House of Commons - Public Accounts

Select Committee on Public Accounts Minutes of Evidence

FINANCIAL REPORTING ADVISORY BOARD TO THE TREASURY: REPORT ON THE RESOURCE ACCOUNTING MANUAL (PAC 97-98/15)

Memorandum submitted by HM Treasury

1. The Financial Reporting Advisory Board to the Treasury (FRAB) was set up in April 1996. Its initial task was to advise the Treasury on the application of financial reporting principles and standards contained in the Resource Accounting Manual, which will be used as the basis for departmental resource accounts. In establishing the Board, the Treasury undertook to forward to Parliament "a report on the Board's activities, setting out the resource accounting policies to be adopted and subsequent material changes, together with the views of the Board".[1] Accordingly, the Boards' report, together with the version of the Manual which has been endorsed by the Board, are submitted with this note.[2]

2. The Treasury is extremely grateful to the Board for the thoroughness and wholly professional way in which it approached its task, and the added value which it has brought to the process of determining accounting principles and standards for resource accounting.

THE BOARD'S CONCLUSIONS

3. The FRAB is an advisory board to the Treasury. The Treasury accepts the Board's main conclusions:

— endorsement of the Resource Accounting Manual as the basis on which resource accounts should be prepared;

— acceptance of departures from and modifications to UK Generally Accepted Accounting Practice (GAAP) justified by the "not-for-profit" nature of most central government activity and the fact that resource accounts are intended to be a component of the planning and control of public expenditure;

ACCOUNTING FOR INFRASTRUCTURE ASSETS

5. One recommendation by the Board which the Treasury does not yet feel able to accept without qualification concerns accounting for infrastructure assets. Relevant departments have been working for some time on the assumption of a different policy and the Treasury wishes to consult with them further.

ACCOUNTING FOR HERITAGE ASSETS

6. The Treasury notes FRAB's views on the treatment of non-operational heritage assets. Those departments with significant heritage assets retain doubts about the potential implications of adopting the policy set out in the Manual and this will be considered further.

RELATIONSHIP WITH RESOURCE BUDGETING

7. Whilst recognising that its remit is limited to the consideration of the accounting policies and standards as they affect the preparation of resource accounts, the Board has drawn attention to the need to ensure, through careful development of resource budgeting, that the benefits of resource accounting and budgeting exceed the costs. The Treasury recognises this. It has been a fundamental objective throughout that RAB should be developed in a way which leads to efficiency improvements and better value for money.

NEXT STEPS

8. The Treasury now proposes to issue the Manual formally to departments. Future accounts directions for bodies covered by the Resource Accounting Manual will require bodies so directed to prepare their resource accounts in accordance with its principles and standards. Revisions arising either from the Board's further consideration of the issues listed in paragraph 4 above, from new professional accounting standards and principles (i.e., additions to UK GAAP), or from the implementation of resource accounting by departments will, once agreed, be incorporated. Any observations from Parliament leading to changes to the Manual would be dealt with similarly.