Terms of reference of the Financial Reporting Advisory Board

1 Context

1.1 The primary aims of financial reporting by public sector bodies are to demonstrate to the public and their representatives:

the financial performance of the bodies;
their accountability for public funds and assets; and
that, where appropriate, public monies and other resources have been used for the purposes intended when the funds were authorised; and to provide to elected representatives information which is reliable and sufficient as a basis for:
their consideration and approval of the levels of resources and cash voted to services; and
their examination of performance in carrying out policies, functions, programmes and projects.

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

1.3 The authority to develop financial reporting requirements rests with:

for the central government and health sectors, the Treasury, the Welsh Assembly Government, the Scottish Ministers and the Department of Finance and Personnel, Northern Ireland in respect of accounts meeting the criteria set out in paragraph 2.1.b. below; and
for local government, the Secretary of State for Communities and Local Government, the Welsh Assembly Government, the Scottish Ministers, and the Department of the Environment, Northern Ireland.

1.4 Public sector financial reporting should be based on generally accepted accounting practice (GAAP) adapted where appropriate to take account of the public sector context. For Resource Accounts prepared by government departments for which an Estimate is laid before the House of Commons and for Whole of Government Accounts (UK), this requirement is set out in sections 5 and 9 of the Government Resources and Accounts Act 2000. A similar requirement is included in sections 9 and 14 of the Government Resources and Accounts Act (Northern Ireland) 2001.

1.5 Under section 24 of the Government Resources and Accounts Act 2000, the Treasury is required to consult an advisory group on financial reporting principles and standards for resource accounts (in practice, for England and Wales) and Whole of Government Accounts. Under section 20 of the Government Resources and Accounts Act (Northern Ireland) 2001, the Department of Finance and Personnel, Northern Ireland is also required to consult with and take account of the recommendations made by this advisory group before issuing directions on resource accounts or determining the form and content of Whole of Government Accounts (Northern Ireland). The Scottish Ministers, with the agreement of the Audit Committee of the Scottish Parliament, have determined that they should be similarly advised on such matters. The Financial Reporting Advisory Board will be the advisory group.

2. Terms of reference

2.1 Responsibilities of the Board:

(a) The Board will provide independent advice to the Treasury, the Scottish Ministers, and the Department of Finance and Personnel, Northern Ireland.

(b) The Board will advise the Treasury, the Scottish Ministers, the Department of Finance and Personnel, Northern Ireland and the Welsh Assembly Government on the application of financial reporting standards and principles:

(i) where the Treasury, the Department of Finance and Personnel, Northern Ireland and the Welsh Assembly Government are responsible for issuing reporting requirements in respect of:

Departmental resource accounts

Supply financed executive agencies
Non-departmental public bodies
Trading funds
Whole of Government Accounts
NHS trusts in England and Wales, and HSS trusts in Northern Ireland
NHS Foundation Trusts in England

(ii) where the Scottish Ministers are responsible for issuing reporting requirements in respect of:
l accounts falling under sections 19 and 20 of the Public Finance and Accountability (Scotland) Act 2000 [1].
l accounts of executive non departmental public bodies where the Scottish Ministers have the power of direction

(c) The Board will advise CIPFA/LASAAC [2], which is responsible for developing the Code of Practice on Local Authority Accounting in the United Kingdom (the Code). The Code constitutes a ‘proper accounting practice’ under section 12 of the Local Government in Scotland Act 2003 and in England and Wales under section 21(2) of the Local Government Act 2003. In Northern Ireland, the Code’s status and authority derive from accounts directions under article 24 of the Local Government (Northern Ireland) Order 2005.

(d) The Board will decide how it reaches its conclusions.

(e) The Board’s advice to the Scottish Ministers will be restricted to the technical rules of accounting and to minimum disclosure requirements. It will not extend to the format of accounts or to disclosures beyond the minimum requirements.

(f) The Board’s advice to the Department of Finance and Personnel, Northern Ireland will incorporate accounting, formatting and minimum disclosure requirements.

(g) The Board will examine all amendments to the guidance in respect of the bodies listed in b and c above, with the aim of ensuring that they comply with GAAP, and that departures or modifications from GAAP, due to public sector and spending control contexts, are fully explained and justified. The Board will also examine, with the same aim, amendments to accounts directions referred to the Board, issued by the Treasury, the Welsh Assembly Government, the Scottish Ministers and the Department of Finance and Personnel, Northern Ireland.

(h) The Board will prepare an annual report of its activities, including its views on the changes made during the period to the accounting guidance, or, as appropriate, accounts directions, issued by the Treasury, the National Assembly for Wales, the Scottish Ministers and the Department of Finance and Personnel, Northern Ireland in respect of bodies listed in 2.1 b. above and the Code, and will send a copy of its report direct to the Committee of Public Accounts and the Treasury Select Committee of the UK Parliament, the Welsh Assembly Government, the Scottish Ministers, the Department of Finance and Personnel, Northern Ireland.

2.2 The Treasury, (in conjunction with the Department of Health in respect of NHS trusts in England and the Independent Regulator of NHS Foundation Trusts in respect of NHS Foundation Trusts in England), the Welsh Assembly Government, the Scottish Ministers, the Department of Finance and Personnel, Northern Ireland and CIPFA/LASAAC in respect of local authorities in England, Wales, Scotland and Northern Ireland:

(a) will ensure that all relevant matters, including proposed changes to the guidance, or, as appropriate, accounts directions, in respect of accounts meeting the criteria in 2.1.b above and the Code, are brought to the Board’s attention within a reasonable time. In particular, changes to International Financial Reporting Standards and other elements of GAAP that affect such guidance or accounts directions will, as far as possible, be brought to attention in sufficient time to enable their implementation, as appropriate, within the same timescale as changes are to be made generally;

(b) will examine all issues raised by the Board within its terms of reference;

2.3 The Treasury, the Scottish Ministers, and the Department of Finance and Personnel, Northern Ireland, will formally lay the Board’s report before the House of Commons, the Scottish Parliament and the Northern Ireland Assembly respectively. The Welsh Assembly Government submits the report to the Audit Committee of the National Assembly for Wales.

2.4 The Treasury will provide the secretariat to the Board.

3 Membership

3.1 The Board will comprise:

An independent Chairman, nominated by the Chief Accountancy Adviser to the Treasury, and in respect of future appointments, in agreement with the Scottish Ministers, the Department of Finance and Personnel, Northern Ireland and the Department for Communities and Local Government.

1 member nominated by the Treasury (a Treasury Official)

1 member nominated by the Scottish Ministers

1 member nominated by the Department of Finance and Personnel, Northern Ireland

1 member nominated by the Welsh Assembly Government

1 member nominated by the Comptroller and Auditor General

1 member nominated by the Auditor General for Scotland

1 member nominated by the Audit Commission

3 members nominated by the Finance Directors of UK government departments to represent respectively departments, trading funds, and non-departmental public bodies.

1 member nominated by the Department of Health

1 member nominated by the Executive Chair of Monitor, the Independent Regulator of NHS Foundation Trusts

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.

1 independent member nominated by the Chief Accountancy Advisor to the Treasury and approved by the Chairman.

1 member, a representative of the secretariat to the CIPFA/LASAAC Local Authority SORP Board, nominated by the Chartered Institute of Public Finance and Accountancy.

1 member nominated by the Department for Communities and Local Government.

1 local authority accounts preparer, nominated by CIPFA/LASAAC from its membership.

3.2 Members will normally be appointed for five year, renewable, terms.

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

[1]Public Finance and Accountability (Scotland) Act 2000 is available from the Stationery Office or can be located on the web at: http://www.legislation.gov.uk

[2]The CIPFA/LASAAC Local Authority SORP Board is a standing committee of the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC).

Terms of reference of the Financial Reporting Advisory Board

1 Context

2. Terms of reference

3 Membership

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