Meaning, Purpose And Users Of Public Sector Accounting
Public Sector Accounting is the systematic process of recording, communicating, summarizing, analyzing and interpreting the financial statements and
statistics of Government in aggregate and details. It deals with the receipts, custody, disbursement and rendering of stewardship on public funds entrusted”. (R A
Adams, 2004). The main aim of the government is not to make profit but to render essential services to her citizens.
Public sector accounting can be used to measure incoming revenue and outgoing
expenses of the government. It can also be used for budgeting, planning and forecasting. Although the main aim of most public sector entities is not to generate profit, it is still important to know
how an agency is doing financially.
OBJECTIVES OF PUBLIC SECTOR ACCOUNTING
Below are the main purposes of Public Sector
Accounting are:
- To ascertain the authenticity of transactions and their compliance with the established laws, regulations and statutes.
- Providing evidence of stewardship.
- Assisting planning and control.
- Assisting objective and timely reporting.
- Providing the basis for decision-making.
The five objectives of public sector Accounting are explained below:
1. To ascertain the authenticity of transactions and their compliance with the established laws, regulations and statutes
Public
Sector disbursements should accord with the provisions of the Appropriation
Acts and Financial Regulations. There should be due authorizations for all
payments so as to avoid the commission of acts of misappropriation.
2. Provide evidence of
stewardship
Rendering stewardship is being able to account
transparently and diligently for resources entrusted. Public
Sector operators are constrained to display due diligence and sense of integrity in
the collection and disposal of public funds.
3. Assisting, planning and
control
The future is full of risks and uncertainties. Mapping out plans
prevents an organisation from drifting from the right direction. Plans of actions provide the focus of
activities which are being pursued. The circumstances which are not seen are built into
plans so as to avoid or at least reduce corporate failure. Public Sector
establishments should act in accordance with the ‘mandate theory’ of
governance.
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4. Ensuring objective and timely
reporting
The users of information on Public Sector Accounting are in a hurry to bridge
their knowledge gaps of what the Government of their country is doing. They definitely value quick and accurate statistics to evaluate the performance of Government.
5. Examining the costs incurred
and the benefits to be enjoyed
In the Public Sectors, it is not easy to
measure costs and benefits in financial terms in all respects. The analysis of
Cost-Benefit assesses the economic and social advantages (benefits) and
disadvantages or inconveniences (costs) of alternative courses of actions, to
ensure that the comfort of the citizens is well catered for.
USERS OF PUBLIC SECTOR ACCOUNTING INFORMATION
The users of Public Sector
Accounting information will be discussed under two categories which are listed below:
A. Internal Users - This category is
made up of the following:
- The Executive arm of Government which include, the President of a country, the Governors of various States and Chairmen of the Local Government Councils.
- The Federal Ministers and State Commissioners.
- Top Administrators of Government Departments, e.g. The Permanent Secretaries and Directors.
- The Chief Executives of Government Business Entities/agencies such as Power Holding Company of Nigeria (PHCN) and the Nigeria Ports Authority (NPA) etc.
- Subordinates who oil the administration wheels.
- The organised labour unions in the public service.
- The National Assembly.
- The members of the public.
- Any Government agency apart from the one that is preparing the report.
- Foreign countries.
- Foreign financial institutions such as International Monetary Fund (IMF), World Bank, Department for International Development (DFID), United Nations Children’s Fund (UNICEF) etc.
- Creditors, both local and foreign.
- Researchers.
- Political parties, trade unions and Civil Liberty Organisations.
Difference between Government Accounting and Private Sector Accounting
- The aim of a commercial business is to make profit while that of Government is to render adequate services to the general public at a reasonable cost.
- Government gets revenue from the public in the form of taxation, fines, Levis etc. while business organizations get their income mainly from selling goods and services.
- The Government record financial transactions on ‘cash basis’ while commercial organizations record on accrual basis.
- In Public Sector Accounting, tangible fixed assets like land and building, plant and machinery are not shown in the balance sheet, while in private sector accounting these assets are recorded, showing the cost, accumulated depreciation and the net book value of each.
- Current assets like stocks and debtors are not shown in the balance sheet in public sector accounting. Debtors and creditors are not accounted for until money is received or paid. Whereas in private sector accounting system, the current assets and current liabilities are shown in the balance sheet.
- In Government there is no Annual General Meeting of shareholders, unlike what is obtainable in commercial enterprises. Government engage in public briefing on specific issues.
- In Public Sector Accounting, fund accounting operates substantially. However, the proprietary approach is adopted in private sector accounting.
- Government Accounting flourishes stiffly on the budgetary approach, while budgeting is embraced as a very effective control instrument in private sector accounting
