RESOURCE ACCOUNTING IN PUBLIC SECTOR: ISSUES AND CHALLENGES OF AUDITING IN PUBLIC SECTOR
In public sector accounting, Resources Accounting (RA) is the application of accruals accounting for reporting on the expenditure of government and a framework for analyzing expenditure by departmental aim and objectives, relating these to outputs where possible. The public sector is more and more affected by significant reforms in the public accounting system in the international context. The aim of the public sector reforms is to overcome bureaucratic obstacles so that managers can use their limited resources more efficiently (Pina, V. and Torres, L., 2009). Public sector audit has experienced considerable expansion throughout the world. The reason for this is closely related to changes in the structure of government and concern for more accountable and transparent governance, which has resulted in a large increase in the number of accounts and sophistication of financial reporting. The expansion has brought with it an added demand for accountability (Dowdall, 2010).
Public sector accounting is quite distinct from commercial accounting in terms of objectives, sources of revenue and bases of recording accounts, responsibility and accountability among others. It is useful however, to distinguish between audit and other forms of regulation and inspection. Public audit applies to almost every public sector body and is relatively wide-ranging, from certifying the accounts to examinations of economy, efficiency and effectiveness. The audit function and the form in which audit results are reported tend to reinforce the traditional line of public sector accountability to elected representatives rather than establish new forms of accountability. There is general awareness all over the world for the need to pay greater attention to the improvement of public sector management. The reason is obvious, government constitutes the largest single business entity and her pattern of expenditure through its various parastatals, agencies and commissions stimulate lot of economic activities. As a result of these Government huge involvements in economic activities, initiatives are being taken all over the world towards improvement of the standards of accounting and auditing departments in government (Angus and Mohammed, 2011).
Audit is one of a number of internal assurance and business review activities that should operate in a coordinated and complementary manner to the benefit of the organization. These other activities include management monitoring, evaluations, quality assurance and control self-assessment arrangements that are all designed to provide confidence and assurance to Chief Executives and/or Boards that management is meeting its responsibilities and the entity is achieving its objectives, Anao (2012). The use of the cash or accrual basis of budgeting and accounting was seen as a great divide between the public and private sector with the public sector practicing cash accounting and budgeting, and the private sector using accrual methods. The better the financial information, the increase in the cost transparency and the valuation of public sector assets (Graham A., 2010). Public sector accounting has recently been improved.
Currently, there are requirements to disclose stock information in addition to the flow of information presented in budget statements or accounts statements. Public sectors have prepared and disclosed their financial statements (including balance sheets and income statements) based on business accounting approaches. R. A. Adams (2004) in his book “Public Sector Accounting and Finance Made Simple” noted that public sector accounting is “a process of recording, communicating, summarizing, analyzing and interpreting government financial statement and statistics in aggregate and details; it is concerned with the receipts, custody and disbursement and rendering of stewardship on public funds entrusted”. The simplest definition of ‘Public Sector’ is “all organizations which are not privately owned and operated, but which are established, run and financed by Government on behalf of the public.” This definition conveys the idea that the public sector consists of organizations where control lies in the hand of the public, as opposed to private owners, and whose objectives involve the provision of services, where profit making is not a primary objective. Auditing is the independent examination and investigation of the evidence from which a financial statement has been prepared with a view of enabling the independent examiner to report on whether his own opinion according to the information and explanation obtained by him, the statement is properly drawn up and give a true and fair view of that which is supposed to show and if not to report in what respect he is not satisfied. Robertson, (2006).
The evolution of auditing can be traced back to ancient time when landowner allowed tenant to work on their land while the land owners relied upon an overseer who listen to accounts of stewardship given by the tenants. In the view of this, audit is meant to attest to whether the information given shows a true and fair view of the situation on ground. The act of exercising the audit function is referred to as auditing. In the early civilization, the method of recording accounts were so crude and the numbers of transaction to be recorded were small and as such every individual was able to put down all his transaction. As man became more civilized, system of checks were applied to their public account thus increasing the need for some system of checks upon persons, whose business was to record the receipt of disbursement of money on behalf of others. The ancient records of auditing are continued principally to public account; there is clear indication that from an early date, it was customary for an audit of the account of minors and estimates to be performed. The person whose duty it was to make such as examination of accounts became known as on auditor, the word derived from the Latin words “AUDIRE” which means to “HEAR” Pixley, (1989).