The Ministry of Defence (MoD) has published its 2024-25 accounts. Gareth Davies, the Comptroller and Auditor General (C&AG), has modified his audit opinions to Parliament due to a lack of accounting records for some ongoing capital projects and a materially significant shortfall in the provisions for liabilities in the previous year’s accounts. For more details see Basis for qualified opinion on the group financial statements and Basis for qualified opinion on regularity.

Here we share highlights from the C&AG’s audit certificate. You can read the full certificate and report on the accounts in context in MoD’s annual report and accounts.

Qualified opinion on financial statements

In my opinion, except for the possible effects of the matters described in the Basis for qualified opinion on the group financial statements section below, the financial statements:

  • give a true and fair view of the state of the department’s and the departmental group’s affairs as at 31 March 2025 and its net expenditure for the year then ended; and
  • have been properly prepared in accordance with the Government Resources and Accounts Act 2000 and HM Treasury directions issued thereunder.

Qualified opinion on regularity

In my opinion, except for the effects of the matters described in the Basis for qualified opinion on regularity and Basis for qualified opinion on the group financial statements section of my certificate, in all material respects:

  • the Statement of Outturn against Parliamentary Supply properly presents the outturn against voted Parliamentary control totals for the year ended 31 March 2025 and shows that those totals have not been exceeded;
  • the Votes A statement presented in Annex A properly presents the outturn against voted Parliamentary control totals for the year ended 31 March 2025 and shows that those totals have not been exceeded; and
  • the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Basis for qualified opinion on the group financial statements

I have been unable to obtain sufficient appropriate audit evidence that assets under construction (other) managed by Arm’s Length Bodies amounting to £6.13 billion (2023-24 £4.90 billion), included within the Property, Plant and Equipment as stated in the Statement of Financial Position for the department as at 31 March 2025 and as at 31 March 2024 are free from material misstatement. I was unable to obtain sufficient appropriate audit evidence due to the department not having adequate accounting records. The department’s decision to not provide all the evidence I needed to audit assets under construction is a limitation imposed by management on my audit, leading me to limit the scope of my audit opinion.

While I have not been able to reliably quantify the effect of this matter due to the limitations described, I consider the effect of these issues to be potentially material in terms of the existence, classification and valuation of these assets at both 31 March 2025 and 31 March 2024.

As a result of the above there are potential further implications on my regularity opinion, but I have been unable to quantify the impact on the Statement of Outturn against Parliamentary Supply and reported losses in the Parliamentary Accountability report due to the limitations described.

My assessment of the matter giving rise to a qualified opinion

Departmental assets managed by Arm’s Length Bodies

Matter giving rise to qualification

The department relies on Arm’s Length Bodies (ALB) and third parties to build and maintain assets on their behalf. Consequently, these ALBs and third parties often have responsibility for departmental assets in the course of construction.

Lack of effective departmental oversight of a number of these arrangements has meant that the department did not have appropriate information nor assurance to ensure that transactions and balances in respect of assets and projects of this type were accurately reported in the financial statements.

I identified within a £6.13 billion balance, £1.50 billion of accumulated legacy project costs on the department’s Statement of Financial Position, and included in assets under construction in note 6, that had remained at this value for several years and for which the department did not have supporting analysis.

At 31 March 2025 the department had not carried out a full reconciliation of the £6.13 billion balance to the Atomic Weapon’s Establishment (AWE) project data or an analysis of that data to assess whether the costs were appropriately treated in the accounts and in line with IAS 16.

Scope of my audit work

In responding to the above, my procedures included:

  • Requesting a reconciliation with supporting evidence from management to support the £1.50 billion legacy projects balance.
  • Testing a sample of projects from the £6.13 billion balance to understand if the projects were ongoing, paused or cancelled.
  • Requesting management perform an impairment assessment on each of the sampled projects.
  • Challenging the reasonableness of management’s impairment judgements.
  • Holding discussions with the project managers for a risk-based sample of projects.

I have not had satisfactory responses to these procedures, and I was unable to perform any alternative audit procedures due to the limitations imposed by management.

Why I was unable to obtain sufficient appropriate audit evidence

The department has been unable to provide sufficient appropriate audit evidence to support the valuation, existence and classification of £6.13 billion as assets under construction (other) at 31 March 2025, as they do not have accounting records available, particularly in respect of legacy projects and historical costs within the balance.

Basis for qualified opinion on regularity

In 2024-25 the department did not request cover for Non-Budget expenditure within the Supplementary Estimate, however the department has incurred an outturn against this limit of £2.56 billion. The excess was due to the department making a prior period adjustment to ensure the comparative legal and other provision figure was materially complete; the completeness of provisions for legal and other liabilities key audit matter within the overview of my audit section provides more detail.

The Non-Budget expenditure control total has been breached as shown in the Statement of Outturn against Parliamentary Supply, causing an Excess Vote and a qualification of my opinion on regularity, this has not resulted in a qualification of the true and fair opinion.

Key audit matters

Valuation of nuclear decommissioning provisions

Description of risk

The department’s nuclear programme involves the use of radioactive materials. The department is responsible for the ultimate safe disposal of these materials along with the facilities and equipment that have been exposed to them, this is known as decommissioning. In accordance with the requirements of accounting standards the department is required to recognise provisions for these obligations. This is an accounting estimate based on the anticipated future costs of decommissioning activities, discounted to their net present value. The nuclear decommissioning provisions are material to the department’s Consolidated Statements of Financial Position, valued at £12.80 billion at 31 March 2025 (£9.05 billion at 31 March 2024).

The valuation of the provisions relies on cost estimates, assumptions in respect of the timing of those costs and assumptions in respect of both future inflation and discount rates. The forecast cashflows to fulfil the current obligations are expected to occur over a period over 100 years and as such the changes in the discount rate assumption have had the most significant impact on the valuation this year. The department uses the inflation and discounts rates provided by HM Treasury.

Nuclear decommissioning is a technologically evolving field with advances being made which can fundamentally change the cost and timeline, as well as influence how the facilities and equipment are used and subsequently decommissioned. Therefore, this has been considered a key audit matter as the cost estimates used in the calculations are susceptible to estimation uncertainty and judgement. The valuations are prepared using a series of models which are susceptible to methodological errors when adjustments are implemented, which could lead to material misstatement in the financial statements. Key judgements, estimation uncertainties and sensitivities are disclosed in note 12.3 -12.30.

Key observations

In the course of completing this work, I did not identify any material misstatements.

Approval and Disclosure of losses and special payments

Description of risk

The government Financial Reporting Manual (FReM) requires the department to report losses and special payments in its Parliamentary Accountability Report in accordance with Managing Public Money (MPM). MPM provides definitions of the different categories of loss and special payments and requires that they are brought to parliament’s attention at the earliest opportunity, normally by disclosure in the department’s annual accounts.

As parliament does not approve advance provision for potential future losses the department operates under a scheme of delegation from HM Treasury. Where the department does not have delegated authority to approve a specific loss or special payment it is required to obtain this from HM Treasury in order to regularise the associated expenditure. Losses and special payments which do not have the required approvals are irregular and can lead to a qualification of my regularity opinion.

Due to the size and nature of the department’s activities, it routinely reports a high value and volume of losses and special payments. In 2024-25 the department has reported £1.90 billion of losses (2023-24: £663 million) and £111 million of special payments (2023-24: £143 million).

Authorities for approvals of losses and special payments within the departmental scheme of delegation, initially sit with the Permanent Under Secretary (PUS) and are further delegated throughout the department, meaning that the controls framework within the department is decentralised. In previous years my audit found that the department’s controls and processes for the identification, approval and reporting of losses and special payments were insufficient. In particular, internal guidance was inconsistent with the requirements of MPM and retrospective approvals have needed to be sought from HM Treasury for incorrectly categorised losses.

A significant level of work is required to test the regularity, accuracy and completeness of the losses and special payments reported by the department.

My response to addressing the key audit matter is included below. As a result of the above and the issues identified in recent audits, I identified a significant risk in relation to the regularity of losses and special payments for the 2024-25 audit.

Key observations

I have obtained sufficient assurance over this risk through the testing outlined above. I did not identify significant misstatements in the losses and special payments disclosure as a result of the work I have performed.

Description of risk

As at 31 March 2025 the department recognised a provision for the anticipated compensation and costs to settle legal claims associated with personal injury claims including noise induced hearing loss. In accordance with the requirements of the accounting standard IAS 37, the department is required to recognise a provision where a present obligation has been identified relating to these conditions. This is an accounting estimate based on the estimated future payments required to settle current and future claims discounted to their net present value.

In calculating the value of the provision, there is significant estimation uncertainty and judgement in respect of determining the population of potential claimants, and the potential for a material understatement of the provision if potential future claims are not appropriately included where a present obligation existed at year end. I treated this matter as a significant risk for the audit because of the significant estimation uncertainty involved.

The department did not recognise a provision for the anticipated compensation and resettlement costs relating to the Afghan Relocations and Assistance Policy and the Afghanistan Response Route in accordance with the requirements of IAS 37, either at 31 March 2025 or at 31 March 2024. This requires the department to recognise a provision where a present obligation has been identified at each reporting date, and is an accounting estimate based on the estimated future costs required to resettle those eligible under the schemes and to settle current and future claims relating to the data breach.

In calculating the value of the provision, there is estimation uncertainty and judgement in respect of determining the population of individuals that the department has a present obligation to resettle through the schemes, and the future costs required to discharge this obligation. There is also judgement in estimating the population of potential claimants and quantifying the estimated future payments required to settle current and future claims in respect of the data breach.

Significant audit effort is involved in addressing the completeness risk and is included as a Key Audit Matter. Legal and other provisions are included in note 12. Key judgements and estimation uncertainties are disclosed in note 1.

Key observations

As a result of my audit, the department posted material adjustments to correct errors in the assumptions and completeness of input data, including a prior period adjustment in respect of both matters described above. Details of the prior period adjustment are set out in Note 22. Following the adjustments made by management, I found the data inputs, judgements and assumptions for both provisions to be reasonable and based on sufficiently reliable evidence. I did not identify any unadjusted material misstatements in the provisions recognised and I am content that the provisions disclosed in Note 12 are materially complete.

Given that a prior period adjustment was required, I have issued a qualified opinion on regularity because the department’s Non-Budget expenditure control total has been breached as a result of this. This is discussed in the Basis for qualified opinion on regularity section.

Application of materiality

Departmental group

Materiality: £1.58 billion

Basis for determining materiality: Approximately 1% of opening group net assets of £159 billion (1% of opening net assets of £148 billion in 2023-24)

Rationale for the benchmark applied: The department’s large asset base is fundamental to its activities. Alongside its personnel, the assets enable the department to fulfil its objective of defending the nation. I have elected to use opening net assets due to the large nuclear decommissioning provisions which are intrinsically linked to the department’s nuclear assets. The materiality for the department and departmental group are similar in value because the core department contains over 99% of the group’s opening net assets.

Department

Materiality: £1.50 billion

Basis for determining materiality: Approximately 1% of opening parent net assets of £158 billion (1% of opening net assets of £147 billion in 2023-24)

Rationale for the benchmark applied: The department’s large asset base is fundamental to its activities. Alongside its personnel, the assets enable the department to fulfil its objective of defending the nation. I have elected to use opening net assets due to the large nuclear decommissioning provisions which are intrinsically linked to the department’s nuclear assets. The materiality for the department and departmental group are similar in value because the core department contains over 99% of the group’s opening net assets.

MoD Annual Report and Accounts 2024–25

Press release

View press release (4 Nov 2025)

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