Accounting Auditing &
Vol. 12 No. 4, 1999, pp. 441-458.
# MCB University Press, 0951-3574
Submitted January 1998
Revised June 1998
Reporting on the state of
infrastructure by local
School of Accounting, University of New South Wales, Australia
University of Newcastle, Central Coast Campus, Australia
Department of Accounting, University of Sydney, Australia
Keywords Replacement, Infrastructure, Local government, Assets valuation,
Abstract The Australian accounting profession has advocated that infrastructure should be
accounted for by reporting it at current written down replacement values, on the basis that these
financial disclosures would provide relevant information to stakeholders. While local councils are
required to apply the profession's asset valuation and accrual standards in preparing general
purpose financial reports, the State of New South Wales has gone further by requiring local councils
to also present information about the physical condition of infrastructure, together with estimates of
the cost of bringing that infrastructure to a satisfactory condition, and the annual costs of
maintaining infrastructure at that standard thereafter. This paper examines how this information
was reported for 1995-96. Analysis of reporting practices suggest that while there are some
anomalies and uncertainties surrounding the rating of physical condition and the concept of
``satisfactory condition'', the disclosures provided by NSW local government are more informative
and arguably more relevant to external stakeholders and those responsible for asset management in
local government than the information currently prescribed by accounting standards.
Australian efforts to introduce or extend the application of accrual accounting
to the public sector placed a high priority on local government. Indeed, it has
been reported that the profession consciously applied a ``domino theory'' in its
campaign to popularise accrual accounting, by first targeting public trading
enterprises, then local government, followed by government departments and
finally governments as a whole (Victorian Commission of Audit, 1993).
Certainly the activities of the accounting profession were consistent with this
theory. The profession published, in succession, two statements on the
applicability of statements of accounting standards to public sector business
undertakings (ASA and ICAA, 1984, 1985), followed by statements of
accounting standards AAS 27 ``Financial reporting by local governments''
(ASCPA and ICAA, 1991), AAS 29 ``Financial reporting by government
departments'' (ASCPA and ICAA, 1993) and AAS 31 ``Financial reporting by
governments'' (ASCPA and ICAA, 1996).
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The authors wish to acknowledge the research assistance of Stanislav Pichersky.