Examination of Witnesses (Questions 20
TUESDAY 7 MARCH 2000
20. There is a serious point here. The Advisory
Board has indicated that it thinks that what is within and without
the boundary may have to be looked at.
(Mr Wild) I think it will have to be looked at. It
is certainly something we hope to come back to.
21. When do you think the Advisory Board might
want to re-visit this one?
(Mr Wild) I think we will re-visit that one at least
annually to see the state of development. I think we will also
consider it in the context of whole of government accounts. I
think in due course whole of government accounts will override
that issue, that in terms of getting everything together in whole
of government accounts there will be more emphasis on bringing
individual things within departments. So I would see us re-visiting
that and commenting on that on an annual basis. In terms of potential
change, I would see that two, three or four years down the line.
That is the sort of issue where we have left questions hanging.
Where we have taken a view that something was inappropriate in
proposals put forward, I would say in all cases the Treasury has
listened and revised. I cannot think of an instance where the
advice of FRABand FRAB is an advisory board and people
question the statushas been resisted.
22. You cannot think of one instance?
(Mr Wild) There are still some on-going debates like
the boundary issue where we monitor and debate.
23. In respect of the boundary issue which you
have helpfully talked about, was it a formal recommendation from
the Advisory Board that X or Y should happen, or X or Y should
be within the boundary?
(Mr Wild) No, because the board saw the reasons why
the boundary was being drawn as it was and said at this stage
of development it was probably the appropriate boundary to draw
but we did not believe it would continue to be for ever.
24. Just to clarify on this point, you would
expect this to be re-visited annually but the next such occasion
when you would be looking to re-visit it as a board would be when?
(Mr Wild) I am not sure it will come up as a specific
occasion. I think probably as we write our annual report this
year, which we are just starting to do, we will be noting it.
I am sure at some stage over the year we will discuss it but I
do not think there is a particular trigger point that says we
will discuss it at this particular point in time.
25. Do you not think it might be a good idea
to diarise something to that effect?
(Mr Wild) I think it is sufficiently in the forefront
of our minds not to need to.
26. I say this having regard to what you said
about whole of government accounts, to the extent the problem
could be resolved in time, I am interested to explore first of
all whether you have identified a possible problem or area of
concern and I am really just trying to establish when you will
be re-visiting it. You say in the course of this next year.
(Mr Wild) I think it is more a case that we understand
the reasons why they have gone for the boundary they have gone
for. We will not so much re-visit the issue of the boundary as
keep under review controls as they come in and see whether we
are sufficiently forward with change to say, "Okay, things
are now changing and we want to re-visit that issue." It
is the background we will continue to monitor rather than the
issue itself. That is done almost on a continuous basis.
27. Just one final question on this. In the
Standing Committee of the Bill, the view was expressed that a
minister in signing off a set of departmental accounts could take
the decision that some of the accounting standards that were being
used in respect of his or her department were, for whatever reason,
not appropriate and in those circumstances it was in debate. It
was suggested that the minister would actually have the final
say, that he or she would notify FRAB, that you would have the
benefit of putting your views to the minister as to why this accounting
standard should be followed, which the minister had decided he
or she did not wish to follow. Are you not a bit worried about
that? What safeguards are there that ministers, for whatever reason,
whatever government, might want to play fast and loose with accounting
(Mr Wild) I have no more worry with the public sector
than I do with the private sector. You refer to ministers. There
are many directors of companies that do not particularly like
some of our accounting standards.
28. That is certainly right.
(Mr Wild) And will say so vociferously before and
after we produce them. As somebody who works in one of the major
accountancy firms we frequently have it being said to us directly
about their individual sets of accounts. They are ultimately faced
with the choice of adopting a different standard and having a
qualification to their accounts which will draw it to everybody's
attention and the world can make up its own mind. In the private
sector there is the Financial Reporting Review Panel which can
take companies to court and the court can instruct companies to
revise their accounts. I do not know what mechanism exists within
the public sector as an equivalent but I would be surprised if
a minister were not under similar pressures.
29. You do not think there is an equivalent
form of sanction in the public sector as operates in the private
(Mr Wild) No company in the private sector has ever
been to court because the ultimate sanction in the private sector,
and I suspect the same is true in the public sector, is publicity.
A company being seen to ignore good accounting, a department being
seen to ignore good accounting and do their own thing will be
so heavily criticised I think it is a sanction that neither company
directors nor ministers would take lightly.
30. Just to sum up, we could expect the Advisory
Board to publicise any example of a minister who said that he
wanted to dump a particular standard? FRAB would be at the forefront
of drawing this to the public's attention?
(Mr Wild) I do not think it is FRAB's role.
31. You do not think so?
(Mr Wild) In the same way.
32. It would be for the Comptroller and Auditor
(Mr Wild) The audit report would do it. I think the
press show enough interest in these things for it to happen automatically.
I see FRAB in much the same role, I know it is much more an advisory
board, as the Accounting Standards Board, which again does not
have any role in drawing these things to anybody's attention but
they do have a way of finding their way into the public domain.
Certainly I do not think a qualification would be missed by the
press. I am sure people would draw it to the press's attention
if it was.
33. Just returning to the discussion you had
with David Ruffley on boundary issues. I note that the Treasury
is one department that has not as yet reached trigger point three.
Certainly in its paper it is expected to meet that point this
month. I wonder when you first raised that issue with them or
flagged up that issue that the boundary was a particular problem
for them that may not allow them to get to trigger point three?
(Mr Wild) Because I am involved in a theoretical way
I have no knowledge specifically on the Treasury. Certainly the
boundary issue was identified right from the very start and was
in the original resource accounting proposals before FRAB was
ever formed. I do not know if Professor Heald or Mr Sore have
any direct knowledge on the Treasury.
(Professor Heald) I do not know any of the specific
detail to which you are referring but to come back to what Mr
Ruffley asked me before, the Green Paper in 1994 and the White
Paper in 1995 established a narrow boundary which the government
said it required for public expenditure planning purposes. At
that time this Committee and the Committee of Public Accounts
argued for whole of government accounts. In a sense one of the
striking developments is how the move to whole of government accounts
has become part of the new conventional wisdom. Essentially, one
of the reasons for not pressing too hard on the general boundary
issue is that there is now a Treasury project on setting up whole
of government accounts. So to some extent those original debates
have now passed by in time. The other point is about FRAB. FRAB
was set up against the Treasury's initial hesitation because of
Parliamentary pressure, so essentially FRAB came after and got
its remit after the key decisions had been taken about what the
boundary would be. Partly because of the way RAB has become part
of the macro-fiscal agenda, there is no doubt we are moving in
the direction of whole of government accounts and obviously that
is a transition that will have to be managed.
34. So realising that the boundary of accounts
was an issue for them that was delaying the Treasury meeting trigger
point three, did they come back to you when they realised there
would be some kind of a delay?
(Mr Wild) The Treasury has not specifically, no.
35. Mr Wild, you talked in an answer to David
Ruffley about NDPBs and the boundary division which was one of
the concerns of FRAB. In reading your two previous annual reports
you have got many other concerns. For example, you have talked
about how inflation is accounted for. Is inflation accounting
your top concern or are there other concerns you would like to
draw out of your work and draw to the Committee's attention?
(Mr Wild) The inflation accounting issue is an interesting
debate. A decision again that was taken before FRAB started but
which I would wholeheartedly endorse is the fact that the accounting
is to be done on a modified historical cost basis. It is going
to include revaluations of assets. What you do lack, both in the
private sector and in resource accounting, is any comparison of
those movements in the asset values against general price inflation
and there are various ways you can do that. What I think is the
most effective way is an extremely simple calculation. I have
at a number of meetings been able to do it on the back of an envelope
and I once demonstrated I could do it. I got my arithmetic wrong
36. Very honest!
(Mr Wild) It is very easy for you to extract from
the accounts, whether it is there or not. I think because it is
a useful piece of information I would extract it from the set
of accounts and put it somewhere in the accounts because again
I believe in the information being there. There has been a lot
of concern amongst departments that if that figure were highlighted
because it is something outside the department's control they
will be budgeted on a basis that they feel is outside their control
and they see an inequity in that. I understand why they see that.
Again I see that as a piece of information that you will build
into the process. Because of the cost of those concerns and because
the information is easily obtained it has been decided to delay
including that information in resource accounts for the foreseeable
future. FRAB had different views within the board anyway. As I
say, it is information that is easy to extract so it does not
concern me a great deal if it is not there. I will watch this
interesting debate over a piece of information that is easily
37. Are there any concerns that are really quite
important that you would like to remind us about?
(Mr Wild) I do not believe so. I think most of the
concerns I would say are relatively minor or have been sorted
out. We had a concern about retrospection in relation to PFI accounting
which now seems to have been accepted for all material PFI arrangements.
There are still some that I would put at the more minor end. Something
that concerns resource accounting is a lot of the corporate governance
measures introduced in the private sector recently, including
things like disclosure of senior officials' and ministers' remuneration
arrangements, and the fact that it is concentrating on salaries
and excludes benefits in kind. I was not aware there were many
benefits in kind but I was surprised that had been a narrow definition.
However, I see that as more of a communication issue, that the
wrong words were passed over rather than a thing that is a major
issue. There are still things that are procedurally being sorted
out. I do not see any of those as major issues.
38. So it is not the case that the reason none
of your advice has been rejected is that you have left all the
difficult issues to the last?
(Mr Wild) Not at all; we have got into some very difficult
issues. If you take something like accounting for inflation there
are areas where it really does matter such as student loans where
the accretion of the loan, the interest taken in on the loan is
equal to the inflation. If you take that as a receipt and ignore
inflation on the other side you get wrong information. In that
area the effect of inflation has been built in. All the difficult
issues I think have been faced. There is one again which has been
an interesting case study which is what to do with non-operational
heritage assets where there was a desire to try and capture information
for stewardship reasons where there does not seem to be a huge
interest in valuations outside departments and therefore, again,
that has been put to one side. Again, I would not see it as a
major issue. It is a case of seeing whether people outside the
departments want that information for their management purposes.
39. It is reassuring that you say in the establishment
of accounts independent advice has been listened to throughout
the process. The Committee would be very pleased with that. One
of the things that came up on the Standing Committee on the Government
Resources and Accounts Bill was whether a future government might
seek to make changes to accounting standards and that being quite
opaque and not transparent to observers. Would you like to comment
on that, particularly when you said in answer to Mr Ruffley that
it would not be FRAB's job to publicise these issues. Given that
they can be rather obscure, how is the public going to learn about
these and how are we going to ensure that the departments are
not behind the scenes changing accounting standards and we do
not know about it?
(Mr Wild) I would certainly see it as FRAB's job to
publicise a disagreement over an accounting standard that was
introduced to resource accounting. I was saying I did not believe
it was FRAB's job in respect of an individual department to effectively
police the adoption of resource accounting. I would see it as
FRAB's job to ensure that the standards being adopted meet the
criteria that have been set for resource accounting which include
the fact they should broadly follow private sector accounting
except where economic differences lead to different conclusions.
I would hate to think, as somebody involved in standards setting
in the private sector, that the government is going to seek to
start dictating accounting standards in the private sector. I
would hate to think that the two would drift apart in any way.
I would think it is very much FRAB's role to make sure they do
not and publicise indications they were going to. I would also
be very concerned if a structure were set up that set accounting
standards for the public sector without regard to the structure
that sets the accounting standards for the private sector, essentially
the Accounting Standards Board. Even if the two structures aimed
at the same answers, if they used different words people would
say that was meant to be a difference between them. I think it
is very, very important that we have somewhere in the whole system,
private and public sector, one body independent of government
designed to go for the best possible communication process. I
believe we have that with the Accounting Standards Board and the
whole thing should hang on that. FRAB's job is to indicate if
anybody going out of line with that.