PLEASE HELP - Stuck on a topic

salfordman
salfordman Registered Posts: 32 Regular contributor ⭐
in AAT Level 4 (Level 8 in Scotland)
Hello,

Got my Unit 15 simulation this Wednesday.

Need to find out:

'differences between management of cash balances in public sector organisations and private sector organisations'.

We have been told this topic will be in the simulation.

The book I have got has no information on this topic. Searched it on net and all I could find is that the public sector has more legislation to adhere to and is not concerned with making a profit, whilst the private sector is all about trying to maximise profit. That's all there was.

Can somebody please help me out?

If anybody can, thank you so much in advance :-)

Comments

  • Andypandy
    Andypandy Registered Posts: 526 Epic contributor 🐘
    In the public sector they have strict guidelines on investment of surplus funds (Icelandic banks were A* rated!). I believe they're not allowed to invest in anything below an A rating, so very low risk stuff. Don't forget that it's impossible for them to go bust. There are also many PS loaning bodies, where, for example, a council etc regularly provides loans to other PS bodies at attractive intrest rates. Will add more when it comes to mind.
    Andrea.
  • Dally1987
    Dally1987 Registered Posts: 11 New contributor 🐸
    Hey I did that skills test in Nov 09 - basically AndyPandy is right - Public Sectors are very strict as to how its cash is to be used when it comes to investments, and only low risk investments are normally taken into account. They are governed by Rules and Regs that they MUST stick to and can't just do what they want.

    Whereas with the Private Sector, these are run as to how the director wishes, if he wanted to invest in something risky he can do.

    Its not a massive question on it so you wont need to put anymore than put here :)

    Ally
  • katz568
    katz568 Registered Posts: 93 Regular contributor ⭐
    In public sector organisations there are statutory and other regulations relating to the management of cash balances (SORP's), whereas in private sector organisations there are no regulations regarding the management of cash balances other than those contained in the Companies Act regarding diretors' duties and maintaining records.

    HTH
    Katrina
  • salfordman
    salfordman Registered Posts: 32 Regular contributor ⭐
    Thanks

    Thanks for the information everyone. Much appreciated.

    Hopefully I can pass this, then all I need is PCR to complete AAT.

    Oh man - just remembered Unit 10 :-(
  • stevef
    stevef Registered Posts: 258 Dedicated contributor 🦉
    Just to clarify, the SORP (soon to be replaced by the IFRS compliant Code), along with the Audit and Accounts Regulations, and BVACOP deals with preparing and publishing the statutory annual accounts (the SORP summarises the relevant UK GAAP applicable to Local Authorities).

    Investments are dealt with by statute, the Treasury Management Code of Practice and the Prudential Code. This is a huge subject, but basically Local Govt has to consider security, liquidity, and yeild on investments in that order (making money comes last, low risk comes first). We can not rely on credit rating agencies anymore (eg Fitch, S&P), if we wish to make non specified investments we have to write detailed policies identifying all the potential risks and how we are going to mitigate those risks. For specified investments we need to establish an annual policy on how we ensure that they are are specified. Specified investments basically with low risk UK Financial Institutions, the investment is in UK Sterling, invested for less than one year. We have to prepare and report on Treasury Indicators which show we are managing and spreading risk. Also certain investment vehicles are specifically not allowed (eg interest rate swaps).

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