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HM Treasury: Exchange Equalisation Account 1997-98

Sir John Bourn, head of the National Audit Office, today reported to Parliament on the financial statements of the Exchange Equalisation Account (EEA), which holds the UK’s official reserves of gold and foreign currencies. The accounts for 1997/98 are the first to be published. Sir John’s opinion on the accounts was unqualified but in his report he notes that in order for him to be able to complete his work his staff had to raise with the Treasury and the Bank of England issues about:

  • the basis on which the accounts are prepared; and
  • the trail between individual transactions undertaken on the account and the accounting returns from which the Treasury prepares the financial statements.

The Bank of England (“the Bank”) manages the EEA on a day to day basis on behalf of the Treasury, who establish a strategy for the Bank to follow and monitor the Bank’s operations on the account. The Treasury prepares the accounts from information supplied by the Bank.

Sir John notes that the accounts as currently drawn up include elements based on cash accounting and elements based on commercial (accruals) accounting, although this is reflected in the Treasury’s stated accounting policies for the account. In order to reconcile to underlying cash movements some transactions such as profits and losses on sales and interest receipts were initially included in the accounts more than once. Changes have been made to the final accounts to bring them more into line with principles of cash accounting. The Treasury intends to move from the current basis of accounting to report on an accruals basis in accordance with generally accepted accounting principles. This is likely to be implemented from 2000/01, and the Bank is developing new accounting systems to support a revised basis of accounting.

Sir John’s audit also revealed a lack of ready trail in the Bank’s systems from individual transactions undertaken on the account to the accounting records from which the Treasury prepares the accounts. The Bank undertook additional programming of its computer systems to obtain information on individual transactions making up the figures disclosed in the financial statements and the historic cost of investments held by the EEA at the year end. From 1998/99 the Bank are retaining records of individual transactions on a daily basis to ensure a complete and readily accessible transaction trail.

Notes for Editors

 

The Exchange Equalisation Account holds the UK's official reserves of gold, foreign currencies and International Monetary Fund (IMF) special drawing rights. The account, which was established by Section 24 of the Finance Act 1932, is used to facilitate payments abroad by the public sector, for certain purposes arising from the UK's membership of the IMF and for checking undue fluctuations in the exchange value of sterling. Under the Exchange Equalisation Account Act 1979, the funds held in the account may be invested in the currency of any country, in the purchase of gold or in the acquisition of special drawing rights.

 

Prior to the accounts for 1997/98, financial statements for the Exchange Equalisation Account were not published and the Comptroller and Auditor General was only required to confirm the regularity of transactions undertaken on the account. Following the Chancellor of the Exchequer's decision to publish the 1997/98 financial statements, the scope of Sir John's audit opinion has been extended and is now consistent with that provided for other Central Government accounts prepared on a cash basis.

 

The National Audit Office are on the Internet. Press notices and reports are available from the date of publication. These can be accessed through the NAO home page at https://www.nao.org.uk/

 

The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office employing some 750 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

 

PN: 03/00