contig ies es, 6... 1938208 9 A bridge too far: a common conceptual framework for commercial and public benefit entities Sheila Ellwood and Sue Newbury* Abstract — Writers ant standard seters have propounded the adoption of privat sector farmeworks forthe public ‘sector. Ellwood (2003) examined the appatent “bridge” between td acres the sectors provided by UK GAAP and, © concluded that much work needed to be undertaken on the thearetical uaderpioning of Whole of Government ‘Accounts. bu WG is progressing presuring the commercial model. There has been recent debate in the Antipodes ‘as to whether concepttal frameworks can be commmon forthe private nd the public and not-for-profit sectors or ‘whether such claimed commoraly isa sham (Newberry, 2002)” In the UK, the Accounting Standards Boaid (ASB) has produced a reinierpretation ofthe Statement of Prteipes for public benett entities This paper investigates the ‘proposed Statement of Principles fr public benefit entities (SoPpbe). There appeas fo bean inherent unasitbiliy ‘ofthe enstent private sector framework for wansference rouble benefit entities" The balance sheet foous ad che assumed objective of wealth cieaion ave incomprehensibi ina public a no-ft-proitconext. Changes in publi service management embodied within New Public Management (NPM) led to the ascendancy of accnials account ing but this does not necessarily permit the adoption of (eintesprted) private sector canceplval fmework. Tis concluded that the differences are so fnéanentl th {i misleading celaim ihe adopsion af & common bridging fremework and it is misguided to stugele o achieve one. The differences will aways make such an euvleavout "bridge too fa, 1, Introduction ‘The adoption of private seetor financial frame- ‘works has been argued to be appropriate for public sector entities (Likierman, 1998; McGregor, 1999) and some countries e.g. Australia and New Zealand have adopted one conceptual framework aczoss the sectors. In the UK, the ASB issued a raft interpretation of its Statement of Principles on Financial Reporting for ‘public benefit entities’ in 2003 followed by an Exposure Draft in 2005. Accounting standards developed for profit-ori- centated entities have been applied in public sector entities in the UK for several years (Ellwood, 2002) and the International Federation of ‘Accountants (IFAC) is currently adapting IASs for the public sector. However, Ellwood (2003:119) caiticised the diversity of approach and the lack of «a clear underpinning framework in the UK public sector SUK GAAP may provide the basis for a bridge ‘cross the public sector (and between the public and private sector) but the public sector perspec- tive needs to be firmly incorporated and defin The authors are, respectively, athe Univesiy of Warwick ‘and the Univesity of Syeney- They are indebted tow anany” ‘mous referees for helpful comments on earlier deft of tis paper Correspondence should be adéressed to Dr Ellwood st ‘Warwick Business School, Univesity of Warwick, Coventry CN4TAL UK. E-mail sheila eliwood @vbs ae. The fil vision ofthis paper was accepted in snus 2006, ns and principles reworked to provide an ap- propriate conceptual framework for the diverse UK public sector." Nevertheless, Whole of Government Accounts (WGA) is progressing before the underlying con- ceptual framework has been thoroughly addressed, We take a UK perspective and examine whether the reinterpreted commercial SoP, the Statement of Principles for public benefit entities (SoPpbe) pro- vides an appropriate bridge. ‘The UK Accounting Standards Board (ASB) ap- pears to take the view that a transaction is atrans- action and it should be accounted for in the same way by all types of organisations. This view as- serts that the nature of assets, liabilities, revenues, ‘and expenses, gains and losses does not change be- cause they are held by the public, instead of by the private, sector. The ASB proposes using basically the same accounting rules and reporting model for a business (‘the commercial model’) and non-prof- it-making bodies or to use the ASB’s nomenclature public benefit entities (PBESs). We argue that public sector entities are different from businesses. Business accounting standard-et- ters do not consider the specific nature and role of public service organisations. Business firms do not levy taxes or provide goods freely to customers. ‘The accounting rules for public service organisa~ tions and their reporting model should be different from those of cominereial firms, ‘There are no im- mutable accounting or financial-reporting rales‘The FASB (1978.2) defines a concept work for accounting 35 3. The distinctiveness of public sector ‘accounting ‘There are many unique public sector which a coneepe ‘Any re-expression, change of emphasis or ati- ‘ions othe principles are des ‘more releva ‘The SoP covees many facets of secountng: the Jefferson, as quoted by EEE2 ACCOUNTING AND BUSINESS RESEARCH Ve 38. No 1205 Table “The re-expreson of principles nthe SaF pe Principle os expressed in SP Sapty a ocr event cf tees vena oe ‘ewan of management asus intrest sited for ovperhip vest ‘Soualag panes subsite for owners “Table contin) ‘The escxprsson of principles in the SePpbe Procite as expensed in SOP ‘Chaptee§ Recogaition in Fnanclal statements ‘Chapter 6 Measurement in final statesents ment’ duty tobe publicly ae 2 democrat sete)36.801. 206 ACCOUNTING AND BUSINESS RESEARCH aay Drab oral 1 1381 ee Covering Tapas Investor ana Ivesors Funders and ‘rettor vendor Supplies | Resouce provides Graves Unters Lenders Levtere | Ovnighttecas Overnight Coos Noes The poblic ‘The pie “The pubic { Bonsfiires’ ——Canonere Brployees ‘oe bold ype azar the rimay clas of wet Sones: Ashen (1978), Doane (1981), ASB (1859: 205 an 205) haces euos examining the counting statements of 7 cst organetions. The SaPpoe recognises tht That is notto say soning dors a 4 decision-making eleACCOUNTING AND BUSINESS RESEARCH 36.1 206 Tables 1 is ules (electorate? taxpayere? or gover (GASB Granda reporting objectives meat i gvemen' uy foe polly aeceamtble and shld ~ fon to detemine whether cue year eventes were sous vce mnu wer cb nc in i dye abou ase Semon necessary 0 eatemine whee the en's petion te yeas ope sericea can be rode by he gover igen a ay econo ae bleed ses oles ‘he oppor No Courterprs, For examples an oth the SoP andthe SoBpbe a6* ACCOUNTING AND BUSINESS RESEARCH 2 3.e.1308 concepaual framework is appropriate tothe uniqueMU ANU HUSINESS RESEARCH Praspees Nes a7PEE fo Be te mes profitable © the objectives of Manca) aeounbi enterpit in tho actin rots. ser needs. Likjecman ends Vl 35. Ne. aos ‘etated bythe IASB and inthe frameworks of Aliviéval counties such as the SoP Ca ey ate ve, thee ate many ue pad. tances Io whieh a conceptual ste. Fundamental dite ecogition’ when compared ith ‘The SoPpbe recognises ferent, Arobus Iramewesk ae hes advanced remarkably ‘and there have been Acovniog Stasdacs Booed. (200 doesnot peat to ave beh ae 4. Conclusions Gn reworks purport provide s theo. ‘etal underpinning for Fnac eoporting sn)of theo, meget an sana’, Prile Money ond in ACCOUNTING AND BUSINESS RESEARCH Earnings management within Europe: the effects of member state audit environment, audit firm quality and international capital markets Steven J. Majjoor and Ann Vanstraelen*