A town privatized its sanitation department, selling all its plant and equipment to a private corporation. The corporation agreed to hire most of the department’s managers and other employees and was given an exclusive franchise, for a limited number of years, to offer the same service as previously provided by the town. When it operated the department, the town charged local residents fees based on the amount of trash collected. It set the scale of fees at a level intended to enable it to break even—to cover all its operating and capital costs, including interest on capital assets.
1. Do you believe that the objectives of financial accounting and external reporting of the private sanitation company should be any different from those of the town? Explain.
2. Do you see any differences in the information requirements of the internal managers now that they are employed by a private corporation rather than a government? If so, what are they?