Comparative analysis of management accounting in Australian public and private sectors

Management Account in the Public Sector and Management Accounting in the Private Sector: A Comparative Review

The late 20th and early 21st centuries have brought increasing change to almost every country in the world, Australia included. Globalism describes, in fact, the increasing unification of the world through economic means (reduction of trade barriers, support of international trade, and mitigation of export and import quotas). They goal for globalization is to increase material wealth and the distribution of goods and services through a more international division of labor and then, in turn, a process in which regional cultures integrate through communication, transportation and trade. The overall theory is that if countries are tied together cooperatively economically, they will not have needed to become political enemies. Additionally, the idea of globalism and international trade has changed the way Australian's view public and private businesses and the opportunities afforded them because of investment, infrastructure development, and participation in a more global economic structure.

In Australia, as in much of the developed world, there are differences between public and private accountancy. The private sector is typically composed of organizations that are non-governmental and privately owned; corporations (both profit and non-profit), partnerships, charities, foundations, etc. The public sector, on the other hand, is composed of organizations that are owned, operated, or controlled by the government -- a public body or public authority. The combination of globalism, transparency in accountancy, international regulations regarding reporting of fiscal results, and greater attention from stakeholders has caused a number of changes in the way data is disseminated and accountancy issues are managed in Australia.

Introduction

In recent years, there have been a number of issues that have contributed to a new paradigm when thinking about accounting. Certainly, the global financial crises demonstrated that both the public and private sectors need the highest quality account standards, as well as full transparency in order to engender trust from the public. There are, of course, diverse ways to accomplish this; but we must remember that we are no longer dealing only with country specific issues. While we may be focused on the legal and business definitions within Australia, accountancy and surrounding issues in the EU and America, as well as global banking and investment, affect the manner in which we view proper procedures.

As the 21st century unfolds, we are told that the world is embracing globalism -- a key change in the economic, political and cultural movements that, broadly speaking, move the various countries of the world closer together. This idea refers to a number of theories that see the complexities of modern life such that events and actions are tied together, regardless of the geographic location of a specific country (political unit). The idea of globalism has become popular in economic and cultural terms with the advent of a number of macro-trade agreements combined with the ease of communication brought about with the Internet and cellular communication. Indeed, as the process and potential of globalism increases in the 21st century, several different fiscal and legal issues have developed that assist organizations in developing standards that will allow an easier approach to global business (Godfrey & Chalmers (eds.) 2007). However, as we have seen with companies like Enron, the use of accounting data can be at the heart of fraud and public confidence and trust, thus standards must be developed as companies consistently move towards global business opportunities and a semi-merging of methods in both public and private sectors (Inkpen & Ramawamy 2006).

Background to Accounting Types

Regardless of the country of origin, most accountants follow GAAP, or "generally accepted accounting principles," which converges with the International Accounting Standards Board. GAPP," has very specific meanings for the accounting profession. These principles govern the licensing and standards of all accountants, and were designed to allow the ethnical believability of certified accounting documents throughout the industry. These guidelines are a standard, a framework for fiscal accounting reporting and responsibilities. It includes, but is not limited to, rules accountants should follow in recording and summarizing transactions and preparation of documents (for more, review: Financial Accounting Standards Board 2012). The basic issue surrounds the manner in which both public and private organizations utilize data -- just as it is with international organizations. Using data must have some degree of commonality between public and private sectors in order for reporting to be understood and transparent (Granof & Wardlow 2011).

Along with standards, there are a number of issues that are pertinent to accountancy within Australia that also have an impact on the public and private sector as Australia moves even more into the global arena. Most of these standards are focused on the way public and private entities report their data -- liabilities, assets, etc. so that there is more of a global approach to the convergence of financial reporting standards (Jones 2010). The new IAS will specifically apply to liabilities that surround global issues such as: legal disputes, statutory obligations, environmental obligations and certain contractual presumptions. In this particular case, it will not apply to pensions, tax or insurance liabilities since these issues are adequately addressed elsewhere. There are three major examples for these changes: 1) Addressing the inconsistencies with other IFRSs; 2) Achieving a more global methodology in accounting standards and practices, and 3) Improving the manner in which liabilities are measures in IAS 37 (IASC Foundation 2012).

Discussion

In a sense, the above shows us that some of the differences between public and private sector accounting are in both the way information is reported and the manner in which information is used to further the goals of the organization. There are differing levels of expectation within the Australian culture, particularly in dealing with public sector accountancy. For instance, in recent years, there has been a great deal of pressure on all levels of government to improve performance in health, employment, social welfare, and educational programs. For the last few decades, though, performance measures have been used primarily as an internal tool to gauge the effectiveness of their own particular foray into public policy. However, increased attention on performance evaluations by public sector managers and academics brought greater attention to both the management end and access to programs that would require compliance and evaluation in a more transparent manner. In terms of the public sector in Australia, then, we find that there are five major concerns: 1) How does the government appraise and establish performance within the "new" public sector environment; 2) How is performance measured and reported when dealing with the specific organization; 3) What are the key elements of performance measurement and reporting within Australia's public sector; 4) In addition to economic efficiency measures, does performance measurement cover all appropriate social and environmental issues? And, 5) How effective are performance measures that are being used? (Hoque & Adams 2008).

In Australia, specifically, there has also been a merging of public and private accounting in the sense of following certain ethical guidelines and accountability arragnements. Financing arrangements tend to dominate the classification, as well as the issue of whether the government retains a majority holding within the organization. Nevertheless, the idea of utilizing more international standards of accountancy, combined with an increased stakeholder presence, has normalized many of the functional areas of public accounting. This is especially important when one looks at the macroview, in which the Australian government is being tasked with more and more demands for monetary spending on public policy issues (Funnell & Cooper 1998).

Similarly, private sector accounting can not be as hidden or private as before. There is also demand, particularly from stakeholders, that these entitites move into a more deliberate and robust reporting of not only the basics required by law, but the manner in which many of those figures and extrapolations were arrived at. One of the ways this has become endemic in Australia is the Public-Private Partnership (PPP), or an extention of the new public management agenda that takes the bold entrepeneurialship of the private sector with the public service agenda from the public sector and finds ways of including the best of both without the derogatory elements many find unnerving. This trend is seeing increasing acceptance in Australia, Great Britain, and New Zealand; and seems to serve the needs of both sides while establishing a venue for overall global corporate responsibility in accounting (Broadbent & Laughlin 1988).

Conclusions

Similar to much of the developed world, within Australia's public and private sector paradigms there is the increasing focus on Corporate Social Responsibility. This trend following accountancy, transparency of accounting data, and even the way accountants report issues. This also translates out to accounting issues on more than one front. The essence of corporate social responsibility (CSR) is a self-regulated approach integrated into a strategic and tactical business model that assures that organization's compliance with the spirit, ethics, and standards of the law. The goal of business in using CSR is to encourage actions and functions so that it does not become necessary for governmental regulations to force compliance. CSR does this by encouraging community growth, public disclosure and eliminating practices that harm or have the potential to harm society -- whether legal or not. The basis of CSR is doing what is right -- in the public interest while still maintaining corporate growth and profitability. In a way, this harkens back to the Social Contract theories of Rousseau and Locke -- if one does what is right for the individual, then society, one will profit as an organization. CSR interacts with differing levels of the environment; physical, social, consumer, and employees, really -- all stakeholders in the organization's milieu. There are no regional, country, or ethic specifics for this behavior. However, there are some issues between the developing world and the developed world in that many in the developing world do not believe they should be held to the same standards in the 21st century since the developed world had 200 years to gain its hold on modernization (Quazi & O'Brien 2000; Shah 2007). Nevertheless, after the ENRON scandal in the United States, more and more companies are being scrutinzed for their ethical behavior and corporate social responsibility to their stakeholders and to the public at large.