Study examines performance measurement for government businesses.

The public sector committee of the International Federation of Accountants has issued a new study on performance measurement data used in government business enterprises, such as national railways, energy utilities and communication services, that is supplemental to information provided in financial statements.

The report, Performance Reporting by Government Business Enterprises: The Provision of Financial and Non-Financial Performance Information in General Purpose Financial Reports, says public sector financial reporting on its own does not offer sufficient information on overall performance. According to the report, although government business enterprises normally are required to operate commercially and usually take the same legal form as private sector businesses, they often enjoy a monopoly and their political context makes their financial reports unreliable for simplistic measures such as return on capital employed.

These entities often do not deliver services in circumstances that compare with a competitive market. "The test of relative market efficiency and effectiveness cannot always be applied" says the report. "The issue therefore is how to formulate performance measures that wig allow judgments on efficiency and effectiveness."

"This study is important reading for anyone generally involved in performance measures for government, because it has broader applicability than just government business enterprises" said Donald H. Chapin, chief accountant of the U.S. General Accounting Office. "There is no bottom line or meaningful net income to use to measure performance for government business entities. This report explains that it is important to look at the costs per unit. How do the costs of the government program compare with its benefits?"

The report also examines arrangements for auditing performance measures, which are not governed by any generally accepted principles. The study discusses how performance measures could be integrated into the general purpose financial statements. For example, the auditor's opinion would include them if the director's report is within the scope of the audit. "There may be a requirement to audit certain classes of performance measures, while other information included in the enterprise's annual report may not be subject to an audit at all," says the study.

The report concludes with case studies of current practices in performance measurement in the United Kingdom, Australia, Canada, the United States and Italy.

Copies of the study can be obtained by calling Bruno Chiomento of the IFAC at [phone].