Public sector accounting and auditing in the United Kingdom

Abstract

The Treasury dominates budgeting and accounting for the revenues, expenses, assets, liabilities and cash flows of central government. Its powers and responsibilities for central government money extend to the economy as a whole, covering fiscal and monetary policy for the UK’s currency (although the operational responsibility for this is with the central bank). The political heads of the Treasury are the Prime Minister and the Chancellor of the Exchequer. The renowned accrual accounting reform by the UK central government was begun in the 1990s and is known by its brand name of Resource Accounting and Budgeting. This reform produced two distinct sets of financial statements (Jones, 2003; Chow et al., 2007, 2008; Jones et al., 2013). The first stage introduced, for the financial year ended in 2000, accrual accounting into central government departments and produced a set of financial statements for each department. The second part invented a completely new set of audited financial statements (accrual-based, of course) for the whole-ofgovernment; the first financial statements published by the Treasury were for the financial year ended in 2010 (Jones, 2012). These latter financial statements now cover not only central government but also what can be termed the whole of the public sector, including local government. They have changed the nature of public sector accounting in the UK and have given the Treasury much greater direct influence over accounting, especially in local government and the health service, than it has ever had. Until the very end of the last century, central government accounting was almost wholly cash-based, with little relationship to the accounting profession (whether for the public or private sectors). In the health service and local government, some form of accrual accounting had long been the norm, and for many decades there had been a closer relationship with the accounting profession. The lead in linking public sector accounting with the accounting profession is now taken by the Treasury. The “government” of government accounting is defined by accounting (more specifically by financial reporting) not by legal or administrative definitions of government. The definition has the force of statute law and associated regulations but it is determined by the Treasury. It is given in the whole-of-government accounts (WGA) prepared by the Treasury, by listing the entities whose annual financial statements have been consolidated in them (and by listing some entities whose annual financial statements have not) (Treasury, 2013b). Since many of the annual financial statements included in the WGA are themselves consolidated financial statements, it is useful to call the WGA a meta-consolidation. It is this meta-consolidation that now defines government accounting in the UK, and can be said, colloquially, to define public sector accounting. The “government” of government accounting, then, is an entity-based definition. This seems particularly appropriate since accounting, at least insofar as it is defined and practised by the accounting profession, is itself entity-based. Which entities are included in “government” is now significantly influenced by national accounting’s definition of government, which is not an entity-based definition.