THE MoD’S accounts have been qualified for the seventh year in a row, with the department failing to meet international accounting requirements for leases.
Amyas Morse, comptroller and auditor general at the National Audit Office, made his latest qualification as the MOD failed to meet the requirements of IFRS for determining whether a contract contains a lease.
It is possible to comply with the standard, the MOD has stated, but would require it to change its business systems and processes, which would include wider interaction by the department with its supplier base to obtain necessary asset and liability information.
Leasing ‘particularly relevant’ to MOD
International accounting standards require details of whether contracts contain lease-type arrangements, and if they are either a finance or operating lease. A finance lease transfers the greater part of the risks and rewards incidental to who owns it. An operating lease is any other type of lease.
Finance leases are valued at the lower end of fair value, and the present minimum lease payment due under the contract – with a corresponding liability.
Accounting requirements for leasing are “particularly relevant” to the MOD, said Morse. Many contracts the MOD enters into provides it with exclusive terms or on a non-competitive basis – which is recognised in the contract pricing structures.
The MOD has agreed to improve compliance with IAS 17 for new single contracts impacting a single site – from 2016/17. It will review progress and results from this exercise and see if it can be expanded further.
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