The first item on the agenda is the Financial Reporting Advisory Board to the Treasury—FRAB for short. The Audit Committee and the Finance Committee considered this item some weeks ago and gave comments to the Minister for Finance. He has responded with a detailed paper on the issues raised. Mr Russell Frith, the financial audit director at the National Audit Office, has also submitted a paper. Russell is in attendance and can deal with any further inquiries from the committee. I seek members' comments on the issues raised in these papers.
I seek clarification on the papers appended, especially the submission by the Institute of Chartered Accountants and its public sector committee. Can Mr Frith clarify whether FRAB takes into account the discussion about "true and fair" rather than "presents fairly"?
Yes, to an extent that is taken into account, in that the agreed opinion for resource accounts—as contained in the resource accounting manual—will be "a true and fair view".
Can you explain to a layman the subtle difference between "a true and fair view" and "presents fairly"?
"True and fair" is the type of opinion that is legally required for corporate accounts; the phrase was incorporated into the Companies Acts. When it was incorporated, most, if not all, public sector accounts did not meet those standards—they were not prepared in accordance with the generally accepted accounting principles in use in the corporate sphere. As the sophistication of public sector accounting has developed, the standard of presentation and the method of calculating public sector accounts have become closer to those in the private sector and more of the opinions given on the various public sector accounts have moved towards being "true and fair".
If that is a higher standard, does that imply that "presents fairly" may not be true?
No. The implication is that the accounts were not necessarily prepared in accordance with the same body of accounting standards and principles as would definitely be the case if a "true and fair view" opinion was being given.
I am sure that we will not want to go into all the intricate technical details, but I am not sure that I am any clearer now than I was when I first asked the question.
You say in your memorandum that local authorities are not covered by the FRAB remit, but that they are covered by the statement of recommended practice, or SORP. I know that the convener loves acronyms.
I hate acronyms.
The SORP is endorsed by the ASB—the Accounting Standards Board. The Institute of Chartered Accountants seems to be making the case that the ASB, rather than FRAB, should set the standards for public accounts. Do I read that correctly?
That is how I read it.
Although FRAB is independent of the Treasury, the Treasury has substantial influence in appointing its members. How independent is FRAB?
In practice, FRAB seems to have operated so far with the degree of independence that you would expect, given the constitution of its membership, who are all well-respected people. The issue is not necessarily the independence of the members of FRAB, but the fact that the Treasury can overrule the board's recommendations.
The minister said in his letter that the Scottish Parliament and, indeed, the Welsh and Northern Irish Assemblies would have the independence from the Treasury to disregard FRAB's recommendations, if they so choose. Is it the case that the Treasury is not dictating to the Scottish Parliament which of FRAB's recommendations it should take up?
That is correct.
In one of the minister's letters, he said that the membership of FRAB might have to be reviewed to take into account the extended remit. Is that envisaged? Will there be a Scottish representative on FRAB in due course?
I believe that that is one of the proposals that the Scottish Executive wishes to take to FRAB as part of the discussions.
Will we hear the outcome of those discussions in due course?
The Executive has said that it will come back to the Audit Committee with the results of its discussions.
We have sought explanations and reassurances; they have been forthcoming, and for that we must thank our adviser and the minister. We now have to agree on our next step. If committee members are happy with the information that we have received, we can write to the minister to give him the go-ahead to negotiate the extension of FRAB's remit. Are we agreed?
Meeting adjourned.
On resuming—