FM 105
Date of issue: 19 October 2000

1.     The purpose of this FM is to set out the main principles, procedures and guidelines to be followed in the production of PPARC's Annual Accounts.

3.    The Accounts should contain:

• foreword to the financial statements (Council Members' report);

• a statement of Council's and Chief Executive's responsibilities with respect to the financial statements;

• a statement of the System of Internal Financial Control (to be replaced, from the year ending 31 March 2002, by a statement on the System of Internal Control);

• the certificate and report of the Comptroller and Auditor General to the Houses of Parliament;

• an income and expenditure account;

• a balance sheet;

• a cash flow statement;

• a statement of total recognised gains and losses;

• notes to the financial statements.

4.     The foreword, statement on the System of Internal Financial Control and the balance sheet must be signed and dated by PPARC's Accounting Officer, the Chief Executive, before it is submitted to the Comptroller and Auditor General for certification.

5.     The Accounts must be prepared in accordance with the requirements of the Accounts Direction issued by the Secretary of State for Trade and Industry. The text of the current Accounts Direction is attached as Annex A to this FM. Without limiting the information contained in the Accounts Direction the Accounts must also meet the requirements of:

• Government Accounting

• The Companies Acts

• Best commercial accounting practice including standards issued or adopted by the Accounting Standards Board, with the exception of the requirement contained in FRS 3 for the inclusion of a note showing historical costs profits and losses;

• All Treasury guidance which has been issued regarding the production of the Accounts;

• The Treasury booklet "Trading Accounts: A Guide for Government Departments and Non-Departmental Public Bodies"; and

• Any additional disclosure requirements contained in "The Fees and Charges Guide".

7.    In accordance with the MS&FM, the draft Accounts, together with supporting documentation, are required be available for audit on or before 31 July each year. At the same time a copy of the draft Accounts should be provided to OST for comment. The final Statement of Accounts, signed by the Accounting Officer, must be submitted to the Secretary of State for Trade and Industry for onward transmission to the Comptroller and Auditor General for certification by 30 November.

8.    However, every endeavour should be made to have the signed Accounts laid before Parliament prior to the Summer Recess despite the later submission dates specified in the MS&FM. To achieve a pre-recess deadline the draft Accounts should be available for audit in the first week of June and the signed Accounts submitted for certification in early to mid July.

PPARC'S ACCOUNTING ARRANGEMENTS

10.    To ensure that the Accounts comply with all relevant guidelines it is imperative that the Deputy Head of Finance, PPARC, and the Financial Accountant rachel.preston@pparc.ac.uk  keep up to date with all changes in accounting policy and practice (Government and commercial accounting). Where applicable, these changes should be communicated to Establishment Finance Officers and reflected in the year end instructions. The effect of any significant changes in accounting policy may need to be presented to Audit Committee if the effect on the Accounts is material.

12.    The primary source of information used to produce the Accounts is the corporate (consolidated) database in Sun Account, which is administered by Swindon Office. Establishment information is transferred to the corporate database by means of a monthly electronic ledger extract. The ledger extract should be submitted to the "Funding Account" at Swindon Office (funding@PPARC.ac.uk) in accordance with the timetable issued by the Head of Finance, PPARC, at the start of each financial year.

13.    To ensure that the Establishment information, which is transferred to the corporate database is as accurate as possible it is essential that all routine financial controls (ie reconciliation of bank account, petty cash, inter-Establishment balances, payroll, suspense and control accounts) are carried out on a monthly basis.

14.    PPARC Finance Division, Swindon Office, must carry out a dipstick test of one month's transactions for each Establishment on an annual basis in order to verify the integrity of the data provided. Details of the dipstick test must be held on file as this information may be subject to audit scrutiny.

15.     PPARC's Accounts must be prepared on an accruals basis. Accruals accounting records expenditure as it is incurred and income as it is earned during an accounting period. In practice, there are two main differences between accruals and cash accounting:

Current expenditure and income: Accruals accounts record current expenditure and income in the year to which they relate, even if cash was not paid or received in that year. The difference between the accruals measure and the actual cash paid out or received is also recorded, most commonly as a debtor or creditor.

Capital expenditure: If expenditure is capital expenditure (ie it is for an asset which lasts for several years) then it is not all recorded as an operating cost in the year in which the asset is acquired or built, but instead is spread out over the useful life of the asset in the form of an annual depreciation charge.

17.    As fixed assets are a material item in PPARC's Accounts they will be closely scrutinised as part of the audit review. It is therefore essential that the requirements of FM 109 (Asset and Fixed Asset Recording and Accounting) are adhered to and that the Establishment asset register accurately reflects the actual assets held.

PREPARATION OF ANNUAL ACCOUNTS

19.    The client liaison schedule should be agreed with external audit prior to the audit commencing.

20.    A clear table of responsibilities should be prepared at each Establishment which explicitly specifies the individual's responsible for completing each task and the due date. This also applies to the information required by PPARC Finance Division, Swindon Office, for producing the consolidated account.

21.    Every endeavour should be made to produce a pre-recess Account. In order to achieve this deadline the Establishment final accounts package must be submitted to PPARC Finance Division, Swindon Office, by the end of April with the draft consolidated account completed by the end of May. Ultimate responsibility for completing the draft consolidated account prior to the audit review commencing rests with the Deputy Head of Finance, PPARC.

22.    The Establishment year end submission to PPARC Finance Division, Swindon Office, will, as a minimum, comprise:

• A trial balance detailing movements in cash balances through the year;
• Schedules of accruals and prepayments;
• Details of fixed assets accompanied by an analysis of acquisitions ( supported by copy invoices) and disposals, a schedule of assets under construction and a copy of the Establishment fixed asset register
• Details of stock and work-in-progress at the year end (if applicable); and
• Other supplementary information such as financial commitments, details of any contingent liabilities, analysis of staff numbers, details of senior staff remuneration etc.

24.    Each Establishment must maintain a full audit file which supports the information provided for the Annual Accounts. Working papers for all year-end reconciliations must be held on this file. It is important that this file provides a clear audit trail to the figures provided for the Accounts as this documentation may be subject to audit scrutiny.

25.    All Establishment information will be scrutinised at Swindon Office for reasonableness prior to any adjustments being made in the consolidated database and any queries taken up immediately with the Establishment concerned.

26.    All information should be provided in the Establishment’s base currency. The base currency for Swindon Office, the ATC and ING is sterling (although ING may wish to provide accruals and prepayments information in both pesetas and sterling). The base currency of the JAC is US dollars.

28.    All non cash adjustments eg accruals, prepayments, modified historic cost accounting adjustments, prior period adjustments etc must be made in the consolidated database. Each adjustment must be made using the correct journal type. There are seven different journal types:

• ACC          Accruals
• ACC-N      Non Reversing Accrual
• PRE            Prepayments
• PRE-N       Non Reversing Prepayment
• FASS         Fixed Asset
• ADJ           Adjustment
• CON         Consolidated Adjustment

30.    External audit is required to provide a separate audit opinion on the Statement of Internal Financial Control. It is therefore essential that each Director has submitted their signed Directors Annual Assurance Statement on Internal Control (DAASIC statement) prior to the audit review commencing.

31.    The Deputy Head of Finance, PPARC, should ensure that the following information is made available to external audit at the start of the audit review:

• Complete copy of draft account ie foreword, statement of internal control, financial statements, notes to the account etc;
• Copies of consolidated and site trial balances;
• "Black book" information ie summarised breakdown of figures contained in financial statements analysed by account code and Establishment;
• Working papers to support figures in draft account;
• Signed DAASIC statements.

33.    The Audit Committee will review the draft Accounts focusing particularly on:

• Any changes in accounting policy and practices;
• Any major judgmental areas;
• Significant adjustments arising from the audit;
• Compliance with the accounting standards; and
• Compliance with legal requirements.

35.    The Management Letter on the Accounts must be presented to Audit Committee so that the issues raised can be discussed directly with external audit.

36.    Audit Committee is responsible for monitoring the implementation of actions arising from the management letters as agreed in the Action Plan. If any recommendations have not been implemented by the agreed deadline Audit Committee must provide OST with a report on an annual basis explaining why the recommendations have not been actioned.

GLOSSARY

37.     A glossary of accounting terms is attached at the Appendix to this FM.

David Strudwick
Deputy Head of Finance, PPARC

Appendix to FM 105

Accounts Receivable
See Debtors

Accounts Payable
See Creditors

Accrual
Adjustment to reflect the timing difference between receipt of goods or services and recording of invoice.

Accruals concept
Income is accounted for when earned, and costs when incurred. Also known as the matching concept, as income and costs are matched to the relevant period.

Annually Managed Expenditure (AME)
Public expenditure within departmental programmes but outside the Departmental Expenditure Limit and managed annually because it cannot reasonably be subject to firm multi-year limits.

Assets
Fixed Assets are assets with an expected life of more than one year, must cost more than £3k, and are owned by an organisation, not for resale in the normal course of business. Examples are land, buildings, equipment etc. Also known as capital assets.

Assets Under Construction are the accumulation of costs over a period of time prior to the asset being delivered for productive use

Current Assets are cash or other assets which can reasonably be expected to become cash in the normal course of business, including stocks, debtors, accrued income and payments in advance.

Bad Debts
The debts owed to an organisation which are regarded as uncollectable and are written off.

Balance Sheet
A statement of the financial position of an organisation at a given date, showing the net worth. It discloses the book value of the assets, liabilities, capital and reserves.

Book Value
The amount at which an asset is recorded in the accounts, cost (current or historical) less accumulated depreciation.

Capital Asset
See Fixed Asset

Capital Expenditure
Expenditure on acquiring or improving fixed assets, (not just maintaining it).

Cash Accounting
A method of accounting which records cash payments and cash receipts as they occur within an accounting period.

Cash Flow Forecast
An internal management document forecasting the movements in cash in the future.

Cash Flow Statement
A financial statement which shows where the cash came from and where it went in the period.

Cost of Capital
The opportunity cost of capital invested. Opportunity cost is the cost of a resource in terms of its best alternative use. In PPARC this is calculated on a percentage of capital employed (total assets less current liabilities).

Creditors
Suppliers and others to whom the organisation owes money. (Accounts payable)

Current Assets
See Assets

Debtors
Customers or others who owe money to the business. (Accounts receivable)

Departmental Expenditure Limit (DEL)
Public expenditure within departmental programmes which form departments’ multi-year budget plan. DELs will identify separate elements for capital and current spending and include non-cash costs.

Depreciation
The fall in value of a fixed asset as a result of use, physical deterioration, obsolescence or the passage of time. The organisation adopts a calculation method across all assets, which would not normally change annually.

GAAP – Generally Accepted Accounting Practice
Accounting practice which conforms with the requirements of the Companies Act 1985 and Accounting Standards.

Income and Expenditure Account
A financial statement which shows the results for the period, with income and costs and the net surplus or deficit. Also known as operating account, profit and loss account or revenue account.

Intangible Assets
Assets which are not of a physical nature, eg patents, software.

Liabilities
Obligations to transfer future economic benefits as a result of past transactions or events. Current Liabilities are liabilities incurred in the normal course of business, including creditors, accrued expenditure and receipts in advance.

Management Accounting
The preparation and presentation of accounting and control information to support management, be it in strategic planning or day-to-day control. Management accounting information is usually a combination of accruals or cash accounting and non-financial data such as units or hours.

Materiality
An item is material if its omission or misstatement would affect the view taken by a reasonable user of the accounts.

Non-cash Costs
See Notional Costs

Notional Costs
Costs which are not reflected by cash transactions affecting the organisation, but are costs incurred elsewhere on behalf of the organisation, eg cost of capital and depreciation.

Prepayments
Expenditure on goods and services for future benefit, which is to be charged to the cost of future operations, eg subscription paid in advance.

Prior Year Adjustment
Restating the results of previous years as a result of changes in accounting policies or to correct fundamental errors.

Provisions
Amounts written off or retained to provide for renewals, fall in value of assets, or for a known liability whose extent cannot be precisely determined.

Resource Accounting
Another name for accruals accounting for government departments.

Revenue Expenditure
Expenditure which is in order to obtain revenue (eg salaries) or to maintain operating capacity (eg repairs, heating, lighting etc). Also referred to as recurrent or current expenditure.

Stock
Goods purchased for resale, consumable stores, raw materials and finished goods.

Supply Estimates
A Statement presented to the House of Commons of the estimated expenditure of a department which asks for the necessary funds to be voted.

Tangible Assets
Assets which are physical in nature, eg stock, vehicles, buildings.

Trial Balance
A list of all the balances in the books of account, on one date.

Working Capital
Current assets less current liabilities, the capital available to conduct day-to-day operations of the organisation.

Work in Progress
The value of direct costs, labour and overheads of work started before the balance sheet date, but not yet completed and invoiced.

The Chancellor of the Duchy of Lancaster, with the approval of the Treasury, in pursuance of section 2(2) of the Science and Technology Act 1965, hereby gives the following Direction:-

    a)    a Council Members’ report
    b)    an income and expenditure account
    c)    a balance sheet
    d)    a cash flow statement
    e)    a statement of total recognised gains and losses

including in each case such notes as may be necessary for the purposes referred to in the following paragraphs.

3.    The statement of accounts referred to above shall give a true and fair view of the income and expenditure, state of affairs and cash flow of the PPARC. Subject to the foregoing requirement, the statement of accounts shall also, without limiting the information given and described in Schedule I of this Direction, meet:

a)    the accounting and disclosure requirements of the Companies Act;

b)    best commercial accounting practices including accounting standards issued or adopted by the Accounting Standards Board, with the exception of the requirement contained in FRS3 for the inclusion of a note showing historical cost profits and losses;

c)    any disclosure and accounting requirements which the Treasury may issue from time to time in respect of accounts which are required to give a true and fair view; and

d)    any additional disclosure requirements contained in "The Fees and Charges Guide", in particular those relating to the need for segmental information for different services provided

insofar as these are appropriate to the PPARC and are in force for the financial period for which the statement of accounts is to be prepared.

5.    The income and expenditure account and balance sheet shall be prepared under this historical cost convention modified by the inclusion of fixed assets at their value to the business by reference to current costs.

6.    The detailed layout of the accounts shall be agreed with the Office of Science and Technology.

Dated: 13 September 1995

Signed:

Signed on behalf of the Chancellor of the Duchy of Lancaster

2.    The Council Members’ Report shall contain the information required by the Companies Acts to be disclosed in the Directors’ Report to the extent that such requirements are appropriate to the PPARC.

3.    In preparing its balance sheet, the PPARC shall adopt Format 1 as prescribed in Schedule 4 to the Companies Act to the extent that such requirements are appropriate to the PPARC. Regard should be had to the example in Annex C of the Trading Accounts booklet.

4.    In preparing its income and expenditure account, the PPARC shall base this on Format 2 of Schedule 4 to the Companies Act to the extent that such requirements are appropriate to the PPARC.

5.    The Council Members’ Report and balance sheet shall be signed and dated.

6.    Prior year figures will not be required to be shown in the accounts for the year to 31 March 1995.

2.    The Council Members’ Report shall state that the accounts are prepared in accordance with an accounts direction given by the Chancellor of the Duchy of Lancaster in accordance with Section 2(2) of the Science and Technology Act 1965.

3.    A note shall be provided in respect of Parliamentary grant-in-aid received. This note shall give details of the class and vote from which grant-in-aid is received together with a reconciliation to the cash amounts received. Details of virement applied in respect of sums voted by Parliament (both between and within subheads) shall also be given.

Last updated: 29 June 2001