Value for money tests and accounting treatment in PFI schemes

Value for money tests and accounting treatment in PFI schemes In Private Finance Initiative (PFI) projects, value for money (VFM) tests and accounting treatment are distinct but related issues. VFM analysis should be concerned with total risk, not just with the sharing of risk, which dominates the accounting treatment decision. A framework is developed for logical thinking about what is meant by "best VFM" in the context of PFI projects. This involves consideration of the full set of alternatives, not an artificially diminished subset. The credibility of analytical techniques can be tarnished if they are misused to legitimate a predetermined decision. A reduction in construction risk may be a powerful source of VFM gains under PFI, but, under UK accounting regulation, this should not influence the accounting treatment decision. New complications about how VFM should be interpreted arise directly from the process of public sector fragmentation: affordability to the client is not necessarily the same as VFM for the public sector as a whole. Only public auditors, such as the National Audit Office, can gain access to PFI documentation on the conditions necessary for a comprehensive assessment of both accounting treatment and VFM. However, such studies require the kind of theoretical underpinning provided in this article, as otherwise the findings are likely to be ambiguous and hence vulnerable to rebuttal. In particular, VFM judgements must make explicit the basis of comparison on which they rest. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting, Auditing & Accountability Journal Emerald Publishing

Value for money tests and accounting treatment in PFI schemes

Accounting, Auditing & Accountability Journal, Volume 16 (3): 30 – Aug 1, 2003

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Publisher
Emerald Publishing
Copyright
Copyright © 2003 MCB UP Ltd. All rights reserved.
ISSN
0951-3574
DOI
10.1108/09513570310482291
Publisher site
See Article on Publisher Site

Abstract

In Private Finance Initiative (PFI) projects, value for money (VFM) tests and accounting treatment are distinct but related issues. VFM analysis should be concerned with total risk, not just with the sharing of risk, which dominates the accounting treatment decision. A framework is developed for logical thinking about what is meant by "best VFM" in the context of PFI projects. This involves consideration of the full set of alternatives, not an artificially diminished subset. The credibility of analytical techniques can be tarnished if they are misused to legitimate a predetermined decision. A reduction in construction risk may be a powerful source of VFM gains under PFI, but, under UK accounting regulation, this should not influence the accounting treatment decision. New complications about how VFM should be interpreted arise directly from the process of public sector fragmentation: affordability to the client is not necessarily the same as VFM for the public sector as a whole. Only public auditors, such as the National Audit Office, can gain access to PFI documentation on the conditions necessary for a comprehensive assessment of both accounting treatment and VFM. However, such studies require the kind of theoretical underpinning provided in this article, as otherwise the findings are likely to be ambiguous and hence vulnerable to rebuttal. In particular, VFM judgements must make explicit the basis of comparison on which they rest.

Journal

Accounting, Auditing & Accountability JournalEmerald Publishing

Published: Aug 1, 2003

Keywords: Private sector organizations; Financing

References

  • Appraising and evaluating PFI for NHS hospitals
    Froud, J.; Shaoul, J.
  • Values in the policy process
    Young, K.

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