The Effect of Accounting Regulation

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Strategies

The general strategic goal of the private sector is competitiveness, they aim to ensure they are either the most efficient through way of cost leadership or through way of innovation and differentiation in order to increase market share, revenues and hence profits,, they are strategically profit driven and this is where the accounting of a public and private sector differs they are constantly looking for newer and better ways of achieving these goals through way of cost and pricing structures, how assets are managed and investments in things such as marketing, research and development, this is seen by looking into the Key performance indicators of the two sectors, private sectors have very contrasting indicators to the public sector, uniqueness/differentiation can be a huge factor, advancements in technology, when new and more advanced technology is constantly being developed a company must keep up to date in order to remain competitive, They also focus on aspects such as product quality and customer service, whereas for governments have KPIs such as economies of scales, best management practices, sameness in order to better handle the varying amount of projects and businesses and establishments that can be run by one public entity. To give an example of the complete variance of the two sectors, Air New Zealand was hundreds of millions in debt, when the government decided to step in and bail it out, had it been a private owned entity it performance would have surely caused managers file for bankruptcy and leave the industry.

Challenges faced by the public sector to adopt “business accounting”

Public entities own a huge variety of assets, which causes complications when it comes to valuing them and reporting them in the financial statements, for example government owned assets can range from heritage buildings, roads, and bridges to natural resources such as water and gas, some ‘assets” may not even meet the recognition of an asset under IAS. Therefore it creates a problem when attempting to manage and report these assets.

Also it is difficult to really portray a clear image of the economic performance of public entities such as governments as what may be recognized as an expense on behalf of the private sector could be recognized as capital, for example government spending is seen as credit and increases the GDP and the capital account of a nation in the balance of payments equation, because ultimately regardless of whether the government gets a return on their ‘investment’ or not they are attempting to improve the country’s economy and its overall standard of living which can be argues to be their real ultimate goal.

Politicians are in no means accountants and although their fields of expertise may be wide and varied, it is not their profession and hence there can be resistance to such changes

Conclusion

Although the adoption of GAAP and ‘business accounting’ has a lot of benefits for a public entity, it is not going to achieve true public accountability and credibility as you can’t expect a conceptual framework that is written for a wholly different sector economy to be the missing piece, and to work perfectly. Until a framework is developed for the public sector the recognizes the differences and attributes of the sector and allows for a more efficient and manageable accounting, then the argument is just that and argument with no real solution.

References

http://www.oag.govt.nz/2011/2011-12/part3.htm

http://www.massey.ac.nz/massey/fms/Colleges/College%20of%20Business/School%20of%20Accountancy/Documents/Seminars/Palmerston%20North/2010/Draft%20paper_Kathryn%20Trewavas.pdf

Audit, Accountability and Government By Fidelma White, Kathryn Hollingsworth

Public Sector Accounting and Accountability in Australia By Kathie Cooper, Warwick Funnell, Janet Lee

https://balancedscorecard.org/Resources/KPI-Basics/Translating-Metrics

http://forecast5analytics.com/blog/public-vs-private-sector-metrics-a-cfos-perspective/

Accruals Accounting in Government – Developments in Malaysia

Saleh, Zakiah, & Pendlebury, Maurice W. Asia Pacific Business Review (2006)

Videos and sources provided on http://learn.canterbury.ac.nz/course/view.php?id=331&section=4