Public Sector Governance and Accountability Series: Budgeting and ...

Capital Budgets: Theory and Practice 103
different perspectives of accountants, financial managers, macroeconomists,
political participants, and market participants are laid out in table 3.3. All
view capital budgets as instruments that offer a world of possibilities. If that
view is recognized, the question arises as to why capital budgets have not
become a regular weapon in the budgetary arsenal and, where they have
recently reentered the budget scene, why they had to enter as a piggyback
rider of accrual accounting. These aspects require reconsideration of the
arguments for and against capital budgets (recapitulated in table 3.4).
Traditional approaches are very difficult to overcome. For too long,
capital budgets were considered essential for the commercial sector but not
for the government sector. Nearly 50 years ago, a committee looking into the
form of government accounts in the United Kingdom concluded that
depreciation allowances had no place in government. At the beginning of the
new century, this stance had changed, and now the U.K. government holds
the view that “the introduction of resource accounting and budgeting ...is
a key part of our commitment to modernising Government for the 21st
Century” and that “it will put the U.K. government accounting in line with
commercial practice [emphasis added] and developments in government
accounting and budgeting being adopted in a number of countries around
the world”(United Kingdom 1999: 1). Now governments are more receptive
to the idea and to exploiting the possibilities and opportunities.
TABLE 3.3
Position
Accountant
Financial manager
Different Perspectives on Capital Budgets
Perspective
Believes capital budgets do the following:
Promote a balanced approach to asset creation and
asset maintenance
Promote the allocation of costs over the useful
period of the asset’s life
Permit clearer identification of assets and thus
distinguish between investments and operational
budget
Promote greater conformity with GAAP
Pave the way for full introduction of accrual
accounting.
Believes capital budgets do the following:
Promote a balanced approach to asset creation and
asset maintenance
Promote the allocation of costs over the useful
period of the asset’s life
(continued)