The Scottish Government

ANNUAL ACCOUNTS

Contents:

Scope

Key Points

Background

Principles of Accounting

Scottish Executive Consolidated Accounts

Additional Scottish Executive Accounts

Sponsored Bodies

Auditing, Laying and Publishing of Accounts

Financial Records

Data Protection Act

Annex 1: Scottish Executive Accounts Contents

Annex 2: Retention of Financial Records

Scope

1. This section gives guidance on the annual financial reporting arrangements for bodies funded directly from the Scottish Consolidated Fund and for relevant bodies sponsored by the Scottish Executive.

2. The Public Finance and Accountability (Scotland) Act 2000 sets out the requirements for the preparation, audit, laying and publication of annual accounts by recipients of funds from the Scottish Consolidated Fund.

3. Any body to which sums are paid out of the Scottish Consolidated Fund must prepare accounts in accordance with directions issued by Scottish Ministers. The relevant administrative procedures are the subject of a Written Agreement between the Scottish Ministers and the Parliament.

4. The Scottish Ministers are advised on matters of financial reporting principles and standards by the Financial Reporting Advisory Board.

5. Annual accounts are the mechanism by which the Scottish Executive reports to the Scottish Parliament on its performance against budget.

6. A sponsored body which is a separate accounting entity will account for the use of public funds (and of other funds in its stewardship) in its own annual accounts in accordance with a direction issued by Scottish Ministers and any requirements included in its management statement / financial memorandum.

7. Accounts audited by the Auditor General for Scotland must be laid before the Parliament and published no later than 9 months after the end of the financial year to which they relate.

8. Under section 19 of the Public Finance and Accountability (Scotland) Act 2000 (the PFA Act) the Scottish Ministers and any other body to which sums are paid out of the Scottish Consolidated Fund (SCF) in a financial year must prepare accounts of their expenditure and receipts for that year in accordance with any directions issued by Scottish Ministers. Scottish Ministers must also prepare separate accounts of payments into and out of the SCF.

9. The administrative procedures for specifying the form of accounts to be published by spending bodies that are accountable to the Parliament are the subject of a Written Agreement between the Scottish Ministers and the Parliament. Accounts directions are issued to all bodies to whom sums are paid directly out of the SCF. Scottish Ministers also issue accounts directions to relevant sponsored bodies.

10. The general principle is that financial reporting by central government bodies should be based on generally accepted accounting practice, adapted where appropriate to take account of the public sector context. In England and Wales the Government Resources and Accounts Act 2000 requires HM Treasury to consult an appropriate advisory group on the financial reporting principles and standards to be applied to departmental resource accounts and whole of government accounts. The Financial Reporting Advisory Board (FRAB) is the advisory group. The Scottish Ministers, with the agreement of the Audit Committee of the Scottish Parliament, have determined that they should similarly be advised on such matters by the FRAB. The advice of the FRAB does not extend to the format of the accounts.

11. The annual accounts for bodies funded directly from the SCF should enable the Parliament (and any other interested party) to compare the overall consumption of resources, the use of income and cash drawn down from the SCF with the overall amounts authorised by Budget Act and to see the explanation of substantial variances.

12. Except as otherwise permitted by the PFA Act, the Scottish Ministers account for transactions on the accruals basis. This requires expenditure to be recorded as it is incurred, and income as it is earned, and not simply when cash is paid or received. The Parliament wishes to scrutinise and control the use of income as well as expenditure. Accordingly, accounting for transactions on a net basis - (i.e. where income is netted off expenditure)is improper - but see the guidance on accounting in Income Receivable and Receipts.

13. The accounting guidance issued to those bodies that are subject to reporting requirements set by the Scottish Ministers will set out the applicable accounting policies and principles and disclosure requirements. Such guidance will first be approved by the FRAB.

14. The accounts directions for the Scottish Ministers require that the annual accounts for a financial year, also referred to as "resource" accounts, shall:

• comply with the accounting principles and disclosure requirements of the edition of the Government Financial Reporting Manual (FReM), as approved by the FRAB, which is in force for the financial year for which the accounts are prepared; and
  
  give a true and fair view of the state of affairs of a relevant body as at the end of the financial year, and of the net resource outturn, resources applied to objectives, recognised gains and losses, and cash flows for the financial year then ended.

15. The FReM sets out the accounting principles, policies and disclosures that are required for the accounts. (Any enquiries on the content or application of the FReM should be addressed to Accountancy Services within Finance and Central Services Department (FCSD).)

16. Any additional disclosure requirements included in the Scottish Public Finance Manual or other relevant guidance issued by Scottish Ministers should also be adhered to by relevant bodies.

17. The prime purpose of the Scottish Executive annual accounts is to set out income and expenditure along with other relevant financial data for report to the Parliament. The accounts are also the mechanism by which the Scottish Executive reports to the Scottish Parliament on its performance against budget.

18. The Accounts reflect the consolidated assets and liabilities and the results of all the entities within the Scottish Executive departmental accounting boundary as defined in the FReM. (Accountancy Services produces, for each financial year, a Scottish Executive Departmental Boundary Statement setting out the application of the FReM departmental boundary criteria.) The accounts are signed by the Permanent Secretary in his/her role as Principal Accountable Officer.

19. The Scottish Ministers, in consultation with the Audit Committee of the Scottish Parliament agree the format of the accounts, based on the following principles:

• the adoption of formats and terminology to make the accounts more accessible and meaningful to the general reader;
• providing a meaningful level of detail to reflect the structure of the Scottish Executive;
• providing a good link from the approved budget, and reflecting by reconciliation where necessary, areas where budgeting treatment differs from accounting treatment; and
• the establishment of a clear audit trail between the various schedules/statements and notes.

20. Annex 1 provides a brief description and explanation of the financial statements.

21. Accountancy Services is responsible for determining the accounting policies across the Scottish Executive and acts as the interface with the FRAB. Accountancy Services also produces the Consolidated Accounts. The Financial Reporting Unit (FRU) co-ordinates the production of accounting information for each of the "core" Departments of the Scottish Executive. These accounts feed in to the Consolidated Accounts and are not signed or published separately. Departmental Finance Teams - and programme managers - have a role in ensuring the integrity of the data within the financial management system, maintaining subsidiary records and providing information and explanation as required. In early March each year the Scottish Executive Finance Director publishes a detailed timetable, setting out the key dates and tasks to deliver the preparation of the accounts and make them available for audit in advance of the statutory deadlines.

22. Legislation may require the preparation of separate accounts covering specific areas of activity in addition to the Scottish Executive Consolidated Accounts e.g the Crown Office and Procurator Fiscal Service, the SCF. In addition Executive Agencies and associated Departments produce separate accounts covering their particular areas of activity. These accounts are the subject of separate directions from Scottish Ministers and are signed by the relevant Accountable Officers as designated by the Principal Accountable Officer.

23. Where a Department makes funds available to a sponsored body the sponsor Department will account to the Parliament for the provision of those funds in the Scottish Executive's annual accounts. A sponsored body which is a separate accounting entity will account for the use of those funds (and of other funds in its stewardship) in its own annual accounts. Some sponsored bodies, such as advisory NDPBs and tribunals, have their operations charged directly to the sponsor Department's budget and are accounted for solely in Scottish Executive's annual accounts.

24. Where a sponsored body is set up under statute or a Royal Charter, the legislation or Charter should provide for the production of accounts and their audit by the AGS. The founding legislation should normally provide for the sponsored body to prepare accounts in such form as Scottish Ministers may direct. However, there may be variations in the wording; in particular the powers of direction may extend to the information to be contained in the accounts, the manner in which the information is to be presented and the methods and principles according to which the accounts are to be prepared.

25. Accounts directions will require relevant NDPBs to produce accounts that show a "true and fair" view and comply with the relevant accounting guidance in the FReM. This provides detailed guidance on the coverage and content of the annual reports and accounts. It should be adapted and applied, so far as appropriate and practicable, to other sponsored bodies set up under statute or a Royal Charter. Any queries on the content or application of this guidance should be referred to Accountancy Services within FCSD, via the sponsor division.

26. Where a sponsored body is set up under the Companies Act its accounts must comply with the requirements of the Companies Act.

27. The sponsor Department may, in consultation with Scottish Executive Finance, also direct additional disclosures. Departments should ensure that, where a sponsored body has formed a subsidiary body, the accounts direction - where appropriate - for the sponsored body makes clear that consolidated accounts are to be prepared in accordance with generally accepted accounting practice. Sponsored bodies must also comply with any additional or specific requirements set out in their respective management statements / financial memoranda.

28. In cases where the sponsored body's expenditure is charged direct to the sponsor Department's budget but the sponsored body produces its own annual report, the latter should contain a statement of any significant expenditure incurred on the sponsored body's activities.

29. The accounts relating to the Scottish Administration and certain other bodies (including relevant sponsored bodies) are required by statute to be audited by the AGS or sent to the AGS for auditing. Section 21(2) of the PFA Act requires such accounts to be sent to the AGS not later than 6 months after the end of the financial year to which the accounts relate. Under section 22 of the PFA Act the AGS must send the accounts to Scottish Ministers in sufficient time for Scottish Ministers to have them laid before the Parliament and published no later than 9 months after the end of the financial year to which they relate. (Additional guidance on the auditing of accounts by or on behalf of the AGS is included in the sections on AGS: Auditors & Examiners and AGS: Audit of Accounts.)

30. The PFA Act technically vests responsibility in the Scottish Ministers for the laying and publishing of all accounts received from the AGS. However, it is accepted that it was not the intention of the legislation that Scottish Ministers should be responsible for the publishing of any accounts other than those relating to the Scottish Executive. Other bodies (including relevant sponsored bodies) should therefore arrange for the publishing of their own accounts - after the accounts have been laid by Scottish Ministers.

31. Guidance on the retention of financial records which may be required in connection with the preparation and audit of accounts is set out in Annex 2.

32. In order to comply with the provisions of the Data Protection Act 1998 employers are required to obtain the prior consent of the individuals concerned before personal data (such as that on salaries and pensions) can be disclosed. Employers should therefore consult the individuals whose data they would wish to disclose and seek to obtain their consent to do so (where consent has not already been given) before disclosing that data. The individual must be free to withhold consent, but where consent is withheld this fact must be disclosed in the notes to the accounts. To ensure consistency the wording "consent to disclosure withheld" should be shown against the name(s) of the appropriate individual(s) in the table giving details of relevant personal data. For the avoidance of doubt, in relation to the annual accounts, the Scottish Executive policy is one of full disclosure.

33. In view of the importance attached to full disclosure, employers should ensure that it is made clear to individuals moving to posts for which disclosures are required, before they take up such posts, that the post has been designated as one where disclosure of personal data (such as salary and pension details) is required.

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Page Published/ Updated on: 29th December 2004