**The following guest post is by Dan Herbert, who works on our [Where Does My Money Go](http://wheredoesmymoneygo.org/) and [Open Spending](http://www.openspending.org/) projects. He is the Programme Manager for MSc Accounting at Oxford Brookes University.**
This week sees the [publication of the first Whole of Government Accounts for the UK](http://www.hm-treasury.gov.uk/psr_government_accounts.htm). WGA represents the end of a decade long project to implement commercial style accounting reports for the UK public sector. The [Financial Times has said](http://www.ft.com/cms/s/0/58971c24-a980-11e0-a04a-00144feabdc0.html#axzz1RzjW0QrL) that we will now have a set of accounts for the UK that are just like those of Marks and Spencer. The reasons given for the development of WGA have been made in terms of improved accountability and a better understanding of the UK’s public finances. There are however good reasons to believe that neither of these claims can be substantiated.
Commercial accounting reports have their roots in the split between owners and managers of companies. The managers of companies need to account for their actions to the owners; the shareholders. The shareholders are principals and the managers act as agents. Accounts demonstrate that the agents have acted in the principals’ best interests and the audit of the accounts serves to demonstrate that the accounts are a true and fair representation of their actions. The reports are supposed to be useful in agents making decisions; mainly whether to sell their shares or to replace the managers.
Since 2005 the accounting reports for listed companies in Europe have been prepared in line with International Financial Reporting Standards – IFRS. IFRS are based on a conceptual framework that enshrines the role of shareholders/investors as the primary users of accounting reports. The standards are then designed to meet their information needs. It is on the basis of IFRS standards that the accounts of UK public bodies are now prepared and they underpin WGA. That they were never designed with public bodies in mind seems not to matter to those who took this policy decision.
Applying IFRS to pubic bodies may seem, on the face of it, to be a ‘good thing’. There are however serious problems. The main one being how does the principal/agent relationship work for public bodies? There is absolutely no empiric evidence that shows that anyone actually uses the accounts produced by public bodies to make any decision. There is no group of principals analogous to investors. There are many lists of potential users of the accounts. The Treasury, CIPFA (the UK public sector accounting body) and others have said that users might include the public, taxpayers, regulators and oversight bodies. I would be prepared to put up a reward for anyone who could prove to me that any of these people have ever made a decision based on the financial reports of a public body. If there are no users of the information then there is no point in making the reports better. If there are no users more technically correct reports do nothing to improve the understanding of public finances. In effect all that better reports do is legitimise the role of professional accountants in the accountability process.
Open data provides a route out of this accountability dead end. Instead of refining what are fundamentally useless reports open data does away with the principal/agent accountability model and replaces it with a more fluid one. Open data does not need anyone publishing the data to think about who the users are. Once data is in the public domain users define themselves and design reports that suit their needs by extracting data that is relevant to them. The various analysis tools that have been produced to analyse local authority spending show that more than one style of report can be produced. Instead of having a single aggregation of the data following IFRS many aggregations are possible for different interest groups. The possibility of linking financial to other performance data also exists; a possibility that has not been successfully addressed by public sector accounting reports.
The open data model does not require professional auditing in the same way as IFRS accounting reports. So long as the data released is complete then aggregations and presentations of the data can be ‘audited’ using a ‘many eyes’ model and corrections made by discursive processes. Further the open model has the potential to embed the discursive, questioning aspect of accountability that the static, professionally controlled accounting reports fail to do. Instead of the focus being on the production of a report the focus is on the reporting process.
Anthony Hopwood, the late Dean of the Said Business School in Oxford once wrote “Those with the power to determine what enters into organisational accounts have the means to articulate and diffuse their values and concerns, and subsequently to monitor, observe and regulate the actions of those that are now accounted for.” IFRS means that the values enshrined in accounting reports are those of the professional accountant. Open data allows the users to decide what is extracted from the data, how it is aggregated and reported. Open data has the possibility to shift power from preparers of accounts to users.
This is power shift is a big deal. The [Financial Times article heralding the release of the WGA report](http://www.ft.com/cms/s/0/58971c24-a980-11e0-a04a-00144feabdc0.html#axzz1RzjW0QrL) focused on the extent of the indebtedness of the UK and on the pensions liability for public employees. Are these really all that the public are interested in? If I were going to invest my money in a company with the sole aim of making a return they would be important to me. As a citizen I am more interested in the priority given to different categories of spending, what is being done to alleviate social problems and where inefficiency in spending lies. IFRS does not show this and so however technically clever the WGA report is it may have no relevance to those whose interests it claims to represent. The same effort put into releasing usable open accounting records has far greater potential to engage the public.