Public Sector Accounting and Finance

In: Business and Management

Submitted By Edwin10
Words 2482
Pages 10

1.0. Introduction:
One of the main distinguishing factors between public and private sector organisations lies in their objectives and sometimes funding structure. While public sector bodies have a more social objective and focus more on the allocation or distribution of public goods and services within the country, private sector bodies have the main objective of increasing the wealth of their shareholders (IFAC, 2011).
However, both private and public sector bodies face similar operational and business challenges brought on by the economic environment and climate. A crucial question therefore is how to account for the activities of private sector bodies and public sector bodies in a way that reflects the operational structure of the organisation and yet their varying objectives (Barton, 2000).
There exist two main schools of thought on the nature of accounting in the public sector, each of which is formulated by the view of the role of the public sector within the economy (Evans, 1995). The traditional method of accounting within public sector organisations has often advocated the use of the cash basis of accounting, with larger emphasis rather placed on compliance with the rules and regulations governing the sector (Wynne, 2003). However, weaknesses in public sector management have brought to the fore the importance of efficiency and hence the adoption of the accrual method of accounting within the public sector.
According to Alexander, Britton and Jorissen (2011), the accrual basis of accounting recognises income and expenditure from transactions at the point of occurrence rather than when the cash for the transactions is either received or paid. On the other hand, the cash basis of accounting is more concerned with when the actual cash is received for the transactions. As such, the divide in opinion in public…...

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