A PERSPECTIVE ON RESEARCH IN GOVERNMENTAL ACCOUNTING

According to the December 1991 issue of the Survey of Current Business, expenditures of state and local governments account for more than 11 percent of the U.S. gross domestic product. Moody's 1991 Municipal Manual indicates that these governmental entities have an outstanding debt now approaching $800 billion, and a report by the Public Securities Association (1987) indicates that this debt grew at a compound annual rate of 12 percent from 1966 to 1986. State and local governmental activities continue to increase in magnitude, and evidently form an important part of the political and economic environment in which accounting operates. Important accountability issues distinctive to these organizations need accounting research attention. The articles by Feroz and Wilson and Deis and Giroux in this issue, which we have been invited to review, address some of these topics. The study by Feroz and Wilson can be regarded as an extension to the public sector of capital-market-based research that examines the effects of financial-accounting disclosures on security prices and returns. They hypothesize segmentation of the market for municipal obligations along national and regional lines and study the effects of differential information disclosure on borrowing costs. In the other study, Deis and Giroux utilize quality reviews that were conducted by the Texas Education Agency to evaluate and rate the audits (by public accountants) of public schools' financial reports. They test hypotheses about audit quality that were originally developed in the context of commercial firms. Both studies thus represent extensions of theories and methods used in research of private-sector accounting and auditing issues. The contributions of the two articles are discussed, and modifications that consider the unique aspects of governmental accounting are presented in sections I and II. Other possible avenues for research are discussed in section III.