Harmonization of fiscal study is the procedure of bettering public accounting, is get downing to elicit involvement among the professionals and faculty members, both in national and international context. Harmonisation allows doing comparings of international fiscal histories easier, faster and cheaper ( Carlson, 1997 ) .
One of the features of public sector accounting among the local authorities in Malaysia is the deficiency of homogeneousness or harmonization in fiscal revelation ( Mahamad & A ; Combs, 1997 ; Syed Soffian, Ayoib, Shamharir & A ; Engku Ismail, 2001 ; Emilin & A ; Asmah, 2001 ; Mailah, 2001 ; Auditor General Report, 2003 ; Mohamed Azhar, Engku Ismail, Syed Soffian & A ; Zainol, 1994 ; Workshop Conference for Local Government, 2007 ) . Harmonization can be defined as “ a procedure of increasing the comparison of accounting patterns, by puting bounds to their grade of fluctuation ” ( Nobes & A ; Parker, 1995 ) . Therefore, by making this procedure, it can vouch that accounting information is comparable by cut downing accounting diverseness.
The accounting profession has long recognized the demand for a consonant accounting model ( Harding, 1999 ) . The profession undertook this enterprise when it created the International Accounting Standards Committee ( IASC ) , which is now known as the International Accounting Standards Board ( IASB ) . This organic structure was established, together with the International Federation of Accountants ( IFAC ) , to advance world-wide betterment and harmonisation of accounting and auditing criterions. The cardinal function of the IASC was to set up a unvarying set of accounting criterions for fiscal coverage, which was done by developing and proclaiming the International Accounting Standards.
The international harmonisation of accounting has been defined as “ the effort to convey together different systems ” . It is the procedure of blending and uniting assorted patterns into an orderly construction which produces interactive consequence ( Samuels & A ; Piper, 1985 ) . While some see harmonisation more as a procedure of traveling to a system of uniformity or standardisation, most position harmonisation as a procedure whereby the figure of allowed accounting options is reduced as a agency of advancing greater comparison.
The root of international accounting harmonization can be traced back to a series of international Congresss get downing in St. Louis, Missouri, United States of America in 1904. These, every bit good as other motions and events, increased support for the harmonisation of accounting criterions over the old ages. The harmonisation motion basically culminated in the formation of the IASC in 1973.
There are a scope of international organic structures with an involvement in the harmonisation and standardisation of accounting patterns. First of wholly, it is of import to separate between the two footings as used in the international accounting context ; “ standardisation ” and “ harmonisation ” . Standardisation implies unvarying criterions in all states that participate in the attempt ( Tay & A ; Parker, 1990 ; Nobes & A ; Parker, 2000 ) . Harmonisation nevertheless, implies a rapprochement of different points of position and permits different demands in single states provided that there is no logical struggle ( Tay & A ; Parker, 1990 ; Nobes & A ; Parker, 2000 ) . Harmonisation is a procedure, a motion towards harmoniousness, which is a province. Standardization is besides a procedure, a motion towards uniformity, which is besides a province ( Tay & A ; Parker, 1990 ; Nobes & A ; Parker, 2000 ) . Harmonisation is a more realistic and compromising attack and seems more come-at-able than right standardisation. As Van der Tas ( 1988 ) points out ; “ Harmonisation is a coordination, a turning of two or more objects. Users are confronted with several fiscal studies. It will be utile for them if these fiscal studies are in harmoniousness ” . The term “ harmonisation ” besides implies cut downing the assortment of pattern, standardisation implies extinguishing assortment. In pattern, as Nobes and Parker ( 1981 ) point out, the EC ‘s programme of harmonisation is more elaborate than the IASC ‘s programme of standardisation. Governments who offer lists of grounds fluctuations in national accounting patterns include Nobes ( 1988 ) , Busse von Colbe ( 1983 ) , Samuels & A ; Piper ( 1985 ) and Choi & A ; Mueller ( 1992 ) .
Through harmonisation, the free flow of comparable fiscal information can be reached ( Mora, 2000 ) . The aim of harmonisation is to take fiscal studies to a higher grade of comparison ( Wolk & A ; Heaston, 1992 ) .
By and large today, there is a different assortment of fiscal study issued by public sectors in each state and even different bureaus in the same state ( Tay & A ; Parker, 1990 ; Barthes, 1989 ) . Although some states have fiscal studies utilizing the right footing of accounting system, but it is presented by utilizing different methods ( Scott & A ; Troberg, 1980 ; IASC, 1982 ; Sanchez, 2003 ; Chand, Patel & A ; Day, 2008 ) . Therefore, it is so hard to happen a standard manner for fiscal study. Typically, the fiscal coverage criterion is so general and issued along with ordinance or province prescription. However, merely few states issued independent criterions for the public fiscal study that are used by the authorities bureaus ( Sanchez, 2003 ; Chand, Patel & A ; Day, 2008 ) .
1.1 Background of the Study
Fiscal coverage is the key to answerability and determination devising for both public and private sectors. Without exclusion Malayan authorities would besides bring forth fiscal study to dispatch their answerability for the resources entrust to them. Therefore, their fiscal coverage is influenced by the authorities fiscal policies and coverage patterns which is embedded in the proviso of statute law and legal prescription. Hence, it is a ambitious occupation for public sector to promote greater transparence and answerability ( Walker, 1998 ; Mahamad, 1994 ; IFAC, 2000 ; Ryan, Stanley & A ; Nelson, 2002 ) .
Accounting harmonisation research literature besides relies on the impression that accounting pattern harmoniousness is related to accounting ordinance harmoniousness. This association has been examined chiefly through as appraisal of the move towards harmonisation among certain states, initiated by the publication of outstanding IASC Standards ( Nair & A ; Frank, 1981 ; Evan & A ; Taylor, 1982 ; Yang & A ; Lee, 1994 ) .
In the new millenary, local authorities comptrollers use a common accounting criterion in an attempt to accomplish a quality fiscal coverage. However, due to the difference in the environment of the province and bureaus, it had led to the diverseness in accounting describing patterns such as the income measuring and plus rating patterns adopted and the quality of revelation in the published fiscal statement ( Frantl, 1971 ; Von Colbe, 1983 ; Luder, 1989, 1992 ; Nobes & A ; Parker, 1991 ; Choi & A ; Mueller, 1992 ) . This diverseness, the attendant deficiency of understanding ability and comparison of fiscal studies among local authoritiess has the possible to make significant trouble for the users, preparers and hearers of such statement ( Scott and Troberg, 1980 ; IASC, 1982 ) . For illustration, local authoritiess may meet jobs of construing fiscal statement of other local authoritiess, which are prepared in conformity with different reading of Financial Procedure Act, 1957, Treasury Instruction, Treasury Circular and Accounting Standards/Financial Reporting Standards ( FRS ) . In visible radiation of such jobs, some have asserted that the statement of harmoniousness in fiscal coverage is a desirable end since such harmoniousness may heighten the comparison and utility of fiscal information which among local authoritiess, well cut down the current jobs faced by preparers, users and hearers of fiscal studies ( Workshop Conference for Local Government, 2007 ) . This accordingly will greatly ease the growing of economic activities and efficient allotment of resources in accomplishing their aims ( Engku Ismail, Mohamad Sharofi, Syed Soffian, Siti Zabedah & A ; Zarifah, 2006 ) .
Frantl ( 1971 ) , Von Colbe ( 1983 ) , Luder ( 1989, 1992 ) , Nobes & A ; Parker ( 1991 ) and Choi & A ; Mueller ( 1992 ) have observed that the rules, patterns and aims of fiscal coverage adopted is shaped by environmental factors such as economic activities and the phase of economic development, political system, revenue enhancement direction system, degree of edification of accounting profession, legal system and the phase of development of the capital market. The rapid enlargement of investing, the increased sense of economic mutuality among the local authoritiess, progresss in communications engineering and the outgrowth of new market chances have added a sense of urgency for a common accounting linguistic communication. Hence, these duties have necessarily fallen on the accounting community ( Rivera, 1989 ; Wolk & A ; Heaston, 1992 ) .
1.1.1 The Need for Accounting Standards
From the grounds, the demand for harmonisation of accounting criterions in the local authoritiess fiscal coverage are much appreciated ( Workshop Conference for Local Government, 2007 ) . This is because the advantage or the demand for harmonisation in local authorities fiscal revelation can be seen from the formation of International Public Sector Accounting Standards Board ( IPSASB ) since November 2004 by International Federation of Accounting Committee ( IFAC ) . The intent of the formation is to develop high quality accounting criterions for the use of public sector entities around the universe. It provides a vehicle for the chase of the harmoniousness in fiscal coverage. Its aim is to explicate and print accounting criterions and processs associating to the presentation of fiscal statement for public sector.
Accounting criterions exist to assist the authorities make clear determinations about future resource allotment. In add-on, the acceptance of the accounting criterions will besides better assurance in the quality and the dependability of fiscal coverage. Therefore, it is of import that initiatives towards the acceptance of one individual set of accounting criterions be made every bit shortly as possible.
1.2 Problem Statement
Fiscal coverage is a communicating procedure. A local authorities translates the events that influence its fiscal place and personal businesss into its fiscal study so as to supply users with information about its fiscal place and personal businesss. The interlingual rendition procedure is based upon the local authorities ‘s accounting policies. As portion of these policies, a local authorities decides whether to interpret a peculiar event in its fiscal study ( the determination between alternate degress of revelation ) and which accounting method to use ( the pick between alternate methods of rating, fund balance finding, consolidation and presentation ) . For illustration, the local authorities must make up one’s mind whether to supply segmental information and prognosiss, and whether to utilize historical cost or current value.
When explicating an accounting policy the local authorities ‘s pick between alternate grades of revelation and alternate accounting method is restricted by criterion. Standards will be defined as any fiscal coverage regulation published by either the authorities or a private criterion puting organic structure. These criterions can mention either to the grade of revelation or to the accounting method to be applied.
Harmonization is coordination, a tuning of two or more objects. Users are confronted with several fiscal studies. It would be utile for them if these fiscal studies were more in harmoniousness. Therefore, fiscal studies are a mark of harmonisation. One manner to harmonize fiscal studies is by explicating criterions therefore puting bounds the difference between fiscal studies.
As a authorities bureau, a local authorities or authorization does non concentrate on profitableness but instead providing services for the well being of the community. Recently ( in 2009 ) , the Prime Minister of Malaysia, Dato Seri Mohd Najib has highlighted and announced that all ministries and authorities section should implement the cardinal public presentation index ( KPI ) system to supervise and mensurate their public presentation ( Engku Ismail, 2006 ; Ambrin, 2006 ; Nafsiah & A ; Ruhaya, 2006 ; Emilin & A ; Asmah, 2004 ) . The inquiry now is, how dependable can the KPI system for fiscal public presentation be, sing that the local governments do non follow unvarying accounting criterions. The application of harmonising in accounting criterions will heighten the answerability and transparence of the local authorities and shown their fiscal studies more meaningful. This basic deficiency of comparison may ensue in hapless determination devising across the board.
In the absence of accounting criterions for local governments, there is incompatibility in the revelation of information in the fiscal statements. Therefore, comparings between local governments are non possible. Therefore, it is hard to measure how good a local authorization is executing because there is no bottom line or easy quantifiable results that can be used as benchmarking.
Measuring fiscal public presentation is of import in estimating how good a local authorization is carry throughing its aims, how expeditiously their resources are allowed and how good the organisation is positioning itself financially. From the fiscal public presentation information, it will assist the local authorities to develop cardinal public presentation indexs for the populace to estimate their public presentation which would heighten public confident and transparence toward the authorities.
The bing accounting criterions in Malaysia do non province that the criterions are applicable to the public sectors, specifically the local governments. In the absence of accounting criterions specifically for local governments, there is incompatibility in the revelation of fiscal statements information. Therefore, comparings between local authoritiess are non possible. Therefore, it is hard to measure how good a local authorities is executing because there is no attempt or inaugural taken to mensurate their public presentation. On the other manus, there is no bottom line or easy quantifiable results that can be used as a benchmark.
From a public benefit position, answerability by local authoritiess is of import. The most common method of dispatching answerability to stakeholders is through the one-year study. However, the diversified patterns of accounting and fiscal coverage in local authorization could halter this end. One manner of cut downing the diversified patterns and fiscal coverage in local authorization is through harmonisation of fiscal coverage.
Fiscal public presentation is really of import, non merely for net income devising organisation but besides for any type of organisation, including the local authorities. Fiscal information can be easy accessible from one-year studies. These statements provide users with information bespeaking whether resources were obtained and used in conformity with lawfully adopted budget. Measuring fiscal public presentation is of import in estimating how good a local authorization is carry throughing its aims, how expeditiously their resources are allocated and how good the organisation is positioning itself financially.
Preparation of histories non following a common accounting criterion for the populace sector and the hapless quality of fiscal information reported that has led to some of them acquiring qualified audit studies ( Engku Ismail, 2006 ; Ambrin, 2006 ; Nafsiah & A ; Ruhaya, 2006 ; Emilin & A ; Asmah, 2004 ) . In order to heighten the quality and uniformity of fiscal study, the local governments need to hold a common set of accounting criterion. The primary ground for accounting ‘s being is that it satisfies a demand for information. Accounting is by and large defined as the linguistic communication of concern but what happens when there is more than one accounting linguistic communication. Therefore, the acceptance of a common set of accounting criterions should be the chief docket for all local governments. It is believed that the acceptance of accounting criterions would bring forth more dependable and better quality fiscal study and do users more inform on the operations of the public sector entities.
Previous research on local authorities has been chiefly descriptive into one-year histories or comparison of criterions and statute law. The deficiency of plants sing the factors associating to the harmonisation revelation is due to the troubles of harmonising the revelation among the local authorities. There has been little old research on the issue of comparative fiscal coverage patterns between states in the populace sector in general and specifically in the local authorization content. There are, nevertheless, fiscal coverage patterns in the private sector ( Benjamin & A ; Stanga, 1977 ; Gray & A ; Roberts, 1986 ; Tayib, 1987 ; Choi & A ; Mueller, 1992 ) .
Therefore, the focal point of this survey is to place the factors associating to accomplishing harmonisation of fiscal revelation among local authorities in Malaysia. Hence, this research will originate the attempt to look into grounds or factors impacting the fiscal revelation of local authorities in Malaysia. This will estimate the extent of fiscal revelation and factor impacting harmonisation of fiscal public presentation from one local authorities to another.
1.3 Research Questions
On the footing of the research background, this survey will be guided by the undermentioned research inquiries as follows:
What is the extent of the fiscal revelation harmonisation in selected accounting revelation patterns in local governments in Malaysia?
What is the relationship between the position of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
What is the relationship between the size of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
What is the relationship between the excess or shortage of income of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
What is the relationship between the liquidness of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
What is the relationship between the direction slowdown of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
What is the relationship between the audit slowdown of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
1.4 Research Aims
There are legion surveies related to harmonisation of fiscal revelation in local authorities. The literature, nevertheless, is limited in placing certain factors that could be associated with the harmonisation of fiscal revelation in local authorities. Therefore, it is appropriate to analyze what are the factors associated with harmonisation of fiscal revelation of local authorities in Malaysia. Surplus or shortage of income, direction slowdown and audit slowdown are new variables identified in this survey and could be associated with the harmonisation of fiscal revelation in local authorities in Malaysia. Hence, the research objectives of this survey are as follows:
To analyze the extent of the fiscal revelation harmonisation in selected accounting revelation patterns in local governments in Malaysia.
To analyze the relationship between the position of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
To analyze the relationship between the size of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
To analyze the relationship between the excess or shortage of income of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
To analyze the relationship between the liquidness of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
To analyze the relationship between the direction slowdown of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
To analyze the relationship between the audit slowdown of local authorities on the harmonisation of fiscal revelation among the local governments in Malaysia?
1.4 Scope of Study
The range of this survey is merely limited to local authorities in Peninsular of Malaysia ( exclude Sabah and Sarawak ) for the twelvemonth 2008. There are presently 98 local authoritiess that can be identified as metropolis councils, town councils and territory councils ( mention to Appendix 1 ) .
1.5 Contribution of the Study
The acceptance of a common set of accounting criterion should be the chief docket for all local authorities ( Nair and Frank, 1981 ; Evans and Taylor, 1982 ; Young and Lee, 1994 ) . It is believes that the acceptance of accounting criterions would bring forth more dependable and better quality fiscal study and do users more inform on the operations of the public sector entities. Therefore, the survey will hopefully lend through the followers:
From a theoretical position, this survey will hopefully back up how stewardship theory provides the fiscal revelation incurred by the stakeholder and the user.
This survey will be utile to policy shapers such as the authorities and stakeholders sing the fiscal revelation of the local authorities.
This survey hopefully will assist the decision maker to detail all the information that is utile and of import to the external users such as the populace. The public need a clear image of how the public monies are being utilized. This will better in transparence and answerability.
This survey will besides help the users of the fiscal study to larn and understand of import points that should be disclosed. Indirectly, the quality of apprehension and the cognition about the content of the fiscal study can be improved. This will demo a stronger public presentation and more comprehensive answerability at bureau degree.
Increase the assurance of the public towards the authorities in unwraping the fiscal public presentation and mensurating their public presentation by comparing one local authorities to another.
Supplying clear and accurate information to all concerned particularly to the stakeholder and the user.
This survey will hopefully corroborate the factors associated with fiscal revelation of local authorities in Malaysia which in hereafter will place environment towards harmonisation of local authorities fiscal coverage for comparison and measurement public presentation.
1.6 Term of Operation
Van der Tas ( 1988 ) establishes two categorizations for the harmonisation construct. On the one manus, he distinguishes between formal and material harmonization, which were besides denominated de jure and de facto ( Tay and Parker, 1990 ) , the former being related to uniformity between accounting criterions and statute law and the latter associated with the one-year histories. Furthermore, the writer differentiates between measuring harmonization, which analyses the diverseness of the applied accounting methods, and revelation harmonisation, which tests the extent of the information disclosed through the one-year histories. In add-on, self-generated harmonisation takes topographic point without any standardisation procedure being initiated.
Harmonization in this survey is defined as a procedure which seeks to extinguish the diverseness of accounting patterns, while harmoniousness is a province where the entities are clustered around one or a few of the available processs. Harmonizing to Van der Tas ( 1992 ) , harmonisation is a procedure of coordination. Therefore, harmonisation represents the attempts undertaken by legislators and accounting criterions compositors to cut down the diverseness of accounting interventions used to register minutess or to lucubrate balances.
2. Fiscal Disclosure
Fiscal revelation in this survey referred to the fiscal coverage, which tests the extent of the information disclosed through the one-year histories. Harmonizing to Ingram and Copeland ( 1981, 1984 ) , one-year histories are the chief vehicle of information available for citizens and other stakeholders. Even though entities all over the universe has one-year histories, it has different strengths, with a ordinance and modernisation of the contents of local authorities and with the aim of bettering the quality of fiscal studies ( Ryan et al. , 2002 ) .
1.7 Administration of the Study
The organisation of the survey follows the standard Doctor Business Administration ( DBA ) thesis format and the content of this survey is organized into five chapters. Chapter 1 provides the background of the survey, job statement, research inquiries, research aims, and the range of the survey, part of the survey and organizing of the staying chapters.
Chapter 2 contains the literature reappraisal and a sum-up of old research that are related to this survey.
Chapter 3 describes the research theoretical account and methodological analysis employed in the survey. Hypothesis development, research design, sample and informations aggregation, research instrument, operational definition and measuring of the variables and method of informations analysis are besides discussed in this chapter.
Chapter 4 nowadayss an analysis and reading of the consequences of the survey.
Finally, Chapter 5 summarises and discusses the major findings, deductions and restrictions of the survey including a statement as to the decisions reached. In add-on, recommendations for farther research will besides be included in this chapter.