What are Whole of Government Accounts?

Picture of skyline and accounts
By Graham Foster, Lecturer

16 April 2018

HM Treasury publishes Whole of Government Accounts (WGA). The most recent published were for 2015-16, with the 2016-17 expected this summer. But, what are these accounts and what do they mean for public accounting?

According to HM Treasury, Whole of Government Accounts can be described in the following way:

WGA consolidates the audited accounts of over 6,000 organisations across the UK public sector including central government departments, local authorities, devolved administrations, the NHS, academy schools and public corporations. It is a uniquely comprehensive product as it is the only set of consolidated public sector accounts in the world that includes both central and local government.

HM Treasury (2017) Whole of Government Accounts year ended 31 March 2016. Crown Copyright, Page 3

The accounts themselves, which are prepared in accordance with International Financial Reporting Standards (IFRS) are notable for complexity of the consolidation, due to the sheer number of organisations and also to the range of sectors involved. The resulting figures are often startling, especially the ‘Total liabilities’ figure on page nine: £3.73tn is roughly double the UK’s entire annual Gross Domestic Product (GDP).

Few auditors get to audit such sums. Audit materiality is addressed by both Principles of Auditing & Reporting (PAR) and Assurance & Business Systems (ABS). Misstatements in the financial statements are defined by ISA 320 as being material if they ‘could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements’.

The auditor’s report states that materiality for this audit was set at 1% of gross income or £8Bn (page 130). To put this into some perspective, that is more than the entire annual turnover of Waitrose.

The auditor’s report was qualified on multiple grounds. As is explained in TPS ABS, there are two circumstances which give rise to modifications. These are:

  • the inability to obtain sufficient appropriate audit evidence (limitation of scope); and
  • the financial statements are materially misstated (there is a disagreement between management and the auditor).

The qualifications in the auditor’s report relate largely to the difficulties in such a large, complex consolidation. For example, the auditor reports that HM Treasury treated its holdings in the Royal Bank of Scotland as an equity investment, however, the IFRS criteria for ‘control’ mean that RBS accounts should have been fully consolidated (pages 135-7).

A further qualification arose as some of the subsidiary accounts which were consolidated, including those of the Department for Education and the Ministry of Defence, were qualified by their own auditors (pages 138-139).

Emphasis of Matter

TPS ABS also addresses ‘Emphasis of Matter’ paragraphs. These paragraphs explicitly do not qualify the financial statements. They are used to refer users to matters which have been adequately disclosed in the accounts, but which are of such importance that they are fundamental to users’ understanding of the financial statements.

The Emphasis of Matter paragraph on page 120 relates to the provision, made by the government, for the future costs of nuclear decommissioning. The auditor has concluded that the provision is an appropriate estimate, based on the information available.

But the sheer size of the provision (£181.7bn) and the inherent difficulties of estimating future costs (the estimate is based upon discounting future costs for a programme that is expected to take 120 years) mean that this is not a routine balance, and that users need to be aware of this question mark hanging over our public finances.


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