Accrual Accounting

Topics: Private sector, Public sector, Financial statements Pages: 27 (9967 words) Published: June 18, 2013
DO PRIVATE SECTOR FINANCIAL STATEMENTS PROVIDE A SUITABLE MODEL FOR PUBIC SECTOR ACCOUNTS? Paper to be presented at the European Group of Public Administration annual conference on “Public Law and the Modernising State” in Oeiras (Portugal), 3-6 September 2003-08-09 By Andy Wynne

Head of Public Sector Technical Issues
Association of Chartered Certified Accountants
Correspondence:
Andy Wynne
Technical Department
ACCA 29 Lincoln’s Inn Fields
London WC2A 3EE
e-mail: a.wynne@accaglobal.com
tel: +44 207 396 5778
Abstract
• IFAC Public Sector Committee issued their standard on the cash basis of accounting and the ASB (UK) issued its draft interpretation for public benefit entities (not-for-profit organisations) earlier this year. In each case the private sector model of accounts was followed closely. • What is the experience in the UK of producing full accrual based accounts for public sector organisations? Have the increased value of these accounts been realised in practice? • Who is the defining class of user for the accounts of public sector entities? • What are the main objectives of public sector financial reporting? What are the key financial aspects which should be reported on in the accounts? • Should public sector organisations clearly account for the level of their borrowings or debt? How should this be measured? • How should public sector organisations account for aspects not found in the private sector, for example, heritage assets, military equipment, social policy obligations and taxation? • Should public sector organisations be required to report on the extent to which they have adequately maintained their operational assets? • What is the relative importance of financial accounting statements and budget out-turn reports in terms of public sector accounting? The views expressed in this paper are the views of the author only and do not necessarily represent the view of the ACCA Council. Andy Wynne

Head of Public Sector Technical Issues with ACCA. Responsible for public sector developments and in particular co-ordinating ACCA's responses to public consultation documents. Extensive experience of accounting and auditing across the public sector in the UK and Africa. Worked in internal audit in a large district council, then for a small NHS consortium. Later, worked for six years in a chartered accountancy practice in England providing financial services to a wide variety of public sector organisations. ACCA is the largest, fastest growing, global professional accountancy body, with over 300,000 members and students in 160 countries. ACCA's mission is to provide quality professional opportunities to people of ability and application, to be a leader in the development of the global accountancy profession, to promote the highest ethical and governance standards and to work in the public interest. ACCA has over 5,000 members working in the UK public sector. 1

DO PRIVATE SECTOR FINANCIAL STATEMENTS PROVIDE A SUITABLE MODEL FOR PUBIC SECTOR ACCOUNTS? Introduction
There are two main schools of thought on public sector accounting each of which is linked to a view of the role of the public sector more generally. The first, traditional school holds that the public sector is necessary to manage the wider economy and to try and overcome some of its negative aspects, especially its inequitable and cyclical nature. The alternative, and currently dominant, view is that the public sector is a necessary evil for the provision of a restricted range of goods and services. According to this view, public sector accounting is part of the process of enabling competition and maximising efficiency and so ensuring that the public sector is managed at minimal cost to society. These two schools of thought can be seen as contestable paradigms or ideologies which have each secured dominance at various times over the history of public sector accounting over the last 150 years or so. Under the traditional model of public administration...

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