Paper Abstract: "Privatization and the Role and Impact..."

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Privatization and the Role and Impact of Accounting and Auditing

by Adolf J.H. Enthoven
University of Texas at Dallas

Since the early 1980s, there has been an extensive move towards
privatizing government enterprises and functions (such as the post
office, telephone system, etc). Privatization, as a transfer of
assets or functions from the State to the private sector, is to be
accompanied by a radical reallocation of available productive
resources, a restructuring of the institutional setting in which
production and services takes place, and the introduction of new
methods of corporate governance, freed from strong political
intervention or control. A major aim of privatization has been to
increase efficiency in the economy while fostering economic growth
and development through the removal of unprofitable enterprises and
functions from a government's budget.

In many European and other countries too, the privatization of both
government enterprises and government activities, e.g., a
restructuring of the State sector is still in process. Various forms
of privatization can be encountered, but the most prevalent are: 1)
denationalization, 2) deregulation, 3) trade sales, 4) contracting
out.

In assessing privatization, the accounting system and its data and
the audit methodology play a critical role. Unfortunately the
accounting structure and process at many government enterprises and
activities have been outdated, void of an adequate structural
approach, and lacking in relevant data.

For example, the valuation criteria have generally been based on
outdated historical cost, and the value of existing services
performed is generally not effectively measured. Not only are
financial statements void of sound accounting principles, but
adequate cost-benefit analyses, in many instances, are neither
carried out or are deficient in composition.

The financial management issues of privatization in many countries
may not have been well covered. Extensive appraisals may have to be
made of the respective privatization issues (topics). The financial
management aspects of privatization are highly linked to the
country's developments in financial and management accounting and
auditing. Adequate legislation may have to be passed concerning
financial reporting and disclosure, audit requirements, feasibility
studies, stock exchange legislation etc. Furthermore cost or
management accounting issues, including policies of transfer pricing,
costing of products and processes, methods of valuation of assets,
etc., need to be addressed. Effective privatization will be more
difficult if the financial management issues are not properly
addressed. Privatization in turn may have a positive influence on
financial management.

Correspondence: Adolf J.H. Enthoven, CIAD, The University of Texas at
Dallas, Box 830688, Richardson, Texas 75083-0688. Tel: ( 972)
883-2320.Fax: (972) 883-2192. E-mail address: inta...@utdallas.edu.


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