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THE TERMS OF REFERENCE OF THE FINANCIAL REPORTING ADVISORY BOARD TO THE TREASURY - 8 FEBRUARY 1996

1.          Context

1.1       The primary aims of financial reporting by central government bodies are to demonstrate to the public and their representatives in Parliament:

• that public monies have been used for the purposes in­tended by Parliament;
• the financial performance of the bodies; and
• their stewardship of public funds and assets;

and to provide Parliament with information which is reliable and sufficient as a basis for

• its consideration and approval of the levels of finance voted to services; and
• its examination of performance in carrying out policies, functions, programmes and projects.

1.2             Financial reporting is also intended to underpin the Gov­ernment's planning, monitoring and management of public expendi­ture.

1.3        The authority to develop financial reporting requirements is delegated to HM Treasury.

1.4        The Government has decided that financial reporting by central government bodies should be based on Generally Accepted Accounting Practice (GAAP) adapted where appropriate to take account of the public sector context.

2.          Reasons for establishing the Board

2.1        The Board will introduce an independent element into the process of setting financial reporting standards for government.

2.2        The Board will help ensure that:

(i)          as far as possible departmental resource accounts are governed by GAAP;

(ii)           departures from, or modifications to, GAAP are fully explained.

3.0              Terms of Reference

3.1        The Board will advise HM Treasury on the application of financial reporting principles and standards in respect of central government bodies for which the Treasury has responsibility for issuing or approving accounts directions.

3.2        The Board

(i)          will examine the Resource Accounting Reference Manual and any proposals for material changes to this guid­ance;

(ii)          will keep the Manual under review and consider any proposals for material change.

3.3             HM Treasury will:

(i)             ensure that all relevant matters are drawn to the attention of the Board;

(ii)  consider all advice received from the Board;

(iii)          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.

4.0              Membership [1]

4.1        The Board will comprise:

1 member nominated by the Chief Accountancy Adviser to the Treasury

1 member nominated by the Comptroller and Auditor General

1 member nominated by the Audit Commission

2 members nominated by the Principal Finance Officers of government departments and Finance Directors of Executive Agencies

1 member nominated by the National Statistician

1 member nominated by the Accounting Standards Board

1 member, an independent economist, nominated by the Head of the Government Economic Service

4.2        In addition, an independent Chairman of the Board will be nominated by the Chief Accountancy Adviser.

4.3        The Board will meet as required in each year to discuss matters relating to financial reporting as they arise.

5.0              Future Developments

5.1        The accounting policies contained in the Reference Manual are designed to meet the particular circumstances of the public sector.  As such, they may have per­suasive force in other areas where bodies produce accounts that are not covered by their own accounting code.

5.2        As other bodies come within the boundary of resource accounting principles, the membership of the Board may be increased to reflect this wider community.

5.3        The Government has accepted that research on "whole of government" accounts should be taken forward as suggested by the Treasury and Civil Service Committee and Committee of Public Accounts, reporting in due course.  Depending on the outcome of this work, the remit of the Board would widen to include such accounts.