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| Do Public Sector Accounts Make you feel like this? |
Most definitely yes according to a new article written in the Journal of Finance and Management in Public Services on statutory financial accounting in the UK public sector, Donald Harradine and Roger Latham from Nottingham Business School, argue that public sector accounts should clearly present information in which the public is really interested, such as the legality with which public funds have been used and the financial and operational viability of the public sector organisation in question. Their focus is one in which it is necessary to confirm that public funds have been used to deliver an agreed spending plan and to purchase assets and services which optimise value for money for the tax payer, They argue that accounting practices in the public sector have “blindly” followed those in the private sector. That is not entirely the case as the public sector in central government terms needed to shift to accruals based resource accounting for public expenditure thus moving away from a largely meaningless reliance on cash accounting.
There have been criticisms of the moves in UK Local Authority accounting,
firstly to UK GAAP and then to IFRS adapted specifically for local authorities.
It is undoubtedly so that UK local Authority accounts have become more complex
and the associated notes to the accounts much greater in length than
previously, but there have also been benefits as well. These benefits include
much more realistic accounting for non-current assets and a greater focus on
the fair value of those assets. There has also been a much greater intensity on
the classification and levels of local authority reserves and these are now
classified as usable and unusable – these approaches do increase transparency
for the citizen and make it clearer than before. The request for authorities to
publish details of spending over £500 has not proved to be as successful as
first thought. Citizens need to understand the scale, context and classification
of public expenditure to properly comprehend it. The real challenge for
accountants is to find new ways of explaining complex elements of public
expenditure to citizens so that meaningful decisions about future public policy
and even choosing between different political parties in future elections can
be made.
The private sector approaches are not always correct but nevertheless they
can and should be examined and applied where they can be judged to be relevant.
Too long in the public sector simplified approaches have hidden the true story
of costs and revenues associated with specific services. Such approaches need
to change. The proposition that accounting firms and the profession itself has
a vested interest in making accounts complicated should be soundly rejected.
The related argument that practitioners and more so policy makers find the
accounts “difficult” to understand is true – but that is a challenge of
interpretation and explanation.
Public sector accountants perhaps need to make greater efforts to explain
these complexities by for example the production of simplified and summary
accounts for stakeholders and much progress in this area has already been made.
Too often accountants finish off the debits and credits of final accounts and
see that as their mission accomplished when in reality they need to put much more
effort into engaging with the public and explaining what is happening to key
stakeholders so those stakeholders can make informed decisions.
The role of the public sector accountant as a facilitator and interpreter
of public sector financial complexity will grow and grow – especially when the
UK electorate will need to make tough choices through the ballot box on how
future austerity might need to be delivered and applied. The challenge for
public sector accountants will be to move beyond the debit and credit
straitjacket to engage with stakeholders more effectively. Life is difficult
however the job of the public sector accountant will be to make stakeholders
understand it a little better.
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