StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Public Sector Accounting - Case Study Example

Cite this document
Summary
In the first section of the project the needs and objectives of the public sector accounting has been discussed along with a comparison with the objectives of non-public sector organizations. The second section of the project describes the laws and regulations governing public…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91.1% of users find it useful
Public Sector Accounting
Read Text Preview

Extract of sample "Public Sector Accounting"

Public Sector Accounting Table of Contents Table of Contents 2 Introduction 3 Accounting Needs & Objectives 4 Accounting Laws, Regulations & Guidelines 5 Public Sector Performance Assessment 7 Role of Auditor in Public/Private Organizations 8 Conclusion 9 References 11 Bibliography 12 Introduction This project includes a critical analysis of public sector accounting in UK as to how the public sector organizations demonstrate accountability. In the first section of the project the needs and objectives of the public sector accounting has been discussed along with a comparison with the objectives of non-public sector organizations. The second section of the project describes the laws and regulations governing public sector financial statements preparation and disclosures as well as the financial disclosures of a non-public entity. In order to demonstrate the differences an organization from each sector has been taken. The chosen public sector organization is The Royal Mail Holdings Plc and the publicly listed company is Aviva Plc. Royal Mail is a 100% UK Government owned organization involved with the postal services throughout UK, Ireland and Europe (Royal Mail Group Ltd, 2012). Aviva is a UK-based largest global insurance company and world’s sixth largest (Aviva, 2012). The third section demonstrates the effect of the objectives of public sector accounting and the rules and regulations governing public sector organizations in the form of differences and similarities in the format, style and accounting policies in the annual reports of Royal Mail and Aviva. The fourth section deals with the role of auditor in both the organizations. Overall the four sections in the project analyze if the differences between the two sectors’ accounting practices are prominent or if there is any reduction in their differing frameworks. Accounting Needs & Objectives The public sector encompasses all the organizations that are not owned or operated by private organizations. The organizations’ control lies in the hands of the Government, either national or local. Public sector in UK is diverse and includes nationalized industries, Government agencies and public service organizations. Nationalized industries are commercial organizations that sell goods to market but are mainly governed by government-appointed boards and ministers rather than markets or shareholders. The surplus generated from their operations is expected to enable replacement investment. The government agencies include welfare services and taxation body. These agencies are required to deliver satisfactory services to the claimants and taxpayers by using the resources at their disposal. The public service organization provides health, policing and defence services on behalf of central or local government. These services are financed from the tax revenues and therefore not charged from the public directly. Unlike the private sector with a clear objective of profit-making, the public sector has a complex mix of objectives and demands. It is primarily concerned with serving the general public. The importance of public sector accounting and disclosures, and their differences from the private sector accounting is due to the following reasons: Lack of making Profits: The ultimate objective of a private organization if profit making and/or creating wealth for its shareholders. However a public sector organization’s objective is not considered profit making. Sometimes this suggests the possibility of inefficient use of resources or absence of commitment to provide good service to the clients due to no profit-making. Lack of Competition: A private sector organization usually operates in an industry with direct competitors and subject to regulations by oversight regulatory bodies. Contrary to this the public sector organizations are not subject to disciplines of the markets and lack the comparability with other firms. Public Interest: There is a corporate governance framework and audit rules for private organizations as they are accountable to their shareholders and creditors. However the expectations from public sector organizations to be democratically accountable lead to the questions from press and general public. Absence of Shareholders’ Scrutiny: There are always risks that the interest of the shareholders and public will be swayed by the powerful stakeholders’ personal and political objectives (Botten, 2007, p.24). Accounting Laws, Regulations & Guidelines The Financial Reporting Advisory Board advises the relevant authorities such as HM Treasury, Scottish Government, Welsh Assembly Government etc regarding the financial reporting standards and principles. UK’s financial reporting framework is based on EU-adopted IFRS the guidance of which is set out in the following: 1. Financial Reporting Manual for departments of government and related bodies (IFRS-based) 2. NHS accounting manual for NHS 3. FT Financial Reporting Manual (Foundation Trusts) 4. Code of Practice for Local Authority Accounting in UK (IFRS-based). The members of FRAB Working Group comprise of Secretaries of FRAB and CIPFA/LASAAC who monitor the activities of IASB and IPSASB. IPSASB has had the authority of issuing the standards for public sector accounting in the form of IPSAS similar to IASB (HM Treasury, n.d.). For private sector, Accounting Standards Board in collaboration with IASB is responsible for issuing the accounting standards. ASB is an operating body of Financial Reporting Council. The standards developed by ASB are a part of Financial Reporting Standards. ASB can issue accounting standards without the approval of any other regulatory body although it consults widely on its set out proposals (FRC, 2012). It expects the public sector organizations to accord with principles underlying the ASB’s pronouncements except in those circumstances involving public sector bodies where Government finds such principles inappropriate. The accounts and annual reports prepared by public sector bodies may or may not refer to the accounting standards by ASB or with the need to provide a true and fair view (FRC-a, 2012, p.9). In 2007, UK government announced the preparation of financial statements of government bodies and departments would be prepared as per IFRS based FReMs replacing UK GAAP by 2008-09. However it was postponed until March 2010. FRAB recommended the government departments to prepare IFRS shadow resource accounts in addition to their accounts on UK GAAP basis for 2008-09. This was confirmed by the Treasury saying if the government bodies are in a position to do so they will prepare IFRS shadow resource accounts. This recommendation aimed to achieve successful IFRS compliance by 2010 (Wayment, 2009, p.5). The transition from IPSAS to IFRS kept the requirements as per IPSAS only because there are certain issues such as taxation to which IPSAS address and there is no equivalent in IFRS. Such exclusive public sector issues let the government bodies to consider IPSAS over IFRS. However they certainly admit that IFRS require more disclosures (CIPFA, 2010, p.8). The requirement to disclose the pension deficit which was earlier considered meaningless by public sector accounting and which has been introduced under IFRS. IFRS are practiced by more than 100 countries presently (Mirza, Holt & Knorr, 2011, p.3). Public Sector Performance Assessment It is well understood by the government that despite the lack of profit-making objective of public sector organizations, there is certainly a need for public accountability. This prompted it to adopt IFRS which entails enhanced financial disclosures. However in addition to the differences in the objectives the workings of a public sector organization are also different from those of the non-public entities. The financial statements of Royal Mail are prepared as per the guidelines under IFRS adopted by EU and produced in accordance with the Companies Act 2006 (Royal Mail Holdings Plc, 2011, p.57). Aviva’s consolidated financial statements have also been prepared as per IFRS issued by IASB and endorsed by EU. As Aviva is an insurance company therefore its financial statements preparation also comply with SORP on insurance business accounting provided by Association of British Insurers (Aviva Plc, 2011, p.74). The board of directors in both organizations consist of Chairman, executive directors and non-executive directors where the non-executive directors are also independent. Both the organizations’ financial statements preparation and disclosures are very much identical. The Directors of Royal Mail are required to prepare financial statements under Company law and approve the financial statements if they provided a true and fair view of the company’s state of affairs. They are required to select the suitable accounting policies and apply them consistently, make prudent and reasonable judgements and accounting estimates, oversee the application of UK Accounting Standards and disclose any significant departures, and prepare the financial statements on the basis of going concern unless they feel otherwise (Royal Mail Holdings Plc, 2011, p.101). Royal Mail has a number of board committees which are Chief Executive’s committee, audit and risk committee, remuneration committee, nomination committee, and pensions committee (Royal Mail Holdings Plc, 2011, p.42-44). Aviva’ Directors are responsible for approving business plans, group’s strategy, performance, financial reporting controls, dividend policy, capital structure, corporate governance, risk management policies etc (Aviva Plc, 2011, p.100). The various board committees are audit committee, nomination committee, remuneration committee, risk committee, and corporate responsibility committee (Aviva Plc, 2011, p.103). The difference lies in the accountability of the two kinds of organizations. The former is accountable to the UK Government whereas the latter is accountable to public shareholders. The possible explanation is because Royal Mail is non-listed company whereas Aviva is a listed company. Role of Auditor in Public/Private Organizations The role of external auditor is to provide an opinion on the objectivity and fairness of the company’s financial statements (Dunne & Morris, 2008, p.386). The opinions are generally of three types unqualified, qualified and adverse. An unqualified opinion is what most of the companies sought as evidence of a sound internal control system. The qualified opinion is also a satisfactory opinion with small exceptions or matters of concerns. An adverse opinion deems the failure of internal audit control. Other responsibilities of an external auditor are to evaluate the company’s internal control to determine if there is any discrepancy in the recording of the financial transactions. The external auditors work closely with the audit committee which consists of independent directors. The corporate governance framework establishes the requirement of audit committee to ensure the independence of external auditor (Bragg, 2011, pp.4). Royal Mail follows the Combined Code on Corporate Governance published in 2003 and revised in 2008 and 2010 with the appropriate provisions for public company with single shareholder. Aviva follows the Combined Code on Corporate Governance issued by FRC in 2010. The UK corporate governance code deals with the role of audit committees. The effectiveness of internal control within Royal Mail is reviewed regularly by the Internal Audit and Risk Management that reports to audit and risk committee. The IA&RM provides assurance to the board and executive management for the internal control systems (Royal Mail Holdings Plc, 2011, p.37). The external auditor of Royal Mail has stated to be responsible to the Company and its members as a body for the audit and opinions (Royal Mail Holdings Plc, 2011, p.50). The audit committee of Aviva works in association with the risk committee to review the effectiveness of the internal control including operational, financial, compliance controls, and risk management systems. The company’s internal control system complies with the revised Combined Code on the Turnbull guidelines (Aviva Plc, 2011, p.104). The external auditor in its statement of opinion has reported similarly as in case of Royal Mail. Conclusion In this project the analysis of two organizations from public sector and non-public sector i.e. The Royal Mail Holdings Plc and Aviva Plc shows the differences and similarities in their accounting practices. The major difference between the two organizations is that Royal Mail is not publicly listed company whereas Aviva is a publicly listed company. The shareholder of Royal Mail is the UK Government whereas the Aviva is owned by retail as well as institutional shareholders. Both the firms presently prepare their accounting statements in accordance with the IFRS issued by IASB. FRAB governs the public sector accounting whereas FRC governs the publicly listed companies. IPSASB used to issue the accounting standards IPSAS for public sector entities whereas ASB has been the accounting standard issuer for publicly listed firms. The main motive for adopting the IFRS for the government owned enterprises was that IFRS entails enhanced disclosures as compared to IPSAS and also uniformly exercised by more than 100 countries around the world. The analysis of the accounting policies of both the organizations shows that there are no significant differences in the accounting practices including the corporate governance systems and internal control systems. References Aviva Plc. (2011). Aviva Plc: Annual Report and Accounts 2010. [Pdf]. Available at: http://www.aviva.com/library/reports/2010ar/downloads/aviva-2010.pdf. [Accessed on January 17, 2012]. Aviva. (2012). About Us – Aviva. [Online]. Available at: http://www.aviva.co.uk/about-us/. [Accessed on January 17, 2012]. Botten, N. (2007). CIMA Official Learning System Management Accounting Business Strategy 4th ed. Butterworth-Heinemann. Bragg, S.M. (2011). The New CFO Financial Leadership Manual 2nd ed. John Wiley and Sons. CIPFA. (2010). IFRS: How to tell story. [Pdf]. Available at: www.cipfa.org.uk/ifrs/download/IFRS_how_to_tell_the_story.pdf. [Accessed on January 17, 2012]. Dunne, P. & Morris, G.D. (2008). Non-Executive Directors Handbook 2nd ed. Butterworth-Heinemann. FRC. (2012). Accounting Standards Board - About the ASB. [Online]. Available at: http://www.frc.org.uk/asb/about/. [Accessed on January 16, 2012]. FRC-a. (2012). Foreword to Accounting Standards. [Pdf]. Available at: http://www.frc.org.uk/documents/pdf/176.pdf. [Accessed on January 16, 2012]. HM Treasury. (No Date). Developing financial reporting guidance for the public sector: Memorandum of Understanding between the relevant authorities - HM Treasury. [Online]. Available at: http://www.hm-treasury.gov.uk/frab_memorandum_of_understanding.htm. [Accessed on January 16, 2012]. Mirza, A.A. Holt, G. & Knorr, L. (2011). Wiley IFRS: Practical Implementation Guide and Workbook 3rd ed. John Wiley & Sons. Royal Mail Group Ltd. (2012). Who we are - Royal Mail Group. [Online]. Available at: http://www.royalmailgroup.com/who-we-are. [Accessed on January 17, 2012]. Royal Mail Holdings Plc. (2011). Royal Mail Holdings Plc: Annual Report and Financial Statements 2010-11. [Pdf]. Available at: http://www.royalmailgroup.com/sites/default/files/ROY0001_fullproof_41.pdf. [Accessed on January 17, 2012]. Wayment, S. (2009). CIMA: IFRS and the Public Sector, Topic Gateway Series No. 58. [Pdf]. Available at: http://www1.cimaglobal.com/Documents/ImportedDocuments/cid_tg_IFRS_and_the_public_sector_jul09.pdf.pdf. [Accessed on January 17, 2012]. Bibliography Bourn, J. (2007). Public sector auditing: is it value for money? John Wiley and Sons. Bragg, S.M. (2010). IFRS Made Easy. John Wiley and Sons. Dick, W. & Missonier-Piera, F. (2010). Financial Reporting Under IFRS: A Topic Based Approach 2nd ed. John Wiley and Sons. Financial Reporting Advisory Board. (2009). Financial Reporting Advisory Board report for the period April 2008 to March 2009. The Stationery Office. Great Britain: National Audit office. (2007). General report of the Comptroller and Auditor General 2005-06: financial auditing and reporting. The Stationery Office. Jorge, S. (2008). Implementing reforms in public sector accounting. Imprensa da Univ. de Coimbra. Prowle, M. (2000). The changing public sector: a practical management guide. Gower Publishing, Ltd. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Public Sector Accounting Essay Example | Topics and Well Written Essays - 2000 words - 1, n.d.)
Public Sector Accounting Essay Example | Topics and Well Written Essays - 2000 words - 1. https://studentshare.org/finance-accounting/1764792-public-sector-accounting
(Public Sector Accounting Essay Example | Topics and Well Written Essays - 2000 Words - 1)
Public Sector Accounting Essay Example | Topics and Well Written Essays - 2000 Words - 1. https://studentshare.org/finance-accounting/1764792-public-sector-accounting.
“Public Sector Accounting Essay Example | Topics and Well Written Essays - 2000 Words - 1”. https://studentshare.org/finance-accounting/1764792-public-sector-accounting.
  • Cited: 0 times

CHECK THESE SAMPLES OF Public Sector Accounting

Finance and Accounting

Governments instead start to adopt the use of international Public Sector Accounting standards to show consistency in their reporting (Kohler &Wright 96).... IPSAS Explained: A Summary of International Public Sector Accounting Standards.... This therefore makes the financial position of private entities known compared to those of the public sector.... public sector Auditing: Is it Value for Money?... New York: International Federation of Accountants, public sector Committee, 2002....
3 Pages (750 words) Research Paper

Key Features of Public and Private Sector Organisations

public sector involve organisations owned and operated by government or their agents and are mostly set up not for profit, but to offer essential services to the public, though profit still reminds one of the objectives of such organisations.... There are many private companies providing services similar to the public sector services; they all compete for customers and resources, as well as market for their products and services.... Differences between Private and Public Companies Organisation level One factor that characterizes the public sector is the many formal processes that must be in place to make such an organisation function appropriately (ESADE, 2011)....
8 Pages (2000 words) Essay

The differences between working in public accounting versus working in private accounting

The difference between working in public accounting versus working in private accounting Private sector accounting and Public Sector Accounting are the major accounting branches within which a person may chose to work.... The difference between working in public accounting versus working in private accounting Private sector accounting and Public Sector Accounting are the major accounting branches within which a person may chose to work.... Major stakeholders to the Public Sector Accounting are the public, political personalities, and investors in government initiatives....
3 Pages (750 words) Essay

Financial Management

Accounting and record keeping: The nature of Public Sector Accounting is quite different from that of private sector.... Financial management plays an equally important role in public sector as well as in private sector.... So various roles that financial management plays in the public sector are.... Financial management plays an equally important role in both private sector undertakings and private sector enterprises, however in public sector the policies and procedures are more Running Head: FINANCIAL MANAGEMENT Role of financial management in public sector organizations....
1 Pages (250 words) Essay

Public Sector and Management Accounting

A Critical Evaluation of the International Public Sector Accounting Standards Board (IPSASB) and the Conceptual Framework of the International Public Sector Accounting Standards (IPSAS) as a Standard Setting Body in the Public Sector ... he International Public Sector Accounting Standards Board (IPSASB) sets standards for the public sector in the international community.... These standards are known as International Public Sector Accounting Standards (IPSAS)....
13 Pages (3250 words) Essay

The Government of Finland and Spain

Moreover, the manner in which the International Public Sector Accounting Standards (IPSAS) are adopted by these countries differ greatly.... The level of adoption of the International Public Sector Accounting Standards (IPSAS) in Spain is much slower than that of Finland.... In Spain, a very strong legal culture persists where the administrative law is used to administer the public sector.... During the period of New Public Management, the Finnish government was among the first countries to like this type of accounting in the public sector....
4 Pages (1000 words) Case Study

Australian Accounting Conceptual Framework Theory

"Australian accounting Conceptual Framework Theory" paper states that the preparation of the financial statements must be based on the objectives of providing important financial information to an external user.... An accounting conceptual framework is a system of fundamentals and objectives that are inter-related and lead to the adherence of consistent standards relating to the preparation of financial statements.... Financial accounting Standard Board (FASB) of the US developed the 'first conceptual framework' in accounting....
9 Pages (2250 words) Coursework

Application of Modern Accounting Standards to Enhance Efficiency in the Public Sector

Conversion of governments to use International Public Sector Accounting Standards (IPSASs) which is based on the principles of accrual is being advocated by the donor community for adoption by the developing countries (Aggestam-Pontoppidan, 2011, p.... he main area of concern of donors in Public Sector Accounting is that the majority of central governments adhere to the cash basis of accounting, therefore, offer little disclosure in relation to what is expected from commercial entities by investors, banks and public (IFAC, 2012, p....
8 Pages (2000 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us