Critically analyse the appropriateness of the IASB conceptual framework (as evolving with FASB) to the public sector using illustrations from the NHS Trust.

University: Business Studies

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The conceptual framework, as developed by the IAS/FASB and the UK ASB, are applicable to profit making entities. However, a number of concerns have resulted in a growing consensus that the public sector should also, to some extent, adopt these frameworks. In this essay I shall discuss the benefits of bringing the UK’s framework, particularly NHS Trusts, in line with that of the IASB. I will finally determine the appropriateness of the IASB conceptual framework to the public sector by special reference these types of body.

The public sector in the UK consists of a number of bodies, which are very diverse, ranging from multi-billion pound departments to parish councils with budgets of only a few hundred pounds, and from bodies that are fully funded to those that operate effectively on a commercial basis. NHS Trusts fall under the control of central government, though they are legally separate bodies that contract with other parts of the NHS to provide particular types of healthcare services in particular areas.
NHS Trusts came into existence in the early 1990s. They were created on a phased basis as part of the establishment of the ‘internal market’ in the NHS (as outlined in the 1989 White Paper), which attempted to address problems which had arisen in the 1980s as a result of NHS resources being constrained due to growing demand for them. The establishment of the internal market enabled health authorities to buy health care from acute hospitals and other organisations. Subsequently, health organisations became NHS Trusts, independent organisations with their own managements, competing with each other. Additionally, all NHS Trusts are required to prepare full GAAP-compliant accruals accounts from the point of establishment
Prior to 1991, central government planned and reported expenditure on a full cash basis. The NHS, however, had already partially adopted accruals accounting but then turned to full accruals accounting after the reforms which had taken place. Approaches used before 1991 required detailed statements of income and expenditure. However, income and expenditure on capital items was excluded and kept separate. Service costs measures were insufficient in the sense that they did not account for any capital consumption, i.e. depreciation. Underutilisation of and poor maintenance of capital stock was primarily responsible for inefficiencies and high costs.
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