The paper 'Comparison of Public & Private Sector Budgeting" is a perfect example of business coursework. This paper will examine the similarities and differences between budgeting in private and public sector enterprises and proceeds from the assumption that the distinction between the two forms of enterprise is growing narrower. In order to explore the subject fully, the discussion is organised in four parts: First, public enterprises will be defined. Second, the purposes of accounting and budgeting for private and public enterprises will be examined, and then the different methods applied by public enterprises will be described in greater detail.
Finally, the reasons why the differences between public and private enterprises are growing less distinct will be discussed in the context of budgeting. Defining Public Enterprise A public enterprise differs from a private enterprise mainly in terms of who receives the value from its activities. Private enterprises ultimately create value for their stakeholders, the owners and shareholders of the company. They do, of course, create value for their customers and the recipients of their services, but providing that value for customers is a means to the end of providing stakeholder value.
In other words, without a profit, the private enterprise would have no reason to exist. Public enterprises, by contrast, have the primary goal of providing value for their customers. Public services are “ those activities which are enshrined within the notion of public good or service based on the universality of access for the citizenry rather than the private provision through a market. ” (Broadbent & Guthrie, 2008: 135) The difference is in the perspective towards the measurement of value; private enterprises fundamentally measure value to themselves, while public enterprises must measure value from the point of view of the people who receive its services.
This also means that public enterprises are much more restricted in how much and in what manner they address the outcomes for their stakeholders – the public, who funds their operations through taxes and fees and receives no return apart from the services provided – than private enterprises. (Lapalombara, 2003) In other words, there is much stronger and more complex accountability for public enterprises in that it cannot be measured in simple terms like earnings per share or profits.
Public enterprises also contribute to wider economies. Because of this, and because efficiency and prudence in managing resources contribute to better services, public enterprises are increasingly borrowing ideas of management from the private sector, even to the point of becoming increasingly privatised themselves in some places. (Broadbent & Guthrie, 2008: 130) Differences in Accounting & Budgeting in the Private and Public Sectors Accounting for any enterprise is done for the purpose of ensuring accountability, making certain that the movement of money can be tracked.
For public enterprises, accountability is required for both economic and political reasons: Economic, for the simple reason of a fair exchange of value that applies to any enterprise; and political, because of the social contract between the enterprise and those who fund it – the taxpayers or other donors. (Chan, 2003: 13) Accounting and budgeting in the private sector are concerned mainly with the efficient allocation of financial resources. In the public sector, however, while that is still an important objective, accounting and budgeting have the added goal of controlling behaviour; compelling or preventing specific activities among organisations or individuals.
(Ellwood & Newberry, 2007: 550-551)
Broadbent, J., and Guthrie, J. (2008) “Public sector to public services: 20 years of ‘contextual’ accounting research”. Accounting, Auditing & Accountability Journal, 21(2): 129-169.
Chan, J.L. (2003) “Government Accounting: An Assessment of Theory, Purposes and Standards”. Public Money & Management, 23(1): 13-19.
Ellwood, S., and Newberry, S. (2007) “Public sector accrual accounting: institutionalising neo-liberal principles?” Accounting, Auditing & Accountability Journal, 20(4): 549-573.
LaPalombara, J. (2003) “Power and Politics in Organizations: Public and Private Sector Comparisons”. In: M. Dierkes, A. Berthoin Antal, J. Child, and I. Nonaka (Eds.), Handbook of Organizational Learning. Oxford: Oxford University Press.
Johnson, P.F., Leenders, M.R., and McCue, C. (2003) “A Comparison of Purchasing’s Organizational Roles and Responsibilities in the Public and Private Sector”. Journal of Public Procurement, 3(1): 57-74.
Matheson, A., and Kwon, H-S. (2003) “Public Sector Modernisation: a New Agenda”. OECD Journal on Budgeting, 3(1): 7-23.
Rainey, H.G., and Bozeman, B. (2000) “Comparing Public and Private Organizations: Empirical Research and the Power of the A Priori”. Journal of Public Administration Research and Theory, 10(2): 447-469.
Van der Hoek, P. (2005) “From Cash to Accrual Budgeting and Accounting in the Public Sector: The Dutch Experience”. Public Budgeting & Finance, Spring 2005: 32-45.