John Kay has a fascinating article in the FT this morning. In it he says:

The question of whether one entity is controlled by another is critical to private sector accounting. In the past decade both private businesses and governments have used the rules that govern these relationships to present misleading accounts. New international financial reporting standards have rightly sought to check such abuses.

But here also government differs from a company. Government ultimately controls all economic entities. When Northern Rock ran into difficulties the key decisions on its future were made by state agencies. When the problems failed to resolve themselves, a bill to make government the legal owner of the business passed parliament within 24 hours.

The legal basis of these public powers over private sector entities varies and may not formally exist: but in a crisis, government can take the legal authority it needs.

I argued more years ago than I care to remember (probably in the early 1990s) that to model government accounting on the private sector was a mistake.

I am adamant that fair value has no role in government accounting: fair value is 'decision useful information' (as the IASB define it) and that is, for all practical purposes in their opinion the information needed to buy or sell stock in the company. Since no one buys or sells stock in governments fair value accounting is meaningless in that context, which hasn't stopped it being rolled out by the Big 4 as the answer to all the government's accounting needs.

It's another thing they've got badly wrong.