Table Of ContentPublic Sector P Public Sector
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Accounting
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Sixth Edition
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MAurice Pendlebury
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Sixth Edition
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This book is about government budgeting, accounting and
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auditing technique, from an accountant’s perspective, in the
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context of the nature of government, governance and public
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management, public finance and public money. It deals with i
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the distinctive challenges of performance measurement,
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MAurice Pendlebury
budgets and budgetary control, costing, financial reporting
and conceptual frameworks, and special issues of audit in the S
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public sector. x
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Generic examples are used throughout the book to illustrate E
the issues involved. d
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This edition is very different from previous editions in reflecting n
the fundamental changes in public sector accounting over
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the past generation, including a narrowing of the differences
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between government and business accounting.
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Public Sector Accounting is the ideal choice for any student S
needing a clear, concise guide to the key issues of this &
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About the Authors n
Rowan Jones is Professor of Public Sector Accounting at the d
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University of Birmingham.
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Maurice Pendlebury is Emeritus Professor of Accounting at b
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www.pearson-books.com
Front cover image: © Getty Images
CVR_JONE0362_06_SE_CVR.indd 1 12/5/10 11:11:37
PUBLIC SECTOR ACCOUNTING
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Sixth Edition
PUBLIC SECTOR
ACCOUNTING
Rowan Jones
Birmingham Business School
Birmingham University
Maurice Pendlebury
Cardiff Business School
Cardiff University
Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
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First published under the Pitman imprint in Great Britain in 1984
Second edition published 1988
Third edition published 1992
Fourth edition published 1996
Fifth edition published 2000
Sixth edition published 2010
© Rowan Jones and Maurice Pendlebury 1984, 2010
The rights of Rowan Jones and Maurice Pendlebury to be identified as authors of this
work have been asserted by them in accordance with the Copyright, Designs and Patents
Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted in any form or by any means, electronic, mechanical,
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Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS.
ISBN: 978-0-273-72036-2
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record for this book is available from the Library of Congress
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Typeset in 9.5/12.5pt Stone Serif by 35
Printed and bound in Great Britain by Ashford Colour Press Ltd, Gosport, Hampshire
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Contents
Preface vii
Acknowledgements x
1 The nature of the public sector 1
1.1 The nature of government 2
1.2 Governance and public management 4
1.3 Public finance 8
1.4 Public money 10
1.5 Accountants and the public sector 11
Further reading 16
2 Performance measurement 18
2.1 Non-financial performance measurement 19
2.2 Challenges of performance measurement 27
Further reading 29
3 Fundamentals of accounting 30
3.1 Elements of accounting 31
3.2 Bases of accounting 36
3.3 National accounting and government budgeting 50
Further reading 52
4 Budgetary policies and processes 53
4.1 The rational control cycle 54
4.2 Fiscal years 60
4.3 Budgeting for inputs, outputs and outcomes 62
4.4 Budgetary processes 62
Further reading 65
5 Form and content of budgets 66
5.1 Organisational and programme structures 67
5.2 Capital budgets 70
5.3 Line item incremental budgets 77
5.4 Output measurement and outcomes 82
5.5 Zero-base reviews 83
Further reading 84
v
Contents
6 Budgetary control 85
6.1 Central financial control 86
6.2 Devolved forms of financial control 89
6.3 Budget reporting 93
Further reading 96
7 Costing 97
7.1 Organisational units, programmes and products 98
7.2 Pricing and reimbursement 104
7.3 Incremental changes in output 105
7.4 Outsourcing 106
Further reading 108
8 Financial reporting 109
8.1 Form and content of published financial reports 110
8.2 Accrual accounting: special topics 117
8.3 Policymaking 123
8.4 Conceptual frameworks 124
Further reading 126
9 Auditing 127
9.1 External auditing 128
9.2 Financial and regulatory audits 131
9.3 Performance audits 133
9.4 Internal control 135
9.5 Materiality 137
9.6 Budget auditing 139
Further reading 140
Index 141
vi
Preface
This book is about government budgeting, accounting and auditing, from an
accountant’s perspective. Government budgeting, particularly, can underempha-
sise – even ignore – accounting. Our purpose is to portray the whole of govern-
ment, being the core part of the public sector, through the eyes of accountants.
We do this by concentrating on the possibilities of accounting technique.
Throughout, we combine discussion of the importance of the techniques with
their limitations. Nevertheless, the book depends on the importance of account-
ing technique.
Historically and around the world, introductory accounting and intermediate
accounting are taught in the context of for-profit organisations. This book
assumes a basic understanding of such accounting. Its method is to focus on
those matters that can be different in governments, even while there is
significant overlap in accounting for governments, non-profits and for-profits.
Chapter 1 provides an introduction to the nature of the public sector, the
heart of which is the sovereignty of governments ultimately controlled by
politicians. It introduces the nature of government, governance and public
management, public finance, public money and the role of accountants in the
public sector.
Chapter 2 is an overview of performance measurement, which permeates all
aspects of government budgeting, accounting and auditing. It identifies distinc-
tive challenges of performance measurement for accounting.
Chapter 3 details the technical fundamentals of accounting. These are the
same in all organisations, whether governmental, for-profit or not-for-profit, but
the public sector context shifts the emphasis among these fundamentals. The
chapter also discusses two other forms of accounting – national accounting and
government budgeting – that complement and sometimes compete with public
sector accounting.
Chapters 4, 5 and 6 are concerned with budgeting. Chapter 4 deals broadly
with budgetary policies and processes. Chapter 5 explains the common forms,
and associated content, that government budgets can take. Chapter 6 concerns
budgetary control, which is a dominant function of accounting, but one that can
be exercised in different ways.
Chapter 7 addresses costing techniques, which by their nature are less exten-
sively used in government than in for-profits but, when they are used, can
have important consequences for managers, politicians, service recipients and
taxpayers.
Chapter 8 is about financial reporting. There are significant overlaps between
reporting standards for all organisations, but there are distinctive issues for
governments – budgetary reporting, consolidated financial statements and special
accrual accounting issues. There are also particular issues relating to policymaking
and policymakers’ conceptual frameworks.
vii
Preface
Chapter 9 deals with auditing. Here, too, there is much overlap between
organisations of all kinds, but the distinctive issues in government are of import-
ance. These are the definition of audit independence; financial, regularity and
performance audits; internal audits and internal control; attitudes to materiality;
and budget auditing.
Every chapter includes a further reading list. These are not usually develop-
ments of technical accounting matters. Some of the publications listed are from
non-accounting literature, for the accountant to use in a wider understanding of
technique. Most, however, are from accounting literature. This typically takes the
understanding of technique as given but then situates it in wider contexts,
allowing a fuller discussion of the strengths and weaknesses of technique. This is
especially necessary given that technical accounting developments tend to be
made by accounting’s standard-setting bodies or consultants, not academics.
Nevertheless, it remains true that accounting technique and this wider context
are difficult to marry. There is little theoretical understanding of the relationship
between government accounting systems and social, economic and political
success. The further reading lists therefore mainly provide a basis for developing
our understanding.
The illustrative examples used throughout are generic, for the mythical City of
Eutopia, and themselves are based on pure matters of accounting technique. In
Eutopia’s financial statements we use generic forms rather than arbitrarily impos-
ing one particular set of accounting standards. The examples use numbers but
not mainly for the purposes of training the reader in making calculations. Rather,
this is done to make the illustrations more meaningful. We represent Eutopia not
as an ideal government but an ideal for understanding the possibilities and
limits of government accounting technique. We willingly concede that soldiers,
police officers, social workers, teachers and nurses (among others) might imagine
that Eutopia is situated on the edges of an infernal place to which its accountants
daily commute.
This sixth edition is very different from the previous editions. The earlier
editions were essentially the first edition, published in 1982, with marginal
changes made since then. The sixth edition, however, reflects the fact that there
have been fundamental changes in public sector accounting over this last gener-
ation and a half – changes that no doubt, in part, have been facilitated by the
information revolution we are living through. The major changes since the 1970s
are that there were then no sets of public sector accounting standards, but now
there are, including one international set, and some of them are based on
for-profit standards. The only set of public sector auditing standards then was
that used by the US Federal Government, known (as it still is) as the Yellow Book.
It was, however, actually a booklet of 54 small pages. Also, the recording, use and
publication of output measures were then the exception, but now they are ubi-
quitous. The result of all these changes is that there has been a narrowing of the
differences between government, non-profit and for-profit accounting.
The changes have also brought greater comparative understanding of govern-
ment accounting between jurisdictions within each country and between coun-
tries. No longer is it possible to make the joke, as one professor did in 1986 when
introducing a seminar on ‘international government accounting’, that the term
viii
Preface
seemed to him to be an oxymoron. Having said that, Anglophone accounting
still dominates the discourse (if quantity of literature is the measure), which is an
especially troubling matter given that, presumably, most government accounting
in the world is not practised in English. This book does not help in this: it is
firmly Anglophone, primarily as a generalisation of UK and some US theory and
practice.
Rowan Jones and Maurice Pendlebury
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