An important factor responsible for slow growth of employment has been the use of capital-intensive techniques of production, even in consumer goods industries where alternative labour-intensive techniques are available. Even before 1991, under the industrial policy resolution 1956, the development of consumer goods industries were left open for the private sector. Even firms in modern small industry sector which were expected to generate large employment opportunities have also tended to use capital-intensive techniques of production1. Describe the differences between Public Sector Accounting Systems and those of the
Private Sector. 25
Accounting is the process of recording transactions and events for the purpose of providing information for the goo conduct of the activities of an organization. The purpose of the paper is to examine the difference between the public sector accounting systems and the private sector accounting systems. The International Public Sector Accounting Standards Board (the IPSASB) of the International Federation of Accountants (IFAC) develops accounting standards for public sector entities referred to as International Public Sector Accounting Standards (IPSASs) (IFAC 2012). The IPSASs are a collection of thirty-one accrual based and a cash based, IFRS converged international financial reporting standards developed specifically for use by the public sector organisations other that Government business enterprises (GBEs) in maintenance of financial records and various financial statements preparation (Mudariki 2012). The standards are top quality, objectively developed and their development process is buttressed by a solid due procedure. The standards have the support of various governments across the world including development organizations and accounting professional bodies from different countries
An accounting system is the system used to manage the income, expenses, and other financial activities of a business. An accounting system allows a business to keep track of all types of financial transactions, including purchases, sales (invoices and income), liabilities, etc. and is capable of generating comprehensive statistical reports that provide management or interested parties with a clear set of data to aid in the decision-making process.
The public sector (also called the state sector) is the part of the economy composed of both public services and public enterprises. Public services include public goods and governmental services such as the military, police, infrastructure (public roads, bridges, tunnels, water supply, sewers, electrical grids, telecommunications, etc.).
The private sector is the part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the State.
The differences between Public Sector accounting systems and Private Sector accounting systems.
The public sector is fundamentally different from the private sector in several ways. The public sector organizations generally raise their income directly or indirectly for taxation, whereas the private sector directly from sales.
The International Public Sector Accounting Standards Board (the IPSASB) of the International Federation of Accountants (IFAC) develops accounting standards for public sector entities referred to as International Public Sector Accounting Standards (IPSASs) (IFAC 2012). The IPSASs are a collection of accrual based and cash based standards. Under the cash basis, transactions are recognized and recorded on receipt of cash while the accrual basis upholds the accounting matching principle under which transaction are recognized in the period in which the underlying events occur irrespective of when the consideration is received (Bunea-Bontas and Petre 2009).however In recent years, governments all over the world, like South Africa, have embraced accrual accounting which is in compliance with the IPSASB and engaged in various reforms including financial management reforms which are gradually and steadily shifting them from traditional cash basis accounting practice to accrual accounting basis (Iyika, 2011). The IPSASB also attempts to facilitate compliance with accrual based IPSASs through the use of transitional provisions in certain standards. The private sector comply with the IFRs standards of accounting. International Financial Reporting Standards (IFRS) are a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board (IASB), and they specify exactly how accountants must maintain and report their accounts. IFRS were established in order to have a common accounting language, so business and accounts can be understood from company to company and country to country. he point of IFRS is to maintain stability and transparency throughout the financial world. This allows businesses and individual investors to make educated financial decisions, as they are able to see exactly what has been happening with a company in which they wish to invest.
For the private the accounting systems provides a universal input and output model as shown below in in Fig 1.1.
Fig 1.1 Private sector model
Fig1.2 Public sector model
The public sector and the private sector are different in term of the financial statement that each of them produces. The public sector entities are subject to budget limits which are given effect through the authorizing legislation. Whereas with the private sector, budgets are not a major limitation. The purpose of the financial statements in the private sector is to provide information on whether resources were obtained. While both public and private sectors use budgets as a key planning tool, public bodies balance budgets, while private sector firms use budgets to predict operating results. The public sector budget matches expenditures on mandated assets and services with receipts of public money such as taxes and fees. If a public sector budget doesn’t balance, you have to cut services, raise taxes or borrow the difference. In the private sector, you forecast revenues and expenses to estimate how much profit your company will make. Thus the financial reporting of the two sectors may differ, (Rouse, 2018)
The difference between the public sector and the private sector accounting systems may also be in terms of their financial objective. The financial objectives of a public-sector body are to maximize the delivery of services to the client group while keeping expenses to the authorized limit. Financial success is spending the amount authorized in the budget to provide the projected services. The objective is to meet the budgeted numbers. The objective of a business is to reduce costs and increase revenue to maximize profit. A private-sector organization aims to spend less and sell more than predicted in the budget. Success is to exceed the profit forecast.
Audits and Accountability
Both public- and private-sector organizations require auditing to verify the accuracy of their financial management. Public government organizations are audited by the government office responsible for the verification of government accounts. Other public agencies and private-sector organizations may provide financial statements audited by accounting professionals or accounting companies licensed to carry out this work. Large corporations have to prepare annual audited financial statements for their shareholders. While the auditing process is similar for the public and private sectors, the material audited differs, because public-sector audits establish that expenses are accurately portrayed, while private-sector audits show that the profitability and financial stability of a company are presented correctly.
Other accounting concepts
The use of the solvency concept is not very applicable in the public sector since for example the closure of the public sector entities is usually based on a political decision rather than their financial performance whereas in the private sector closure is supported but the entity’s financial position.