Can governments be run like businesses? If yes, then government accounting standards and techniques would follow those of the private sector. In the 1980s, Australia and New Zealand pioneered the application of business-style accounting practices to all government activities. These two countries believed that it was appropriate to treat government as a business. Since then, business-style accounting practices are advocated for governments around the world, either via the International Financial Reporting Standards (IFRS) or the similar International Public Sector Accounting Standards (IPSAS).
In a somewhat under-reported paper, Alan Robb and Susan Newberry argue that the purpose of government accounting is quite different from than that of private businesses. Government financial activity is not geared to making profits or examining equity positions in balance sheets. Business-style accounting was never devised for governments, nor is it suitable for providing the essential constitutional safeguards or fulfilling governments’ public accountability obligations. The authors urge government accountants to consider carefully the constitutional and political implications of adopting business accounting techniques.
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