|
Department of Trade and Industry
Commentary: Consolidated Resource Accounts 1999-2000
INTRODUCTION
1. The purpose of this commentary
on the 1999-2000 Resource Accounts is to:
- explain to readers of the accounts
in broad terms, the main features of the new system of reporting
public spending and how it operates;
- explain the changes and benefits
brought about by the new system; and
- provide a brief financial overview
of the Department's first set of audited Resource Accounts.
A copy of DTI's
Consolidated Resource Accounts is available as a PDF  (203Kb)
BACKGROUND TO THE CHANGES IN REPORTING
2. Resource Accounting and Budgeting
(RAB) was launched in 1993 with a commitment to introduce Resource
Accounting as the basis of public expenditure planning and control.
The overall timetable for RAB implementation, set by HM Treasury,
required that for 1999-2000, the Department published a set of
audited Resource Accounts alongside its Appropriation Accounts.
For financial year 2000-01, the Department produced "shadow" resource-based
Estimates, to achieve the Treasury's RAB "trigger point 4". From
financial year 2001-02 all public expenditure planning and control
will operate on a resource basis.
3. The present system of government
accounting, (the Appropriation Accounts), is cash-based, and does
not distinguish fully between cash used for current spending and
long term spending.
4. RAB makes three significant improvements
to this:
- the full economic costs of activities
are measured properly by including non-cash costs, such as depreciation
of fixed assets and cost of capital charges and matching these
costs to the period in which they provide economic benefits
rather than "scoring" the cash cost in full in the year of acquisition;
- it identifies fully, the value
of future benefits, obligations and liabilities which would
not be reported under the Appropriation Accounts; and
- it requires government departments
to report systematically on how they have used resources to
meet stated objectives.
5. The measurement of resources consumed
uses accrual-based accounting. Costs and income relating to departmental
activities are recognised in the accounts when goods or services
are consumed, or income earned, through carrying out activities.
This compares with the current cash-based system where transactions
are only recorded when cash payments are made or income received,
regardless of consumption.
REPORTING FRAMEWORK
6. The department has to produce
Resource Accounts, which provide a "true and fair view". By this
we mean that:
- the Resource Accounts have been
produced in accordance with instructions, advice and guidance
contained in the Resource Accounting Manual (RAM), issued by
HM Treasury:
- the financial statements and
accompanying notes follow the style, format, disclosure and
presentation contained in the RAM; and
- that the accounts have been prepared
so that they comply with existing Financial Reporting Standards,
Standard Statements of Accounting Practice and UK Generally
Accepted Accounting Procedures as applied to public sector reporting.
The Resource Accounts are then audited
by the National Audit Office (NAO), who will issue an audit opinion
on whether the accounts are true and fair and whether expenditure
and income has been applied to the purposes intended by Parliament.
The NAO issued an unqualified audit report for the Department's
1999-2000 Resource Accounts.
STRUCTURE OF THE RESOURCE ACCOUNTS
7. The Resource Accounts comprise
the following sections:
- Foreword (approved by the Accounting
Officer for the Department, Sir Michael Scholar);
- Statement of Accounting Officer's
Responsibilities; ¨ Statement on the System of Internal Financial
Control;
- Certificate and Report of the
Comptroller and Auditor General;
- Accounting Schedules; and ¨ Notes
to the Resource Accounts.
These sections are described in more
detail in paragraphs 8 to 14 below.
Foreword to the Accounts
8. The foreword covers pages 3 to
13 of the Resource Accounts and consists of details on the following:
- what the Departmental Aim and
Objectives were for the financial year;
- who the Ministers with Trade
and Industry responsibility were during 1999-2000;
- provides details of the officials
who served on the Departmental Management Board during 1999-2000;
- identifies the entities which
fell with the Department's Resource Accounting boundary and
were therefore consolidated into the Resource Accounts;
- financial performance during
the financial year;
- details of significant events
since the end of the financial year;
- summary of DTI managed liabilities,
(e.g. coal and nuclear); and
- public interest and other items
which includes policy on equal opportunities, recruitment policies
to make it easier to recruit disabled staff, performance on
payments to suppliers, year 2000 compliance, impact of the introduction
of the Euro and appointment of the Auditor.
Statement of Accounting Officer
Responsibilities
9. In this statement on page 14,
the Accounting Officer states that:
- the Resource Accounts are prepared
on an accruals basis and must give a true and fair view of the
state of affairs of the Department, the net resource outturn,
resources applied to objectives, recognised gains and losses
and cash flows for the financial year;
- the Accounting Officer is responsible
for preparing the Department's Resource Accounts and for transmitting
them to the Comptroller and Auditor General of the NAO;
- the Accounting Officer must comply
with the RAM prepared by HM Treasury; and
- comply with the Accounting Officer's
Memorandum issued by HM Treasury and published in Government
Accounting.
Statement of Internal Financial
Control
10. This appears on pages 15 and
16 of the Resource Accounts. It is a statement signed by the Accounting
Officer, which acknowledges his responsibility for the system
of internal financial control. The statement describes how the
Department organises its budgets, management reporting, performance
measurement, financial delegation and the remit for Internal Audit.
It also acknowledges that the Accounting Officer is responsible
for meeting the Treasury requirement for the statement of internal
control to be prepared in accordance with the recommendations
of the Turnbull Committee, by 31 March 2002.
Certificate and Report of the
Comptroller and Auditor General
11. The Audit Opinion on the 1999-2000
Resource Accounts is signed by the Comptroller and Auditor General
of the NAO, (pages 17 and 18). The NAO opinion covers the Accounting
Schedules plus the supporting notes to the accounts, (pages 19
to 52). The report covers the following:
- Certificate and Report of the
Comptroller and Auditor General to the House of Commons
This states that the financial statements have been audited
under the Exchequer and Audit Departments Act 1921. It also
states that the accounts have been prepared under the historical
cost convention as modified by revaluation of fixed assets and
in accordance with the Department's accounting policies.
- Respective responsibilities of
the accounting officer and auditor
In this section, the NAO make it clear that the Accounting Officer
is responsible for the preparation of the financial statements
and for ensuring the regularity of financial transactions. The
NAO's responsibilities are established by statute and guided
by Auditing standards and guidelines. The NAO also comment on
the consistency of the Foreword to the financial statements
and on the Statement of Internal Financial Control to ensure
compliance with Treasury guidance.
- Basis of Opinion
The NAO explain their audit approach and how they form their
audit opinion.
- Opinion
The NAO express their opinion on the financial statement, including
any audit qualification. They also comment on whether expenditure
and income have been applied for the purposes intended by Parliament
and that transactions conform to the authorities which govern
them.
The Department received an unqualified auditor's opinion on
the 1999-2000 Resource Accounts.
Accounting Schedules
12. The RAM produced by HM Treasury
requires the Department to produce five primary statements as
part of its Resource Accounts, which are referred to as Schedules
one to five. Each statement serves a different purpose and these
are described below:
- Schedule 1 (Consolidated Summary
of Resource Outturn)
This schedule (pages19 and 20), acts as the parliamentary control
schedule in RAB. It has no equivalent in company reporting.
The schedule identifies the following:
- the variance between Net Resource
Outturn expenditure and estimate expenditure, for each Request
for Resources, approved by Parliament together with the
related net cash requirement;
- a reconciliation of total
resource expenditure to the net cash requirement for both
outturn and estimate; and
- provides narrative explanation
of variances between estimates and outturn expenditure.
- an analysis of income payable
to the Consolidated Fund distinguishing between income and
receipts (e.g. cash), and between income for fees and other
Consolidated Fund Extra Receipts not classified as A-in-A.
For 1999-2000, Parliament has not approved formal Requests
for Resources. The figures reported on Schedule 1 are shadow
estimates, which were produced as part of HM Treasury's Trigger
Point 4 exercise. Therefore any estimates, variances against
estimates and any narrative explanations shown on Schedule
1 of the 1999-2000 Resource Accounts are illustrative only.
Formally approved estimates from Parliament will not be available
until 2001-02.
In the Department's 1999-2000 Consolidated Resource Accounts,
Schedule 1 reports that the Total Resources (or Net Resource
Outturn) of £4.295 billion, exceeded the shadow resource estimate
by £1.48 billion pounds due to increased provisions for coal
and nuclear liabilities and charges. The Net Cash Requirement
of £1.545 billion was £1.53 billion lower than the shadow
resource estimate, due to an increase in creditors of £1.327
billion, related to the Spectrum Auction receipts for third
generation mobile services.
-
Schedule 2 (Consolidated Operating
Cost Statement)
Schedule 2 (page 21) is the resource accounts equivalent of
an income and expenditure account found in the not-for-profit
sector. The purpose of the Operating Cost Statement (OCS)
is to provide a record of the cost of goods and services incurred
by the Department together with any income earned during the
financial year. It discloses the Department's operating results
for the year into Administration net expenditure and Programme
net expenditure. Administration costs are analysed into staff
and other costs, (supporting details in notes 2, 3 and 5),
whereas net Programme expenditure is analysed into Requests
for Resources, (with supporting details found in notes 4,5,6
and 7). Income and expenditure are shown separately.
The 1999-2000 Consolidated Operated Cost Statement reports
net administration costs of £396.3 million after deducting
operating income of £151.5 million. Programme costs were £4.164
billion before deducting programme income of £125.3 million.
Expenditure on Trade and Industry Programmes, (most notably
Support for Business £761 million, and £1.720 billion for
Measures related to individual industries and related programmes)
totalled £2.616 billion. Programme expenditure on increasing
UK science excellence totalled £1.423 billion.
Net Operating Cost for the year totalled £4.435 billion and
Net Resource Outturn was £4.295 billion. Note 6 reconciles
the difference between the Department's Net Operating Cost
and Net Resource Outturn. This difference is caused by Consolidated
Fund Extra Receipts, (£7.948 million), which are credited
as income to the OCS but which the Department must pay over
to HM Treasury, and net Redundancy Protection Scheme expenditure,
(£147.2 million), which is financed from the National Insurance
Fund but which is reported as part of the Department's Net
Operating Cost.
-
Schedule 2 (Consolidated Statement
of Recognised Gains and Losses)
The Statement of Recognised Gains and Losses (STRGL) is shown
at the foot of the OCS (page 21). Its purpose is to record
all gains and losses, which have not been processed through
the OCS, but have instead been treated as balance sheet movements.
The amount reported in the Department's 1999-2000 Resource
Accounts, (£1.561 billion), represents the movement during
the year on the Revaluation Reserve caused by revaluation
of assets held by the Department. Full details of the type
of assets revalued, and the revalued amounts are found in
Note 19.
-
Schedule 3 (Consolidated Balance
Sheet)
A major feature of resource accounting is the recognition
of assets and liabilities and as such, the balance sheet (page
22), is the most significant of the primary financial statements.
The balance sheet shows the value of assets and liabilities
owned by the Department at the beginning and end of the year
allowing readers of the accounts to see significant changes
in balances during the year. Full details and explanations
on all lines of the balance sheet are contained in notes 8
to 20 to the accounts.
At 31 March 2000 the Department reported total liabilities
of £9.37 billion, (of which coal represents £3.051 billion
and nuclear represents £6.101 billion), and net liabilities
of £2.75 billion. The Department had fixed asset investments
of £3.503 billion, which includes £2.262 billion investment
reserves of two pension schemes for former employees of the
British Coal Corporation and aerospace investments of £1.157
billion. The Department also has an interest in surpluses
declared from two closed pension schemes, totalling £2.875
billion, which are disclosed under current asset investments.
Although the Department has reported significant liabilities,
it is not insolvent and these future net liabilities will
be funded by future Requests for Resources to meet these liabilities
as they fall due.
Prior to the introduction of resource accounting there was
no equivalent schedule for the Department. It is therefore
a significant new piece of information as it clearly identifies
the scale of future obligations that the Department must fund.
This contrasts with the information contained in the Department's
Appropriation Accounts, which only show the spending results
for the year just ended, with limited disclosure of future
commitments against public funds.
The balance sheet is signed by the Accounting Officer.
-
Schedule 4 (Consolidated Cash
Flow Statement)
This schedule (page 23), analyses the net cash flow from operating
activities, identifies how much was spent by the Department
on capital expenditure and investment, records what Consolidated
Fund Extra Receipts were collected and paid over to HM treasury
and shows the funding that the Department received from the
Consolidated Fund to finance its activities. These are explained
in more detail below.
- Reconciliation of Net Operating
Cost to Operating Cash Flows
This section of the cash flow statement reconciles the net
operating cost, which is reported on Schedule 2, to the
net cash outflow from operating activities. It explains
how much of the net operating cost of £4.435 billion for
1999-2000 is reflected by cash transactions, (£1.671 billion),
non-cash transactions of £1.231 billion, amounts funded
by movements in working capital (mainly creditors) of £1.385
billion and expenditure funded from the National Insurance
Fund of £147 million.
- Analysis of Capital Expenditure
and Financial Investment
This section identifies that the net-cash inflow from investing
activities overall was £224 million. It identifies how much
the Department spent on acquiring new fixed assets (£21
million), how much it invested in other bodies (£68 million,
of which £66 million is Launch Investment), and that £314
million worth of income was received through the redemption
of investments.
- Analysis of Financing - Net
Cash Requirement
Cash flows reported in this section identify how much cash
the Department drew down from the Exchequer during 1999-2000,
£2.958 billion, the net amount of Consolidated Fund Extra
Receipts received and not paid over during 1999-2000 of
£65 million, Consolidated Fund Extra Receipts collected
during 1998-99 but paid to HM Treasury in 1999-2000 £189
million, and the increase in cash during the course of the
year of £1.289 billion, (due entirely to Spectrum Auction
Receipts).
The net of these cash movements of £1.545 billion, is the
Department's net requirement for cash during 1999-2000.
This figure is also reported on Schedule 1 and is the means
by which Schedule 1, (the Parliamentary control schedule),
is reconciled to Schedule 4.
- Schedule 5 (Consolidated Statement
of Resources by Departmental Aim and Objectives)
The purpose of Schedule 5 (page 24), is to communicate the Department's
aim, i.e. the purpose for which the Department exists), and
the specific objectives that it has planned to achieve. The
schedule re-analyses the figures contained in the OCS so that
net expenditure is identified across the main departmental objectives.
This allows readers of the accounts to see how much has been
spent during the year by the Department, linking its resource
inputs to departmental objectives.
Supporting notes to the accounts
13. The notes to the accounts provide
extra information to support figures, which appear on the face
of individual Accounting Schedules. The format and disclosure
contained in these notes is determined by the RAM issued by HM
Treasury. The notes form part of the Resource Accounts and are
covered by the Audit Opinion issued by the Comptroller and Auditor
General.
14. The structure of the notes is
as follows:
- Note 1: Statement of Accounting
Policies (page 25 to 29). This details the particular accounting
policies which have been used by the Department in dealing with
items which are considered material in relation to the accounts.
- Notes 2 to 7 (page 29 to 35).
These notes provide additional analysis to support numbers,
which appear on the face of the OCS and the Consolidated Cash
Flow Statement.
- Notes 8 to 20 (page 35 to 47).
These notes support numbers, which appear on the face of the
Balance Sheet and the Consolidated Cash Flow Statement.
- Notes 21 to 23 page 47 to 49).
These notes provide additional disclosure and information about
the type and value of commitments that the Department has entered
into, which have not yet been recognised within the Resource
Accounts.
- Note 24: Contingent Liabilities
(page 49 to 50). This note provides additional disclosure
about the type and probability of contingent liabilities which
might crystallise in the future but for which liabilities have
not yet been recorded in the Resource Accounts.
- Note 25: Analysis of Net Operating
Cost (page 50 to 51). This note provides additional disclosure
as to the composition of the Net Operating Cost reported on
the OCS, by analysing the net expenditure between the core Department
and the consolidated agencies, which fall within the DTI's departmental
boundary for resource accounting.
- Note 26: Related Party Transactions
(page 51). A related party transaction can be a transaction,
which arises between the Department and one of its consolidated
bodies. It also includes any transactions between the Department
and any board members or key staff.
- Note 27: Post Balance Sheet
Events (page 51 to 52). This note provides details of significant
events, which have occurred since the 31 March 2000 and the
28 November 2000, (the date when the accounts were signed).
- Note 28: Accountability Notes
(page 52). This note deals with the losses, which would
normally be disclosed, in the Appropriation Accounts to comply
with the requirements of Government Accounting.
| index | 
|
