N° APELLIDOS Y NOMBRES DIRECCIÓN ASOCIACIÓN

Accountability requires appropriate and accurate information to be reported to accountees. Traditional ly, as the focus of accou ntability has been on fi nancial or fiscal compl iance, accountabil ity has been discharged through financial reporting - the reporting of financial information which inc l udes financial viabil ity and the costs of providing services (Miah, 1 990). In this regard, financial statements have been used to provide reports on organ i sational activity and audited financial reports have been the primary means for the d ischarge of financial accountability. However, financial i n formation, although i mportant to accountabili ty, if used alone, w i l l l i m it the basis of accountability (Stewart, 1 984). As Patton ( 1 992) argues, a complex environment like the public sector with its many dimensions of accountabi lity, may lead to different types of information and disclosure requirements. This implies that diverse reports that include both financial and non-fi nancial information are necessary. This information is most commonly included in general-purpose annual reports which contain both financial and non-financial information.

While annual reports have been recognised as a medium for the discharge of accountability, alternative mechanisms are also widely recognised as being important to discharging accountabil ity in the public sector (Stanley, Jennings & Mack, 2008). Therefore, annual reports should not be seen as the only means of discharging accountability (Coy & Pratt, 1 998). Among others, the alternative mechanisms may include personal contacts (Ryan et al., 2002a) and newspaper reports (Kloot & Martin, 2000; Mack & Ryan, 2003). However, ann ual reports are the only comprehensive statement available to various stakeholders (Boyne & Law, 1 99 1 ; Mack & Ryan, 2003)

and are considered as a primary accounting reporting mechanism, despite them not reporting on the overall accountability of the agency (Boyne _& Law, 1 99 1 ; Ryan et al., 2002a; Coy et al., 200 I ). The current research recognises general purpose annual reports as a primary means for the discharge of greater accountability as prescribed by the notion of NPM.

In the context of NPM, with the extended accountability focus, the reporting of financial information alone is no longer sufficient for effective accountabil ity. Accountability in the context of NPM requires more than financial information. While the quantity and qual ity of · information have been the concern for an effective development of accountabil ity (Mulgan, 1 997; Martin, 1 997), an accountability information system should a l so report on all levels of Stewart's ladder (Goddard & Powe l l, 1 994) - from accountabil ity for probity and legality which deals with the legal ity of expenditure, through to process accountabil ity and final ly to performance, programme and policy accountabi l ity, which is concerned with actions and activities achieved. This involves the reporting of comprehensive, accurate and appropriate information about the cond ition, performance, activities (the nature of services provided and the quality of service delivery), progress budgets, accounts and other financial indicators to all stakeholders with a social, economic and/or political interest (Coy & Dixon, 2004; Devas & G rant, 2003 ).

In addition, the arrival of N PM with its emphasis on results and performance and a call for greater and improved accountability (Broadbent & Guthrie, 1 992; Hood, 1 99 1 ; Mulgan & Uhr, 200 1 ), has seen the emergence of performance reporting a s an important management tool in promoting the aspects of NPM (Norman & Gregory, 2003). In this regard, the theoretical framework of accountabi lity, in the context of N PM , suggests that performance reporting should provide appropriate, accurate and comprehensive information and involve reporting to wider audiences (Coy et al., 200 1 ). The wider audiences in the context of th is research encompass all relevant stakeholders of Malaysian local authorities discussed in Section 4.3 . 1 . Arguably, therefore, performance reporting through the medium of annual reports is important for the discharge of greater accountabil ity in the context of N PM and Malaysian local authorities. The annual reports of Malaysian local authorities are examined in the current research to provide evidence as to the extent that the local authorities have discharged their accountabi l ity to

their accountees or stakeholders through reporting. The following chapter provides a framework of performance reporti n g and the discharge of accountability.

4.8 CHAPTER SUMMARY

Within the theoretical framework of accountability and in the context of N P M and the M alaysian local authorities, this research treats accountabi l ity as a relationship between the accountor (Malaysian local authorities through their president/mayor) and key accountees or stakeholders. In terms of 'accountabi lity to whom ', although the notion of hierarchical accountability is relevant, political accountabil ity, public accountabil ity and legal/administrative accountabi l ity are considered important in order to promote greater accountabil ity to all relevant stakeholders. In terms of 'accountabi lity for what', the foc us is on accountabil ity for performance but the importance of the traditional scope of accountability for fiscal compliance and probity has not been ignored, for example, financial information reported in traditional financial statements is also considered and analysed in the current research. This resonates with the notion of accountabi l ity in the context of N P M . As the NPM-type reforms have been implemented in Malaysia, as discussed in Chapter one, it is e xpected that the local authorities are accountable not only for the proper use of financial resources but also for service performance and not only to the higher authority but a l so to other relevant stakeholders. it is not the intention o f the current research to 'test' the theoretical framework of accountability, but rather the theory is used to guide empirical investigations. The theoretical framework of accountabil ity that is discussed in this chapter, along with the framework of performance reporting that is d iscussed in the following chapter guide the empirical investigations. The relationshi p between the theoretical framework and the empirical i nvestigations are shown in Figure 4 . 3 .

As i l lustrated in Figure 4.3, the theory o f accountability provides a framework for the meaning and c lassi fication of accountabil ity. In addition, the theory also provides a framework for the expectations o f key accountees or stakeholders involved in an accountabil ity relationship, especial ly in terms of ' accountability to whom' in the publ ic sector in general and in the context of NPM and Malaysian local authorities spec i fical ly.

Figure 4.3: Theoretical F ramework: E m pirical Investigation

The Meaning

I

THEORETICAL FRAMEWORK

Accountability OF ACCOUNTABI LITY Accountability

for What

I

I

Accountability I

Clas_sification to Whom

Guides

0 Explore stakeholders' EMPIRICAL I NVESTIGATION _,Evaluate the extent

umkrstanding uf and quality uf

accountability with the information

regards to local authorities disclosed

$ Identify stakeholders' infom1ational and disclosure

expectations in order to assess 0 Examine whether

the performance of local authorities the informational/disclosure

Traditional Model Fiscal compliance/ Financial Immediate Superior Role of Performance

Reporting (Chapter Five)

NPM To include managerial/ performance To include all relevant stakeholders

Further, the theory provides a framework for the scope of 'accountabil ity for what' i n relation to both the traditional and N P M focuses as well as i n the context of Malaysian local authorities. Finally, the theoretical framework of accountability suggests the importance of performance reporting through the medium of annual reports to promote greater accountabi lity in the context of N PM . The theoretical framework of accountability is used to underpin the empirical investigations, as stated in sequence (numbered 1 to 4) in F igure 4.3, in the context of Malaysian local authorities.

The theoretical framework of accountability, along with the framework of performance reporting that is discussed in the following chapter (Chapter Five) are applied to the four empirical investigations that are centred on the research objectives;

I . To explore the concept of accountability from the perspective of Malaysian stakeholders and the stakeholders' understanding of their re lationship with local authorities (Investigation I, Figure 4.3).

2. To identify the type of information that a broad group of stakeholders expect to enable them to assess and monitor the performance of Malaysian local authorities ( Investigation 2, Figure 4.3).

3 . To identify the stakeholders' perceptions of the importance o f i n formation items for disclosure (Investigation 2, Figure 4.3).

4. To identify experts' perceptions of and agreement on the information necessary for assessing and mon itoring the performance o f local authorities and the importance of such information for disclosure (Investigation 2, Figure 4.3).

5 . To develop a special purpose disclosure index to assess the extent and quality of performance information published in annual reports of Malaysian local authorities (Investigation 2, Figure 4.3).

6 . To evaluate the extent and quality o f disclosure of performance reporting within the annual reports by applying the developed disclosure index ( I nvestigation 3, Figure 4.3).

7. To ascertain whether the informational and disclosure expectations of stakeholders are being met ( I nvestigation 4, F igure 4.3).

8. To ascertain the extent to which accountability ts being discharged through performance reporting (Investigation 4, Figure 4.3).

O verall, the current research recognises that at its core, accountability is about the relationship between the accountor and the accountee. The accountabi l ity aspects of communication of information and answerabil ity (which invol ves elements of explanation and j ustification), are relevant to the current research, in that they recognise that accountabi lity may be discharged by means of performance reporting through the medium of annual reports in order to discharge accountabil ity to a w ider group of stakeholders. It is argued that this could i mprove both performance and public accountability. The next chapter provides a review of literature on performance reporting and accountability, stakeholders and their information requirements, and the use of a disclosure index in evaluating performance reporting through the medium of annual reports.

CHAPTER FIVE

PERFORMANCE R EPORTING AND THE DISCHARGE OF ACCOUNT ABILITY

5. 1 INTRODUCTION

This chapter provides a review of l iterature surrounding the concepts of performance and performance reporting as wel l as the issues relating to the d ischarge of accountability through reporting. Further, it provides reviews of prior studies on user/stakeho lder information requ i rements, disclosure studies that focus on the u se of an index in measuring levels of disclosure and relevant Malaysian studies. The i nsights gained from these reviews, along with the accountabi l ity framework discussed in Chapter Four provide guidance and conceptual understanding for undertaking empirical investigations aimed at examining the performance reporting practices and accountabil ity of Malaysian local authorities. The review of literature (in Chapter Four and this chapter) is the 'theory position' phase in the application of the MRT perspective adopted by this research.

Following the introduction section, the concepts of performance and perfo rmance reporting are discussed in Section 5 .2. Section 5.3 then provides a discussion on the role of performance reporting for the discharge of accountabil ity. A review of prior studies on user/stakeholder information requirements is provided in Section 5 .4. The use of a disclosure index in prior studies in measuring disclosure levels is discussed i n Section 5 . 5 . Section 5.6 provides a review of relevant Malaysian studies which is important for providing an understanding of what has happened in relation to performance reporting in the Malaysian context and to provide j ustification for the current research. Section 5 . 7 concludes the chapter with a d iscussion on the skeletal framework ' sketched' from the accou ntab i l ity framework discussed in Chapter Four and the review of l iterature provided i n this chapter that leads to the research questions. Section 5 . 8 provides the chapter summary. The position of this chapter in the overall thesis is shown in Figure 5 . 1 .

Figure 5. 1 : Thesis Structure: the Position of Chapter Five

I ntroduction Research Research

Context Perspective

Aims

Objectives Malaysian

Context- Local Middle-Range-Thinking

N PM Authorities Chapter 3

Chapter 1 Chapter 2

Guide

Skeletal Theories _{- - - -} Empirical Details

Accountabil ity Chapter 4 - £""nrich- - - :Pisclosure Results and Discussion: Stakeholders' informational and disclosure expectations Chapter 7 Questionnaire Survey Results and Discussion: Experts' agreement on Conclusion and

Research Delphi _information Recommendations

Methods Exercise _necessary

Chapter 6 for assessing _and Chapter 10

moni toring performance

Annual Chanter 8

reports

content

analysis Results and Discussion: Extent and quality of annual performance reporting Chapter 9