To understand the meaning of accounting, you can look at two main sources which serve as guidelines. The first is based on the American Accounting Association (AAA), accounting is the process of identifying, measuring, and reporting various information which will later be used for assessment and decision making that is useful for those who will use the information.
Meanwhile, secondly, according to the American Institute of Certified Public Accountants (AICPA), accounting is the art of recording, calculating and summarizing accurately and expressed in currency units, the transaction process of various financial events and the interpretation of the results.
From the definition of accounting according to the two sources above, the simple definition of accounting is a process that begins with identifying, measuring, recording and reporting various financial information that will be used for assessment and decision making that is useful for parties who need the information.
Accounting is also often referred to as a business language which means measuring the results of economic activities in a company as well as conveying information to various parties such as management, investors, creditors and regulators.
Apart from that, many people interpret that accounting is related to arithmetic systems. However, basically accounting is not that simple. As time goes by, the development of accounting knowledge continues to increase so that many people want to learn it.
Understanding Public Sector Accounting According to Experts
Public sector accounting is an entity whose activities are related to efforts to produce public goods and services that are useful for fulfilling public needs and rights. In some ways, public sector institutions are similar to the private sector. Both use the same resources and control processes that are almost similar. However, in certain tasks, the public sector cannot be replaced by the private sector as is the case in government functions.
This is the definition of public sector accounting according to experts:
- Indra Bastian (2014:6)
Public sector accounting is a technical mechanism and accounting analysis applied to high state institutions and their subordinate departments to implement the management of various public funds. - Mardiasmo (2015:14)
According to Mardiasmo, public sector accounting is an information tool either from the government as management or an information tool for the public. - Halim (2014:18)
Public sector accounting is a service activity in the context of providing quantitative financial information based on government entities which is useful for decision making for interested parties. - Erlina, et al (2015)
Public sector accounting is the process of recording economic events in an organization which is often carried out in the public sector such as political parties, communities, schools, universities and others. - Dwi Ratmono (2015)
According to Dwi Ratmono, the meaning of public sector accounting is the process of identifying, measuring, recording and reporting financial transactions from local government entities in order to make economic decisions that are beneficial to external parties.
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Characteristics of Accounting for the Public Sector
The following are the characteristics of public sector accounting:
- Relevant
Financial reports in public sector accounting must be relevant. What is meant by relevant is that it contains information that can influence decision making and evaluate events in the past and future. - Reliable
financial reports in public sector accounting contain useful information for consideration with previous financial reports. - Easy to Understand
Public sector accounting financial reports have information characteristics that can be easily understood by all parties, both internal and external.
Public sector accounting is very different from private sector accounting. This difference can be seen from the type of agency or institution that implements this accounting system. Public sector accounting is more related to government agencies or institutions.
Components that Influence Public Sector Organizations
The following are several components that influence public sector organizations.
Economy
- Inflation rate
- Exchange rate or currency exchange rate
- Productive workforce
- Per capita income growth rate
- Infrastructure or infrastructure facilities
Political
- Government legal legitimacy
- Types of government in power
- The ideology or principles adhered to
- International network
- Relations between countries and their citizens
- Relations between institutions
Cultural
- community values,
- Diversity of ethnicity, race, religion, culture and religion
- History or historical
- Level of education,
- Sociological conditions of society
- Characteristics of people from various regions
Demographic
- Population growth rate,
- Migration, transmigration, immigration
- Public health
- Population age distribution
- Life expectancy
Public sector institutions must also pay attention to value for money or the concepts used when managing public sector institutions. This concept must be guided by three elements, namely economy, efficiency and effectiveness. These three elements will later become the essence of value of money which has the benefit of improving public services, reducing public costs and increasing the effectiveness of public services that are evenly distributed according to targets.
Objectives of Accounting for the Public Sector
The objectives of public sector accounting according to the American Accounting Association (1970) are stated as follows:
1. Management Control
The first objective of public sector accounting is management control . Management control is providing information that is really needed for proper, efficient and economical management of the operations and resource allocation of an organization or institution.
2. Accountability
The next goal of public sector accounting is accountability . Accountability aims to provide useful information for public sector managers in preparing accountability reports for fields, divisions or resources under their auspices. Apart from that, it also aims to report various activities on government operations and budget use to the public.
Meanwhile, according to the conceptual framework of public sector accounting, it is clear that regional government financial reports must be able to explain various information that is useful for assessing accountability and making appropriate decisions. Here are some of the objectives of public accounting:
- Provide information regarding the source, allocation and use of financial resources.
- Provide information relating to the adequacy of current period revenues to finance all expenses.
- Informs the amount of economic resources used for the entity’s activities in producing reports as well as the corresponding results.
- Informing the financial position in accordance with the entity’s conditions, making reports according to the source of revenue in the short and long term.
Types of Public Sector Accounting
Public sector accounting is divided into several types, including:
1. Government Accounting ( Governmental Accounting )
In its application, government accounting uses accounting data as information relating to various government economic and financial transactions provided to the executive, legislative, judiciary and the public within it.
Government accounting can be divided into two, namely central government accounting and regional government accounting. Meanwhile, regional government accounting is still divided into provincial accounting and district or city government accounting.
2. Social Accounting ( Social Accounting )
Social accounting or Social Accounting is a field of accounting that records economic events in non-profit and non-profit organizations which are run specifically for macro institutions such as political parties, mosques and various other community institutions.
Scope of Public Sector Accounting
Public sector accounting was formed due to the emergence of various supporting factors that helped the process of its formation. The parliamentary system of government implemented in Indonesia is the first factor. Therefore, a public sector accounting system emerged whose implementation was under the influence of executive and legislative institutions in a check and balance condition. The second factor is resources which are indirectly related to the results. And the final influencing factor is the country’s political conditions which give rise to negotiations between government and legislative institutions.
Public sector accounting has been proven to have an important role in the government system and is the backbone of the country’s economy. If there are restrictions on discussing public sector accounting in government, it will have an impact on the regulation of accounting practices in the sector itself.
The scope of public sector accounting is wider compared to the private sector. This field of public sector accounting covers a wide space for the common good. Public sector accounting covers
- Financial and development planning
- Monitoring and inspection system
- Financial implications in accordance with government policy.
Apart from that, public sector accounting has the scope of high state institutions and their subordinate departments, regional governments, foundations, political parties, universities and other organizations. However, public sector organizations are strictly limited to organizations that use public funds. Therefore, public sector accounting only covers the following main areas:
- Central Government Accounting
- Local Government Accounting
- Political Party Accounting
- NGO Accounting
- Foundation Accounting
- Educational Accounting
- Health Accounting
- Accounting for Places of Worship
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Characteristics of Public Sector Accounting
Public sector accounting is accounting that is usually used by public or government institutions. Almost every public institution is required to manage financial reports transparently.
Therefore, accounting in the public sector is often used as a tool for accountability to the public. Therefore, in the process there is something called public sector auditing.
Public sector accounting is often defined as the process of collecting, classifying, analyzing and reporting financial management and public institutions. This financial report will be used as information that will be conveyed to interested parties. Of course, this management report will later help the decision-making process to be correct, fast and efficient.
In its implementation, every public institution is required to manage social and economic costs more efficiently. If the demands of public institutions regarding public accountability are stronger, then public sector accounting will be recognized as a science for managing public finances. Public sector accounting can also be said to be a form of transparency to the public in fulfilling public rights.
In public sector accounting, this is closely related to accountability for the sources of funds used. Therefore, this field certainly requires people who have the qualifications of competence, honesty and a sense of responsibility in its implementation. Because graduates of this program will later be directed to a career in the public sector, both in government offices as civil servants and non-civil servants. Professions that public sector accounting graduates can pursue include:
- Public Sector Accountant Staff
- Public Sector Auditor
- Government Procurement of Goods and Services Management
- Public Sector Accounting Department Tax Staff
Apart from that, the existence of public sector accounting also increasingly embodies the characteristics of Good Governance . These characteristics include:
- Transparency
A character that is formed due to freedom in obtaining information - Participation
Character that is formed due to the freedom to socialize, speak and participate constructively. - Accountability
Character that is realized because of a real sense of responsibility towards the public. - Consensus Orientation
This character has a complete orientation towards the public. - Equity
With this character, equality of rights, justice and public welfare will be realized. - Rule of Law
This character has the aim of realizing the law more uprightly and not being underestimated. - Responsiveness
Character that is alert and responsive to public services. - Strategic Vision
Character with the aim of realizing the vision and mission firmly. - Efficiency and Effectiveness
This character will manage resources from collection to use efficiently, effectively and responsibly.
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Differences in Public and Private Sector Accounting
There are several differences between public and private sector accounting. The following is discussed one by one.
Organization goals
Each organization has different goals according to the specifications to be achieved. Likewise, public sector accounting and private sector accounting have different objectives. This difference is very prominent, especially in achieving profits. In public sector accounting, it is not just about making a profit but also about providing the best possible public services. Meanwhile, in the private sector, maximum profits are achieved.
Sources of financing
The differences in public sector and private sector accounting can then be seen from the funding sources or capital structures used. In the public sector, sources of funds come from taxes, levies, debt, government bonds, BUMN/BUMD profits, sales of state assets, etc. Meanwhile, the private sector comes from internal financing which includes own capital, retained earnings, sale of assets and external financing which includes bank loans, bonds, share issuance.
Accountability
Accountability in the public sector is different from the private sector. The public sector is responsible to the community because the source of funds used to provide public services comes from the community. Meanwhile, the private sector is responsible to the company owner or shareholders and creditors for the funds provided.
Organizational structure
The organizational structure in public sector accounting is bureaucratic, rigid and hierarchical. Meanwhile, the private sector is more flexible.
Budget and Stakeholder Characteristics
The characteristics of budgets in the public sector are more openly published for discussion with the public. For the government, the budget is no longer a secret that must be covered up. This is different from the private sector which is more closed and has become a company secret.
Accounting System
Private sector accounting applies accrual-based accounting while public sector accounting still uses a cash- toward accrual- based accounting system .