1. Statement of accounting policies

The financial statements have been prepared in accordance with the Resource Accounting Manual issued by the HM Treasury. The accounting policies contained in the manual follow UK generally accepted accounting practice for companies (UK GAAP) to the extent that it is meaningful and appropriate to the public sector. Where the manual permits a choice of accounting policy, the policy that the House of Lords has judged the most appropriate for the purposes of giving a true and fair view has been selected. The particular accounting policies adopted are described below. They have been applied consistently in dealing with items considered material in relation to the accounts.

1.1 Accounting conventions

These accounts have been prepared under the historical cost convention modified to include the revaluation of fixed assets, and stocks where material, at their value to the House of Lords by reference to their current costs.

1.2 Basis of consolidation

These accounts comprise a consolidation of the House of Lords Peers' Expenses and administration costs (Request for Resources 1) and Works Services (Request for Resources 2). The accounts also incorporate the transactions of the House of Lords Refreshment Department and the House of Lords Works of Art Collection Fund, previously published as separate financial statements.

The Palace of Westminster is a Royal Palace and is under the joint stewardship of the House of Lords and the House of Commons. Responsibility for maintenance of the Palace and the Parliamentary Estate is a function resting with the Parliamentary Estates Directorate and the Parliamentary Works Services Directorate within the Serjeant at Arms Department in the House of Commons. Expenditure on the Palace and the Parliamentary Estate is apportioned in a 40:60 ratio, or solely allocated to the House of Lords or the House of Commons where appropriate. Expenditure is made on behalf of the House of Lords by the Department of Finance and Administration in the House of Commons, which is then recharged to the House of Lords over the course of the year.

From 1999 onwards, the Record Office, which maintains the Parliamentary Archives, became a shared facility with relevant costs split in a 60:40 ratio between the House of Lords and the House of Commons.

Security costs are arranged and monitored jointly but are billed separately to the two Houses by the Metropolitan Police on a pre determined ratio. Additionally, the two Houses incur administration costs on each other's behalf. These are recharged over the course of the year, on the basis of an agreed proportion.

1.3 Fixed Assets

i. Tangible Fixed Assets

Land and buildings shown in the accounts are as follows:

1. Property on the Parliamentary Estate administered by the House of Lords; and
2. Property on the Parliamentary Estate administered by the House of Lords and House of Commons jointly;

ii. Freehold Properties

The Palace of Westminster is a Royal Palace and is revalued every year. The remainder of the Parliamentary Estate is subject to a full revaluation every 5 years and an interim valuation every year. The valuations are undertaken by the District Valuers of the Valuation Office Agency (VOA) in accordance with Financial Reporting Standard (FRS) 15 and the Appraisal and Valuation Manual of the Royal Institute of Chartered Surveyors and are subject to instructions issued by the House of Commons.

Properties regarded by the House of Lords as operational are valued on the basis of Existing Use Value or, where this could not be assessed because there was no market for the subject asset, on a Depreciated Replacement Cost Value (DRC) basis.

iii. Antique Furniture

The antique furniture was professionally valued at 31^st March 1998. Each year the Furniture Manager in the Parliamentary Works Services Directorate carries out an internal review to assess if any revaluation adjustment is required.

iv. Plant and Machinery

Plant and Machinery includes the clock mechanism in the Clock Tower, popularly known as 'Big Ben', which is revalued every 5 years on a replacement cost basis in accordance with Financial Reporting Standard (FRS) 15.

v. Other Tangible Assets

Other tangible assets have been stated at current cost using appropriate indices. The indices are obtained from the Office for National Statistics MM17 'Price index numbers for current cost accounting'. The minimum level for capitalisation of a tangible fixed asset is £1,000.

vi. Intangible Fixed Assets

Intangible fixed assets relate to licences to use software developed by third parties. These are valued at cost and the minimum level for capitalisation is £1,000.

1.4 Depreciation and Amortisation

Freehold land is not depreciated.

Depreciation and amortisation is provided at rates calculated to write off the valuation of freehold buildings and other fixed assets by equal instalments over their estimated useful lives. Depreciation is not charged on antique furniture, where, in accordance with FRS 15, the long remaining life or high residual value of the assets makes such a charge immaterial. Lives are normally in the following ranges:

Palace of Westminster      96 years

Other buildings        remaining life (between 14-140 years)

Plant and machinery        10-30 years

Fixtures and fittings        10 years

Refreshment Department silverware  20 years

Library books          10 years

Broadcasting equipment      10 years

Telephone equipment      10 years

General office equipment      5-10 years

Computer file servers and software    3-5 years

Other IT equipment         3 years

1.5 Non-Operational Heritage Assets

The House of Lords has the following categories of non-operational heritage assets - the Works of Art Collection, the Parliamentary Archives, Antiquarian Books and Peers' Robes. Owing to the nature of these assets, or their long economic life and high residual value, depreciation is not charged.

i. Works of Art Collection

Parliament has collected Works of Art since 1841 depicting parliamentary institutions and statesmen and women. The collection originally consisted of works of art commissioned by the Fine Arts Commission, with the purpose of bringing the history of the nation to life on the walls of the interiors of the Houses of Parliament. Many of the works added later were acquired as donations from Members of both Houses. Until 1991 the collection was held jointly by both Houses of Parliament; at that date the works were nominally split between the two Houses on the basis of where works were situated at that date. However, this split did not necessarily reflect actual ownership at the date of acquisition, or the locations for which the works were originally commissioned or intended. The total size of the collection is disclosed in a footnote to note 10.

In accordance with the Resource Accounting Manual, the value of the Works of Art Collection as at 31^st March 2000 is not included on the balance sheet. House of Lords additions from 1^st April 2000 are valued at cost. Details on the House of Lords Works of Art Collection Fund are contained in note 25.

ii. The Parliamentary Archives

The Parliamentary Archives comprise several million documents that have been preserved at the Palace of Westminster from 1497 in a variety of formats, from vellum and parchment to modern computer disk. Parliamentary records prior to 1497 are held by the Public Record Office and form part of the National Archives. The records are predominantly unique and irreplaceable and have been preserved for their historical, legal and administrative value. The Record Office was established in the House of Lords in 1946, and became a shared facility with the House of Commons in 1999. The Record Office publishes an Annual Report which is available via www.parliament.uk.

In accordance with the Resource Accounting Manual, the value of the Parliamentary Archives as at 31^st March 2000 is not included on the balance sheet, with acquisitions from 1^st April 2000 being valued at cost.

iii. Antiquarian Books

The House of Lords Library holds a collection of antiquarian books, which dates back to the Seventeenth century. In accordance with the Resource Accounting Manual, the value of antiquarian books as at 31^st March 2000 is not included on the balance sheet, with acquisitions from 1^st April 2000 being valued at cost.

iv. Peers' Robes

The House of Lords holds robes which are lent to Peers for ceremonial use on State occasions. These were donated or bequeathed to the House by former Peers, are secured within the Palace and cleaned and repaired as necessary. The Donated Assets reserve comprises of these robes which, due to their long life, are not depreciated.

1.6 Investments

The House of Lords holds a small investment account with Lloyds Bank plc.

1.7 Stock and work in progress

Stock includes goods for resale, other stock held by the Refreshment Department and certain other consumable stores.

Stock and work in progress are valued as follows:

1. Finished goods for resale are valued at cost or, where materially different, current replacement cost, and at net realisable value only when they either cannot or will not be used;
2. Work in progress is valued at the lower of cost, including appropriate overheads, and net realisable value.

1.8 Research and Development

Any expenditure on research and development is treated as an operating cost in the year in which it is incurred.

1.9 Income

Income relates directly to the operating activities of the House of Lords. It includes receipts from Judicial proceedings and taxation of costs, Private Bill proceedings, replication of parliamentary archives, receipts in connection with the provision of catering facilities to members, staff pension contributions and other pension receipts.

1.10 Administration and programme expenditure

The House of Lords is outside HM Treasury's administration costs control regime. To enable the House of Lords to produce the resource accounts with sufficient detail to provide a true and fair view of the state of its affairs, the requirements of the Resource Accounting Manual have been adapted. For reporting purposes, the same level of detail has been provided in the Accounts as a whole as would be necessary for a government department to provide for expenditure governed by the administration costs control regime.

1.11 Capital charge

A charge, reflecting the cost of capital utilised by the House of Lords, is included in operating costs. The charge is calculated at the government's standard rate of 6 per cent in real terms on all assets less liabilities, except for donated assets, additions to heritage collections where the existing collection has not been capitalised, and cash balances with Office of the Paymaster General, where the charge is nil.

1.12 Foreign exchange

Transactions which are denominated in a foreign currency are translated into sterling at the exchange rate ruling on the date of each transaction.

1.13 Pensions

Present and past employees of the House of Lords are covered by the provisions of the House of Lords Staff Pension Scheme (HOLSPS). The scheme is an unfunded defined benefit scheme which is operated 'by analogy' with the Principal Civil Service Pension Scheme. Retirement benefits are based upon final salary and the scheme is non-contributory (except for a 1.5% contribution for widows/widowers and dependants benefits). The House of Lords meets the costs of all benefits. The HOLSPS relates to House of Lords' staff; those employed by the House of Commons are covered by separate pension arrangements.

The pension scheme is accounted for under the terms of SSAP 24 Accounting for Pension Schemes and FRS 17 Retirement Benefits. The annual accruing cost of providing for future benefits is charged to the operating cost statement and is based upon rates determined by the Government Actuary and advised by the Treasury. These rates were in the range of 12-18.5% of pensionable pay.

A provision to meet the liability is included on the balance sheet. The HOLSPS is a 'by analogy' scheme with less than 1000 members. The Government Actuary's Department devised a model to help organisations with small 'by analogy' to the PCSPS schemes value their liabilities (see DAO (GEN) 18/02). The amount in the financial statements has been calculated using this valuation method. The date of valuation is 31^st March 2002. The main financial assumptions are,

1. Inflation - 4.8% per annum
2. Salary increases and GMP revaluation - 6.4% per annum
3. Pension increase for deferred pensions - 4.8% per annum
4. Pension increase for current pensions - 4.8% per annum

v.  Nominal discount rate - 8.5% per annum. Scheme liabilities are discounted using an assumed long-term real rate of return expected to be earned on a portfolio of long-dated index-linked gilts. This rate is determined by the Government Actuary's Department and is subject to periodic review. The current (real) rate is 3.5%.

The House of Lords meets the cost of benefits beyond the normal HOLSPS benefits in respect of employees who retire early.

1.14 Operating Leases

Operating lease rentals are charged to the operating cost statement over the lease term.

1.15 Grants payable

The House of Lords makes an annual grant to the History of Parliament Trust (see note 4).

1.16 Third-party assets

The House of Lords Security Fund Account holds monies lodged as security on civil appeals to the House of Lords. The monies in the account are always repaid to one of the parties to the appeal, the House of Lords receiving no benefit. These are categorised as Third Party Assets and the information relating to the House of Lords Security Fund Account is contained in note 24. The Fund has not been included in the list of assets and liabilities on the balance sheet.

The House of Lords Refreshment Department receives and pays gratuities to its staff. This has no cost to the House of Lords and for 2001-02 the amount paid was £211,000.

1.17 Prior year comparatives

The prior year comparatives disclosed in the financial statements are unaudited, given that 2001-02 is the first year in which the House of Lords has prepared Resource Accounts for certification.