The other way is to use accounting adjustments in the preparation of the annual financial statements.
‘For example, you might have to make a provision for a legal case in the next financial year. In order to be prudent and to accurately reflect the financial position of the organisation an organisation may wish to incorporate some provision for that expenditure in the future. But of course the size of that provision is subject to managerial judgement.
‘It’s that exercise of judgement can differ. If you wanted to report lower profits, you might take a more conservative view. If you wanted to increase your performance, you’d might estimate a lower figure or wait for next year when the position may become clearer.’
This is where the role of audit comes in.
When managerial judgement is exercised, interpretations can vary. Legally, the financial statements of any organisation or public body have to show a ‘true and fair view’.
The accounts are then scrutinised by auditors and if they are not satisfied that a true and fair view is shown, the audit report is qualified, and the issue is thus brought to the attention of the public and major stakeholders.
Centre of expertise
Backed by an influential group of stakeholders, Margaret’s research aims to generate a number of recommendations which will inform how the new legislation around public audit will be implemented.
She also hopes her work will influence the monitoring bodies who give guidance to auditors and will feed through to accountants in the NHS and local government - which in combination deliver the vast majority of local public services and both of which are under considerable pressure in public spending terms.
In the context of current reforms, there is a lot of research ground to cover within public sector accounting. Margaret is hoping to use the new research project to kickstart cross-institutional collaborative research on the topic with fellow academics with similar interests.
Margaret’s research is a unique addition to the research portfolio of our School of Management which was ranked 8th in the UK in the independently-assessed Research Excellence Framework. 89% of their submitted case studies were deemed to have an outstanding or very considerable impact.