PUBLIC MONEY & MANAGEMENT SEPTEMBER 2006 251 © 2006 THE AUTHORS JOURNAL COMPILATION © 2006 CIPFA The study on which this article is based was carried out to attempt to solve the problems typically encountered in the development of costing models for Spanish universities. The problems came to light in debates with university managers, whose information needs were not being met by the standardized costing models available to them. Traditional costing models needed to be compared with models that were more suited to controlling the performance and results of this type of institution in Spain. Activity based costing (ABC) was found to respond positively to at least some of the problems that managers were reporting. This article proposes a new model which combines the best of the traditional and the ABC models. Costing in Spanish Universities Traditional Spanish university costing models have tended to concentrate on the allocation and assignment of cost to a cost object (for example a particular degree course or a research project). This is based on an arbitrary distribution using bases for assignment (keys) that not have not, in many cases, corresponded to the real situation in respect of the level of services provided, nor to the nature of the activity undertaken in the cost centres. In particular, proposals have been made in Spain for costing models based fundamentally on budgetary information, in which the cost centres have been established by the organic structure of the budget, for example the SCAU model and in the model proposed by the Spanish Association of Accounting and Business Administration (AECA, 1997). There are significant differences between university costing models used internationally. In Spain, for example, theoretical models have been developed, whereas in the UK, the universities have implemented costing models that have proven effective in the business world (Mitchell, 1996). Recent structural changes in UK universities—the result of a reduction in funding and a big increase in the number of students—have focused attention on the financial management of the universities and on their management accounting methods (Pendlebury and Algaber, 1997). Spain is also facing structural changes and universities need to utilize increasingly scarce resources effectively, efficiently and economically (the three Es). The University 2000 report (CRUE, 2000) suggested replacing traditional accounting methods with more objective models that give priority to the educational objectives, provide more stable funding, encourage the three Es, enhance the quality of the services provided, and improve a university’s image. The report also emphasises the need for universities to identify the products and services that they offer, and to develop analytical accounting models which show all costs and therefore are more useful for decision- making. In the early 1990s, the Spanish government became involved and developed a system of cost accounting for the universities (SCAU) through a collaboration between the General Inspectorate of the State Administration (IGAE) and the universities of Alcalá de Henares, Carlos III and the Autonomous University of Madrid. The SCAU is an adaptation of the theoretical model put forward in the standardized analytical accounting for autonomous public bodies (CANOA) project. The Autonomous University of Barcelona has been using a system of analytical accounting since 1992 (Folch and Cordoba, 1996). This system identifies the costs of each centre of responsibility: the teaching centres, departments, support services, central administration, research institutes and centres. It identifies the cost of each degree course both in total and in unit terms, by student. In Barcelona’s model the costs of the various cost centres are assigned to the macro-activities. Basically, there are three of these: teaching of Teresa Garcia Valderrama and Rosario Del Rio Sanchez are professors of public sector accounting at the University of Cadiz, Spain. Development and Implementation of a University Costing Model Teresa Garcia Valderrama and Rosario Del Rio Sanchez This article analyses the advantages and disadvantages of costing models for public universities. The authors propose a new model which uses the best of the traditional and the newer activity based costing (ABC) models. The new model will be of interest to universities worldwide.