The Presentation Formats of Malaysian Local Authorities� Financial Statements

Abstract

Malaysian local play a crucial role in providing services to the community. However, the performance of local has been subjected to various criticisms which include poor services rendered to the locals and the inefficiency of local authorities management 1 . Malaysia is experiencing rapid development with a vision of becoming a fully developed nation by 2020. In order to achieve this, an efficient financial management system is required in all government agencies including the local authorities. The efficiency depends on the effectiveness of the financial management and the quality and reliability of the financial reports prepared. A study was carried out to compare the formats of financial statements formats adopted from 2004 to 2008. 75 local (out of 96 local in West Malaysia) responded by sending their audited financial statements. The trend analysis revealed that the local were not consistent in the formats adopted. Index Terms - Local authorities, public sector accounting, financial reporting analysis, accounting transformation, Malaysia. 1. Introduction The Malaysian administrative system is divided into three major levels of hierarchy: Federal Government; State Government; and Local Government (Local Authority). Although the Local Authorities are the lowest in the Government hierarchy, they are very close to the community. Thus, the Local Authorities need to be efficient in managing its financial situation and continuously improve its financial efficiency as a commonly desired goal. The efficiency of the financial management system depends on effective financial management and the quality and reliability of the financial reports prepared by the organisation. Local in Malaysia serve as an important mechanism to further the policies and to facilitate the implementation of relevant strategies and programmes of the Federal and State Governments 2 . The audited financial reports of the local are the means for the local in determining their accountability to their stakeholders 3 . The audited financial statements included in the report provide a wealth of information to anyone with an interest in the governments economic condition 4 . In recent years the media has taken an active role in highlighting many issues that concerned the public interest, which demand the local to be more accountable. A study indicated that Malaysias Local Authorities financial position is weak because they are not able to acquire additional revenue to provide services demanded by the community. Consistent with the study, public has now raised the issues in the newspapers questioning Local Authorities financial management and the uses of the public funds 5 . Prior study had identified that the local in Malaysia are primarily practicing four Accounting Standards: International Accounting Standards (IAS); guidance issued by the Ministry of Housing and Local Government; self created accounting practices; and Federal Treasury Circular. This led to inconsistency in the presentation of the financial statements which makes it difficult to make comparison between local 6 .