Adopting accounting choices for the public and private sectors often triggers debates all over the world. The Public Sector Accounting Standards Board (PSASB) holds the view to adopt a sector – neutral approach. However, debates often occur on whether reporting rules for the public sector should be identical to those which are applicable to the private sector. This essay will discuss the sector – neutral approach adopted by the board, the arguments on the application of accounting concepts which take heritage and community assets of accrual accounting as examples and their effect on meaningful financial information.
According to the Institute of Internal Auditors (2011), public sector is comprised of governments, agencies and enterprises which are all publicly controlled or publicly funded and other entities that deliver public programs, goods or services. The new website of the Investopedia (2014) considers the private sector as the part of the economy that is not controlled by state, and is individuals and companies run for profit. Depending on the definitions, public sectors are usually owned or operated by governments, such as educational and health care bodies; private sectors are usually not owned or operated by governments, like retail stores and local businesses (PrivacySense, 2014). Though the differences exist between the two sectors, people hold different views on whether accounting choices suitable for the two sectors should be identical or not.
Barton (1999, p. 22) states that:
The public and private sectors of the nation are not identical twins. The fundamental differences between the two must be acknowledged and accounting standards designed, where necessary, to suit the unique characteristics of the public sector.
In his opinion, accounting choices adopted by the two sectors should be different as the services are provided to different markets that private-sector entities operate in commercial markets that supply private goods and services while government supply public or social goods (Barton, 1999).
The Public Sector Accounting Standards Board (PSASB) has endeavoured to apply sector – neutral approach of the reporting frameworks and accounting concepts to the public and private sectors. According to Lee & Teixeira (2004, p. 21), sector neutrality is:” the idea that a transaction should be accounted for based on its underlying economic nature rather than on the type of entity undertaking it.”
Australian accounting standard AAS 31 ‘Financial Reporting by Governments’ (1998), AAS 27 ‘Financial Reporting by Local Governments’ (1991) and AAS 29 ‘Financial Reporting by Government Departments’ (1993) prescribe requirements to prepare financial statements with recognising all assets in the balance sheet for the commonwealth and state governments, local governments and government departments respectively. These standards are based on that all assets satisfy applicable recognition criteria and they can be measured reliably.
Apart from those standards, Discussion Paper 17 which was issued by the Australian Accounting Research Foundation also recommended that all assets from public-sector entities, including heritage and community assets, should be recognised in financial statements, for the definition of assets and the associated recognition criteria applied equally to private and public sector entities which all use scarce resources to achieve their objectives (Rowles, 1992).
For instance, New Zealand has adopted a sector-neutral approach to accounting standard setting since 1992. Under this approach, New Zealand applied a single standard setting to both public and private sector entities, which suggests a neutrality of accounting choices on preparing financial reports on both sectors (Hooks & Tooley, 2007).
Taking heritage and community assets as an example to discuss whether accounting requirements should be identical for both public and private sector entities. Examples of collections held by public art galleries and museums, cultural collections, historic buildings and gardens are all belong to heritage and community assets. It is more difficult to decide on appropriate accounting choices as these assets take many different forms and characteristics.
To support the recognition of heritage and community assets, Discussion Paper 17 (Rowles, 1992) argued that conceptually, no difference exists between assets generally and heritage and community assets given that their replication or replacement cost will indicate the economic value of heritage and community assets due to the fact that they are held for using rather than exchanging in markets (Rowles, 1992).
Additionally, regarding to the problem that whether these assets represent future economic benefits, Micallef and Peirson (1997) consider that whether an item owns the ability to derive future economic benefits is not merely relies on the net cash flows it generates. The satisfaction that the community obtained from consuming the heritage and community items could be seen as future economic benefits, because entities pursue their objectives by the assistant from these items (Hone, 1997).
On recognising and measuring such assets, Micallef and Peirson (1997) also maintain that the benefits usually outweigh the costs associated with these assets. The Victorian Public Accounts and Estimates Committee (1995, p. 115) noted that recognising and measuring these assets is helpful to control management of the entities, improve the level of the entities’ security, maintain the level of cost and the exchange of these assets in the market.
Arguments against the recognition of heritage and community assets usually focus on the considerations of coast and benefit. For example, Jaenicke and Glazer (1991, p. 4) believe that considerable implementation costs often related to the costs of obtaining the item and auditing acquiring and the fair values of these items, benefits derived from these items acquired in prior years will scarcely exceed the costs of collecting the relevant information
Carnegie and Wolnizer (1995, p. 38) contend that public sector entities must not be measured in financial terms given that these entities with heritage and community items aim to cultural, social and educational terms other than financial goals, such as generating income, creating wealth and profitability. Moreover, the reliability of the valuation of the items for financial reporting purposes is particularly questioned for generally no markets for such items due to the truth that many items belong to heritage and community assets are often not acquired in the immediate past and some are even discovered or donated over decades or centuries (Carnegie & Wolnizer, 1995).
In addition to the opinion of Carnegie and Wolnizer, Barton (1999, p. 23) highlights fundamental differences between operations’ environment of the two sectors and in the beneficiaries from the using the assets of the two sectors. Entities in the private sector raise capital funds with which to buy the assets they needed, produce products which are required by the consuming market, sell the products at a price that high enough to cover their cost and expected profit, maintain a healthy financial position to survive in the commercial market and it is the entities themselves that are the beneficiaries from using their assets (Barton, 1999). Barton (1999, p. 31) concludes that heritage and community assets should be accounted for reported separately based on the view that the public generally are directly benefited from using these assets of the public sector which is contrary to the private sector.
Barton (1999, p. 30) considers that the basic rationale of the two sectors is different and accounting concepts must be selected cautious that adapted to their own environments to achieve the useful, relevant, reliable and understandable information.
For heritage and community assets held by the public sector entities, the issues that which the asset definition and recognition criteria are to apply and whether they should be included and valued in the balance sheets often trigger debates and arguments on the application of the accounting standards. Hence, no simple or straightforward standards can be applied evenly in all situations.
All in all, how accounting concepts and reporting framework adopted by the public and private sector entities continues to be a universal subject. Many agencies and institutions have tried their best to get the optimum choice. This essay has discussed the sector – neutral approach adopted by the board, the arguments on the application of accounting concepts in public and private sectors and the considerable financial information derived from different approaches.

References
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Jaenicke, H., & Glazer, A. (1991). Accounting for Museum Collections and Contributions of Collection Items. American Association of Museums, 4.
Lee, S., & Teixeira, A. (2004). Implications of IFRS for sector-neutral standard setting. Chartered Accountants Journal, 83(6), 21-24.
Micallef, F., & Peirson, G. (1997). Financial Reporting of Cultural, Heritage, Scientific and Community Collections. Australian Accounting Review, 7(1), 31-7.
PrivacySense. (2014). The Difference Between the Private and Public Sector. Retrieved 09 13, 2014, from http://www.privacysense.net/difference-between-private-public-sector/
Rowles, T. (1992). Financial Reporting of Infrastructure and Heritage Assets by Public Sector Entities,Discussion Paper No. 17. Melbourne: Australian Accounting Research Foundation.