Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226

REVISTA DE CONTABILIDAD
SPANISH ACCOUNTING REVIEW

www.elsevier.es/rcsar

Explanatory factors for the use of the financial report in

decision-making: Evidence from Local Government in Portugal夽
Sónia Paula S. Nogueira a,∗ , Susana Margarida F. Jorge b
a
Affiliated Researcher at CICP (Research Centre in Political Science), Department of Juridical and Business Sciences, EsACT, Polytechnic Institute of Bragança,
St João Maria Sarmento Pimentel – Apt. 128, 5370-326 Mirandela, Portugal
b
Affiliated Researcher at CICP (Research Centre in Political Science), Faculty of Economics, University of Coimbra, Av. Dias da Silva, 165, 3004-512 Coimbra, Portugal

a r t i c l e i n f o a b s t r a c t

Article history: This study aims to identify to what extent certain factors perceived by internal decision-makers (politi-
Received 29 March 2015 cians and financial officials) influence the usefulness they consider the information presented in the
Accepted 25 September 2015 financial reports of municipalities has for decision-making purposes.
Available online 24 December 2015
It follows a quantitative research approach at a first stage, using a questionnaire. At a second and
complementary stage, it uses a qualitative research perspective, with interviews in a small group of
JEL classification: municipalities, which might be seen as case studies, in order to explore and understand the (external and
H83
internal) contextual factors that determine the usefulness of the financial report in decision-making by
M41
M48
internal decision-makers.
The main findings show that the pressure of professional organizations and of a national problem
Keywords: (external factors), as well as the lack of knowledge and training on the accounting information system
Local Government (internal organizational factor) are factors that most influence the usefulness of the financial report for
Financial reporting internal decision-making. Qualitative analysis confirms these results, reinforcing a factor relating to a
Usefulness work overload.
Determinant factors
Two important implications of this study are the following: first, professional bodies and the financial
situation in the country; while stimulating informational needs by internal users in the public sector
they determine the usefulness they offer to financial reporting for decision-making. Second, the lack of
knowledge of the accounting information system, especially by local politicians, is a hindering factor of
the usefulness given to financial reporting for internal decision-making. Nowadays, when many countries
are considering reforms of public sector accounting in line with the International Public Sector Accounting
Standards (IPSAS), supposedly increasing the sophistication, the level of information and usefulness of
financial reporting, such factors must be taken into account.
© 2015 ASEPUC. Published by Elsevier España, S.L.U. This is an open access article under the CC
BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

Factores explicativos de la utilidad del informe financiero para la toma

de decisiones: evidencia del gobierno local en Portugal

r e s u m e n

Códigos JEL: Este estudio busca identificar hasta qué punto algunos factores percibidos por los decisores internos
H83 (políticos y técnicos) influyen en la utilidad que ellos conceden a la información presentada en el informe
M41 financiero de los ayuntamientos para los propósitos de toma de decisión.
M48
Sigue primeramente un enfoque cuantitativo, con un cuestionario. En una segunda fase complemen-
Palabras clave: taria, se emplea una perspectiva de investigación cualitativa, con entrevistas a un pequeño grupo de
Gobierno local ayuntamientos que se pueden considerar estudios de caso, de modo que exploran y entienden los fac-
Informe financiero tores contextuales (externos e internos) que determinan la utilidad del informe financiero para la toma
Utilidad de decisiones por los decisores internos.
Factores determinantes

夽 Sponsored by FCT (UID/CPO/00758/2013).

∗ Corresponding author.
E-mail address: sonia@ipb.pt (S.P.S. Nogueira).

http://dx.doi.org/10.1016/j.rcsar.2015.09.002
1138-4891/© 2015 ASEPUC. Published by Elsevier España, S.L.U. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-
nd/4.0/).
 S.P.S. Nogueira, S.M.F. Jorge / Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226 217

Los principales resultados muestran que la presión de organizaciones profesionales y de un problema

nacional (factores externos), así como la falta de conocimiento sobre el sistema de información contable
(factor interno organizacional), son los factores que más influyen en la utilidad del informe financiero para
las decisiones internas. El análisis cualitativo confirma estos resultados, reforzando otro factor relacionado
con la sobrecarga de trabajo.
Dos importantes implicaciones de este estudio son las siguientes. En primer lugar, los organismos profe-
sionales y la situación financiera del país, mientras estimulan necesidades informativas en los decisores
internos en el sector público, determinan la utilidad que ellos consideran para el informe financiero para el
propósito de toma de decisiones. En segundo lugar, la falta de conocimiento sobre el sistema de informa-
ción contable, particularmente de los decisores políticos, es un factor inhibidor de la utilidad del informe
financiero para la toma de decisiones. Actualmente, cuando muchos países se plantean reformas de la
contabilidad pública para aproximarse a las IPSAS, supuestamente para aumentar la sofisticación, el nivel
de información y la utilidad del informe financiero, tales factores deben ser atendidos.
© 2015 ASEPUC. Publicado por Elsevier España, S.L.U. Este es un artı́culo Open Access bajo la CC
BY-NC-ND licencia (http://creativecommons.org/licencias/by-nc-nd/4.0/).

Introduction complemented by qualitative exploratory case studies (resorting

to interviews). The option of case studies of this nature is justified
The decision-making process tends to be similar in all organi- by the intention to explore and understand which internal and con-
zations, even if the decisions concern particular issues either in textual factors of local authorities might determine the usefulness
the public or private sectors. The effectiveness of decision models of financial information for internal decision-making by internal
depends on the circumstances that shape the organization (Tarter decision-makers.
& Hoy, 1998). The investigation contributes to the relevant debate on which
The reforms introduced in the management and accounting factors determine the usefulness of the information presented in
structures of public sector entities, in response to New Public Man- the financial reporting, particularly that prepared by local author-
agement requirements, reinforce the role of accountability as a ities. As far as we know, this is the first investigation carried out to
means to improve economy, efficiency and effectiveness in Pub- this effect in the context of Portuguese municipalities.
lic Administration. Accountability is no longer conceived as merely Additionally, the results of the study are intended to stimulate
reporting about complying with norms and procedures, but as the interest in the identification of factors that possibly affect the use-
need to report on the allocation and use of public resources and the fulness of financial reporting in several public sector realities at
results attained, in order to allow assessing public officials’ respon- international level. In the current context where many countries
sibilities (Brusca, 2010; Hookana, 2008; Lapsley, 1999, 2001, 2009; are considering or in the process of adapting their public sector
Mir & Rahaman, 2007; Neilson & Gregor, 2007; Ter Bogt & Van accounting systems to IPSAS, supposedly increasing the sophisti-
Helden, 2000; Ter Bogt, 2008). Consequently, the leaders of pub- cation, level of information and usefulness of financial reporting,
lic sector organizations, namely in Local Administration, nowadays such factors must be attended in the reforming processes.
need useful information to be able to make better decisions. The paper follows structured in three main sections. “Literature
In this context, the paradigm of information users and their review” section presents the theoretical framework, addressing
needs is of chief importance while reforming the accounting and explanatory theories of reforms in public sector accounting and rel-
financial reporting systems. evant literature on factors possible of determining the usefulness of
Organizational changes (in management and accounting) can financial reporting, particularly for decision-making. “Determinant
potentially be affected by a set of external and internal factors factors of the usefulness of financial reporting for internal decision-
that should be taken into account in the decision-making process, making in Local Government” presents the empirical study, starting
namely concerning the preparation and dissemination of useful by briefly describing the objectives, methodology and hypothe-
information for decisions (Haldma & Lääts, 2002). In this sphere, ses, data collection and analysis techniques, and finally, presenting
complementing the paradigm of the information usefulness, con- and discussing the results. “Conclusions and policy implications”
tingency and institutional theories can be used to support the summarizes the main conclusions and policy implications.
analysis of (internal and external) explanatory factors of the useful-
ness of the financial reporting for decision-making, in the context
of Local Government. Literature review
Relevant literature indicates that the usefulness of the financial
reporting information for the purpose of decision-making depends Explanatory theories of reforms in public sector accounting
on various factors in the entities’ context. Several authors (e.g.,
Cohen, Kaimenakis, & Zorgios, 2007; Grossi & Reichard, 2009; Mack In recent years there has been a proliferation of empirical studies
& Ryan, 2006; Mack, 2004) concluded that the degree of use of based on social science theories, namely on the organizational the-
financial information for decision-making varies as a function of ory, seeking to explain organizational change and reforms adopted
its usefulness for that purpose. Grossi and Reichard (2009) found in the public sector, including those of financial management and
that the use of financial information depends also on various orga- accounting systems (Brignall & Modell, 2000; Burns & Scapens,
nizational factors, such as the lack of appropriate knowledge and 2000; Caccia & Steccolini, 2006; Lapsley & Pallot, 2000; Scapens,
training regarding the accounting and reporting system. 1990, 1994; Ter Bogt, 2008; Ter Bogt & Van Helden, 2000). More
This study aims to identify the (external and internal) precisely, the authors have attempted to understand the reasons
explanatory factors of the financial reporting usefulness for for the existing gap between regulations and accounting prac-
internal decision-making through an empirical analysis of the tices adopted by organizations, aiming to understand whether the
308 Portuguese municipalities. To fulfill this purpose, a quan- reforms in the scope of the New Public Financial Management
titative analysis was firstly developed (by applying a survey), (NPFM) were introduced in order to overcome the real limitations
218 S.P.S. Nogueira, S.M.F. Jorge / Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226

of accounting information and reporting systems or simply to com- This institutional approach differs from other theories of a ratio-
ply with legislative requirements. nalist nature, by understanding that economic, social, political and
The decision-making process tends to be similar in all organiza- cultural phenomena make up the institutional environment, form-
tions, even if decisions concern particular issues of organizations ing the meaning of concepts such as individual, social action, State
either in the public or in the private sector. The effectiveness of and society (Carpenter & Feroz, 2001; Carpenter, Cheng, & Feroz,
decision models depends on the circumstances that shape the orga- 2007; DiMaggio & Powell, 1991; Meyer & Rowan, 1991; Modell,
nization (Tarter & Hoy, 1998). Organizational changes in public 2004; Ryan et al., 2002).
entities, faced with the new demands of NPM/NPFM, triggered new Within the scope of the public sector, in recent years, the institu-
information needs for decision-making. Decision-makers now need tional theory (namely the New Institutional Sociology stream) has
useful and opportune information to be able to make the most been frequently used by various researchers who seek to under-
suitable decisions, highlighting the importance of the paradigm stand organizational change in this context (Brignall & Modell,
of information users and their needs. Nevertheless, organizational 2000; Grossi & Reichard, 2009; Lapsley & Pallot, 2000; Ter Bogt,
changes can potentially be affected by a series of external and 2008; Ter Bogt & Van Helden, 2000).
internal factors that should be considered in the decision-making The institutional theory has been used to explain how organiza-
process (Haldma & Lääts, 2002). tions respond to the pressures of their institutional environments
Here, contingency and institutional theories can be used to (Carpenter & Feroz, 2001; Carpenter et al., 2007; Chapman, Cooper,
explain the reforms in public sector accounting, particularly to & Miller, 2009). It seeks to identify a series of external factors
explore factors possibly affecting information usefulness in the that can pressurize or induce the process of internal change in
decision-making process in the context of public sector entities, order to gain external legitimacy (DiMaggio & Powell, 1991; Lapsley
namely local authorities. & Pallot, 2000; Meyer & Rowan, 1991). Organizations’ tendency
towards uniformity in relation to their institutional environment
Contingency theory was called by DiMaggio and Powell (1991) as “isomorphism”. The
The contingency theory is a theoretical perspective of orga- process by which organizations tend to adopt the same practices
nizational behavior that emphasizes the way contingencies or and structures over time, in response to institutional pressures (so
restrictions, such as size, environmental uncertainties, technology as to self-defence when facing problems for which they do not yet
and environmental pressures, affect organizations’ development have their own solutions), is named institutional isomorphism.
and functioning (Chenhall, 2003; Thomas, 1991). It tries to identify Isomorphic change can occur according to three mechanisms
the relationships between an organization’s internal and exter- (DiMaggio & Powell, 1991): coercive (resulting of formal and infor-
nal characteristics and its management capacity (Ryan, Trevor, & mal pressure exerted on organizations by other organizations and
Nelson, 2002). society’s expectations, in a shared legal, economic and political con-
According to this framework, contingencies or restrictions text, as well as formal and informal pressure exerted by the State,
influence organizations’ structure in terms of training, specializa- which leads organizations to make a decision to adopt a certain
tion, differentiation and bureaucratization (Covaleski, Dirsmith, & practice); normative (arising from the professionalization which
Samuel, 1996). forms a set of delimited norms and procedures for a specific occu-
Regarding accounting and financial reporting systems, the con- pation or activity; this type of isomorphism occurs as the result
tingency theory is “based on the premise that there is no universally of shared values and ideas about suitable behavior, often spread
appropriate accounting system which applies equally to all orga- through professional and academic groups); and imitative (occur-
nizations in all circumstances” (Otley, 1980:413). Therefore, there ring in conditions of uncertainty and diminished stability, when
is not a universal model of a control and accounting system suit- organizations imitate practices already tested and successful in
able for and applicable to all organizations and circumstances other similar organizations).
(Anessi-Pessina, Nasi, & Steccolini, 2008). Organizations will have
to adopt new accounting practices seeking a better adjustment Factors affecting the internal usefulness of financial reporting
between their administrative systems and contingency factors
(Anessi-Pessina et al., 2008; Woods, 2009). The design of a new The literature on public sector accounting and the above-
accounting system will depend on the organization’s capacity to referred theoretical frameworks, support that the usefulness of
recognize and adapt to changes as a function of external and inter- financial reporting for the decision-making process of internal
nal factors. users/decision-makers depends on factors inside and outside pub-
Although the contingency theory has been developed in the lic sector organizations, including local authorities (Askim, 2008;
private sector, and greatly used in the scope of management Cohen, 2009; Cohen et al., 2007; Grossi & Reichard, 2009; Guthrie,
accounting, some studies have used the contingency perspective 1998; Lee, 2008; Mack & Ryan, 2006; Pallot, 1997; Paulsson, 2006;
in explaining reforms in public sector management and account- Taylor, 2009; Yamamoto, 2008).
ing, investigating particularly the introduction of new systems for The traditional literature suggests that reasons of economic
measuring and managing performance, as well new accounting and nature (to improve efficiency and effectiveness) have been the
reporting systems (Anessi-Pessina et al., 2008; Lüder, 1992, 2002; main motivation for organizational change, namely the usefulness
Pollitt & Bouckaert, 2004; Woods, 2009). of the financial reporting for decision-making. However, in the
light of the organizational theory, institutional (external) factors –
Institutional theory competitiveness, government, professional groups, technology and
Within the literature of organizational theory, the institutional customers – and cultural (internal) factors – need for efficiency,
theory considers that expectations and values, both inside and out- professionalism, change in the dynamics of autonomy, size and
side organizations, as well as the rules of society, can also play a complexity of the organization, and the search for organizational
role in the decision to introduce organizational changes, namely strategies – have a prominent role in explaining organizational
concerning the accounting system. It supports that organizations change, including that of accounting systems (Benito, Bastida, &
acquire legitimacy if they adapt to external expectations, i.e., there Muñoz, 2010; Burns & Scapens, 2000; Deegan, 2002; Scapens,
is pressure to introduce certain accounting practices without due 1994).
consideration of whether these will bring benefit (Geiger & Ittner, Regarding changes in the accounting and reporting systems and
1996). financial information usefulness, overall, such studies mention as
 S.P.S. Nogueira, S.M.F. Jorge / Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226 219

influencing factors (Buylen & Christiaens, 2013): institutional and part of, additionally complementing aspects not possible to obtain
legal pressures, lack of understanding about the new information through a survey.
prepared according to the accrual basis, lack of human resources For the quantitative part of the study, the following research
and resistance to change, among others. Some factors are directly hypotheses were defined, based on the literature and theoretical
related to the individual characteristics and attitudes of decision- framework presented in the previous section:
makers, others are the result of certain institutional standards of
the respective organizations and others concern outside circum- H1. Factors external to local authorities positively influence the
stances. usefulness of financial reporting for internal decision-making by
Factors associated with the decision-makers’ individual char- municipal decision-makers.
acteristics – such as skills, knowledge and experience of concepts H2. Factors internal to local authorities negatively influence the
and tools of financial management (familiarity) – seem to be par- usefulness of financial reporting for internal decision-making by
ticularly relevant in determining the degree of usefulness they give municipal decision-makers.
to financial information (Askim, 2008; Paulsson, 2006; Yamamoto,
2008).
The degree of financial reporting data usage for decision-making Data collection and analysis
is also depending on the “decision-usefulness” of the data (see Mack
& Ryan, 2006, for this concept), which concerns the potential benefit Regarding the quantitative dimension of the study, a question-
of data for the user (relevance, congruence with expectations, etc.) naire was applied to all Portuguese local authorities (308), directed
but it is also a question of readability and understandability of the to internal decision-makers (politicians – member of the Execu-
financial information. Grossi and Reichard (2009) explain that the tive responsible for the finance department; and officials – head
demand for certain sets of financial reporting data depends very of the local authority’s financial department1 ). The questionnaire
much on various individual and institutional factors, like knowl- was essentially drawn upon evidence from the literature review.2
edge or culture. Generally, the use of financial information is a result Therefore, questions (in an ordinal scale from 1 to 5, where 1 is Not
of the interplay of several supply-side and demand-side related at all useful and 5 is Very useful) were intended to ascertain the use-
influence factors. fulness, for internal decision making, of obligatory budgetary and
Considering the literature review and the conclusions of the financial statements presented in municipalities’ financial repor-
studies referred to, generally, external factors are assumed to have ting, according to what is established in the Local Government
a positive effect on the use of financial information, while inter- accounting regulation currently in practice in Portugal,3 as well as
nal factors have a negative effect (Askim, 2008; Grossi & Reichard, of other economic and financial information voluntarily reported.
2009; Yamamoto, 2008). In fact, external (institutional) pressures So as to find out the degree of influence of factors, both exter-
or contingencies may increase financial reporting usefulness, even nal and internal to local authorities, in the usefulness attributed
generating further (new and different) information needs, given to financial reporting for internal decision-making by politicians
that decision-makers tend to resort to financial reporting so as to and financial officials as municipal decision-makers, two ques-
show how they and the organizations they run, decide to react to tions were asked while listing a varied set of factors (in an ordinal
those circumstances. Internal organizational factors and individual scale of 1–5, where 1 is Does not Influence and 5 is Influences
characteristics and attitudes may, on the other hand, resist against Greatly).
the external pressures and limit the usefulness of the financial Respondents were selected according to their predominant role
information. as municipal internal decision-makers, hence principal internal
users of the local authority’s financial reporting. The option for
internal users as the subject for survey was due to the fact that
Determinant factors of the usefulness of financial reporting this group has a major role in using financial information produced
for internal decision-making in Local Government by the local authority, following NPM principles. The response rate
was approximately 49%, with the final sample being made up of
Objective, methodology and hypotheses 302 valid responses (94 responses from politicians and 208 from
financial officials).4
Following the approaches of contingency and institutional theo- Table 1 presents a brief characterization of the respondents, by
ries, this study aims to identify to what extent the factors perceived region, showing that more than one-third of the respondents in the
by respondents influence the usefulness they attribute to the sample (34.11%) comes from municipalities in the North region,
information presented in local authorities’ financial reporting, for followed by those of the Centre region (28.48%). The least repre-
internal decision-making, considering that those factors can also sented is the Autonomous Region of Madeira, with only 2.98% of
affect their information requirements. valid responses.
Given the proposed objective, the study looks for answering the As to the respondent groups in municipalities by region, the
question “Which external and internal factors influence the usefulness most representative group in the sample is that of financial officials
of the municipal financial reporting for decision-making by internal from the North region (35.10%), while the least represented group
decision-makers (politicians and financial officials)?”. is that of politicians in the Autonomous Region of Madeira (2.13%).
The study adopts a mixed research methodology. At a first stage, It is also observed that in all regions of Continental Portugal and
it follows a quantitative research approach, using a questionnaire; in Madeira the number of financial officials as respondents is
at a second and complementary stage, it uses a qualitative research twice or more the number of politicians. In Azores, however, the
perspective, resorting to the explanatory and exploratory case
study method. The choice of case studies of this nature is justified
by the fact that one intends to explore and understand the (external 1
Finance Department or Finance Division or Accounting Section, according to the
and internal) contextual factors of local authorities that determine local authority’s model of organizational structure.
2
the financial reporting usefulness. The option for a qualitative The questions dealt with in this paper are just a part of a more wide-ranging
questionnaire.
research methodology to complement the quantitative approach 3
Law-decree n. 54-A/99, 22 February – Official Plan of Accounts for Local Author-
is also justified by the fact that the former allows for a better ities (POCAL).
comprehension of the social context the phenomenon studied is 4
Politicians in the sample are 30% of the population, while financial officials are
220 S.P.S. Nogueira, S.M.F. Jorge / Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226

Table 1
Characterization of respondents by region.

Region Sample Populationa % Sample/population

Decision-makers Total Total

Politicians Financial officials

n % n % n % N %

North 30 31.91 73 35.10 103 34.11 172 27.92 59.88

Centre 25 26.60 61 29.33 86 28.48 200 32.47 43.00
Lisbon 6 6.38 12 5.77 18 5.96 36 5.84 50.00
Alentejo 16 17.02 34 16.35 50 16.56 116 18.83 43.10
Algarve 6 6.38 11 5.29 17 5.63 32 5.19 53.13
Azores 9 9.57 10 4.81 19 6.29 38 6.17 50.00
Madeira 2 2.13 7 3.37 9 2.98 22 3.57 40.91

Total 94 100.00 208 100.00 302 100.00 616 100.00 49.03

a
616 individuals = 308 municipalities × 2 decision-makers.

Table 2 As for the qualitative part of the study, semi-structured

Size of respondent municipalities.
interviews were made, following a previously elaborated script
Sample Population containing the main questions, as suggested by Yin (2009). As in the
questionnaire, the script covered a varied set of questions. Those
n % N %
relevant for the purpose of this paper are: In your opinion, what
Small 164 54.30 360 58.44
are the internal organizational factors influencing the greater/lesser
Medium 113 37.42 210 34.09
Large 25 8.28 46 7.47 usefulness/use of the financial information presented in the local
authority’s financial reporting for your decision-making? Why?
Total 302 100.00 616 100.00
Given the fundamental purpose of the qualitative analysis – sup-
plementing the primary data obtained in the quantitative research
– a theoretical or purposeful sample was considered, according
number of politicians and financial officials responding to the to pre-established criteria (Patton, 2002; Strauss & Corbin, 1990).
survey approximates. From the beginning, the selection of the cases took into account
Finally, the weight of the respondents in the sample compared the fact that a questionnaire had been previously applied and the
to the population, ranges from 41% in Madeira to 60% in the North, respondents had replied contrasting answers regarding the over-
so it might be said that the representation of each region in the all usefulness of financial reporting for internal decision-making –
sample does not diverge considerably. either very useful or not at all useful. Additionally, the (contrasting)
Concerning the size of municipalities,5 Table 2 shows that case studies were chosen in order to have representativeness for
this study had greater collaboration from respondents belonging different sizes and geographical locations6 of municipalities.
to small municipalities (54.30%), the percentage of participation The theoretical sample was also guided by the saturation prin-
diminishing as the municipalities’ size increases. Given the config- ciple, ending when information from additional cases adds nothing
uration of Portuguese municipalities, large municipalities are less to the initial basis (Creswell, 2009; Stake, 1995).
represented in the sample, accounting for only 8.28%. Still, the dis- Bearing in mind these principles, five local authorities were cho-
tribution of municipalities in the sample, according to their size, sen to form the case studies: two situated in the Northern and three
approximates that of the population. in the Central region of Portugal. As for size according to number
of inhabitants, one large, two medium-sized and two small local
authorities were selected.
67.5% of the population. The global rate of response (49%) was quite good and for Contact with local authorities belonging to different regions and
this was crucial the process followed to apply the questionnaire, in order to get various sizes was found very important to enhance comparison of
as much answers as possible. Firstly a letter was sent directly addressed to all 308 the various contexts inherent to the entities, for example, regarding
Mayors, presenting the survey with a link were the questionnaire could be filled the process of decision-making and/or action in the area of service
in, and asking, when applied, for his/her direct collaboration in the survey or, as
in most cases, for authorization for other respondents (both the alderman for the
provision to citizens.
financial area and the relevant financial official). Support for the survey was also Creswell (2009), Eisenhardt (1989), and Quivy and
got from the National Association of Portuguese Municipalities (ANMP) as well as Campenhoudt (2003) state that the position of interviewees
from Medidata.net – Sistemas de Informação para as Autarquias S.A., a company that should be at the basis of their selection, plus the fact of them being
produces accounting software for most municipalities in the northern Portugal. The
directly involved in action or responsibilities, besides having good
former sent a memo to all associates (addressing the Mayors) and the latter an e-
mail, appealing for their collaboration in this survey, highlighting the importance of knowledge of the subject, being able to explain their actions and
the study to the Portuguese municipalities. This support, namely from the ANMP, justify them. Considering that the qualitative research intended
was crucial to increase the response rate. to complement the quantitative one, it was understood that the
A second round of contacts was made about two months after the first letter, both via interviewees should be the same as those who answered the
e-mail and telephone, with those that up to then had not replied the questionnaire,
seeking for the reasons of non-reply and again appealing for collaboration.
questionnaire – politicians and financial officials.
Meanwhile, other contacts were made replying to clarification requests by the
respondents.
5
For the analysis by size, the methodology defined by Carvalho, Fernandes,
6
Camões and Jorge (2008) was followed, which categorizes Portuguese municipali- Following the Nomenclature of Territorial Units for Statistical Purposes (NUTS),
ties according to the number of inhabitants: (1) small municipalities – population level II. NUTS II comprises seven regions, five of which are in the mainland Portugal
no greater than 20 000 inhabitants; (2) medium-sized municipalities – population (North, Centre, Lisbon and Tejo Vale, Alentejo and Algarve) and two correspond
over 20 000 inhabitants and no greater than 100 000 inhabitants; and (3) large to the Autonomous Regions of Madeira and Azores (Law-decree n. 244/2002, 5
municipalities – population above 100 000 inhabitants. November).
 S.P.S. Nogueira, S.M.F. Jorge / Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226 221

Table 3
Interviews for the case studies.

Municipality Size Number of inhabitantsa Region Interviewees

A Large 158 124 North Deputy Mayor

Head of Finance Department
B Small 15 805 Centre Mayor
Head of General Administration Department
C Medium 56 109 Centre Mayor
Head of General Administration Department
D Small 3518 Centre Mayor
Technical Coordinator–Management Control Sub-unit
E Medium 23 850 North Councillor for Financial Matters
Head of Department of Administration, Finance and Modernization
a
Information gathered from the National Institute of Statistics (www.ine.pt), Census 2011.

For the cases considered, 10 face-to-face interviews were per- commitment taken on, while attributing greater potential influence
formed, taking place in the premises of the respective local to those factors in the usefulness of the financial reporting than
authorities. Each interview lasted 1 h on average, although some- financial officials, the differences are found not to be statistically
times longer, in order to take advantage of the interviewee’s significant.
interest and in the attempt to obtain more information. As recom- Regarding the degree of influence of local authorities’ inter-
mended by several authors (Ryan et al., 2002; Scapens, 2004; Yin, nal factors (Table 5) on the usefulness of the financial reporting
2009), the interviews were recorded and later transcribed. for internal decision-making, respondents consider excessive
The reporting of the interviews is made without any element of workload and the lack of articulation between the accounting infor-
identification of the municipality at stake, for reasons of anonymity mation system and the organization’s objectives and mission to be
and confidentiality. Therefore, in the case studies, all names were the factors with the greatest potential to influence that usefulness.
replaced by letters A to E, as in Table 3. Resistance to change and the lack of professional experience in the
Concerning the technique of analysing the data from the inter- post or function performed are the factors considered with least
views performed in the case studies, content analysis was used as potential influence.
it is an instrument combining a varied set of methodological tech- It is of note that, in the set of local authorities’ internal factors,
niques (Eisenhardt, 1989; Stake, 1995). The work was not limited to answers are, on average, very close to the intermediate value in the
analysing the individual interviews; it was also necessary to carry scale, being more scattered for the case of external factors. In the
out a synthesis in order to obtain a single discourse and so induce majority of local authorities’ external and internal factors, the mean
the answers to what is intended in this part of the study. To this of the degree of influence on the usefulness of financial information
end, the method followed to analyze, in general, the case studies disclosed in the financial reporting, for internal decision-making, is
was based simultaneously on a vertical analysis (synthesis of the overall higher in the group of financial officials.
main research questions of each case study) and on a horizontal In relation to organizational factors inside local authorities,
analysis (comparative analysis of all cases, highlighting the main excessive workload is the only internal factor with statistically
differences and similarities). In this study, only the results of the significant differences (p-value < 0.1) between groups of decision-
horizontal analysis are presented. makers.
Although not statistically significant, politicians, more than
Presentation, analysis and discussion of the results financial officials, consider resistance to change as having poten-
tially greater influence on the usefulness of the financial reporting
Quantitative analysis for their decision-making. This seems to indicate that politicians are
Univariate analysis. In a first descriptive analysis of the data not as receptive to changes in the accounting information system
obtained through the questionnaire (Table 4), the pressure of a as financial officials. This situation might be justified by the fact
national problem (for example, the case of budget constraints) and that politicians do not have an immediate need to adapt to new
the pressure of controlling bodies (Court of Audits, Inspectorate systems, inasmuch as they are generally supported by specialized
General of Finance, among others) were found to be the main personnel, preparing and providing the financial information they
factors external to local authorities that potentially influence the require.
usefulness of the information disclosed in the financial reporting
for internal decision-making. Control by citizens and media and Multivariate analysis. The analysis continues identifying the factors
public opinion scrutiny are the external factors that potentially explaining the usefulness of the financial reporting for decision-
have least influence, according to the respondents (mean under making by internal decision-makers (politicians and financial
the intermediate value on the scale). officials) using an explanatory regression model. Three variables
Financial officials consider that the political pressure has were considered: “INTERNAL FACTORS” and “EXTERNAL FACTORS”
potentially more influence on the usefulness of the financial infor- (independent variables), and “USEFULNESS” (dependent variable).
mation for decision-making, compared to the group of politicians Independent variables. The variables ‘INTERNAL FACTORS’ and
(p < 0.05). The differences are also statistically significant between ‘EXTERNAL FACTORS’ were constructed on the basis of the simple
the decision-making groups (p < 0.1), in the case of the potential average of items as part of each factor extracted from the facto-
influence exerted by media and public opinion scrutiny. It stands rial analysis in principal components of the scale, as suggested by
out that, also in this case, the higher mean of potential influence of Pestana and Gageiro (2008). The results of the factorial analysis
the factor on the usefulness of the financial reporting is attributed reveal the formation of two factors that explain 52.35% and 60.75%
by the group of financial officials (2.85). of the total variance of the responses, respectively. The factors
Interesting is to notice that politicians, although more linked identified were designated ‘EXTERNAL FACTORS’ and ‘INTERNAL
to national problems and citizens’ scrutiny through the political FACTORS’ (independent variables). The results of Cronbach’s Alpha
222 S.P.S. Nogueira, S.M.F. Jorge / Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226

Table 4
Descriptive statistics of external factors.

Please indicate the degree of influence of the Variable Mean (n = 302) Stand. dev. Min./max. %1/2a %4/5a Decision-makers p-Valueb , c
following external factors on the usefulness of the
Politicians Financial officials
financial reporting in your internal
Mean (n = 94) Mean (n = 207)
decision-making:

Pressure of a national problem (e.g. budget NatProbP 4.05 0.984 1/5 7.6 78.1 4.11 4.02 0.477
constraints)
Pressure from controlling bodies (Court of ContBodP 3.88 1.109 1/5 11.9 68.5 3.81 3.91 0.469
Audits, Inspectorate General of Finance,
among others)
Political pressure (local or central) PoliticP 3.28 1.214 1/5 25.2 45.4 3.07 3.38 0.043*
Pressure from professional organizations ProfOrgP 3.09 1.030 1/5 27.5 34.4 2.96 3.15 0.155
(CNCAP, external auditors, among others)
Citizens’ control CitControl 2.92 1.047 1/5 33.1 30.1 2.97 2.90 0.597
Media and public opinion scrutiny ScPo 2.78 1.044 1/5 40.7 25.2 2.62 2.85 0.071***
a
Scale: [1] – does not influence; [5] – influences greatly. Here, “does not influence” represents the percentage of respondents who indicated [1] or [2] in the scale of
response; “influences greatly” represents respondents who indicated [4] or [5].
b
p-Value or asym. significance of the Student’s t-test.
c
When *p-value < 0.05, **p-value < 0.01, ***p-value < 0.10, groups differ.

Table 5
Descriptive statistics of internal factors.

Please indicate the degree of influence of the Variable Mean (n = 302) Stan. dev. Min./max. %1/2a %4/5a Decision-makers p-Valueb , c
following internal factors on the usefulness of the
Political Financial officials
financial reporting for your internal
Mean (n = 94) Mean (n = 208)
decision-making:

Excessive workload EWorkload 3.39 1.135 1/5 20.90 47.00 3.20 3.47 0.056***
Lack of articulation between the accounting LArt 3.31 1.098 1/5 22.50 46.00 3.28 3.33 0.687
information system and organization’s
objectives and mission
Lack of knowledge and suitable training on the LKnowTr 3.18 1.204 1/5 29.10 42.10 3.05 3.24 0.223
accounting information system (POCAL)
Non-existence of sufficient computing means InexMeans 3.05 1.274 1/5 36.40 39.10 3.03 3.06 0.871
to be able to use the information
appropriately
Complexity of the financial information ComplFinInf 3.02 1.160 1/5 30.80 35.80 2.91 3.06 0.307
elaborated in an accrual basis
Resistance to change Resistanc 2.98 1.304 1/5 38.70 38.40 3.03 2.96 0.643
Lack of professional experience in the LProfExp 2.86 1.229 1/5 41.10 32.10 2.76 2.90 0.332
post/function currently held
a
Scale: [1] – does not influence; [5] – influences greatly. Here, “does not influence” represents the percentage of respondents who indicated [1] or [2] in the scale of
response; “influences greatly” represents respondents who indicated [4] or [5].
b
p-Value or asym. significance of the Student’s t-test.
c
When *p-value < 0.05, **p-value < 0.01, ***p-value < 0.10, groups differ.

showed a good internal consistency – Cronbach’s Alpha equal to results show weak correlations (rho(302) varies between 0.099 and
0.853 for ‘EXTERNAL FACTORS’ and 0.900 for ‘INTERNAL FACTORS’. 0.249).
Considering that the factorial analysis generated one single factor Regarding the independent variable, ‘INTERNAL FACTORS’,
for each variable, all items within each variable were included. results show the existence of a moderate to strong correlation, for a
Dependent variable. The variable ‘USEFULNESS’ is a global vari- level of significance of 0.01, also confirming the results obtained in
able formed from five factors arising from the factor analysis. The the factorial analysis. The correlation coefficients with the ‘USEFUL-
results of Cronbach’s Alpha showed a reasonable internal consis- NESS’ variable show, unexpectedly and contrarily to the literature,
tency – Cronbach’s Alpha equal to 0.755 (Pestana & Gageiro, 2008). that internal factors are positively correlated, although the results
The perception of the respondents on the usefulness of munici- show very weak correlations (the correlation coefficient rho(302)
pal financial reporting for internal decision-making indicates that varies between 0.129 and 0.249).
it is quite useful, with an average of 4.12. Thus, for the variable Regression analysis. To analyze the factors explaining the use-
‘usefulness of municipal financial reporting’, results of the KMO fulness of the financial reporting for decision-making by internal
test (equal to 0.911) indicate that the quality of the correlations decision-makers (politicians and financial officials), a regression of
between variables is very good (Marôco, 2010; Pestana & Gageiro, explanatory variables is proposed (to test H1 and H2). Given that
2008). Furthermore, results of Bartlett’s test (p < 0.05, ˛ = 0.000) the dependent variable is censored and truncated, with the value
demonstrate that there is a positive correlation between the vari- oscillating between 1 and 5, the adequate technique consists of
ables (2 (351) = 80.077.504). estimating a Tobit model7 (Tobin, 1958), such as:
To analyze the relationship between variables, non-parametric
statistic was used, namely, by calculating Spearman’s (rho) yi∗ = ˇ · xi + εi
coefficients.
Results show that the ‘EXTERNAL FACTORS’ are mutually
related, in this way confirming the results of the factor analy- 7
The use of the OLS technique is not adequate, as demonstrated by Chou and
sis. The correlation coefficients with the ‘USEFULNESS’ variable Cebula (1996) and Greene (2002), since it would obtain inconsistent estimators.
show that external factors are positively correlated, although the Adds to the low and high limits of the dependent variable, the fact that it is discrete.
 S.P.S. Nogueira, S.M.F. Jorge / Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226 223

Table 6 presents a determination coefficient of 0.0725 (Pseudo R2 ), which

Regression estimates.
means the independent variables analyzed (factors) explain only
Independent variables Dependent variable about 7.25% of the variation observed in the usefulness variable, so
Usefulness the model estimated might be said as not so robust (Marôco, 2010).
ˇ Std. err. t p-Value Nevertheless, the 2 statistic with a value of 35.96 associated
with a p-value equal to 0.0006 (˛ = 0.05) allows concluding that
(Constant) 3.417 0.154 22.16 0.000
PoliticP −0.032 0.034 −0.93 0.356 the model is statistically significant, i.e., it is suitable to explain
NatProbP 0.072 0.038 1.89 0.060*** the relationship between the usefulness of the financial reporting
ProfOrgP 0.104 0.041 2.49 0.013* for internal decision-making by local authorities’ decision-makers,
ContBodP −0.008 0.041 −0.20 0.844
and some external and internal organizational factors. The useful-
ScPo −0.039 0.044 −0.89 0.375
CitControl 0.018 0.039 0.46 0.647
ness of the financial reporting is positively influenced only by the
LKnowTr 0.087 0.040 2.16 0.031* pressure from professional organizations (ProfOrgP) and the pres-
LProfExp 0.014 0.041 0.35 0.730 sure of a national problem (NatProbP), both external factors, and
ComplFinInf −0.025 0.040 −0.62 0.535 by the lack of knowledge and suitable training on the accounting
Resistance 0.028 0.037 0.79 0.433
information system – POCAL (LKnowTr), an organizational factor
LArt −0.033 0.045 −0.73 0,464
EWorkload 0.010 0.032 0.30 0.765 internal to the local authority. Therefore, the regression coefficients
InexMeans 0.008 0.032 0.26 0.795 are statistically significant only for the variables ProfOrgP (˛ = 0.05)
 0.514 0.021
and NatProbP (˛ = 0.1), both external factors, and for LKnowTr
Number of obs. 302 (˛ = 0.05; internal factor). From these findings, the following regres-
LR 2 (13) 35.96 sion model is established:
Prob > 2 0.0006
Pseudo R2 0.0725 USEFULNESS = 3.417 + 0.072NatProbP + 0.104ProfOrgP
Tobit model.
*
+ 0.087LKnowTr + εi (2)
Significant for a level of significance of 0.05.
***
Significant for a level of significance of 0.10.

Reflecting on the results of the regression model, one can con-

where yi ∗ is the dependent variable to be estimated (‘USEFUL- clude that H1 is only partially corroborated, and H2 cannot be
NESS’); ˇ is a k-dimensional vector of unknown parameters; xi is a corroborated.
vector that contains all explanatory variables of ‘INTERNAL FAC- In effect, the usefulness considered to financial information in
TORS’ and ‘EXTERNAL FACTORS’ (independent variables); and εi supporting internal decision-making in Portuguese local authori-
represents the residual errors. ties is positively affected only by two out of the six external factors
The variable yi , which refers to the observed usefulness scores, considered (ProfOrgP and NatProbP). As to internal factors, financial
is thus defined as follows: reporting usefulness is affected only by one out of the seven factors
 considered (LKnowTr); in addition, the positive sign of this effect
yi = yi∗ ; yi∗ < yic was opposite to what was initially expected. This means that, in
yi = yic ; yi∗ ≥ yic the case of Portuguese local authorities, the lack of knowledge and
suitable training on the accounting information system (POCAL)
yic represents the value of censorship and, as the purposes of this
seems to have a rather unexpected positive effect on the useful-
research, its value is the minimum and maximum scores that the
ness of the financial reporting for internal decision-making. In other
variable ‘USEFULNESS’ can obtain (1–5 points).
words, this finding suggests that internal decision-makers in local
The standard Tobit model assumes homoscedasticity and nor-
authorities, who have less knowledge and do not have suitable
mality in the residual distribution, obtaining consistent estimators
training on the accounting information system (regardless whether
when both assumptions are met.
they are politicians or financial officials), use and attribute greater
H1 and H2 were then tested estimating the following Tobit
usefulness to the financial information disclosed in the financial
regression model:
reporting. Considering that the correlations between the variables
USEFULNESS = ˇ0 + (ˇ1 PoliticP + ˇ2 NatProbP + ˇ3 ProfOrg ‘USEFULNESS’ of financial reporting and local authorities’ internal
organizational factors were weak, further research was needed to
+ ˇ4 ContBodP + ˇ5 ScPo + ˇ6 CitControl) clarify this finding, which one tried to complement in the qualita-
− (ˇ7 LKnowTr + ˇ8 LProfExp + ˇ9 CpmplFinInf tive part of this study.
Taking those weak correlations into consideration, these find-
  
+ ˇ10 Resistanc + ˇ11 LArt + ˇ12 EWorkload ings seem to mean that the respondents/decision-makers (either
 politicians or financial officials) do not consider most of the inter-
+ ˇ13 InexMeans + εi (1)
nal organizational factors analyzed as possible of affecting the
where ‘USEFULNESS’ represents the dependent variable; and the usefulness they give to financial information for decision-internal
variables PoliticP, NatProbP, ProfOrgP, ContBodP, ScPo, CitControl making. This was another matter requiring further discussion on
(representing the variables of ‘EXTERNAL FACTORS’), and LKnowTr, the qualitative analysis.
LProfExp, ComplFinInf, Resistanc, LArt, EWorkload, InexMeans (rep- Finally, most factors were found as statistically non-significant
resenting the variables of ‘INTERNAL FACTORS’), represent the in the regression model, as in the case of the excessive workload
independent variables explaining the usefulness of the financial while processing the information; these were unexpected results
report for internal decision-making; and εi represents the esti- given that in the descriptive/univariate analysis this factor had been
mated errors. ranked as having high influence on internal decision-making.
Table 6 displays the statistics from the estimation. Overall, these results seem to indicate that the adoption of
The results show that the dependent or explained variable is private sector accounting practices in the Local Government
only significantly influenced by three variables. These findings were accounting system (which resulted in the preparation and pre-
somehow expected given the weak correlations obtained between sentation of new accrual-based information for decision-making)
the variables in the above-performed analysis. The model estimated occurred as a response to institutional pressures exerted on local
224 S.P.S. Nogueira, S.M.F. Jorge / Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226

Table 7
Results of interviews – internal factors influence on usefulness of financial information.

Factor Cases Influence

Politicians Financial officials

Excessive workload A/B/C/D/E Negative (A, B, C, E) Negative (B, C, D)

Size of the local authoritya A/D Positive (A) Negative (D)
Non-existence/scarcity of technological resources A/B/C/D/E Negative (A, D) Negative (B, C, E)
Complexity of the financial information elaborated in an B/D Negative (B, D) Negative (D)
accrual basis
Lack of articulation between the accounting information B/C/E Negative (B) Negative (C, E)
system and the organization’s objectives and mission
Local authority serving as reference for other external A Positive (A) –
organizations (e.g. local business companies and other
municipalities within a network of local services
provision)a
Clear definition of functions and allocation of A Positive (A) –
responsibilitiesa
Resistance to change D/E Negative (D) Negative (E)
Lack of professional experience in the post/function D/E Negative (D, E) Negative (E)
Lack of knowledge and suitable training on the accounting A/B/C/D Negative (A, B, C, D) Negative (C, D)
information system (POCAL)
a
New factor added compared to the quantitative analysis (see Table 5).

entities. Professionals, but also fiscal constraints requiring con- accountability and decision-making. The complementarity of the
stant monitoring of the decisions outputs, seem indeed to pressure information gathered also allowed covering the non-responses to
positively for the usefulness of financial reporting for internal the survey.
decision-making. Therefore, the institutional theory seems indeed As in the quantitative analysis, in the qualitative one the inten-
to have a significant role in explaining the accounting reforms tion was to compare the perspectives of politicians and financial
adopted in the public sector, specifically in Local Administration officials as decision-makers, by local authority.
in Portugal, which ultimately have had positive impact in the use- In general, the results of the interviews regarding internal orga-
fulness of the financial information for internal decision-making. nizational factors confirmed the results described in the univariate
If on the one hand, from the outputs of the univariate analy- analysis, but new factors possibly influencing greater or lesser
sis, it seems that both external and internal organizational factors usefulness of the municipal financial reporting in supporting the
have a potential influence on use and usefulness of the informa- decision process were also identified. Table 7 shows the internal
tion disclosed in the local authority financial reporting for internal factors highlighted by the interviewees, the cases in which they
decision-making, on the other hand, the results of the regression were referred to and the signal for each factor of influence, distin-
model show that the factors considered generally explain a very guished by politicians and financial officials as decision-makers.
low percentage of the variation observed. Nevertheless, consider- As already stated, these findings for internal organizational fac-
ing the results of the variables correlations, such conclusions do not tors and their influence on the usefulness of financial reporting
come as a surprise. for decision-making, allow an overall confirmation of those of the
Only three factors – pressure from professional organizations, univariate analysis of data gathered from the questionnaire. They
pressure from a national problem (both external factors) and also validate the negative signal expected for the influence of these
the lack of knowledge and suitable training on the accounting factors, even for the ‘Lack of knowledge and suitable training on
information system (internal organizational factor) – show statis- the accounting information system (POCAL)’, which had found a
tical significance, albeit weak, in explaining usefulness of financial positive inexplicable influence in the regression analysis.
reporting for internal decision-making, allowing only partial sup- It should be remembered that this factor appears in the lit-
port for the hypotheses formulated. Still, these findings seem to be erature with a negative sign and that in above testing of H2
somehow convergent with others in the literature, e.g. corroborat- the opposite result was obtained, raising the need for further
ing the conclusions in the studies by Askim (2008), Cohen (2009), clarification in the interviews. For this factor, all interviewees
Cohen et al. (2007), Grossi and Reichard (2009), Guthrie (1998), shared an opinion coherent with the international literature, hence
and Pallot (1997). To a certain extent, there is some evidence that contradicting the statistical analysis and suggesting that internal
finds support in some assumptions of contingency and institutional decision-makers with a lack of knowledge and suitable training
theories about the relationships between aspects of the internal on the accounting information system (POCAL) make less use of
and external contexts of a public sector organization and its man- the financial information to support decision-making in Portuguese
agement capacity, specifically in the usefulness of the information local authorities, regardless whether they are politicians or finan-
presented in the financial reporting to support the process of inter- cial officials.
nal decision-making in local authorities. The factor ‘Excessive workload’ continues to be the potentially
most influencing one.
Qualitative analysis Therefore, while findings in the quantitative analysis did not
In the light of the institutional theory, the qualitative analysis allow to corroborate H2, the qualitative analysis reassures that this
sought, in general, to reinforce the identification of internal organi- hypothesis might be accepted.
zational factors that can influence greater or lesser usefulness/use Furthermore, the information gathered at the quantitative
of the financial information in the local authorities’ financial repor- stage was complemented, by identifying new internal factors
ting in support internal decision-making, with a view to extending such as: the size of the local authority; the fact that the local
the results obtained with the questionnaires. This analysis also authority serves as reference for other external organizations in
aimed to attempt to establish a closer relationship with some theo- terms of efficient, effective and economic management of the
retical explanations for reforms in public sector accounting, namely resources, increases its financial information needs, so increasing
for the changes in order to elaborate more useful information for financial information usefulness for decision-making; and the clear
 S.P.S. Nogueira, S.M.F. Jorge / Revista de Contabilidad – Spanish Accounting Review 19 (2) (2016) 216–226 225

definition of functions and allocation of responsibilities. While the authorities, and, on the other hand, from pressures of professionals
two latter internal factors were identified only by a politician (in a pushing an approximation of the public sector accounting into the
large municipality in the North region) as positively affecting the business accounting system.
usefulness of financial reporting for internal decision-making, the Consequently, similarly to what has happened in the business
former (size of the local authority) was identified by a politician in sector, one can expect that also for Public Administration, the new
a large municipality as having a positive influence and by a finan- model of financial reporting to be adopted, adapted from the IPSAS,
cial official in a small municipality as having negative influence. will on the one hand be more flexible in the information to report,
Consequently, there is a slight indication that size might be an and on the other, more rigorous and transparent in presenting the
issue when considering the usefulness of financial reporting for information to its users. The main aim of adopting a new model of
internal decision-making in municipalities. This is a matter that financial reporting, through external pressures, will therefore lead
deserves attention in the future of this research. to increasing its usefulness. However, it is questionable whether the
The interviews in general also indicate that political decision- usefulness intended will be truly recognized by its users, namely
makers are those who appear to be less receptive to changes to support internal decision-making. Will decision-makers come
resulting from the reform of Local Government accounting in Por- to use the information available in the new financial reporting in
tugal. their decision-making for better financial management of public
resources or will they find it just a useless work overload? Another
question arising concerns, for example, the knowledge of those
Conclusions and policy implications
who will use the new financial report internally – will they be
ready for it and have the appropriate knowledge? This seems to
The literature indicates that the usefulness of the financial
be a critical issue highlighted in the study as possible to hinder the
information presented in the financial reporting of public bod-
use/usefulness attributed to such information.
ies depends on various factors in the organizational (internal and
All in all, this study allows deriving the following implications:
external) context. These conclusions were somehow corroborated
in this study in the context of local authorities. The empirical results
- Pressures from professional organizations (e.g. the certified
for Portuguese municipalities show that pressure from professional
accountants institute) and a national fiscal problem are of major
organizations as well as the pressure of a national problem (both
importance when considering the usefulness of financial repor-
external factors with positive influence) and the lack of knowl-
ting for internal decision-making, especially in local authorities,
edge and suitable training on the accounting information system
meaning that professional bodies and the financial conjuncture
– POCAL (internal organizational factor with negative influence)
seem to stimulate informational needs by internal decision-
are factors with great influence on the usefulness of the munic-
makers in public sector entities.
ipal financial reporting for decision-making by the main internal
- The lack of knowledge and suitable training on the accounting
decision-makers – politicians and financial officials. These find-
information system by decision-makers, especially by local politi-
ings are validated in the complementary qualitative analysis, which
cians, is a hindering factor of the usefulness given to financial
additionally strengthens the ‘excessive workload’ factor as possi-
reporting for internal decision-making, which allows concluding
ble of hindering the usefulness of financial reporting for internal
that the background, and possibly the training, of decision-
decision-making. Although this factor has not obtained a signifi-
makers on the accounting and financial reporting system will
cant value in the hypothesis tested from the questionnaire data,
increase its usefulness as subsequently the quality of the deci-
it is noted that the results of the descriptive (univariate) analy-
sions taken.
sis of the quantitative part of the study seemed to point to it as
being somehow important in determining the usefulness for inter-
nal decision-making of local authorities’ financial information in Countries and international standard-setters (e.g. IPSASB for
Portugal (respondents/decision-makers gave the highest average IPSAS, Eurostat for EPSAS), while reforming public sector account-
punctuation). ing, must consider these issues, if they wish accounting to be an
In general, these conclusions find support in the contingency information system to truly support decision-making.
theory, and especially in the institutional theory, which sustain that
external pressures and organizational factors determine changes Conflict of interest
in public sector accounting systems, hence affecting the way the
financial information they produce is used for internal decision- The authors declare that there are no conflicts of interest.
making.
Overall, one may say that the results showed the usefulness References
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