Effect of outsourcing public sector audits on cost‐efficiency

This study compares the cost‐efficiency of ‘in‐house’ and outsourced to private sector audit supplier arrangements to deliver financial audits in the public sector by examining audit cost‐efficiency within the context of the public sector arrangement at one state in Australia (Western Australia). The results for 178 public agencies show that outsourced audits are, in general, more costly than in‐house audits, but this result is conditional on the type and size of public agency. Specifically, outsourced audits are more costly than in‐house audits for small statutory authority audits, whereas for specialist audits (i.e. hospitals) and large and complex statutory authority audits, the in‐house supply is equally efficient as the outsourced service.     

Cost of capital and valuation in the public and private sectors: Tax,risk and debt capacity

Cost of capital and valuation differ in the private and public sectors, because taxes are a cost to the private sector but are only a transfer to the public sector. We show how to transform the after-tax private sector cost of capital into its pre-tax equivalent, for comparison with the public sector cost of capital. We establish the existence of a tax induced wedge between these two costs of capital. The wedge introduces a preference on the part of the private sector for assets with rapid tax depreciation, high debt capacity and low risk. We show that, in circumstances where an asset has identical public and private sector valuation in the absence of taxes, the tax induced difference in valuation is identical to the change in government tax receipts that results from having the asset owned by the private rather than the public sector. We provide some examples of distortions that result from failure to adjust for changes in tax revenues, and show how to effect such adjustment.     

The impact of quantitative easing (QE) on the cost of debt in project finance investments

Recession-driven low inflation and high spreads have increased the cost of debt in public sector project finance investments, therefore reducing private sector profits and bankability. This paper investigates the impact of quantitative easing by central banks, showing that it can stimulate economic growth producing shared public and private benefits.     

Public Sector Downsizing: An Introduction

Authorities throughout the developing world are turning to downsizingin an effort to reduce budget deficits and address the inefficienciesengendered by state-led development strategies. Because large-scaleinvoluntary dismissals are often politically difficult, a voluntaryapproach to reductions in public sector employment is increasinglypopular among developing-country governments, multilateral organizations,and donor countries. This article (and, more generally, theresearch project on Public Sector Retrenchment) attempts tosketch a protocol for public sector downsizing that takes intoaccount the costs and benefits for the workers and the economy. After reviewing the international experience with downsizing,the article addresses five questions: how to identify the redundantworkers, how to predict their losses from separation, how todesign compensation and assistance packages, how to assess thefinancial and economic returns to downsizing, and how to dealwith downsizing in one-company towns. Based on the answers tothese questions, a decision tree is proposed.     

The use of Call Centres by local public administrations

European local public administrations (PA) are rapidly adopting information and communications technologies often with a view to offering e-commerce. Call Centres (CCs) feature prominently in the technology mix used by private sector e-commerce, but as a survey in this paper shows, CCs are less often used in public sector. This paper analyses the differences between private and public sector commerce and their implications for public sector e-commerce and its prospective use of CCs over the next ten years. It outlines the evolution of CC technologies and argues that current developments make the technology increasingly appropriate for the public sector. A model of e-commerce featuring connectivity, interactivity and agility is developed in the paper. From this it is concluded that many of the advantages from the use of CCs by PAs, are in system integration and process re-engineering — attributes positioned in terms of bridging technology and acting as a learning organisation. From this perspective, the paper concludes that CCs are likely to increasingly feature in the information and communications technology-mix for e-commerce delivery of PAs over the next ten years.     

Securitization in Public Sector Finance

Already commonplace in the private sector, the securitization of future income streams is now being promoted in the public sector as a means of accessing investment capital. This article reports on a British university's securitization of 30 years' future rents on its student accommodation. Although the securitization made it possible to refurbish the residences, it has turned out to be costly in other respects. The authors conclude that investment returns in the public sector will rarely be sufficient to cover the finance costs of securitization; that the loss of the securitized income in labour-intensive public services is virtually certain to cost jobs; and that the accounting treatment of securitization needs to incorporate a realistic calculation of the movements in effective debt. Finally the article recommends that the value for money of any proposed public sector securitization should be independently checked by comparing its total cost of capital with the returns on its proposed uses.     

Public Sector Reform in New Zealand and Its Relevance to Developing Countries

Does New Zealand's success story have lessons for developingcountries contemplating public sector reform? That questionusually elicits one of two reactions, both inadvisable in theauthors' view. The first reaction is to be impressed with theefficacy of the reforms and conclude that they should be adopteduncritically in other countries. The second reaction is thatthe special conditions existing in New Zealand are such thatnone of its reform experience is relevant to others. The authorstake a middle position, maintaining that poorer countries canindeed extrapolate from the experience of their higher incomeneighbor despite the different conditions under which they haveto operate. New Zealand's comprehensive overhaul of its publicsector affords both general principles and specific elementsrelevant to countries looking to improve the quality, efficiency,and cost effectiveness of their public service sectors, anda careful analysis of those reforms can ascertain what mightbe transferable and what principles might apply.      

公共品视角下的审计委托模式研究

现行审计委托模式是造成“独立审计不独立”,进而导致审计失败的主要原因。现代企业的“社会企业”特征,使会计报表及其审计信息具有公共品的属性,审计失败很大程度上是会计报表审计信息这一公共品私人供给模式的失败。公共品的非竞争性和非排他性特征决定了其公共供给模式较私人供给模式更有效率;税务机关作为特殊的公共部门,令其作为会计信息审计的委托人在独立性、激励和实践上更具优势。当然,会计报表审计的税务机关委托模式作为一个新的审计委托模式,其制度需不断完善。     

The Role of Information Precision in Determining the Cost of Equity Capital

We examine the association between the cost of equity capital and the quality of public and private information. We find an inverse relationship between the cost of capital and the precision of public information, but the effect is more than offset by a positive relationship between the cost of equity capital and the precision of private information. Public and private information precisions are positively correlated, and a model that fails to include both is vulnerable to a correlated omitted variable bias. The association between public and private information combined with their opposing effects on the cost of capital implies mangers should consider the relationship between public and private information when assessing their reporting strategy.     

Discussion of “The Role of Information Precision in Determining Cost of Equity Capital”

Botosan, Plumlee, and Xie (this issue) demonstrate an association between a proxy for cost of capital and proxies for public and private information precision. These proxies have limitations that suggest caution in interpreting their results, absent evidence of proxy validity. The proxy for cost of capital is based on Value Line's beliefs about expected returns, not actual expected returns. The proxy for private information measures information revealed by analysts, not information used by inside traders. In this paper, Botosan, Plumlee, and Xie (this issue; hereafter BPX) empirically explore the joint effect that public and private information precision have on the cost of equity capital. Their key findings are that more precise public information lowers the cost of capital, while more precise private information raises the cost of capital. The paper considers whether public and private information are substitutes or complements but finds no evidence of an interactive effect. This is an important question with significant policy implications for firms, investors, and regulators. While there is (as the authors discuss) considerable prior literature on the topic, the matter is empirically unsettled, so further evidence is welcome. Also, the authors make an important point that, given the correlation between public and private information, it is essential to control for one when analyzing the effect of the other. The reliability of the results in BPX depends on whether the proxies used in the paper effectively measure the underlying economic constructs. Cost of equity capital is proxied by a formula using Value Line forecasts, while public and private information measures are based on analyst forecast dispersion and accuracy. Most of the following discussion considers how reliable these proxies might be.     

An Assessment of the Impact of IFRS Adoption on Public Sector Audit Fees and Audit Effort – Some Evidence of the Transition Costs on Changes in Reporting Regimes

While many countries have adopted International Financial Reporting Standards (IFRS) for private sector enterprises, New Zealand (NZ), Australia and the United Kingdom adopted IFRS for all sectors, including the public sector. This approach is consistent with the concept of sector‐neutral accounting standards that gained wide acceptance in NZ and Australia in the early 1990s. Although a number of studies have assessed the impact of IFRS adoption in the private sector, and the public sector has provided some evidence as to the effects of IFRS adoption on financial statements, the costs of adopting IFRS have not been examined. One measure of cost is the change in audit fees in an IFRS reporting environment. The authors examine the impact of IFRS adoption in the NZ public sector on audit fees and audit effort. They obtained data regarding audit fees and audit effort in the NZ public sector and compared the pre‐adoption year with the first year of adoption for all segments. Their results indicate a substantial increase in audit fees and audit effort in the first year of IFRS adoption for all segments, with some variation across the segments. Two sectors, local authorities and energy companies, have had significant increases in audit fees and audit effort. These findings provide some empirical evidence regarding the cost of transition to IFRS and are of interest to researchers and regulators in countries that are currently considering transitioning to IFRS or IFRS‐based International Public Sector Accounting Standards standards in reporting for the public sector.     

Measurement Challenges and Consequences in the Australian Public Sector

Among the transformations in accounting and measurement practice that have swept through the public sector in the past decade, the widespread adoption of some variant of cuwent or replacement cost accounting for non-cuwent assets has attracted keen research attention (eg, Walker 1993, Walker et a1 1997). This paper addresses two key issues. First, it explains why cuwent cost accounting style measurement has proliferated in the budget- funded public sector while becoming largely1 extinct in the private sector. Second, it argues that the significance of measurement choices in the public sector extends beyond the appearance and composition of public-sector financial statements, and may have significant implications for contracting and outsourcing choices.     

Prices and Protocols in Public Health Care

This article addresses the problem of how to determine the optimalallocation of public expenditure in the health sector. The firstpart poses the question: How should the set of services providedin the public health care system and the fees charged for thembe chosen to maximize the health status of the population witha fixed budget? First, the findings show that policy reformshould take into account the response of the private sector.Substituting for a reasonably well-functioning private sectoris not as valuable as providing services the private sectorcannot. Second, the assumptions needed to justify the cost-effectivenessof medical interventions as a criterion for setting prioritiesare so restrictive as to make this method usable in few, ifany, circumstances. Third, prices for any one service shouldbe set to balance the conflicting goals of encouraging its useand of conserving the budget for more effective services. The second part broadens the objective of policy to cover thestandard welfare economics concerns of utility and market failure,that latter being extensive in the health sector. It reexamineswelfare maximization rules to show that only the market failurecomponents of shadow prices are needed to calculate the welfaregains from public investments.     

New development: New global health care PPP developments—a critique of the success story

Health care public–private partnerships (PPPs), where clinical services as well as infrastructure are delivered by the private sector, are coming under the spotlight as governments seek to achieve value for money in health budgets. Existing examples have been widely reported as successful. However, this article urges caution as a closer look at the evidence shows that handing over control of service delivery to the private sector is difficult to monitor and evaluate, carries cost implications which remain largely unquantified and can create additional risk.     

Accountability and corporate governance of public private partnerships

Brennan and Solomon (2008) identify six new frontiers in accountability and corporate governance research to stimulate research. This paper contributes to such research by devising a reporting framework and research agenda that relates to Brennan and Solomon's fourth frontier, sectors and context, focusing on the regulated hybrid organisational forms of Public Private Partnerships, which operate at the interface of the public and private sectors.As the framework shows, these organisations are subject to multiple influences and demands. There is a need for more and different reporting than is the norm under the private sector's decision-useful reporting framework. Although the framework focuses on what Mulgan (2000) describes as the core of accountability, it is not only a financial reporting framework but it also seeks to make concrete Kamuf's (2007) argument that accountability might include accounting through narrative as well as the prevailing numeric evaluation.The paper stresses the need for information to be accessible to the public, and in particular argues that a stream of information between the public and private sector partners needs to be developed and disseminated to achieve accountability for public money that is increasingly spent in the private sector.     

Information technology and the social construction of information privacy

This paper examines how the conflict between information technology and information privacy is socially constructed and enacted through judicial decisions, legislative mandates, and private sector initiatives such as WebTrust^SM/TM and other privacy seal programs. We first identify some reasons individuals may have for wanting to control their personal information, how such privacy is eroded by advances in information technology, and the currently limited role of informed consent in managing the conflict between privacy and technology. We then argue that the existing judicial, legislative, and private sector initiatives in North America and Europe do not adequately achieve the goals of informed consent and other fair information practices. We further argue that privacy attestation will likely play a limited privacy protection role because it is only one of several social practices that manage the tensions between information technology and information privacy. Finally, we discuss some policy implications of information technology and the erosion of society's expectations about privacy, some difficult tradeoffs between private and public interests, and whether interested parties (including accountants in public practice) can become effective agents of social change in the information privacy arena.     

Lean and mean in the civil service: the case of processing in HMRC

The public sector has been importing private sector methods and practices aimed at generating efficiencies and cost savings. However, the consequences of these changes on the working lives of civil servants are under-researched. This article uses detailed fieldwork to investigate the impact of Lean on labour processes in HM Revenue and Customs (HMRC). We argue that Lean has a detrimental effect on employees, their working lives, and the service that is provided to the public. The consequences of Lean on public sector work are highly problematic, which is of serious concern given its progressive impact on other civil service departments in the UK.     

英国职业养老金发展动态及启示

本文介绍了英国职业养老金的基本情况。在老龄化等影响下,英国公共部门和私有部门职业养老金分别出现了严重危机。近年英国政府全面加强了职业养老金改革,包括实施养老金个人账户制,调整公共部门养老金政策,提出加强工作养老金的设想等。这些政策的核心是如何设计一种更有效率,但同时保障了人们养老需求的市场化私有养老金模式。英国职业养老金的发展的经验教训,对我国完善养老金制度有积极启示意义。     

Information asymmetry,external certification,and the cost of bank debt

This paper examines how the cost of bank debt reflects public information about borrower quality, and whether such information complements or substitutes the private information of banks. Using a sample of small business loans, and the award of a competitive public subsidy as an observable positive signal of external certification, we find that certification is associated with a lower cost of debt for subsidy recipients if the amount of private information of the lender is limited or the local credit market is less competitive. Public information loses importance once the bank accumulates information over the course of the lending relationship or the credit market is more competitive. Our results highlight a positive effect of external certification, driven by the signal it provides to both the lending bank and its competitors, and suggest that public and private information can be substitutes in the pricing of bank debt.     

Editorial

This article analyses the ways that Spanish public water companies communicate sustainability information to their stakeholders and explores whether distinctive and more progressive accountability is possible in the public sector in comparison with private sector organizations. Two distinct activities are identified in sustainable accountability: public organizations are engaged in informal as well as formal reporting activity, and their reporting seems to be coupled with real organizational strategies and operational activities.