This identifies that local authorities are providing information consistent with accountability expectations. The study suggests that accountability expectations provide a model suitable for SSP reporting guidance. According to the multiple regression analysis, the result shows that only size is significantly related to the extent of the disclosures. Larger local authorities report more corresponding information. The findings of this study provide three immediate implications which should be useful to: (i) accounting standard-setters for their current work on improving accounting guidance for SSP reporting; (ii) the Office of the Auditor-General for providing more insightful comments in the audit statement for SSP reporting; and (iii) regulators for increased attention on some special local authorities. By doing so, it is expected that New Zealand local authorities may lead the world in providing comprehensive SSPs, which enable them to adequately discharge their accountability and, hence in reaching a reform principle for greater accountability.