Social accounting and public-sector organisations

In modern societies, the public sector is at the heart of democracy as it illustrates the sovereignty of citizens who transfer their power to sovereign governments (Jones and Pendlebury, 2010). The social nature of the public sector is undeniable as it displays fundamental difference when compared to the private sector. The main target of the public sector is not profit maximization but the creation of social value. The definition of assets differs in public sector accounting as they are not expected to bring economic benefits, but they are expected to provide services and goods to the citizens. However, defining social value is problematic. Within the public sector there is a complex framework of interests which derive from differing perspectives. In this context, the role of accounting is very important as it must ensure democratic control over the use of funds (Pallot, 1992).

After the end of WWII, governments in many parts of Europe undertook the responsibility for providing a wide range of services to their citizens focusing on health, education and social insurance. These efforts were labelled as the development of the Welfare State and they illustrated the humanistic direction of Europe. Especially for the period 1945-1975, it constituted a major part of the political agenda and the increase in public expenses reflected this priority (Pierson, 1998). At the beginning of the 1980s, because of the financial crisis which occurred during the late 1970s, the rise of neoliberalism and the globalization of capital markets, the social achievements of these governments, and the UK government in particular, were questioned. There were calls for the reduction of social expenditure, arguing that the cost of social policy was so high, and on occasion wasteful, that it was putting the fiscal sustainability of the public sector in danger. There were also some voices claiming that public sectors should be reformed in a way that could offer a balance between markets, competitiveness and social justice. In response to these calls, a new initiative for the management of public services was put forward in the form of New Public Management (NPM) first coined by Hood in 1985 (Sitala, 2013). NPM has been the main initiative for public sector management reform, although there have been other later initiatives that have tried to rebalance the neo-liberalistic attitude of NPM.

The global financial crisis of 2008 brought to the surface new and strident calls for the restructuring of the public sector. In Europe, the crisis in the countries of the south and the implementation of austerity measures not only forced the reduction of social expenditure, but also had a huge impact on the lives of citizens. Poverty and unemployment increased, inequalities widened, and social achievements were questioned. This then led to greater attention being paid to the role that accounting and improved financial management could play in addressing some of these issues. The call of Hopwood and Tompkins (1984) for researchers to explore the organisational, institutional and social nature of accounting practice thus became more relevant than ever. The rest of this chapter will provide some details regarding the fundamental characteristics of public sector accounting. The debate will be grounded in the examination of the environment in which public sector accounting operates. For this reason, there will be an exploration of the causes of and responsibilities for the public sector crisis, the initiatives that have been undertaken, the heterogeneous challenges that the public sector faces, and how these issues could be addressed.