Does accounting serve public services? Is it serving your business?

Join the discussion on LinkedIn: https://www.linkedin.com/posts/antlerboy_accounting-publicservice-business-activity-7168154795583741952-l_SD Can you imagine a language of accounting that served us better?

Accounting is a language — and like any language, there are things it conceals and things it reveals, there are built-in assumptions and norms.

We use accountancy for transparency, comparison, steering, and control. And we couldn’t do without it. But what’s the cost for how we run business and public services?

Many identify three ‘source points’ for accounting as we have it now:

1

7,000 years ago, the Mesopotamians kept records on crops and herds. You’re balancing the realisation of value (using animals and crops for food, production, or sale) versus reinvestment in the future (using animals and crops to make more of the same), with the constraints of the land, fertility, and water you have available. And you can trade some of your animals and crops for more or better land and so on.

2

In 1494, Lucia Pacioli formalised ‘double-entry bookkeeping’ which had developed over the previous 200 years, on the understanding that every financial transaction has an equal and opposite effect in at least two different accounts, introducing a systematic method for tracking assets, liabilities, and equity.

3

And in the early 20th Century, James O McKinsey promoted budgetary control and management accounting, and their role in strategic business planning and performance evaluation.

Along the way, the formal split between ‘revenue’ spending (the day-to-day operations of a business) and ‘capital’ spending (investment in assets for long-term, sustainable growth) became more and more formalised.

In public services, we make no distinction between expenditure which creates community coherence and effective support networks, drives resilience and self-help, reduces demand, and actually supports positive outcomes, and costs which are entirely fire-fighting, dealing with failure demand, overprocessing, red tape, creating dependency.

We distinguish capital and revenue, based on business balance-book ideas (still relevant because in theory, capital assets can be sold at their booked value).

But we have no formal model for sustainability which takes into account the fact that public services shape their own demand and costs. That’s both directly, through effective responses to demand, and indirectly, through our impacts on people, community, and place…

Even in my own little businesses, the formal accounts bear no real relation to the core business decisions I’m making. The ‘assets’ aren’t the real assets of my businesses — reputation, community, entanglement, understanding, know-how. The best investment I make is winning and delivering work, creating possibilities for people (consultants and clients!) to learn together.

Can you imagine a language of accounting that served us better?