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Lord Higgins: It is not clear how the giving of this power to the National Audit Office would endanger its independence.

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Lord McIntosh of Haringey: Does the noble Lord mean the national accounts commission?

Lord Higgins: This amendment enables the National Audit Office to determine how the national accounts commission operates. I am not clear how that would jeopardise the NAO's independence.

Lord McIntosh of Haringey: It is not the responsibility of the auditor to prepare the accounts; it is the job of the people who sign off the accounts in the first instance. It is then the job of the auditor to consider whether the accounts have been prepared in accordance with generally accepted accounting practice and they present a true and fair view. However, responsibility for preparing the accounts in the first place—this is true of both the public and private sector—must rest with the body whose accounts they are rather than the auditor.

Lord Higgins: Does the Minister agree that here we are talking about who should determine the actual accounting framework? We suggest that it should be an independent body. If the noble Lord wants the Accounting Standards Board to set the structure for the Government as well as for private institutions, fair enough. We had thought that it would be helpful if the NAO expressed how the commission should operate, but I fail to understand how that could endanger the NAO's independence.

Lord McIntosh of Haringey: The noble Lord makes two different points. He appears to believe that it would be satisfactory if the Government accepted the Accounting Standards Board as the body to set the standard, and that is exactly what we have done. That is why in this Bill we are committed to generally accepted accounting practice and the presentation of a true and fair view. Those two commitments tie us irrevocably to the Accounting Standards Board, which is an independent body. The national accounts commission, which the amendment creates, would simply be another independent body. We already have the Accounting Standards Board, and for the interface between public sector and private sector accounts we have the Financial Reporting Advisory Board.

Lord Naseby: In reply to my noble friend the Minister said that the Treasury would, by and large, respond to the Accounting Standards Board. He did not say in his response that the Treasury would definitely abide by the decision of the Accounting Standards Board. A degree of clarification is required here.

Lord McIntosh of Haringey: I cannot remember using the expression "by and large"; if I did, I apologise. I said that our proposals required resource accounts and whole of government accounts to follow a generally accepted accounting practice, modified only as necessary to take account of the specific context of departmental accounts and to present a true and fair view.

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Everyone, including the Accounting Standards Board, accepts that there are differences between the public and private sectors. To take the most obvious example, there are no shareholders in the public sector and, therefore, some of the provisions of the Accounting Standards Board as they relate to the private sector do not apply. No one claims that they are exactly the same, but the fundamental basis on which the Accounting Standards Board operates is generally accepted accounting principles and a true and fair view. We have tied ourselves in this Bill irrevocably to those standards. That represents independence and accountability to Parliament, and that is what the Bill does. The amendments to set up a national accounts commission do not take us any further.

Lord Lyell: The Minister has done a great service by pointing out the difference between accounting and auditing. At the start of his first comment, and before my two noble friends intervened, he mentioned the Accounting Standards Board. I recall that at the end of his first substantial reply he said that we could not have the Accounting Standards Board as a second level. He seemed to believe that the Accounting Standards Board would be a second set of examining authorities in addition to the others. In his concluding remarks he spoke about "true and fair view". I think the true and fair view is not to do with accounts; it is the view of the auditor. We will certainly come to that, and I have a point in that respect on the next page of the Bill. I do not see a "true and fair view" as being in the Accounting Standards Board. I do see that it is in the auditor's report.

The Minister was clear in pointing out a true and fair view, but it seemed to be that every time he mentioned "true and fair view" he was attempting to ride the two horses at once, both accounting and auditing. In my opinion, and as far as I have been educated, true and fair view is especially an opinion presented by the auditor. The Minister was clear that the true and fair view is not necessarily presented by those making up the accounts, the Treasury, or anyone else.

As the Minister said, the Accounting Standards Board has pointed out the difference between presenting reports in public and private sectors, but I wonder to whom is the auditor reporting? If it is the private sector, we know it is covered under the Companies Act, but if it is under this Bill, to whom is the Comptroller and Auditor General reporting? As my noble friend pointed out, it is to Parliament.

Lord McIntosh of Haringey: This is part of the same process. The accounts must be prepared to show a true and fair view, and the job of the auditor is to report as to whether or not that is the case. The auditor—in this case the Comptroller and Auditor General—reports for departmental accounts to the Treasury, and the Treasury reports to Parliament. We have parliamentary scrutiny of everything that the Comptroller and Auditor General does. We have it through the Treasury in terms of aggregating the

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departmental accounts, and we have it directly from the Comptroller and Auditor General through the Public Accounts Committee.

As I said, we have agreed that the Financial Reporting Advisory Board shall report directly to the Public Accounts Committee and the Treasury committees rather than to the Treasury. I do not see how much further we can go in ensuring the independence of the accountancy to audit procedure. It is all part of the same thing.

Baroness Sharp of Guildford: We on the Liberal Democrat Benches would be happy if the Accountancy Standards Board was seen as being the independent authority. What disturbs us is the wording of Clause 5(2). It gives a good deal of discretion to the Treasury because it is in accordance with directions issued by the Treasury. I accept that the Treasury say that they are going to present a "true and fair view", that it is going to be according to generally accepted accounting standards, and so forth, which are those set up by the Accounting Standards Board. But the Minister has also said, quite rightly, that as there are significant differences between the private sector and the public sector there would have to be a different set of accounts.

We would be very glad to see Clause 5(2) read:

    "resource accounts shall be prepared in accordance with guidelines issued by the Accounting Standards Board".

That would suit us very well. We are worried about the interface and interpretation between those guidelines set by the Accounting Standards Board and the interpretation placed on these by the Treasury.

Lord Higgins: It may be convenient for the Committee if I intervene at this point. I was going to make exactly the same point as that made by the noble Baroness. We are all agreed that the FRAB is independent but does not have statutory authority. The Minister is arguing that we should not worry as it is all right and the situation is set by the Accounting Standards Board. But, of course, that relates to the normal commercial accounts. What the Accounting Standards Board is not doing—and, as I understand it from the Minister, he does not propose it should do—is to set the standards for the Government.

If the Government are prepared to go along with saying that standards in government shall be set by the Accounting Standards Board on the assumption that they would be prepared to take on this rather onerous task, that would be a very considerable step forward. The Minister says that we should not worry because the restraints on the Treasury under the Bill in terms of deciding what standards should be adopted within government, within the framework of general accounting standards, is very severe. There are a number of points where I do not see that to be the case. To give the example of Clause 5(2),

    "Resource accounts shall be prepared in accordance with directions issued by the Treasury",

not in accordance with directions issued by the Accounting Standards Board or a framework established by the Accounting Standards Board. No

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doubt the Minister can tell us where else, if not in that instance, the Treasury is restrained in this or that way. It seems to us that this ought to be a matter for an independent body to determine, not the Treasury.

Of course, it is the case, as the Minister rightly says, that the accounts are produced by the Treasury, in this case, and are audited by the NAO, as my noble friend said in his contribution a moment ago. The reality is that there is still a considerable degree of discretion so far as the Treasury is concerned.

I refer, again, to the question about which I have some more specific knowledge as far as the working families tax credit is concerned. If we were to have the Accounting Standards Board setting these standards I do not believe they would enable £15 billion to be shifted away from determining whether or not it should be treated as public expenditure or a tax cut. That example shows clearly that, for the moment, the Treasury has too much discretion and it does not seem to us on this side of the Committee that, without an independent body, that is the case.

If the Minister is prepared to go along with the Accounting Standards Board carrying out the task for the Government as well as the private sector, I gather we would have the Liberal party's support on this and it is worth pursuing at a later stage. However, I really do not understand what the Minister is saying.

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