Describe Peacock and Wiseman’s Displacement Effect theory as a factor influencing public spending.
Distinguishing Statutory Audit from External Audit Statutory Audit: Statutory audit refers to the mandatory examination of an organization's financial statements and accounts as required by law or statute. The primary purpose is to ensure the accuracy and fairness of financial reporting to exteRead more
Distinguishing Statutory Audit from External Audit
Statutory Audit:
Statutory audit refers to the mandatory examination of an organization's financial statements and accounts as required by law or statute. The primary purpose is to ensure the accuracy and fairness of financial reporting to external stakeholders, including shareholders, regulatory bodies, and the government. The statutory audit is typically conducted by external auditors, but they are appointed by the shareholders or relevant regulatory authorities. The scope of a statutory audit extends beyond financial accuracy; it also assesses compliance with legal and regulatory requirements. The auditor issues an opinion on whether the financial statements present a true and fair view and if the entity has followed applicable accounting standards.
External Audit:
External audit is a broader term that encompasses various types of audits conducted by independent auditors external to the organization. While statutory audit is a specific subset of external audit, external audit can also include non-statutory or voluntary audits commissioned by the organization for specific purposes. These purposes may include performance audits, operational audits, or audits focused on specific aspects of the business. Unlike statutory audits, external audits beyond statutory requirements are initiated at the discretion of the organization's management or board of directors to gain insights into operational efficiency, internal controls, or adherence to best practices.
In summary, while statutory audit is a legally mandated external audit primarily focused on financial reporting compliance, external audit is a broader term encompassing a range of audits, including statutory and non-statutory audits, that provide independent assessments of various aspects of an organization's operations.
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Displacement Effect Hypothesis of Peacock and Wiseman The Displacement Effect Hypothesis, proposed by Alan Peacock and Jack Wiseman, is a theory that seeks to explain the determinants of public expenditure, particularly in the context of government growth and the expansion of the public sector. AccoRead more
Displacement Effect Hypothesis of Peacock and Wiseman
The Displacement Effect Hypothesis, proposed by Alan Peacock and Jack Wiseman, is a theory that seeks to explain the determinants of public expenditure, particularly in the context of government growth and the expansion of the public sector. According to this hypothesis, major increases in public spending are often triggered by external events, specifically those that create a perceived threat to national security or societal well-being.
Peacock and Wiseman argue that during times of crisis, such as wars or other existential threats, there is an increased demand for public services and intervention. Governments respond by expanding their role and increasing public expenditure to address the crisis. However, once the crisis is resolved, the public sector tends to retain a larger share of resources and authority, leading to a "displacement" of resources from the private sector to the public sector.
In essence, the Displacement Effect Hypothesis suggests that external shocks or crises create a justification for increased government spending, and even after the crisis has subsided, the expanded public sector persists. This hypothesis provides insights into the dynamics of government growth and the factors that contribute to the long-term expansion of public expenditure beyond the immediate needs of a crisis situation.
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