Should All Capital Goods of Governments be Recognised as Assets in Financial Accounting?

Although accrual accounting has become increasingly more popular in many governments over recent years, some issues remain unresolved. Previous literature questioned whether non-business-like governmental assets can be adequately capitalized. Whereas these studies mostly focussed on specific types of assets, such as infrastructure, military assets or heritage assets, this paper expands these views by taking a holistic approach to their treatment. Because such specific types of assets share fundamental characteristics, they could be called “specific governmental assets”. The analysis distinguishes between business-like government assets used in provision of public services and “specific governmental assets” which provide their services directly to the public, such as public art galleries, museums and parklands. It is argued that GAAP definitions of assets cannot be applied to the public sector for business-like assets without modification to allow for the replacement of cash generation for the owning entity by service provision to the public and not to the government as owner. However this amended definition of assets does not embrace “specific governmental assets” because these assets provide their services directly to public users of them, and the assets cannot normally be valued in financial terms because they have been removed from business-like markets by government decision. The paper highlights the problems caused by the misapplication of business accounting techniques to the public sector.