FRAB welcomes legal backing for independent role

20 June 2001

The Financial Reporting Advisory Board said today that placing its independent role on a statutory footing represented an important endorsement of its work.

The Board has sent a copy of its fourth report to Parliament. The report describes the Board’s work from April 2000 to March 2001 in assessing and advising on the development of financial reporting by central government to promote best practice.

This reporting period saw the passing of the Government Resources and Accounts Act 2000, which places the Board’s role, of advising the Treasury on resource accounting and whole of government accounts, on a statutory basis. This is the first report prepared under these new arrangements.

The Report sets out the Board’s views on a number of issues, including:

Success of the Resource Accounting Manual in practice: The Board is pleased that the Manual has been shown to be an effective document in practice in the preparation of resource accounts.

Role of the Board: Discussions have taken place regarding the extension of the Board’s remit to include accounting standards and principles for the accounts of the devolved administrations in Scotland and Northern Ireland, and the National Health Service. These discussions are continuing.

Salary and pension disclosures: The Board is disappointed that the Cabinet Office has not yet been able to finalise resolution of the Board’s previously expressed concerns regarding the omission of a requirement to disclose benefits in kind for senior management and the ability of individuals to use the Data Protection Act to avoid disclosure.

Heritage assets: The Board agreed, following the line taken in the Statement of Recommended Practice ‘Accounting and Reporting by Charities’, to the inclusion of additions to collections of heritage assets on balance sheet even though the existing collections might remain off balance sheet. However, the Board has concerns about the lack of consistency this produces, and has written to the Accounting Standards Board suggesting the policy is reviewed in late 2002.

Private finance initiative: The Board retains an interest in seeing the effect of the retrospective application of the Treasury’s technical note, which followed the ASB’s amendment note to FRS 5 regarding PFI projects. The Board’s initial reaction is surprise that under retrospection so few PFI assets would appear on departments’ balance sheets.

Commenting on the Board’s report, its chairman, Elwyn Eilledge, said:

“Board members and I welcome our independent role being put on a statutory basis. This represents an important endorsement of our work. We continue to offer an independent view on whether the Treasury’s accounting proposals meet generally accepted accounting practice and whether interpretations necessary for the government sector are soundly based .

The full implementation of resource accounting and budgeting from April 2001 and the developments in train for whole of government accounts strengthen the need for such review. We are pleased that feedback from preparers and auditors of resource accounts shows that the Treasury’s Resource Accounting Manual, which the Board has endorsed, has been an effective document in practice.”

Notes for editors

1. The FRAB is an independent body. It was set up in 1996 to oversee the Treasury’s Resource Accounting Manual, which sets out how Government departments will prepare their resource accounts. The Board’s aim is to help ensure that, as far as possible, the Manual follows generally accepted accounting practice (GAAP) in the UK and that any departure from or modifications to GAAP are fully explained and justified. That aim now extends to the additional forms of accounting guidance within the Board’s extended remit (paragraph 8 of these notes).

2. This is the first report from the Financial Reporting Advisory Board to the Treasury since the Government Resources and Accounts Act 2000 came into force.

3. The Act requires that resource accounts and whole of government accounts should be prepared with a view to presenting a true and fair view, and conform to GAAP subject to such adaptations as are necessary in the context of these accounts. The Act requires the Treasury to consult an appropriate advisory group on financial reporting principles and standards. The Treasury, in consultation with the Comptroller and Auditor General in accordance with the Act, has determined that the Financial Reporting Advisory Board to the Treasury should be that advisory group.

4. The Act puts on a statutory basis the role that the Board has been performing since it was set up.

5. Resource Accounting and Budgeting places the planning and control of Government expenditure on an accruals accounting basis. This measures resource consumption rather than just cash flow, comparable to the way that the private sector manages its finances and prepares its accounts.

6. Government departments have prepared published resource accounts in respect of the financial year 1999-2000 onwards. The first stage of resource budgeting was introduced in respect of the financial year 2001-02 onwards.

7. The Board’s fourth report covers the period from April 2000 to March 2001, during which it considered all the amendments to the Resource Accounting Manual to make it applicable to Government Departments’ resource accounts for 2000-01. The Board also considered (in February 2001) some amendments for the 2001-02 version of the Manual.

8. During the period, the Board also endorsed the first version of two sets of new accounts guidance, for trading funds - the Trading Funds Accounts Guidance - and for executive non-departmental public bodies (NDPBs) - the Executive NDPBs Annual Report and Accounts Guidance - as well as some further amendments to these publications to maintain their consistency with the developing Manual as appropriate. These two sets of guidance take effect for

2001-02 accounts. This follows the extension of the Board’s remit to oversee the accounting guidance for these bodies.

9. The Board comprises:

Chairman

Elwyn Eilledge, CBE - Director of BG Group plc, former Chairman of

BTR plc, former Senior Partner at Ernst and Young, and former

member of the Accounting Standards Board.

Members

Colin Balmer, Principal Finance Officer, Ministry of Defence

Mike Barnes, Head of Technical Development, Audit Commission

Ros Dunn, Head of Devolved Countries and the Regions Team, HM Treasury

Heather Jackson, Director of Finance, HM Land Registry

Graham Jenkinson, Director, National Expenditure and Income Division, Office for National Statistics

Caroline Mawhood, Assistant Auditor General, National Audit Office

Professor David Mayston, Professor of Public Sector Economics, Finance and Accountancy, University of York

Rosamund Sykes, Director of Finance and Central Services, Victoria and Albert Museum

Ken Wild, Partner, Deloitte & Touche, Member of the Accounting Standards Board and Chairman of its Public Sector and Not for Profit Committee

10. Copies of the FRAB Fourth Report can be purchased from the Stationery Office (ISBN 0102910057 £7.20).

11. Media enquiries about Resource Accounting and Budgeting should be addressed to Charles Keseru in the Treasury press office on 020 7270 5188.

FRAB welcomes legal backing for independent role

Notes for editors

Chairman

Members

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