Community Assets in Public Sector Accounting: Conceptual Framework and Definition

Abstract

Accounting researchers consider public sector accounting theory to be in its infancy. In any new discipline the necessary first step is the development of appropriate concepts and classifications. Since concept formation/classification are dependent on both practical purpose and underlying world view, the assumptions adopted in the thesis with respect to the objectives of accounting and its underlying world view are first stated. Accounting is seen to serve objectives of facilitating accountability and distribution and be required to meet various criteria of fairness. The underlying world view in the present (private sector) accounting model is argued to be individualistic and technical with a heavy emphasis on such values as liberty and efficiency. This is seen to be incomplete for the public sector where an ethic of a shared common life also plays a significant role. Private property, which underlies present accounting concepts of assets, embodies only an individualist world view. The notion of "community assets" is therefore seen as a promising concept for the development of public sector accounting theory. However, notions of a distinctive class of assets in the public sector (infrastructure assets, community assets) are weakly developed in the accounting literature; in particular, they are poorly defined and terminology is still undecided. Interchange between researchers is essential to the advancement of knowledge and the definition of concepts is seen to make a significant contribution to this process. Since language, which includes accounting, is argued to play an important role in shaping our view of the world, both denotative and connotative aspects of meaning are explored. The thesis uses both meaning analysis and empirical methods, including a survey of public sector organizations and an experimental study of classificatory judgment, to define and name the group of assets distinctive to the public sector. Direct use by the community at large and non-exchangeability emerge as the criteria for classifying an asset as a "community asset". Other characteristics, such as financing, maintenance and asset life, are also found to be helpful in describing such assets and have bearing on the controversial issue of depreciation in public sector accounting. Semantic differential analysis is used to study the connotative meaning of the terms "infrastructure", "facilities", "public domain" and "community". The thesis concludes that classification based on a clearly defined concept of community assets can advance both accounting theory and accounting practice. It can improve accounting theory by communicating a more comprehensive world view, thus suggesting new directions for accounting research. A notion of assets based on common property is considered better able to handle issues such as intergenerational equity and democratic control over the use of society's wealth than is the traditional concept of assets based solely on private property. Adopting a concept of community assets could also improve accounting practice by enabling differential treatment of unlike items (for example one resolution of the depreciation controversy in public sector accounting is made possible), clearer analysis of financial position and fairer assessment of managerial performance.