New Public Management has expanded the role of the private sector in the provision of public services through ‘contracting out’ the supply of many public service inputs to the private sector. This paper examines the case of the Private Finance Initiative (PFI), which is of increasing importance in extending these inputs to include those of major capital assets, such as hospital buildings. Concerns arise as to whether this process does genuinely increase efficiency and accountability, and over the role of accounting in meeting the new demands being placed upon it, in the context of one of the most sensitive public services, that of health care.

This paper examines the scope for validly using non‐profit performance indicators in the public sector and identifies several decision‐relevant roles for such indicators in the process of policy optimisation. It argues that many of the desirable qualitative characteristics of financial accounting data identified in the FASB's conceptual framework project are both relevant, and in need of strengthening, when the profit concept is extended to a more general performance concept which also includes benefits to consumers of the output of the public sector. The need for such strengthening is examined in both nationalised industries and the non‐trading public sector.

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Examines the recent changes made to the public sector in the UK in the context of relevant economic models, including the principal‐agent model, public goods theory and the median voter model. Considers a number of possible justifications for the changes, including the emulation of the private sector as a model of accountability and efficiency, and increasing the accountability of the public sector. Finds major problems with each of these justifications, highlights other possible explanations for the changes, and emphasizes the importance of the concept of “residual loss” when monitoring and bonding processes are imperfect.

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