HM Treasury News Release
98/97 4 August 1997
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REFORM OF GOVERNMENT FINANCIAL MANAGEMENT TAKES STEP FORWARD
CHIEF SECRETARY WELCOMES APPROVAL OF TREASURY
RESOURCE ACCOUNTING MANUAL
Better control of public spending through the introduction of
best commercial practice into Government accounting moved closer
today.
Financial reporting principles and standards which will underpin
resource accounting were given the green light when the
independent Financial Reporting Advisory Board (FRAB) approved
the Treasury's draft resource accounting Manual for use by
Government departments.
This will improve the way the Government accounts for how
taxpayers' money has been spent, bringing it into line with best
private sector practice.
Welcoming FRAB approval of the Manual, Chief Secretary Alistair
Darling said :
"The Government is determined to put its accounting
procedures on a proper and modern footing. This is the
greatest reform to the public finances in over 100
years.
"Resource accounting is an important development in
getting best value for money for the taxpayer. It will
provide a better measure of the cost of the activities
of central Government departments, and of their assets
and liabilities.
"Resource budgeting will then build on that and
improve the way in which we plan and control
Government spending. FRAB approval of the resource
accounting Manual means that progress towards that
goal will continue to schedule.
"The Government is committed to carrying through this
important initiative, which is already bearing fruit.
Departments' work on their resource accounts will help
them to prepare the National Assets Register. This
will show which assets departments own, and will
enable more informed decisions on what should be done
with them.
"Resource accounting and budgeting will play an
important part in increasing the transparency and
public understanding of the finances of departments
and measuring their success in meeting their targets.
This is essential to improving public confidence in
the effective management of public finance.
"I am grateful to FRAB for conducting their review,
and I look forward to further advice as resource
accounting develops.
NOTES TO EDITORS
1. The intention to reform Government accounting practice
through the introduction of accrual accounting
practices was set out in July 1995 in a White Paper
entitled Better Accounting for the Taxpayer's Money :
Resource Accounting and Budgeting in Central
Government.
2. Cash accounting : Government departments currently
plan and account for expenditure on a cash basis. This
approach, which has applied since the mid-19th
century, means that Departments work within cash
budgets. This approach fails to take account of the
capital aspects of Government finances and consumption
of resources.
3. Accrual accounting: is the common accounting practice
in the commercial sector. It means that expenditure
and income are accounted for in the year in which they
were incurred or earned rather than when cash actually
passed hands. In particular the cost of using fixed
assets in any year will include its depreciation.
4. Resource accounting: will introduce accruals
accounting practices across Government departments
over the next two years. Resource budgeting will
introduce accruals accounting into the way Government
plans and controls its expenditure. This will
commence in the year 2000 in respect of the year
starting 1 April 2001, which will be the first year to
which resource budgeting is applied.
5. The Government established the Financial Reporting
Advisory Board (FRAB) to provide independent advice on
resource accounting. Ensuring that the resource
accounting Manual follows accounting standards and
practices adopted in the accountancy profession, as
far as these are appropriate to Government, is
central to that remit.
6. FRAB has nine members, including representatives from
the Accounting Standards Board, Audit Commission,
National Audit Office, the Government Statistical
Service, MOD, HM Land Registry, academia, and the
Treasury, under the Chairmanship of Elwyn Eilledge,
Chairman of BTR plc.
7. Copies of the FRAB report "Report on the Resource
Accounting Manual" are available from Sue Gamble on
0171 270 5603.
8. Other media enquiries should be addressed to Charles
Keseru on 0171 270 5188.
9. If you have access to the Internet you can find this
information at http://www.hm-treasury.gov.uk. Material
on other Treasury matters can also be found at this
address.
_______________________________________________________________
FRAB
Financial Reporting Advisory Board
Contact : Sue Gamble 0171 270 5603
4 August 1997
GOVERNMENT ACCOUNTING MANUAL APPROVED
The Financial Reporting Advisory Board (FRAB) announced today
that it has approved the Treasury's draft Resource
Accounting Manual. This will form the basis for the
introduction of commercial style accounting practices
across Government departments.
The Board recommended and the Treasury has accepted changes
to the original draft. These include: the endorsement
of a pilot study for accounting for the effect of
general inflation; the principle of capitalising some
heritage assets; and the inclusion of a statement of
recognised gains and losses.
Announcing its report on the review of the draft Manual,
FRAB Chairman Elwyn Eilledge said :
"Resource accounting is the biggest single development
in Government accounting since Gladstone's day. Our aim
has been to achieve the highest standards of financial
reporting for central Government accounts.
"We fully recognise the enormity of the challenge facing
government departments as they move from cash to
accruals accounting. Our approval of the resource
accounting manual is an essential precursor its
successful implementation across government.
"My fellow Board members and I are very pleased to have
contributed to this important development."
In reviewing the draft manual, the FRAB has sanctioned
departures from standard accounting practice only where
the treatment of departmental accounts needs to be
adjusted and extended to meet the requirements of
central Government, eg in areas such as the valuation of
fixed assets and consumable stocks, the valuation of
heritage assets, accounting for decommissioning costs
and charging for the cost of capital.
To meet their outstanding concerns about the practical
operation of the proposed treatment of departmental
accounts, the FRAB has recommended that the Treasury
monitors the introduction of Resource Accounts
carefully. These concerns relate to the extent to which
the accounts of subsidiary bodies are consolidated into
the main accounts; the interaction with resource
budgets; accounting for the effects of changing prices
in relation to the revaluation of fixed assets and
stocks.
The Board also is concerned that there should be greater
consistency between the public and private sectors on
the application of the Greenbury Code on disclosure of
the remuneration of senior staff. The Board intends to
return to these issues.
The FRAB's report completes the first stage of its work.
It will have an ongoing role in reviewing the manual in
order to take account of practical experience as RAB is
introduced across Government departments.
NOTES FOR EDITORS
1. The Government's proposal to introduce Resource
Accounting and Budgeting (RAB) was announced in the
White Paper "Better Accounting for the Taxpayer's Money:
Resource Accounting and Budgeting in Central Government"
in July 1995.
2. The FRAB is an independent body set up by the Government
in 1996 with the aim of ensuring that the accounting
standards and practices adopted for accrual accounting
in the accountancy profession have been applied or
adapted, as appropriate, to the central government
sector, and to produce a report for Parliament.
Chairman: Elwyn Eilledge, Chairman of BTR plc
Members:
Colin Balmer, Deputy Under Secretary of State, Ministry
of Defence
Mike Barnes, Associate Director, Audit Commission
Heather Jackson, Director of Finance, HM Land Registry
Graham Jenkinson, Divisional Director, Office for National
Statistics
Caroline Mawhood, Assistant Auditor General, National Audit
Office
Professor David Mayston, Professor of Public Sector
Economics, Finance & Accountancy, The University of York
Caroline Slocock. Senior Policy Expenditure Adviser, HM
Treasury
Ken Wild, Deloitte & Touche, Chairman of Public Sector
and Not for
Profit Committee of the Accounting Standards Board
3. Cash accounting : at present central government plans
and accounts for its spending on a cash basis;
departments operate within cash budgets, and the Control
Total is a cash total. The system does not take full
account of the Government's resource consumption, ie the
distinction between capital and current spending and
outcomes of that spending.
4. Accrual accounting : RAB will be in accrual terms; while
cash will continue to be monitored and controlled, but
at a more aggregate level.
5. Also,under RAB departments will have to show more
systematically how expenditure has contributed to policy
objectives, and give information about the outputs and
performance of the departments.
6. Resource accounting is to be implemented in departments
over the next two years. The White Paper announced the
Government's intention to introduce resource budgeting
in the year 2000.
7. For copies of the FRAB report to the Treasury 'Report on
the Resource Accounting Manual' please contact Sue
Gamble on 0171 270 5603.