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ICAEW: Whole of Government Accounts of “critical importance”

Author: ICAEW Insights

Published: 22 Sep 2022

Delays in publishing the Whole of Government Accounts make it even more difficult for the government to have a clear understanding of the UK’s fiscal position as it embarks on major tax and spending changes that will reshape the public finances.

The House of Commons’ Public Accounts Committee (PAC) recently published ICAEW’s evidence to its inquiry into the Whole of Government Accounts 2019/20. The evidence highlights the “critical importance” of the Whole of Government Accounts, stating they “increase transparency about public sector finances”.

The Whole of Government Accounts are audited accruals-based accounts prepared in accordance with International Financial Reporting Standards that include assets and liabilities, such as public sector pension obligations and nuclear decommissioning liabilities, that are not included in the net public sector debt measure reported in the statistics-based National Accounts that is used by the government for fiscal targeting. ICAEW believes this means that Whole of Government Accounts “provide the most complete overview of assets and liabilities and of the long-term costs of financial decisions”.

Martin Wheatcroft FCA, an external adviser to ICAEW on public finances, says: A complete picture of the country’s financial position is vital in enabling the government to make informed financial decisions and in enabling Parliament to hold the government to account for those decisions”.

ICAEW’s evidence highlights how Whole of Government Accounts are driving improvements in financial management such as in the collection of monthly financial data from public sector bodies following the implementation of the Oscar 2 financial consolidation system. Government teams are also using the consolidated financial statements to support their objectives, such as HM Treasury’s balance sheet review that has sought to identify how more value can be extracted from public assets, or the contingency liabilities team that is working on improving how financial exposures can be managed more effectively.

ICAEW was not able to comment on the content of the 2019/20 consolidated financial statements as they had not been published by the deadline for submission to the inquiry, despite being more than 26 months after the year-end. The response explores the reasons for, and consequences of, the delays, expressing concern that “delays to the 2019/20 and subsequent Whole of Government Accounts undermine their usefulness”.

Describing the government’s long-term target of the publication of consolidated financial statements within nine months of the year-end as “reasonable and achievable”, ICAEW calls for action to get the timetable for the production of the Whole of Government Accounts “back on track”. The submission recommends that the government treat financial reporting as a higher priority, invest in public sector finance teams, and equip the new system leader for local audit with powers over the quality and timeliness of local authority financial reporting.

The Whole of Government Accounts for the year that ended 31 March 2020 were finally published in June 2022, just after ICAEW submitted its evidence. They reported an accounting deficit of £192bn and net liabilities of £2,834bn (comprising assets of £2,139bn less liabilities of £4,973bn), substantially higher than the latest numbers for the fiscal deficit of £64bn and public sector net debt of £1,820bn reported in the National Accounts.

Commenting on the delays to its publication, Oliver Simms, ICAEW’s Manager for Public Sector Audit and Assurance and one of the authors of the submission to the PAC inquiry, said: “The 2019/20 Whole of Government Accounts provide valuable information of the government’s financial position at the start of the pandemic, before the impact of the major government interventions such as the Bounce Back Loan Scheme. COVID-19 was clearly a major factor in the delays but, as our submission notes, it also exposed issues that predate the pandemic.”

The response warns of the knock-on impact of delays to the 2019/20 WGA on future years. The 2020/21 WGA has still not been published despite it already being 17 months since the end of the financial year. In the evidence session held by PAC to support the inquiry, HM Treasury officials predicted it would be published in March 2023.

The delays mean the new Chancellor, Kwasi Kwarteng, lacks access to a complete audited picture of the government’s financial position from later than 31 March 2020, hindering his ability to base any fiscal decisions on a full understanding of the current state of the public finances. The Office for Budget Responsibility has typically used the Whole of Government Accounts to inform its long-term fiscal forecasts.

The financial impact of the pandemic since March 2020 means the financial position is much worse than that shown in the most recently published accounts, and so of less use to HM Treasury officials supporting the Chancellor than if more up-to-date consolidated financial statements were available.

Simms also pointed out that high-quality and timely financial information is essential for good decision-making in any organisation. “Unfortunately, delays in preparing and auditing consolidated financial statements for the UK public sector in recent years mean that the new Chancellor lacks a full picture of the public finances as he embarks on some major tax and spending decisions.”

He added: “A relatively small investment to bring the Whole of Government Accounts back on track would make a big difference in ensuring decisions made are based on the financial information that should be available to decision-makers in charge of an organisation of the scale of the UK state.”

You can read the ICAEW’s submission to the Public Accounts Committee inquiry here.

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