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Lord McIntosh of Haringey: Clause 5 is under the heading—I believe it is called chapeau—Departmental Accounts. Clause 5(1) states that a government department shall prepare accounts, known as resource accounts, which will detail the,


or used. We have dealt with that with the previous amendment. Clause 5(2) states:


    "Resource accounts shall be prepared in accordance with directions issued by the Treasury".

That is because the Accounting Standards Board does not want to have one degree of supervision of MAFF, another degree of separate supervision of the Ministry of Defence and a third degree of supervision of the Department of Trade and Industry. It wants the Treasury to set directions in accordance with subsection (3)—and I have to remind the noble Lord, Lord Higgins, that one of his amendments would have taken out subsection (3). It has to present a true and fair view, conform to generally accepted accounting practice and accord with guidance issued by the Treasury about the inclusion of an explanation of the difference between an item appearing in a department's estimate and a corresponding item appearing in a department's resource accounts. In other words, is it reflected in real life?

When I say that the resource accounts are prepared in accordance with the directions issued by the Treasury and that the Treasury is working in accordance with the fundamental rules of the

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Accounting Standards Board, where is the difference between us? The only difference is that the Treasury is responsible for ensuring that there is consistency between the accounts of one department and another, and that seems to be an entirely proper job for the Treasury to do.

This is a quite separate point from the point of the noble Lord, Lord Higgins, which we have argued many times over the past year about working families tax credit. The Bill requires resource accounts and the whole of government accounts to show a true and fair view and to conform to GAAP. So there will be a legal obligation on the Treasury and the department to follow best accounting practice, and there are two additional safeguards which do not exist at the moment for statistically-based national accounts. First, any proposal to depart from GAAP would have to be discussed with the Financial Reporting Advisory Board, which can report to Parliament if it disagrees. Secondly, resource accounts and the whole of government accounts are subject to audit by the NAO. If it disagrees with an accounting treatment, it will qualify the accounts and report to Parliament accordingly. The Treasury is bound hand and foot!

Lord Higgins: There are three separate levels. The accounts are produced by the department and the NAO audits them, but it is all done within a hierarchy whereby someone is setting the overall situation. The Minister is saying that it is done in accordance with best accounting practice. However, we know that best accounting practice in the public sector cannot be the same as that in the private sector. An independent body ought to decide the best accounting practice for the public sector. For the purposes of debate we suggested the commission mentioned in the amendment. However, as stated earlier, we would probably go along happily, if it was prepared to take it on, with the Accounting Standards Board deciding what the standards should be in the public sector. There is at the moment a lacuna that simply to say "best accounting standards" does not in fact make the point; there are bound to be variations that are not determined by an independent body.

Lord McIntosh of Haringey: That is what the FRAB is for. It is apparent that I am not making myself clear.

Lord Higgins: The FRAB is no good for this purpose because it is only advisory. We want somebody with sufficient authority to make sure that its recommendations are accepted, not by the Government, but independently and in turn by Parliament. Subject to anything further that the Minister wishes to add, this is clearly a matter to which we ought to return at Report stage and I welcome the support that I have received on both sides of the Committee. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 7 to 9 not moved.]

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5.45 p.m.

Baroness Sharp of Guildford moved Amendment No. 10:


    Page 3, line 13, at end insert—


("(3A) All directions issued by the Treasury under subsection (2) shall be—
(a) subject to consultation with Parliament, the Financial Reporting Advisory Board and any other bodies the Treasury deems appropriate;
(b) published when issued; and
(c) compiled and published at the start of every financial year in a document to be called "the Resource Accounting Manual".
(3B) The Financial Reporting Advisory Board shall review and report to Parliament on the Resource Accounting Manual every third year after its publication.").

The noble Baroness said: This amendment is really a fall-back position for if the process of setting up a national accounts commission fails. Essentially, it puts on the face of the Bill what we have been told is the process by which the standards are set. The process set out in the amendment, however, is precisely how the Treasury claims to set standards in this area. In effect, it spells out the detail of Clause 5(2) and puts on to the face of the Bill procedures that are already followed. It refers specifically to the role of the FRAB (the Financial Reporting Advisory Board) and of the manual, Resource Accounting and Budgeting. Both are vital components in the Treasury's present procedures and should be referred to on the face of the Bill.

In discussion in Committee in the other place, the Economic Secretary to the Treasury argued that this amendment was unnecessary. Clause 5(3) obliges the Treasury to follow the generally accepted accounting practice, modified as necessary to take account of the specific departmental requirements. Clause 5(3)(c) would mean that it also had to follow the resource accounting manual directions. Moreover, it was unnecessary to put it into the legislation since there may be more than one way to achieve compliance with generally accepted accounting standards. Other bodies, besides the FRAB, should be consulted. The FRAB already conducts ongoing reviews of Resource Accounting and Budgeting and has reported more frequently than the three years envisaged by this amendment. That was another reason that the Government could not accept the amendment.

That may be so, but none of those arguments seems sufficient. If the Government reject the case for an independent commission setting up the guidelines by which Resource Accounting and Budgeting is set, it is all the more important to have, written on the face of the Bill, the procedures which the Government themselves claim give assurances to Parliament and the general public of independence of action. I beg to move.

Lord Higgins: The noble Baroness pointed out, quite rightly, that this is a fall-back position from the matters which we were discussing on the previous amendment. I am now hopeful that we shall succeed

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with the previous amendment at a later stage. If, however, that fails certainly there is much to commend the observations of the noble Baroness, Lady Sharp.

Lord McIntosh of Haringey: The Government and Members of the Committee seek the same end. We seek to improve the transparency of the accounting standard-setting process. The only difference between us is whether or not it should be statutory. Our view is that the non-statutory system works well and does not need to be enshrined in legislation.

Before I reach a final conclusion, I should like to make clear that the directions in Clause 5(2) are not as important as is envisaged in this amendment. They are not detailed documents which set out accounting policies but simply the means by which the Treasury formally instructs departments that they must prepare resource accounts as required by the Bill. Although the mechanics have not yet been finalised, it is possible that in relation to resource accounts there is only one omnibus direction that applies to all departments. The direction is unlikely to say anything other than that the resource accounts must be prepared in accordance with the provisions of the resource accounting manual, which is the concordance between private sector and public sector accounting. In view of that, the requirements within the amendment for consultation on the directions and their publication are unnecessary.

The real issue is whether we are sufficiently transparent in disclosing the accounting practices to be used for resource accounts. That is the purpose of the resource accounting manual which is a publicly available document. Updates will be published annually so that the accounting policies in force in a particular year will always be in the public domain. The resource accounts themselves will, as required by generally accepted accounting practice, contain a detailed note setting out the major accounting policies under which the accounts are prepared.

The amendment would require the Financial Reporting Advisory Board to review the manual and report to Parliament once every three years. Since its creation in 1996 the board has already issued two reports to Parliament, and I understand that a third is in preparation. It is intended that the board will report to Parliament annually and, as the Committee is aware, the Government have already agreed to that. In practice, the board adopts a more rigorous reporting schedule than would be provided for by the amendment.

We are committed to following best accounting practice. The accounting practice policies to be followed by departments will be publicly available and will be in the published accounts themselves. We believe that those are adequate commitments by the Government to transparency and, as at present advised, there would be no advantage in placing them on a statutory basis. I am willing to listen to any representations that may be made on the point,

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without any commitment, to see whether there is any way to improve our mutual understanding of a shared objective.


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