A specific accounting approach for public universities

Many universities in Germany and other countries have introduced financial (or commercial) accounting to manage effectively their finances. It aligns with so-called new public sector management reforms worldwide. In this paper we analyze whether the components of this type of financial accounting reform suit the nature and objectives of German public universities. While the analysis mainly relates to the German situation, there are likely to be implications for public universities universally. Drawing on an analysis of the reports of two well known German-speaking universities, Heidelberg and Vienna, we analyze whether the components of the new financial accounting reforms suit the nature and objectives of those public universities. While we argue that cash-flow statements and balance sheets remain important, it is shown that it is necessary for state-run educational institutions to change several key elements of traditional commercial accounting. Because the success goals of such universities are non-profit-oriented, their financial accounting should be augmented by a ‘change in value statement’, replacing the traditional income statement. As their valuation cannot be correlated with the definition of profit in (German) public universities this term is suggested. By change in value we mean specifically that assets may experience a total loss or a decrease in value. In management accounting output measures and performance indicators should substitute revenues as the counterpart of costs. Furthermore, long-term financial decisions play a crucial role in universities. Therefore, a form of investment accounting is very important for them. The conventional form has to be modified by ‘investment statements’ and ‘knowledge balances’ of their intellectual capital. In this paper we also show how the concept of a balanced scorecard can be applied to public universities and how specific accounting instruments can be integrated into it.