Accounting for Public Hospitals: A Case Study of Modified GAAP

Public hospitals in the UK apply GAAP as ‘modified’ by the Treasury, the Financial Reporting Advisory Board (FRAB) and the Department of Health. Individual National Health Service (NHS) Trusts apply their interpretation of the Accounting Manuals with further guidance and scrutiny from oversight bodies such as the Audit Commission. This paper uses a case study approach to investigate how GAAP is ‘modified’ and the consequences of the constructed reality. The modifications are layered and often opaque. The accounts are constructed according to accounting requirements stipulated by Government and the account preparers adapt the requirements at Trust level. The accounting statements play a part in constructing a reality (Hines 1988) that has consequences through the NHS control regime and in how the financial position is portrayed to the public. It appears that GAAP is used to legitimate the NHS as a modern organization applying commercial accounting practice but the accounting statements provide a distorted view of GAAP compliant statements. The accounting, while not itself real, is real in its consequences and can lead to biased decision-making, service closures and job losses. The planned compliance of NHS Trusts with international GAAP may provide further scope for modification and manipulation in constructing NHS accounting reality. Key words: public hospitals, modified GAAP, public sector accounting. constructed reality.