To what extent should the financial reporting practices of public Essay

To what extent should the financial reporting practices of public sector organizations differ from those used by companies in the private sector - Essay Example Hence the financial accounting system is to be very strict to ensure the uniform justice. Making them profit driven is crucial for the whole nation as will add further to the gross domestic product of the country and for generating higher employment. In addition the reforms in public sector are needed for following factors which also decide the style of financial reporting in public enterprises. The financial reporting analysis studies indicated that majority private firms get involved in cost reduction activities and hence their efficiency is higher and hence public sector can follow this by implementing cost reduction measures with out affecting the social objectives. Matsumari and Matsushima (2004) conducted an investigation on mixed duopoly, in which a public enterprise with social objectives competes with a profit-maximizing private firm. The use of a Hotelling-type spatial model helped them in product differentiation. Similarly the production costs were reduced by following cost-reducing activities. It was also noticed that the private firms engage in excessive strategic cost-reducing activities and hence their production cost becomes lower than the public firm. It was also felt that privatization of the loss making public firms will result in reducing the operational losses and converting them in to profit making enterprises. The second factor that is to be kept in mind is that the source of funds for the public sector is from the public mainly where as the source of funding in private sector is from private individuals. Hence the public sector enterprises should be held highly responsible for the financial performance. It does not mean that the private sector should be neglected but it suggests that the private sector needs a separate style of financial reporting system. The users and stakeholders are another crucial