AAA Elements of a Theoretical 51 rs Framework for Public Sector Accounting 38 June Pallot Victoria University of Wellington, New Zealand Despite the ancient origins of governmental accounting (Normanton, 1966; Chatfield, 1974) and the size and significance of governmental activity in modern times, the subject was, until recently, ignored by academics and practitioners alike. After a period of unwarranted neglect (see Perrin, 1981), the 1980s witnessed an upsurge of interest in public sector accounting. Its theoretical framework, however, is still largely undeveloped. In the inaugural issue of this, journal, Lapsley (1988) reviews the public sector accounting research activities ‘of the 1980s and concludes that “perhaps the most distinctive aspect of this research activity is the absence of a theoretical background which provides a framework for the development of accounting principles and practices in the public sector” This article is based on the premiss that a necessary first step in the development of a new theoretical field is the formation of appropriate concepts, classfications and meanings. In particular, it will attempt to show how the development of a concept of community assets (used to Cescribe government- ‘managed assets of an infrastructural, cultural or environmental nature) can contribute to the development of a new theoretical framework for public sector|1 accounting and, conceivably, private sector accounting as well ‘The development of concepts is essential to the functioning of accounting, both as a classificatory activity and as language, interrelated ways in which it shapes our view of the world. It is by shaping our perception that accounting is able to pre-empt and influence agendas and meanings (Hopper et al., 1987, p. 440) and to play a role in societal change (Hopwood, 1983; McClure, 1983) That accounting is a classificatory activity is reasonably self-evident (for a discussion see Fitzgerald and Schumer, 1962; Johnson, 1972; Mattesich, 1964; 1972; Wheeler, 1970) although the significance of this has perhaps been underrated in recent years. Classification has been described as the starting- point in the pursuit of knowledge in any field (Goldstein and Goldstein, 1978). Classification is not, however, a purely neutral process of arranging facts. It both implies and imposes a’ certain definite way of looking at problems Accounting is also widely held to be, at least in part, a communication discipline “Te author wies to thank Max Alte, James Chan and Rob Gray or tht lp and svn taens_ebiagt nhfeopmen ofthat. She wal ao Me fo ark paras EEUGAERLws | GEM eemmentlccantnesymposti phe eo nl snnymns ees cara” YS RA for tS comments on err Yesone,(AAA, 1975; Goldberg, 1965; Yu, 1976) and has often been referred to as the “language of business" (e.g. Davidson et al., 1977; iri, 1975; Lavoie, 1987). Belkaoui (1978), in taking up the question of accounting as the language of business, points out that the lexical and grammatical characteristics of the accounting language play a role in our conception of the world (Weltanschauung), shaping the perception and thoughts of those who have assimilated the accounting, discipline. Linguistic field theory (see Schaff, 1973, pp. 14-19) builds on the idea that a system of language shapes a system of thinking but adds the notion that words cannot be treated in isolation but only have meaning within a whole, referred to by some as ‘‘conceptual fields" and others as “’semantic fields" ‘The meaning of a word becomes known only when we delimit it from the meanings of neighbouring and opposing words; conversely, a change in one element suffices to change the structure of the whole. ‘The movement of one element — as in the case of the movement of a pawn actoss a chess board — suffices to change the structure of the whole. In an analogous fashion, the formation of a new concept or element in accounting has the potential to alter the entire conceptual field Objectives and Underlying Assumptions in Accounting What concepts, and hence what classifications, we adopt in a discipline is to some extent arbitrary. Logically, it is possible to create as many different classifications for a universe of elements as there are criteria for distinguishing among their traits. The potential arbitrariness is constrained and guided by two factors: underlying world view or assumptions and the practical purpose to which the classification is to be put. This is why the FASB's conceptual framework project, for example, precedes the definition of elements (ie. concepts or classes) with the articulation of the objectives of financial accounting systems and the selection of underlying assumptions. ‘There is insufficient space here to fully develop a discussion of the objectives, of accounting. It is worth pointing out, however, that a distinguishing feature in the development of governmental accounting to date has been the underlying principle of democratic control over the use of funds, made critical by the coercive ability of governments to raise finance through taxation. In English history, the evolution of control over taxation and expenditure, of which accounting and auditing are an important part, has been intimately tied up with the struggle for parliamentary sovereignty (Einzig, 1959; Normanton, 1966) and has had an important influence on the evolution of other control systems in government throughout the world (Webber and Wildavsky, 1986). A major reason that parliaments came into existence was to facilitate the raising of finance for the Crown and it has been the necessity for supply that has ensured parliaments continue to be assembled. The principle of ‘no taxation without consent’” was established under the Magna Carta, while the seventeenth century, during which the House of Commons struggled to gain control over the executive, saw the development of the principle of *‘no expenditure except in amounts and ways approved by Parliament”. A system of control based on these two principles has been progressively refined in the modern era. The importance of democratic Elements of a Theoretical Framework 39control over the financial affairs of governments was highlighted by William Ewart Gladstone during a speech at Hastings in 1891: “The finance of the country is ultimately associated with the liberties of the country. It is ‘a powerfal leverage by which English iberty has been gradually acquired... Ifthe House ‘of Commons by any possibilty lose the power ofthe contol of the grants of public money, depend upon it, yourlberty willbe worth very itl in comparison (cited in Bing, 1959, pi) ‘The non-voluntary nature of the relationship between the providers and users of finance in government also makes accountability particularly important in the public sector. A number of authors (e.g. fiir, 1983; Roberts and Scapens, 1985; Williams, 1987) have argued the superiority of an accountability framework over a decision usefulness one in accounting, even in the private sector; in particular, because it recognizes the social nature of the relationship between the parties. It is conceivably even more important in governmental accounting because _greater power is balanced by greater accountability (McKinney and Lawrence, 1979). Also, in the absence of the profit motive or disciplines of the market to drive management action, accountability may assume a greater role in guiding ‘management Johnston and von Tunzelmann, 1982, p. 12). The importance of accountability in a conceptual framework for government accounting is recognized by the GASB (1987, pp. 20-21): Accountability is the cornerstone of al financial reporting in government. .. Governmental accountability is based on the belief thatthe citizenry has "aright to know", aright to receive ‘openly declated facts that may lead to public debate by the citizens and their elected representatives. Financial reporting plays a major role in fulling government's duty to be publicly accountable in a democratic society. Concern with accountability and constitutional constraints on executive power stems from a view that accounting is a social, not merely a technical, activity. Fundamental to any conceptual framework built around such objectives, are deeper assumptions about the nature of society and corresponding notions of government. While a full discussion of these is beyond the scope of this article, three major patterns of assumptions can be detected in the literature of philosophy and of the social sciences (Pallot, 1991). The first is the atomistic, utilitarian model which underpins neoclassical economics and much modern accounting theory. The second model is also individualistic, but in a different sense in that it goes beyond treating individuals as units of account, taking seriously their rights and the nature of the relationships (viewed as contracts) between them. This is the rights-based model, evident in ji's 01983) discussion of the accountability based framework for accounting. Yet a third model is the communitarian perspective which views society as held together by common concerns and shared values. To date, this perspective has received very little attention in accounting thought. Individualist models recognize only a private, essentially market sector made up of private individuals, or firms viewed as individuals, and government, viewed either as analogous to the market (as in public choice theory) or as a “‘super- individual’ Incorporation of a communitarian perspective would also make roomfor the realm of community which is neither private nor government. This article will address how a balance might be struck between individualistic and communitarian perspectives in a framework for public sector accounting. While our main concern here is a conceptual one of how we see (or ought to see) the public sector, recognizing a communitarian as well as an individualist perspective also has methodological implications. Allowing more than one view encourages creative, as opposed to merely linear, thinking and it has been argued that debate between proponents of alternative paradigms may be the only route to the advancement of knowledge (Bernstein, 1983). Additionally, individualist and communitarian perspectives are frequently associated with different research methodologies; the former with the methodological individualism of neoclassical economics and positive public choice theory and the latter with more normative and holistic approaches|2| The Importance of Assets in Public Sector Accounting Assets are arguably the most basic concept in accounting generally|3). Most of the FASB's fundamental elements — revenue, for example — are derivatives of the concepts of assets and liabilities. Although some writers (e.g. Ma and Miller, 1978) have argued that liabilities should be accorded equivalent status, to assets, ljri (1975, p. 67) suggests that even liabilities can be viewed as assets under future negative control. Ijri (1975, p. 81) also argues that equities are an alternative classification of assets. Not only are assets of fundamental concern in accounting generally, but an examination of their nature is of particular interest in the public sector. Mautz (2988), who argues vigorously for the development of **building block concepts” hich will reflect the distinctive nature of problems in the government and non- profit sectors, places assets at the forefront of his concerns. The concept of assets in the public sector has not been addressed until recently, however, largely because governmental accounting was predominantly cash based and did not require recognition of assets. Dissatisfaction with cash accounting, a desire to increase managerial awareness of resources in times of fiscal restraint, concern over the deterioration of infrastructure (Choate and Walter, 1981; Joint Economic Committee, 1984) and debate over the sale of governmental assets under “privatization ” (Forsyth, 1983; Heald and Steel, 1982; Kay and Thompson, 1986; LeGrand and Robinson, 1984) have brought assets to the forefront of public policy discussion. In the accounting literature there has been considerable debate over depreciation (Gustafson, 1972; Higgins, 1983; Perrin, 1979, 1981, 1984) and the maintenance of infrastructure capital (Perrin, 1984; van Daniker and Kwiatowski/GASB, 1986). All these debates would be better informed by a clearer understanding of what is being talked about. The Canadian Institute of Chartered Accountants (1989) have more recently conducted an enquiry into accounting for physical assets by governments but this is practice-oriented and there has yet to be an examination of the deeper philosophical issues underlying the definition and reporting of assets in the public sector. The remainder of this article will be devoted to such an investigation. Elements of a Theoretical Framework 4151 42 Figure 1 Assets as Resources and Property A= ROP An Initial Definition of Assets Because of the fundamental nature of assets, their definition has long been discussed in the accounting literature (for a review, see Miller and Islam, 1988). Despite an apparent diversity of definitions, two recurring themes can be identified|4]. Firstly, assets are economic resources. Secondly, there are property rights and obligations (aspects of ownership or control) attached to them (see Figure 1) Resources are means to an end. In the commercial sector the end is a net generation of inward cash flows. In the non-profit sector the benefits are in the form of services (such as improved health or education) rather than in the form of cash flows. Depending on what end is envisaged, assets may have differing forms of value; for example, value in use/production or value in exchange or, in the case of assets of an environmental or cultural nature, a non-financial value. Property is used here to refer to rights, not material things (Cohen, 1927; Ely, 1914; Macpherson, 1978, p. 2), the material aspect of assets largely being incorporated in the concept of resources. Contrary to what has often been the belief of accountants (e.g. FASB, 1976, para 122), the legal concept of property is not the same as legal title or nominal ownership, but rather 2 bundle of rights|5] including: (Custody rights, ie. authority to make decisions associated with the actual utilization of the owned asset. This is what is also referred to as “possession”, real ‘‘control’’ or “management” of the asset. (2) Usufruct rights, ie. authority to claim the appropriation of new assets resulting from the utilization of the object of ownership (such as value added in production) either directly in the form of real products or in the form of income (wages, interest, rent or profit) (3) Alienation in the sense of transferring the ownership through sale or bequest to another subject and destruction Ijiri 1975, p. 51) raises the possibility of accounting classifications being based on levels of discretionary power but the idea has not been actively pursued in accounting literature, Instead it is widely assumed that resources are either under the control of a given entity or not under its control, without any intermediate stage between the two. a | | |Many different ownership patterns may arise if the seemingly natural unity between the legal title and the substantive functions is destroyed or if several itinct agents divide up the substantive functions among themselves in different combinations and degrees. A basic issue for accounting, then, is clear analysis of who is the titular owner, who exercises which portion of the substantive ‘ownership rights and who puts constraints upon their exercise. In many government organizations around the world, for example, parliament (or equivalent body) places considerable constraints on the exercise of management rights — resources can only be used in amounts and ways approved by parliament and there are restrictions on the sale of a variety of assets ranging from infrastructure to cultural facilities and scenic reserves. Identification of both the resource dimension and property dimension of assets is consistent with the view that accounting shares subject matter in common with both economics (Boulding, 1962) and law (Magruder, 1957). In recent years, however, accounting theory has relied much more heavily on economic theory, particularly marginalist (neoclassical) theory (Cooper and Sherer, 1984; Tinker etal., 1982) than on legal theory. This can largely be attributed to the anxiety ‘of accounting academics to turn their discipline into a “'science’” (Lavoie, 1987); “positive’” economics has masqueraded as such whilst jurisprudence has been less inclined to do so. Outside accounting, an attempt has been made in recent years to combine the fields of law and economics. Followers of writers such as Coase (960), Demsetz (1964) and Posner (1973) have written extensively in the field, notably through the University of Chicago's Journal of Law and Economics, and had a significant impact on public policy worldwide. Given our argument that accounting has roots in both economics and law, accounting researchers may {ind it worth while exploring this body of literature. It should be pointed out, however, that both the economic analysis of law and the property rights literature in economics are based on highly individualistic assumptions. In particular, they tend to focus on the rights associated with property, downplaying the obligations, and place considerable emphasis on the necessity for private property. Although rights and obligations are largely complementary, the dominant world view (e.g. individualist or communitarian) will determine which receives primary attention. If the law-and-economics approach is to be adopted in accounting, it needs to be balanced by other views and underlying assumptions. ‘An economic, rather than a legal or political, focus also tends to encourage a concentration on technical rather than social issues. Much governmental accounting literature (e.g. Leonard, 1985; Mautz, 1988; Perrin, 1984; van Daniker and Kwiatkowski, 1986) has accordingly concentrated on issues such as wear and tear of infrastructure and efficiency in the input/output sense rather than matters such as constitutional constraints on executive power. Indeed, there are several ways in which certain public sector assets, gua resources, differ from the fixed assets ordinarily encountered in commercial accounting. For example, they may have no readily determinable economic life as they are part ‘of our heritage to be preserved or essential services which have to be continuously maintained, they may contribute to cash outflows rather than cash Elements of a Theoretical Framework 43AAAJ 51 44 inflows (Mautz, 1981), they are utilized by the public rather than by the entity itself, and their worth may not be able to be measured in monetary terms (exchange value), Although these are interesting issues, the present article chooses to concentrate on exploring the distinctive nature of property in the public sector in order to give greater attention to the fact that accounting is not only a technical activity but a social one as well (Burchell ef al., 1985; Hopwood, 1985; Laughlin, 1987). Mayhew (1985) argues that understanding different arrangements of property rights can reveal much about wider social processes. Property under the Individualist World View In the absence of any specific enquiry into the nature of property rights in the public sector, the assumption is that governmental entities own property in the same sense that private firms or even individuals do, ie. that assets are private property. Property law has generally been viewed as the heart of private law rather than being seen as relevant to public aw(6]. Bacon (cited in Lawson and Rudden, 1982, p. 118), for example, said “T consider that it is a true and received division of law into ius publicum and ius privatum, the one being the sinews of property, and the other of government”. Lawson and Rudden point out that in such a system “public authorities and public corporations hold or own property in precisely the same way as private persons” (p. 122). ‘A system of private property has the following characteristics which writers such as Posner (1973, p. 10) consider necessary to “‘create incentives to use resources efficiently”: (1) Universality in the sense that all resources are either owned or capable of being owned by someone. (2) Exclusivity in the sense that other persons may be excluded from ‘enjoyment of the object of the property right. (3) Transferability of the property rights. Baker (1975) points out the economic analysis of property rights does not claim that all property rights in the world have the function of promoting efficiency. What is at stake, therefore, is a recommendation: if you wish to promote efficiency, structure property rights to achieve that result. To accept this recommendation ‘‘we should need to be committed to ‘efficiency’ so we are entitled to ask what that involves’” (Baker, 1975, p. 47). Hopwood (1984, p. 181) raises the possibility that focusing on efficiency in government might cause us to lose sight of political questions: Just what might be at stake in such a juxtaposition of the rhetore of efficiency with that of democracy? Is it realy necessary, one wonders for the enhancement of legitimacy of the technical to be gained at the expense of the legitimacy of polities? Macpherson (1978) argues that it has only been since the emergence of the full capitalist market society in the seventeenth century that the concept of property has come to be equated with private property. Freely alienable property is required if the market is to do the whole job (clearly not an appropriate assumption for governmental accounting) of allocating resources among possibleuses. Since accounting has been seen to be associated with the rise of capitalism (Cooper and Sherer, 1984; Tinker ef al., 1982), it is not surprising that the notion of property underlying the concept of assets is one of private property. ‘This has in fact been acknowledged explicitly in the accounting literature, Grady (2965) listed as his first basic concept in accounting a society and government structure honouring private property rights. Ijiri (1975, p. 51) points out that private ownership of economic resources is accepted as a basic principle in our economy. Both authors confine their remarks to business entities, however, and choose not to examine in depth questions of ownership in the public sector. Equating property (P) with private property means certain public sector facilities (A*) of a nature that is infrastructural (highways, drainage and lighting systems), cultural (museums, public ibraries) or environmental (scenic reserves, historic monuments) fll outside conventional definitons of assets. Hendriksen, for example, concludes: “*The right to benefit from driving on public highways does not result in an asset. The right must permit the exclusion of others" 0982, p. 252) One approach to this anomaly (Figure 2) would be to omit from the accounts those assets which do not fit traditional private sector concepts. For example, AICPA (1974) and NCGA (1979) argued that recording fied assets such as roads, drainage systems and lighting systems was less significant than for other categories of fixed assets and, hence, reporting of them was optional. An alternative would be to bring A* within the private property concept (Figure 3) and make it eligible for membership of A. ra Elements of a Theoretical Framework 45 Figure 2. An Anomaly in the Present Asset Definition Figure 3 Conforming to the Private Property ConceptAAAT 46 ‘This can be done in two ways. First, the assets could be made the private property of real or atticifical persons as would occur in the “privatization” of previously state-controlled forests or telecommunications networks. Alternatively, the State can be treated as a person (a sort of “‘super-individual’’) with the same property rights as other real and artifical persons, i.e. a right to dispose of and use as well as to manage. Adoption of the private sector accounting model into the public sector without modification has this effect. In the private sector, the notion of corporations as individuals was established in the law by the US Supreme Court in the Santa Clara Co, vs Southern Pacific Railroad case in 1886. The Supreme Court unanimously affirmed that the corporation was a person with respect to the Fourteenth Amendment to the US Constitution and, in doing so, gave its blessing to corporations having the same rights to property, privacy and freedom from government interference as private citizens. Samuels (1987, p. 113) argues that ‘‘ideas (such as the idea of the corporation as a person) are inexorably embodied in legal definitions in such ways as to influence our view of the world and therefore economic and political behaviour, policy, and performance". According to Samuels, for the Supreme Court to affirm that the corporation is a perscn for the purposes of the Fourteenth Amendment is not only to make an “‘is'’ statement, but effectively, and more importantly, to make a normative “ought” statement about the power structure of the economy. He sees the law as a mechanism of selective perception, as can also be said (see Hopwood, 1984) of accounting: The alfirmation ofthe corporation as @ person, however, served the ideological function (in dition to its legal funtion) of reinforcing the perception of corporation in @ manner consonant tsth the individualist tology (emphasis added). Corporations were individuals, to, with ‘the implication that they could and should be treated the same as human individuals rather than ina separate category, The roe of selective perception is made evident by recognizing that neither labor unions nor cooperatives were so ented and dened (Samuels, 1987 . 11), Dan-Cohen (1986, p. 14) considers that “by using the ambiguous concept of person, applying it to both individuals and organizations, the law has assimilated the organization into its pre-existing individualistic framework’’ and goes on to argue for a new image of the corporation which is ““less conducive to an individualistic approach, either through aggregation or through personification, than the old one was’” (p. 16). Accounting, whose concepts build on the concepts of ew, reinforces the view of the corporation as a person through its conception of accounting entity. Following the rise of managerialism and the separation of ownership and control (Berle and Means, 1932), there has been a tendency for accounting to shift its basic entity theory from the Proprietory Theory towards the Self Equity ‘Theory (also sometimes called the Entity Theory) which adopts the point of view of the entity rather than of external stakeholders. Holder (1980, p. 29) points out that under the Entity Theory: ‘The frm is assumed to have a completely separate existence and personality. Adherents to this view consider assets and lialltis to be resources and obligations of the entity itself, not of the shareholders or proprietor. This view has been usec extensively in accountingfor commerical enterprises. The entity theory seems to assume that the enterprise exists solely for...its own growth and self-perpetuation. Care therefore needs to be taken in adopting the commercial accounting model into the governmental arena. Accounting purports to present a picture of ‘what is" but, as Hines (1989, p. 56) points out, “the taking-for-granted of ‘what is” mitigates against the questioning and investigation of the sociopolitical processes whereby ‘what is’ comes fo be" (emphasis in original). It may not be appropriate to imply, for example, that government, with all its coercive powers, is entitled to the sorts of rights usually ascribed to individuals, such as the right to dispose of property. Although a decision such as the sale of public assets under privatization is taken by government irrespective of accounting treatment, accounting presentation using the corporation model can play an important role in conditioning those involved to think in “‘private’” terms and make the sale of assets seem more legitimatel?|. It may be preferable to adopt an entity theory in the public sector which made clear the appropriate relationship between governments and the electorate; for example an entity theory in terms of command over resources (Holder, 1980, p. 31). Extending the Property Concept Rather than trying to force 4 into the private property model, it may be possible to extend the boundaries of P in order to make it eligible for membership of A. Whether this can legitimately be done depends on the necessity of equating property with private property. Argument about property is as old as political theory itself and it is impossible to deal with all the complexities of the subject here. The main point we will note here is that whilst the argument has mainly been about private property (it is private property which is contentious), a concept of common property has always existed as well. Macpherson (1978) distinguishes private property from common property by a criterion of exclusion. He sees private property as the right to exclude others and common property as the right not to be excluded from something; both, he argues, are rights held by individuals and therefore the concept of common property is not anti-individualist. According to Macpherson, a system of private property (individual rights to use and disposal of resources), when combined with the liberal system of market incentives and | | Elements of a Theoretical Framework 47 Figure 4. Extending the Property ConceptAAAJ cae 48 rights of free contract, leads to and supports a concentration of ownership and ‘stem of power relations between individuals and classes which negates the equal effective right of all individuals to use and develop their capacities. By broadening the property concept to include common property, Macpherson believes that the conflict between the liberal property right and the ethical goal of free individual development can be reconciled. Reeve (1986) prefers to reserve the term “common property” for the situation in which the rights of use and enjoyment are granted to a specific group of persons and adopts instead a distinction between state property and public property(8} He uses the distinction between title and beneficial use in arriving at his conclusions about the nature of property in the public sector: In some instances (for example, vehicles, funiture, office space and perhaps assets of government business enterprises) the governmental agency has both title and beneficial use. Such assets might be referred to as state assets, i.e. the private property of the state or governmental unit. In the case of facilities such as public libraries, public parks and public highways, on the other hand, the beneficial use accrues to the public, not to the nominal or titular owner (the governmental agency). “‘Non-exclusion” does not necessarily imply the absence of any price or other rationing mechanism, however. Indeed, the generality of access may well make such rationing procedures more necessary. The difference between such systems and a private property system may sometimes appear marginal. Reeve argues that its locus is entitlement. Under a regime of private property, the owner has a general right to exclude others|9] from the use of their property, but grants the rights of use to others, normally in return for value received. In the case of public property, the governmental entity usually has a duty to manage the asset and make use available to the public. Although the entity may make charges and employ rationing procedures to discriminate amongst those who might wish to take up the option, the obligation to make the asset publicly available means that it is likely to continue to provide the asset even if it were not of profit or benefit to itself. There is no logical or ontological reason, then, why property has to be equated with private property. Common property, or public property, has existed alongside private property as a concept and is still the dominant concept in ‘many communitarian societies today. It has only been since the emergence of the full capitalist market society in the seventeenth century that the idea of common property has virtually dropped out of sight and come to seem almost a contradiction in terms. Any opposition to extending she concept of property underlying accounting must be based on other, non-ontological, grounds. Acceptance of the argument that common property is economically inefficient (Posner, 1985, p. 33), for example, requires acceptance of the assumptions about the relationship between efficiency and welfare on which it rests and all the behavioural assumptions (e.g. egoistic, self-seeking rationality) which are built into it}10), Implications for a Theoretical Framework in Accounting Having proposed a concept of assets on common property, several implications for a theoretical framework for public sector accounting can be suggested. Inthe introduction to this article it was argued that accounting, as a classificatory system and as language, plays an important role in shaping our perception of the world, thereby influencing agendas and meanings. Recognition of assets based on common property alongside private property lends greater visibility to the communitarian perspective with its emphasis on shared values and a common life and to social, as well as technical, concerns. This is particularly so if aterm such as ‘‘community assets" is adopted (see Pallot, 1990) rather than a term such as “infrastructure assets’ (NCGA, 1979; van Daniker and Kwiatkowski, 1986) or ‘facilities’ (Mautz, 1988). Whilst, as pointed out earlier, private property has been viewed as necessary for efficiency and wealth maximization, common property can be viewed as necessary for the furtherance of other values such as shared citizenship. Self (1985, p. 188), for example, argues that assets in the public domain provide the focus for a vital common life without which ‘'economic development will eventually become pointless and self destructive". Participation in decisions, about our common life has also been seen to have positive benefits for indivcual self-development (Macpherson, 1978). ‘The idea of common property contributing to social cohesion has a respecteble ancestry. Even Jean Bodin, in making a strong case at the end of the sixteenth century for modern private property, argued that “in any state there must zlso be some common property without which there could be no sense of community and hence no viable state; part of his case for private property was that without it there could be no appreciation of common property’” (Macpherson, 1878, p. 10). An appreciation of common property may also encourage consideration, of intergenerational issues such as the depletion of natural resources. A notion of private property, which gives the present owner the right to destroy the property, cannot adequately handle such matters (Barry, 1977). A concep: of “community assets’ here could parallel the new concept of the “‘common heritage of mankind’” which is emerging in the literature of international law and politics (see for example Joyner, 1986) Recognition of common property also has implications for the way we think about the relationship between the state and society. Failure to distinguish between government property and community property, as defined earlier, fuels the arguments of libertarian free-market advocates who seek to ‘roll back the state” on the grounds that it is too heavy-handed and inefficient. While we might justifiably be wary of too much government power, however, a sense of community is important to most individuals. Writers such as Nisbet (1953) and imenka (1982) argue that the real threat to a free society lies firstly in its atomization and accompanying loss of community spirit. The subsequent yearning for community can then be exploited by pretending that the state is the community. They suggest that this has been the mechanism behind the rise of totalitarian governments in the twentieth century. In similar vein, Etzioni (1983) suggests that viewing the current debate between advocates of either more market or more government ignores a third realm — that of community. For the above reasons, this article has attempted to steer a path between the twin perils of an atomized society and that of too much power concentrated Elements of a Theoretical Framework 49AAA 5,1 50 in the hands of government, by, first, recognizing the existence of a political community which is not merely an aggregate of individuals and, second, by maintaining a clear distinction between that community and government. Recognition of community in accounting would help to restore the balance between the Hobbesian world view of atomistic selfish individuals and an all- powerful state with the more Rousseauian vision of altruistic and co-operative individuals participating in self-government|11. While the concept of community and direct participatory democracy may, in a large complex modern society, be more of an ideal than a reality (Schmitz, 1983), it has nonetheless always been, and continues to be, an important vision (Kamenka, 1982; Nisbet, 1953) which deserves to be kept alive, Accounting, by recognizing community assets, could play a part in this process. In the interim, greater attention could at least be given to weak form democracy|12|, ie. the role of elected representatives such as parliaments, especially in the light of the increasing ‘‘managerialism”” in the public sector. Drawing a distinction between community assets and ordinary fixed assets of government has its most immediate relevance for public sector accounting, however, in helping to meet the objectives of accountability and democratic control over the use of resources. Democratic control, as suggested in the introductory part of this article, is a basic principle in governmental accounting. It can, however, be in conflict with the principle of capital maintenance which is fundamental to accounting in the private sector. Goldberg (1960, ch. 4) questions the applicability of the concept of capital maintenance in the public sector, particularly with respect to depreciation(13). He argues that the desirability of capital growth, which is conceived of in terms of private capital, is part of the “capitalist ethic" of our society, adding: The integrity of capital in a private enterprise is bated fundamnentlly on the proposition that, ..Wealth) should be subject to continuous, if not necessarily regular, growth; with maintenance of al capital intact there should be no periods in which any part of the capital is allowed to diminish even iftheze are some in which it does not increase (pp. 8-2) Goldberg suggests that whether government capital should also. grow continuously needs to be examined before being assumed. If we were to do this, we would note that, on the one hand, a policy of maintaining capital intact has several advantages for management. For example, it smooths out the pattern of resource flows resulting in a relatively even financing burden through time, helps to produce an atmosphere of stability and certainty with beneficial effects ‘on motivation, and makes it more likely that the finance necessary to replace the organization's fixed assets will actually be available when needed (Rutherford, 1983, pp. 86-7). On the other hand, a policy of maintaining financial capital intact can result in too much managerial discretion over funds retained within the organization and this may conflict with the notion of the supremacy of Parliament (Aiken, 1982; Rutherford, 1983, p. 8) Reich (1964) considers that an important function of property is to draw the boundary between public and private power. A notion of community assets based ‘on common property would help to distinguish areas where decision making(over, for example, replacement and sale of assets) is a matter of widespread public concern, and hence depreciation is inappropriate, from those areas which ‘can be left to managerial discretion. In the latter case, depreciation may be appropriate as management is responsible for asset replacement and it may enable comparison with equivalent practices in the commercial sector. Accountability may also be improved if common property is distinguished from private property. It is a basic tenet of accountability that managers should not be held accountable for what they do not control. If managers are prohibited from disposing of, or making replacement decisions about, certain assets and such power is a necessary condition for efficiency, then it is unfair to assss ‘managerial performance in terms of the efficiency with which the assets are used, especially given use is by the public rather than the government unit itself. With respect to such assets it is probably better to measure management performance by such criteria as the availability and accessibility of the assets to the public. At the beginning of this article it was suggested that the development or modification of one element in a theoretical framework serves to change the ‘whole, We have already seen how changing the concept of assets has a reciprocal effect on how we view the accounting entity. This in turn may impact on our view of costs and benefits, probably increasing the visibility of issues presently treated as externalities under a system of accounting based on private property. The development of a theoretical framework for public sector accounting may even begin to impact upon the so-called “‘private”” sector, Given the size, significance and public impact of large corporations, it seems important to think about developing some equivalent of constitutional constraints on their power, One of the major concerns Samuels (1987) has about the treatment of corporations as individuals is that it serves to obscure concentrated private power as private governance. He suggests that: Recognition of the corporation as private government as constituting governance would tend toward the imposition of the same checks on it as public government; thus the marketing of the private character of the corporation is functional tothe avoidance of these checks and indeed to the countering of government regulation even in the absence ofthat recogeition ©. 19. ‘The development of a concept of community assets holds out the prospect of making steps in the direction of public constraints on the power of large corporations. If accounting, like law, creates economic and social reality, as well as reflects it (Hines, 1988; 1989), introducing a concept of community assets into the ‘‘private’” sector could reinforce the idea that powerful corporations are not independent of society. For these reasons, however, there is likely to be considerable resistance to the idea of community assets, even in the public sector, from those in power. Conclusion Public sector accounting needs to articulate its concepts if it is to develop as ‘a theoretical discipline. Given the numerous controversies surrounding public Elements of a Theoretical Framework 51AAAS 5,1 52 sector assets, it seems particularly worthwhile to examine the nature of assets in the public sector. A concept of community assets, based on common property, would give greater visibility to communitarian values and assumptions alongside the presently individualistic ones in accounting. Focus on the property dimension ‘of assets in addition to the resource dimension would provide us with a theoretical perspective that would be consistent with Ijri’s (1983) advocacy of an accountability framework over a decision usefulness framework and Holder's (1980) advocacy of the Commander Theory as the appropriate entity theory for government accounting. By distinguishing what management can control from what they cannot control (e.g. asset replacement and disposal), a concept of community assets distinct from ordinary fixed assets could permit a fairer system of accountability and clarify the controversial issues of depreciation in the public sector: Study of patterns of ownership and control in the public sector, particularly formal and informal constraints placed on government's power over resources, would appear to be a fruitful area for research. There is a vast body of legal and politcal theory pertaining to property and to the nature of the State and research in these areas may redress the concentration on economic theory, particularly neoclassical microeconomics, which presently constitutes the research paradigm in accounting. Macpherson (1978, p, 270) concludes his discussion of non-exclusive property by suggesting that as society moves towards a fully automated productive system the economic problem that has been central to liberal democracy will become a purely political problem — one of democratic control over the uses to which the amassed capital of a society is put, He sees that this problem can be tackled with the concept of property as a right not to be excluded but that it cannot be handled with the narrower concept of property as an exclusive right. In the meantime itis not necessary to transfer private sector norms and values without questioning into the public sector. The recognition of a separate concept of assets based on non-exclusive property presents an opportunity, particularly if accompanied by appropriate language, to reflect the alternative world views of the public sec:or and perhaps even to influence the wider body of accounting theory. Notes 1. Concepts such as “government”, state" “public”, “democracy” and “community” are a terminological minefield (for discussions see Hoffman, 1988; Vincent, 1987), The term “government” will be used in a restricted sense here to refet to the executive and its managers, whether at central or local government level, The term public sector” will be used to describe the broader arena of public policy making. As will be argued later, equating government and the wider community operating collectively runs the risk ff making too much power inthe hands of government Seem legitimate and itis therefore important to make a clear distinction, 2. Mueller 1976, p. 396) suggests that a difference in views of the state as either @ union of individuals engaged in quid pro quo exchange of as an organic entity constitutes the natural conceptual boundary between the allocative and redistributive functions of fovernment and between positive and normative public choice theory. Additionally, Stological and methodological assumptions can reinforce particular politcal or ethical values. While there is no necessary connection between them (itis possible to be methodologically a holist whilst politically an individualist — for example, Durkheim —or to adopt methodological individualism without advocating a laissea fave market econoty), there is strong tendency for them to be closely associated (See Bloor, 1982) ‘Admittedly, assets can be viewed merely 2s “‘unamortized costs if the income statement is seen as primary, a situation which is unlikely in the non-profit sector. Te idea of assets as debit balances, deferred charges or unamortized costs is unsatisfactory, however, because it does not provide any indicator by which assets can be distinguished from non-assets and excludes such well-recognized examples of assets such as cash, receivables and other financial claims (Lall, 1968). Furthermore, debate about substantive asset issues is not encouraged because argument tends to focus on measurement and the ” proper" determination of profit (Hendriksen, 1982, p. 4). Recent efforts at developing conceptual frameworks for scoounting have therefore tended to pay increasing attention to the questions ‘of asset definition For example: ‘things possessed. . rights over things and persons” (Sprague, 1907, p. 48) “any consideration, materia or otherwise, owned by a speciic business enterprise and of ‘ale to that enterprise” (Paton, 1922, p. 30); “any future service... .the beneficial interest in which is legaly or equitably secured to some person or set of persons” (Canning, 1829, 22); “allits properties or resources" (Saunders, Hatfield and Moore, 1938, . 58). ‘the assets of economic resources ofan enterprise are its rights in property. both tangib and intangible” (AAA, 1957, p. 14); “any severable means in the possession of an ext (Chambers, 1966, p. 103); resources under the contol of the entity (ji, 1967, p. 7). ‘The term “property claims" may be preferred to ““property rights" as it suggests that these claims to property are granted by society and are not "natural rights” (see Reynolds, 1985). Outside Anglo-American legal systems, however, property of public authorities may be ‘governed by an entirely diferent system, ic. that of public law, and be excluded entirely {rom the law of property. ‘An interesting example is the experience of New Zealand where the corporatiztion of ‘government trading departments under the State-Owned Enterprises Act 1986 was used to change perceptions of these entities and hence pave the way for privatization (see Mascarenfas, 1991). For example, in many areas of Scotland there is a common green attached to a group cof dwellings forthe use of inhabitants; the general public has no rights over the sround. ‘Common property" is also a term used in law to describe one form Goiat ownership 's another) of shared ownership between say husband and wife, partners or shareholders. Again, it does not mean the community at large. Berki (1975, p. 10), however thinks that “public ownership" is too indefinite and too indiscriminate to have any concrete meaning ait can range from state control and nationalized industries to pubic corporations and ‘workers’ or producers’ co-operatives. Excludabifty may, of course, be a technical issue as well as policy issue. Many public facilites such as roads, bridges and lighthouses are discussed in the economics literature as examples of public goods, one feature of which is the techaical dffculy of excuding ‘on-payers from use ofthe good. The provision of public goods is cited as a major rationale for the presence of government ina market economy (e.g. Buchanan, 1965, p. 18: Herber, 1979, ch.2) Evenif we were able to accept the debatable premise that individuals are best characterized as rational and egotistical chasing their own ants, market pres are imperfect reflections of individual desires. Quite apart from the problem of the inability to distinguish between nobler and baser desires (Marshall. 1980, 16, a dollar spent by a poor person and an equal expenditure by a rich person cannot be said to “'measure"” an equal amount of “pleasure” ot satisfaction” though each dollar so spent would have an equal effect on the allocation of resources. Policy recommendations which fail to take this into account Elements of a Theoretical Framework 5351 54 employ a “biased indicator of utility, and the bias isin favour ofthe wealthy” (Soltan, 4986). Another problem is that contribution to production cannot be an adequate principle of distributive justice, It is the property (natural resources, capital equipment) that is productive, not the property owners (see Bronfenbrenner, 97; Clark and Gintis, 1978: Harcs, 1978), 11. For a discussion of the difering views of human nature urder the Hobbesian and Rousseauian trations, respectively, see Schwartz (1986). The need to encourage shared valies and a more altruistic view of human nature has also been the concern of many feminists (see French, 1985). 12. For a discussion of “strong” democracy versus “thin” democracy, see Barber (1984), 13. Consistent with the theme of tis artil, the discussion here is in terms ofthe behavioural and politcal eects of depreciation rather than the technical aspects of how to measure resource consumption, The latte is, of course, problematic in itself. While the generally Accepted definition of depreciation sin terms of cst allocation, mast accounting standards also seem to see it a8 question of physical deterioration. 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