An Investigation of the effect of alternative presentation formats on preparers and users of city financial reports

Abstract

Financial statements are one of the means by which accounting information is transmitted to individuals interested in the financial affairs of a city. The order in which data is presented determines, to some extent, the totals and subtotals that are included in a financial statement and, consequently, may affect the "messages" conveyed to the readers of the statement.

This study was conducted primarily to determine whether the use of alternative presentation formats for the GAAP-based general government operating statement influences the perceptions of preparers and users of city financial reports concerning the impact of current-year operations on the well-offness of cities. Also, the study was intended to provide insight into the opinions of these individuals with regard to (a) the meaning of the term "operating results" and (b) the relative usefulness of several presentation formats for the GAAP-based operating statement for the general government activities of cities.

The data, obtained from a mail survey of 1,200 preparers and users of city financial reports, was analyzed by means of multivariate analysis of variance techniques. The results are consistent across respondent types and clearly indicate that the use of alternative presentation formats does influence the perceptions of financial statement readers with regard to whether a city is better off or worse off as a result of current-year general government operations. Also, these results suggest that financial report readers are fixated on the negative aspects of reported revenue-expenditure deficits.

The results also indicate that preparers and users of city financial reports consider the general fund to be the most important of the governmental fund types and that the comparison of total resource inflows with total resource outflows best describes or defines the term "operating results" for the general government activities of cities. Further, the results indicate that these individuals (1) prefer operating statements that are presented in a columnar format, (2) prefer formats that provide information on a fund-by-fund basis, and (3) consider the aggregation of information for the operating funds to be useful provided it does not replace the fundby-fund information.