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Roman Haluszczak, lead advisor, CIPFA Finance Advisory Network
Most definitely not in the area of statutory financial accounting in the UK public sector, according to Donald Harradine and Roger Latham from the Nottingham Business School. In a new article in the Journal of Finance and Management in Public Services they argue that public sector accounts should clearly present information which the public find interesting, important and relevant, such as the legality with which public funds have been used and the financial and operational viability of individual public sector organisations.
The authors’ 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. The public sector in central government terms needed to shift to accruals based resource accounting for public expenditure and move 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 the public so that meaningful decisions about future public policy, 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. 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. But in reality they need to put much more effort into engaging with the public and explaining what is happening to key stakeholders so the latter 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.