Concepts of control in UK public sector accounting

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Over the past 25 years, there have been some notable developments in public sector accounting which emphasis has shifted from bureaucratic control to accountability reporting to the public. This article studies which concepts of control normally used for consolidation purposes in UK public sector accounting by briefly explaining its context from the approach to the 'Whole of Government Accounts'(WGA) and analyzing alternative approaches to identification of public sectors for accountability purposes. With the reference to the financial statements of two UK universities, I will apply these approaches to higher education sectors to see whether they are public sectors and whether the financial statements of universities should be consolidated into WGA. The conclusion of this article will provide some implications of accountability for public sector in UK.

During the past decade, the UK government made a commitment to produce a consolidated set of public sector accruals-based accounts which can include any body which either exercises functions of a public nature or which is entirely or substantially funded from public money, known as Whole of Government Accounts (WGA) which has already been produced by New Zealand, as a component of its accounting reforms. This requirement was mandated by Government Resources and Accounts Act (2000). However, there are some challenges for the practice of WGA related to the boundary of reporting entity and then the quality of some of the data received during the 'dry runs'. Therefore the production of GAAP-based WGA was required to convergence of accounting policies and standards across public sector to include Executive non-departmental public bodies (NDPBs) within the resource accounting boundary and report under IFRS from 2009/10 which leads to the delay of its first published.

Due to that WGA will be produced based on UK GAAP, it is important to know that the criteria for consolidation under it are of control not of ownership. However, for the complexity of UK public sector, it is difficult to define the boundary of entity to be consolidated by the criteria of control. For example, local authorities and those quasi public sectors which would regard as private primarily need to be consolidated into WGA when applying 'control' criteria so that the consolidation areas in UK expands.

Alternative approaches to identify public sectors for accountability purpose

There are several approaches to distinguish between public and private sector. Some ways have more significant influence during the past decade than any other, like the public law which introduces the boundaries between them. A range of possible bases for making the core distinction essentially between government and non-government even when confining within the 'liberal-economist' approach referred by Weintraub and Kumar, such competing approaches as the existence of legislative activity, the extent of distribution of public revenue and the performance of public functions (Lane, 2000; Garcia, 1998), which seems that there has already many versions of public sector. Thus where the boundary is actually located has always been debated by researchers. As a result of New Public Management (NPM), the range of 'public sector' gets wider following the suggestion by some commentators which have influence in public law. It leads to reconsider whether the given rights still exist and if do, against whom it can enforce. The most important feature of public law is supranational so not just within a State, like EU to direct the Treaty's signatories by treaties to promise that each will perform or be prevented from some actions.

However, the boundary of the 'public' is not necessary the limit of the 'political' but could be expanded to the field of accounting. Although there are clear accounting and accountability purposes in identifying the boundaries of the public sector in recent accounting literature, there are two strands of issues implying that it remains a problem for the accounting discipline. Firstly, it concerns with the issues towards government accounting (Heald, 2003; Laosley, 2001; Chan, 2003; Jones, 2000) about the ambiguous distinction between public and private sectors. According to Chan (p. 15), he drew the distinction loosely between public and private sectors by reference to ownership that government should provide collectivity-consumed public goods or service, while he emphasized 'government has no owners'. Thus his view is contradictory. While Jones (p. 169) suggests to reform the scope of government accounting to be related with the changes in economic and society and become reasonable and desirable, echoed in Heald's observation. Secondly, it is linked to the continuing development of public-private partnership (PPP) projects and their expansion into yet more sub-sectors. Hence, Broadbent and Laughlin (2003, p. 333) decide to explore the initiative and value of becoming PPP rather than stay at the private sector in order to differentiate public services. For their discussion of the criteria in identifying the public sector, they approved the idea of Broadbent and Guthrie (1992, p.8) whose emphasis is on either control or ownership. Even if the privatization which was resulted from NPM leads to a reduction in public sectors in many countries, they still have relationship with the public sector (1992, p.9). However, later Broadbent and Laughlin (2003) proposed the use of both criteria since they thought the former idea was insufficient.

Application of competing approaches to UK higher education sector

Nowadays, the position of the universities in the public/ private divide has become a hot topic even though the origins of them are clearly private sector. Technically, the state still regards universities as private sector. However, there are no shareholders whose investment might be at risk but must comply with all the rules that control private bodies such as to make the annual reports irrelevance to their core activities. While the politicians believe universities are public sectors which get the force of the law to promote equality and freedom of information that private sectors don't have. In this report, I will apply the competing approaches I have mentioned above to identify UK higher education sector for accountability purpose with the references to the accounts of two UK universities-university of Birmingham and university of Cardiff.

According to the 'Review of Higher education in Wales', it is clear that in the UK, higher education (HE) institutions sit neither wholly in the public sector nor in the private sector; they depend significantly on public funding but are constitutionally established to operate as private bodies. The most successful higher education systems in the world like USA, UK and Australia, have been those which have followed this model wherein the HEIs operate independently of government, but must clearly show accountability for the public funding that they receive. Nevertheless this successful and internationally admired model, widely regarded as a foundation stone of liberal, democratic societies, can also present a considerable challenge for governments which are accountable to their citizens for public funding. The challenge for governments is how best to ensure that the public funding which they commit to HE is used efficiently and for purposes which, in terms of visible and appropriate benefits, justify the allocation of public funds. For HEIs the challenge is how best to demonstrate accountability, not only to government, but to the many other providers of funding which they can access and to other stakeholders.

Therefore there is a need to analysis the private and public sources of higher education funding in UK universities to see whether it belongs to public sector or not with the extracts of annual reports of these two universities included in appendices. For these two universities I referred, when looking for their financial statements for the financial year 2009, it is clear that both of them are mainly financed by the funding council grants which are mainly from HEFCE, namely the public source of funding and other incomes which are mainly from catering, accommodation and conference seem to be a source of private funding. Other revenues like tuition fees, research grants and contracts are received from both public and private sources. As I have mentioned above, university has no shareholder and thus its balance sheet has no share capital but instead of general reserves. Even though almost all the universities in UK are registered charities including these two universities, who receive the grants from HEFCE; however, funding council does not appoint the board instead done by university councils (which means it does not have control upon it) and just give some advice towards how to arrange governance. Therefore, applying the criteria of 'control' into the universities, it seems that it should not be consolidated into the government accounts.

Implications for accountability of UK public sector

Through the above application in the higher education sector, it is easy to see there are some challenges towards UK public sector accounting under the NPM, such as what criteria should be used to distinguish between public and private sector-control or ownership, whether there is a need to introduce a boundary between them and if so, whether this boundary would change all the time. Therefore, there is a need for doing further research on these questions in the future.