The Relationship between Governmental Financial Reporting Methods and Transparency—A Literature Review

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Abstract

In this paper, I survey academic research that helps to answer the research question: How are governmental financial reporting methods related to financial statement transparency? Following Barth and Schipper (2008), I define financial statement transparency as “the extent to which financial reports reveal an entity’s underlying economics in a way that is readily understandable by those using the financial reports” (173). Transparency is the ability of the financial statements to communicate the economic reality of an organization’s financial position. Financial statements that are transparent do not omit or conceal information that would be useful to stakeholders for decision-making. As a result, transparent financial statements should have the ability to predict or explain certain outcomes. Therefore, although transparency and usability are not interchangeable, the two constructs are related.
I do not restrict my study to research that addresses only full AA. Many academics and other interested parties consider a strict or modified version of AA to be essential to achieving transparency (Mayston, 1992; Chan and Xu, 2012; Christensen and Parker, 2010). Opponents, however, argue that since governments do not aim to profit from their operations, as do organizations in the private sector, AA standards are unnecessary because the performance measures they produce are irrelevant (Lapsley, et.al. 2009; Christiaens and Rommel, 2008; Anessi-Pessina and Steccolini, 2007; Barton, 2005). In this paper, I include research that addresses AA standards in government, as well as other accounting techniques that may possibly improve the usability of government financial statements.

Author

• Amanda Beck, 3347440466