Comments from ACCA to HM Treasury
October 2014
Overall, we support HM treasury’s project and vision for simplifying and streamlining statutory annual reports and accounts and its direction of travel. Over the years HM Treasury has made significant progress in improving the overall quality of information for Parliament, decision-makers and a wide range of users. Although the focus of the Command Paper is on improving information for Parliament we believe that other stakeholders will benefit in the long run.
We are pleased to see on page 12 of the Command Paper that HM Treasury is committed to examining the appropriateness of new reporting developments such as integrated reporting. ACCA has been extoling the virtues of sustainable reporting for a considerable time and believes that integrated reporting represents a step change in providing users with valuable information (financial and non-financial) on how an organisation creates value overtime. We believe that HM Treasury’s decision to join a pioneering network to explore how integrated reporting might apply to government departments is a positive move.
We would also like to take this opportunity to highlight ACCA’s pioneering research Whole of Government Accounts: who is using them?’. The research was commissioned by us and is currently being conducted by Durham University. We have published a first stage report of a two part study which explores how and who is using WGAs across five countries, including the UK. The report is relevant to this consultation as we are hoping that by finding out more about how the WGAs are being used it will help inform how WGAs and more generally financial reporting can be improved in the future. A key finding from the literature across all country case studies is that the focus to date has been on ‘expected use’ opposed to ‘actual use’. We are planning on publishing the final report in March 2015.
We support the aim not to have standard templates, but instead provide guiding principles for preparing the Executive Summary. The danger of the former is that it has the potential to create a tick box mentality e.g. standard wording being used by government departments instead of ‘telling the story’.
Also, we believe that it is important to make the bigger links to public service delivery such as the delivery of quality services, new government initiatives and policies. The Command Paper hints at this by joining up Whole of Government Accounts (WGA), but it could go further in making cross departmental connections.
Although the improved format will help Parliament to better understand the Annual Report and Accounts (ARA), it is still important that parliamentarians are supported with specialist skills to enable them to improve their understanding of finance, interpret the reports and ask challenging questions. We highlighted the importance of financial scrutiny, support and training, as well as the challenges in our publication ‘Financial Scrutiny in Hard Times’ (2012).
We support the restructuring of the ARA to include three main sections (i) performance –story telling, (ii) accountability and (iii) financial statements. We note that there are no proposed fundamental changes to the Annual Governance Statement. However, it could be useful for HM Treasury to undertake an assessment of both quality and usefulness of the Annual Governance Statement at some point in the future, if such a review has not taken place already. In particular, an assessment should be made of whether or not it provides users with sufficient assurance that strong governance and accountability arrangements are in place. Currently, the focus of the governance statement is on compliance with internal controls and procedures rather than providing assurance as to whether there is a strong ethical culture in place.
Although the Command Paper proposes restricting reporting material balances only, this may compromise providing a rounded picture of government departments' finances and activities. We believe reporting material balances should be a minimum requirement and wider commentary should be welcomed provided it is succinct.
As referred to earlier, it is important to link an organisation’s objectives to the bigger policy picture/agenda. There is also a need to recognise difficulty in some areas of successfully comparing outputs with inputs (e.g. policy developments). Therefore, we believe that it is increasingly important to focus on outcomes verses input.
It is pleasing to see that sustainability reporting is included in the performance section. Sustainability reporting and corporate social responsibility (CSR) activity have grown rapidly in recent years, and since 1990 ACCA has been active in promoting this in the private and public sectors. This culminated with a publication specifically targeted at national governments, Sustainability Reporting Matters: How is Sustainability Reporting Understood and Managed by National Governments?. The report explored different approaches to sustainability reporting by governments across, as well as different frameworks and guidelines in operation.
While we believe that it is important not to have too many sub-sections in the ARA we are of the view that it is important for the non-executive director report to remain separate from the director’s report as the content is at the discretion of the non-executive. We would support its inclusion in either the accountability section or the overview section immediately following the Minister’s/Chief Executives statement.
We are highly supportive of the proposition to move to a format that is more compatible with the private sector and Whole of Government Accounts formats, especially as the public sector is becoming more fragmented and the boundaries between public and private are becoming increasingly blurred.