Download Professional Standards

Development of Financial Reporting
in the UK
18 November 2010
UNCLASSIFIED
Agenda
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Financial reporting across the public sector;
Resource Accounting & Budgeting;
Legal framework for accounts production in Central
Government;
Government Financial Reporting Manual (FReM);
The move to IFRS;
Whole of Government Accounts
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Departmental Financial Reporting Frameworks
The various frameworks have different purposes and rules:
National Accounts: fiscal performance is measured by reference to
the National Accounts
Budgets: are used to control public spending and need to align with
the National Accounts to support fiscal control
Estimates: seek annual Parliamentary authority for departments’
spending that isn’t authorised elsewhere
Resource Accounts: report departments’ actual spend for the year
on a ‘commercial’ basis, adapted for the public sector, and
compare outturn with Estimates
Resource Accounting & Budgeting (RAB)
RAB is an accrual based approach to Government accounting
and budgeting
More than just simply the adoption of accrual accounting
Aims to translate the Government’s policy priorities into
departmental strategies and budgets, and then reports to
Parliament on the efficiency and effectiveness of services
provided
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The Move to Full Resource Accounting and
Budgeting
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RAB was launched in 1993
White Paper in 1995
Implementation Process
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1997-1998 – Unaudited and unpublished shadow DRA’s
1998-1999 – Audited and unpublished shadow DRA’s
1999-2001 – Audited and published shadow DRA’s
2001-2002 – Live DRA’s
• Post-implementation Review
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Impact of resource accounting
Advantages
For Parliament:
•Information on use of resources – VFM
•Enhanced accountability
Issues
•Resource requirements in managing financial
information.
•Level of uncertainty in accruals accounting
•Importance of Cash flow management remains
For central government
•Strategic approach to decision-making
•Enhanced fiscal framework
•Modernising Government
For Departments
•Resource management
•Linking inputs to outputs
•Understanding full costs of activities
•Incentivised management of assets and
liabilities
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Legal framework for accounts production in
Central Government
Government Resources and Accounts Act 2000
Powers granted to HM Treasury under this Act
Other key features
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Government Financial Reporting Manual (FReM)
The technical accounting guide to the preparation of financial
statements
Prepared by HM Treasury following consultation with the FRAB
and issued by relevant authorities in England, Wales,
Scotland and Northern Ireland
Applies to all entities prepared on an accruals basis and
consolidated within WGA, but not to Local Government,
Public Corporations that are not Trading Funds and NHS
Trusts and NHS Foundation Trusts
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Financial Reporting guidance across the public
sector
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HM Treasury – FReM
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Department of Health – NHS accounting manuals
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Monitor – Financial Reporting Manual for Foundation Trusts
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CIPFA-LASAAC – Code of Practice on Local Authority
Accounting in the UK
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Devolved Administrations
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The Financial Reporting Advisory Board (FRAB)
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Independent review board for the move to RAB
Government Resources and Accounts Act 2000
Annual Report to Parliament
Responsibilities
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Why IFRS?
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Improved transparency and accountability
Best practice financial reporting standards for
public interest entities
Private vs Public sectors
Use of Economic Resources
Alternatives?
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The IFRS Plan
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Formal announcement to implement IFRS
from 2008-09
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Round tables and consultation
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Stocktake meeting with departments
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Delayed implementation to 2009-10
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The IFRS Timetable
4 Point Trigger Point Plan
2008/09
IFRS
Comparatives
2008
Transition
date
Opening
IFRS
balance sheet
(1 April 08)
2009/10
IFRS reporting
2009
Comparative
IFRS year end;
IFRS-based
annual
budgets
2010
First IFRS year end
2009/10 annual report
and accounts (and
2008/09
comparatives)
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IFRS IMPLEMENTED
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2009-10 IFRS based resource accounts &
accounts of arm’s length bodies (ALBs)
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Areas for future improvements in financial
reporting include
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Lease accounting
Accounting policy note
Errors and omissions
Financial instruments
Fair value measurement
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IFRS Issues – Departments and Arm’s Length
Bodies during implementation
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Restatement and terminology (IFRS 1/ IAS 1)
Service Concession Arrangements (IFRIC 12)
Leases (IFRIC 4 / IAS 17)
Financial instruments (IAS 39)
Property, Plant & Equipment (IAS 16)
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Networked assets;
heritage assets; and
componentisation.
Recognition of Intangible Assets (IAS 38)
Leave accruals (IAS 19)
Segment Reporting (IFRS 8)
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Background to WGA
First stated as Government’s intention in Code for Fiscal Stability 1998
Embedded in Government Resources and Accounts Act 2000 (with
separate legislative / administrative arrangements for Scotland / NI)
Dry runs commenced in 2001-02 initially only for central government,
with WGA first expected to be published 2005-06
Deferred to 2008-09, but then again to 2009-10 when IFRS was
delayed a year for central government
Orders laid to allow account to be published for 2009-10
What is WGA?
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Set of consolidated financial statements for the public sector
(including central government, devolved administrations, local
authorities, NHS and public corporations)
Based on International Financial Reporting Standards
Most ambitious set of accounts in the world in terms of public
sector coverage
Will look and feel like a set of private sector accounts with a
management commentary, financial statements, disclosure notes
and audit opinion
First accounts will be for 2009-10 which we are aiming to publish
around Spring 2011
Early years likely to be qualified – but this is the start of a journey
UNCLASSIFIED
Why produce WGA
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The only audited set of data across the public sector
Improving transparency and accountability to
Parliament and to the taxpayer
New measure of the government’s financial position,
including provisions, PFI and contingent liabilities, to
complement existing measures
Potential to support longer term fiscal forecasting and
management
Comparability across different parts of the public
sector, and with the private sector, as financials
produced on a consistent basis
UNCLASSIFIED
What’s new in WGA
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Brings the UK public sector accounts together in one place
Based on the audited accounts of public sector bodies
(already published), but WGA consolidates these, removing
transactions and balances with other parts of government
It will include assets and liabilities which are not part of
measures used for the purpose of national statistics - due
to measurement and conceptual differences. The WGA net
balance sheet position will not, for example, match PSND
Makes transparent PFI, pension liabilities and government
guarantees
UNCLASSIFIED
How do we pull together WGA?
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Small team at the centre in the Treasury
Each entity completes a data collection pack
Uploaded into COINS
Feed into sub-consolidations
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Central government
Health
Local Authorities
Public corporations
UNCLASSIFIED
Risks and Issues
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Timeliness
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Quality
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Counterparty transactions and balances
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Convergence of accounting policies
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Boundary for WGA
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Completeness
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External reaction
UNCLASSIFIED