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Public Sector Accounting—A Discipline in Its Own Right

Dr. Jens Heiling, Ernst & Young GmbH, Stuttgart, Germany  | 

According to the April 2020 IMF Fiscal Monitor, expenditure by governments in advanced economies represent around 40% of GDP. Also, from an employment perspective, government entities and their public enterprises are often by far the largest employer.

The unprecedented policy measures taken by governments around the world during the COVID-19 pandemic further underline the importance of public sector entities in society and the economy. In this realm, public sector accounting plays a crucial role in ensuring accountability, transparency, and trust. In addition, when it comes to reforms in the public sector, the recent examples of Greece and Portugal have shown the relevance of public sector accounting for the success of those reforms.

Finally, when it comes to the digitalization of public administrations, robust accrual-based accounting systems are key for the realization of digitalized public services.

Public sector accounting is underplayed—both academically and professionally

Despite this pivotal role of public sector accounting for an economy, it appears that compared to private sector accounting public sector accounting is underplayed—from both an academic and a professional perspective. The role of higher education institutions is to equip students with the skills necessary not only to enter the profession but also to respond to environmental, economic, and societal challenges. And the role of professional accountancy organizations (PAOs) is to develop the profession as a whole—in the private sector but also the public sector.

Recent studies and academic literature show that in many countries universities and other higher education institutions do not pay sufficient attention to education in public sector accounting, while private sector accounting—such as courses on International Financial Reporting Standards (IFRS)—are prioritized. Furthermore, initial research indicates that the public sector accounting certificates offered by PAOs are not always recognized by government entities when promoting staff or determining salaries.

High demand for public sector accountants in the future

The International Public Sector Financial Accountability Index: 2018 Status Report indicates that the number of governments reporting on an accrual basis of accounting will increase significantly from 25% in 2018 to 65% in 2023. Of the 98 governments predicted to be reporting on accrual by 2023, 72 (73%) will apply the International Public Sector Accounting Standards (IPSAS). This will increase the demand for public sector accountants and, consequently, quality education in public sector accounting, including IPSAS, by higher education institutions and PAOs.

Public sector accounting is a discipline in its own right

In her 2013 article, Does public services accounting belong in the curriculum?, Carolyn Cordery concluded that: “Despite the size of the public services sector and its importance, New Zealand’s universities teach very little public services content, as IFRS appear to have squeezed this out. There is a lack of resources to inform the teaching of public services, and the profession appears to perceive public services as ‘alternative’ and ‘non-traditional’ so that the sector is not prioritised.” This statement is true for many countries.

Although there are many similarities between public and private sector accounting, there is a sufficient number of significant differences that justifies public sector accounting being a discipline in its own right.

In the public sector, non-exchange transactions are dominant, whereas in the private sector there are either no (e.g., levying of taxes) or only a few [e.g., transfers (grants) or donations] equivalent transactions. For many government entities taxation and transfers are their main sources of revenue and exchange transactions, such as the sale of goods or services, are of minor importance.

Most jurisdictions have a constitutional requirement for preparing and making publicly available a budget approved by the legislature. The approved budget is often the basis for determining taxation levels. Under IPSAS, government entities are required to present a comparison of budget and actual amounts in their financial statements. Reporting against the approved budget is commonly the mechanism for demonstrating compliance with legal requirements relating to public finances. Although private sector entities also prepare budgets, their budgets are rarely made public or used in as a mechanism for accountability in a similar manner.

The approach to going concern is different. History has shown that, despite severe financial difficulties and default on sovereign debt obligations, nation states continue to exist. In the private sector, however, when businesses face higher business and credit risk, their fulfilment of the going-concern premise may be threatened.

In the public sector, the primary objective for holding assets is their ability to support service delivery rather than their ability to generate cash flows. Consequently, different measurement approaches are applied to such assets (e.g., depreciated replacement cost for the impairment of property, plant, and equipment or fair value at the date of acquisition in the case of non-exchange transactions).

Alongside their financial statements, government entities produce finance statistics about the general government sector for macroeconomic purposes. Although complementary to some extent, differences between government finance statistics and public sector accounting can be observed. Private sector entities are not required to produce finance statistics in a way comparable to government entities.

Furthermore, public sector entities have a regulatory role to safeguard the public interest in accordance with specific public policy objectives, whereas such role is much less pronounced for private sector entities.

These unique characteristics of the public sector are the foundations of the International Public Sector Accounting Standards Board's conceptual framework for general purpose financial reporting by public sector entities and—at the same time—they legitimize public sector accounting being a discipline in its own right.


Without a doubt, public sector accounting is in the public interest and educating students and professionals in its foundations and concepts are necessary to realize that.

There is hardly any public university that is not offering courses in IFRS in business studies. Now is the time for higher education institutions to:

  • acknowledge the importance of public sector accounting for the environment, economy, and society;
  • make public sector accounting an integral part of accounting, public administration/management, and public policy programs; and
  • develop their own study programs on public sector accounting (or more widely public finance management).

Training public servants and students only in business accounting is not the right approach as it will not equip them with what is needed in practice to become public sector accountants.

Preparing the public sector for a future of constant change requires the support of higher education institutions, the accountancy profession, and public administrations. Only the determined action of these institutions will enable public sector accounting to emerge as a discipline in its own right.