Robert W. Ingram

Economic Incentives And The Choice Of State Government Accounting Practices

Several recent studies have examined possible economic determinants of accounting policy choices of local government entities. For example, Zimmerman [1977] and Maher and Keller [1978] proposed economic reasons for the current (diverse) state of municipal accounting and financial reporting, and Evans and Patton [1983] identified economic incentives leading to participation in the Municipal Finance Officers Association Certificate of Conformance program. A recent survey by the Council on State Governments (CSG) [1980], in its summary of major accounting and reporting practices for individual state governments, characterizes both the general status of state government accounting and the diversity of accounting practices observed across states. Using the data reported by the CSG and some of the economic arguments offered in earlier research, this study provides preliminary evidence on the association between economic factors and cross-sectional variations in accounting practices of state governments. The specific evidence presented is characteristic of states that report quantitatively

The effect of regulation on local government disclosure practices

The purpose of this study is to examine the relationship between financial disclosures of local governments and the economic incentives of the local political manager to disclose. These economic incentives include the regulatory structure of the local governments financial reporting. Unlike publicly held corporations which are all subject to the regulatory authority of the Securities and Exchange Commission, local governments face different state government regulations. Some states require GAAP compliance, same require compliance with state designated (non-GAAP) disclosure practices, and some do not regulate local government financial disclosures. The primary findings are that disclosure practices of cities in states that do not regulate local government practices, do not differ significantly from the practices of cities in GAAP regulated states. Further, when considered in conjunction with other political and socioeconomic variables, GAAP regulation appears to have a negligible effect on the financial reporting practices of local governments in GAAP regulated states. Finally, the disclosures of cities in states that require non-GAAP practices are significantly fewer than those of cities in the other categories. When considered in conjunction with other political and socioeconomic variables, non-GAAP reporting requirements appear to have a significant effect on the financial reporting practices of local governments in these states.

The importance of state accounting practices for creditor decisions

Abstract This paper examines the association between state government accounting practices and creditor decisions. Creditor decisions were surrogated by yield premiums and variances of the premiums on general obligation debt securities. Accounting practices were summarized from the Council of State Governments Survey. In addition to these practices, accounting ratios and bond ratings were included as independent variables in regression models. The results demonstrated that accounting practices were not directly associated with the bond risk and return measures but may have been indirectly related as a result of their effect on bond ratings.

Municipal bond market recognition of pension reporting practices

Abstract The purpose of this study was to examine the usefulness of current municipal pension accounting disclosures for assessing municipal bond risks and returns. An empirical assessment of the association between various pension ratios and bond ratings, bond yields, and market risk revealed little explanatory power in the pension variables. We posit that the results probably stem from current practices that reduce the relevance and reliability of pension accounting numbers. Thus, standardization of practices and increased disclosures as proposed by the NCGA may have positive effects on the usefulness of pension disclosures for creditor decisions.

Representational faithfulness and economic consequences: Their roles in accounting policy

Abstract This essay reexamines the roles of representational faithfulness and economic consequences that have been described in the recent literature. In contrast to arguments in this literature, we posit that representational faithfulness and economic consequences are complementary attributes of accounting policy and that neither should be ignored. The essay examines arguments from an article by Ruland in 1984 and questions those arguments that permit the author to conclude that representational faithfulness and economic consequences are mutually exclusive approaches to setting accounting policy.

A Descriptive Analysis of Municipal Bond Price Data for Use in Accounting Research

Recent governmental accounting research has made use of bond market measures to gauge the relevance of various accounting numbers and practices for users of financial accounting information (e.g., see Wallace [1981], Copeland and Ingram [1983a], and Raman [1981]). Several alternative bond measures have been employed in this research, such as bond ratings, net interest cost on new debt issues, and offering yields on bond issues from the secondary market. None of these alternatives affords a basis for research similar to that afforded by corporate equity security prices. In particular, the theoretical framework of corporate finance leading to the capital asset pricing model (CAPM) has had little impact on governmental research. In fact, data availability problems have led some to wonder whether a construct like the CAPM is useful for governmental accounting research (see Wilson and Howard [1985]). In this paper I describe municipal bond data that have not been used in prior research but that appear to perform in a similar fashion to corporate security data. In addition to describing the data, I also examine systematic and unsystematic risk/return attributes from the market model, compare the data to alternative market measures, and then apply the data to basic accounting issues similar to the Beaver, Kettler, and Scholes [1970] and Ball and Brown [1968] studies.

The effect of internal service funds on the comparability of government accounting numbers

Abstract Governmental standard setters have expressed concern with the consistency of accounting standards and the related effect on comparability of information in accounting reports. This study attempts to determine whether the choice to use or not to use internal service funds (ISFs) affects the accounting ratios of municipalities. A t -test comparison of several measures of the variability of municipal expenditure ratios between cities that do and do not use ISFs suggests that diversity of practice results in measurable differences between the two groups. Ordinary least squares analysis controlling for other variables confirmed these results. Additional analysis further investigates, in departments where expected service level patterns can be specified, whether use or nonuse of ISFs to account for the fixed assets is more likely to report expenditure patterns consistent with expected cost of service. For fire and police departments, the use of ISFs for equipment management resulted in expenditure patterns more closely approximating the expected service patterns and, in that sense, more comparable over time.