THEUSEFULNESSOFFINANCIALREPORTINGIN
SPANISHLOCALGOVERNMENTS
M. Isabel Brusca Alijarde*
INTRODUCTION
Traditionally, Spanish local governments have used an accounting
information system in which only the budget was disclosed. However, since
1988 great efforts have beenmade to introduce a double entry system that also
permits the disclosure of the economic activity and financial situation of these
entities. Along these lines, the Accounting Instruction for Local Government
(ICAL) was entrusted with defining the structure and content of the financial
statements that local governments should present. It came into effect for the
1992 accounting period and since then has had to be applied for the
elaboration of the financial reporting of these entities.
The application of the new regulation (ICAL) to local government was
intended to normalise and to modernise public accounting in local
administration, approximating it to business accounting. The ICAL demands
the presentation of the following financial statements: balance sheet;
operating statement; statement of sources and applications of funds; budget
execution statement; statement of claims and obligations related to previous
fiscal years; cash statement; and statement of debt. Furthermore, among other
annexes to the financial statements, the cash surplus statement should be
presented.
The elaboration of these financial statements involved some difficulties at
first for the local governments, which is logical in any change process. Once
such difficulties were surpassed and local governments had adapted to these
new requirements, it became necessary to prove the usefulness that these
financial reports actually have, the change that they have brought about in
the management of local entities, and if they are actually used.
From this perspective, we have carried out a study on the usefulness of
financial reporting in local governments which lets us know the principal
changes and improvements that the introduction of the ICAL has brought
about and to whom the financial reporting system can be useful. Also, we
attempt to show the degree of usefulness that is assigned to the financial
statements, and in particular to the different items disclosed in them, as well
Financial Accountability&Management,13(1), February1997, 0267-4424
ßBlackwell Publishers Ltd. 1997, 108 Cowley Road, Oxford OX4 1JF, UK
and 350 Main Street, Malden, MA 02148, USA. 17
* The author is a Lecturer in the Department of Accounting and Finance, University of Zaragoza,
Spain.
Address for correspondence:M. Isabel Brusca Alijarde, Departamento de Contabilidad yFinan-
zas, Facultad de Ciencias Econo¨ micas y Empresariales, GranV|¨ a, 2- 50005 Zaragoza, Spain.

as discovering the reasons why such items were considered to be of greater or
lesser usefulness. Finally, the study aims to show what the information
obtained is used for.
In order to determine all the above factors we sent a questionnaire to
finance directors of local governments, on the understanding that they are
users who know the accounting system.Given the heterogeneity of the Spanish
local sector, we carried out the survey only with provincial authorities and
municipalities with more than 20,000 inhabitants,
1
including in the study all
the entities that fulfil these requirements.
As the opinion of finance directors could have a certain bias, we decided to
complete our study sending the questionnaire to other users who also had a
good knowledge of the accounting system. In this second case we considered
it expedient to analyze the opinion of Audit Offices
2
and, especially, public
auditors. To this end, we carried out a survey of the local government
departments of the National Audit Office and of the Audit Offices of the
Regional Governments.
PREVIOUSRELATEDRESEARCH
The research for this paper fits into the framework of other studies in the
accounting literature on the usefulness of financial information in the public
sector. These studies have been made fundamentally in the American
environment and have attempted to collect empirical evidence of the needs of
the users of public sector financial reporting, studying which information is
more relevant for the groups of users and the usefulness of financial reporting
content in general.
One of the user groups most studied in previous research is creditors and
investors, who have been included in practically all previous studies as
primary users of financial reporting. For example, Boyett and Giroux (1978)
mailed a survey to the largest commercial banks, which showed that financial
statements were considered relatively useful by most respondents and that
banks use this information for investment purposes and for underwriting
municipal securities. Nevertheless, the banks considered that there was
important information lacking or that sometimes it was inadequately
presented. The items which appear as more relevant are those related to the
debt level and the ability of the entity to meet its obligations.
Later, Jones et al. (1985) extended their study to other user groups. As well
as investors and creditors they included citizen groups and legislative and
oversight officials. The citizen groups used financial reports for: evaluating
efficiency and effectiveness, comparing results of the current year with those
of previous years; assessing financial operations and financial conditions;
determining compliance with the budget and advocating certain
programmes. Legislative and oversight officials use governmental financial
18 BRUSCA
ß Blackwell Publishers Ltd1997