HELPING THE NATION SPEND WISELY Andrew Baigent Director, Financial Audit Policy UK National Audit Office The Limitations of General Purpose Financial Statements in the context of Pricing Policy

HELPING THE NATION SPEND WISELY Audit role in of Increased transparency  Validation of reporting of total costs for cost based pricing –Marginal Costs –Total costs –Related Income  Reporting of actual costs –Annual report and accounts –Other performance information

HELPING THE NATION SPEND WISELY What is a General Purpose Financial statement (GPFS)  Prepared for non-specific use  Retrospective  To standard framework and format within each jurisdiction, e.g. –International Financial Reporting Standards –International Public Sector Accounting Standards –US GAAP

HELPING THE NATION SPEND WISELY Purpose of GPFS  Decision usefulness –Buy/hold/sell? –Other Decisions?  Stewardship/entity accountability

HELPING THE NATION SPEND WISELY Accuracy and Validation of GPFS  Prepared to ensure accuracy of the statements as a whole  Concentrate on effect on overall financial performance and overall assets and liabilities  Audited to confirm GPFS are not ‘materially misstated’

HELPING THE NATION SPEND WISELY Use of GFPS in pricing policy  Provide outturn cost and income/revenue data for an entity  Materiality concept may provide sufficient precision to help pricing policy (marginal and full cost recovery)  Set a framework for recovering total costs, including costs of production and/or IPR  No validation of volumes/units

HELPING THE NATION SPEND WISELY Limitations of GPFS  Data not prepared for pricing purposes  Compiled on a ‘whole entity’ basis  Insufficient granularity  Standard framework may not include all costs  Lack of sufficient precision?

HELPING THE NATION SPEND WISELY Options for the use of GPFS/SPFS  Alteration to GFPS framework, e.g. specific requirements  Developing Specific Purpose Financial statements  Precise engagement of auditors

HELPING THE NATION SPEND WISELY Additional reporting information  UK Public Sector accounts include further information on full costs and revenues of material income streams  Not limited to PSI  Split by material service type and charging regime (e.g. commercial and non-commercial use)  Information is audited  Consistently reported but not overly sophisticated and highly judgemental