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Head of the National Audit Office Sir John Bourn reported to Parliament today that he had given an unqualified audit opinion on the accounts of the Strategic Rail Authority (SRA) for 2002-03.

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In his report, Sir John confirms that the SRA’s accounts incorporate the accounts of Network Rail Limited.  This position reflects the view which he announced in June 2002 and the Government accepted: that Network Rail should be accounted for as a quasi subsidiary of the SRA. According to Sir John, the Government is, through the support facilities in place, providing security to the providers of debt finance to Network Rail, and is acting as lender of last resort in the event of financial difficulties.  In doing so the Government is, via the SRA, the party bearing the risk that would usually be borne by equity capital.

Today’s report also comments on the new accounting policy adopted by Network Rail in valuing the railway network assets, which differs from that used by Railtrack Plc.  Under this new accounting policy, Network Rail Infrastructure Limited’s results for 2002-2003 show a pre-tax loss of £290 million. And Network Rail has restated the 2001-2002 results of Railtrack, changing the previously reported loss of £1,638 million into a surplus of £295 million. Sir John notes that this different approach had no impact on the cash and liabilities position of Railtrack at 31 March 2002. As reported in Railtrack’s audited accounts, net liabilities falling due within one year at that date were £3,964 million with a further £3,597 million due after one year.

"I have considered the revised basis of valuing the railway network in the context of my audit of the SRA’s accounts. The approach adopted by the Directors of Network Rail to value the railway infrastructure assets is acceptable under financial reporting standards. It is also consistent with the accounting policies of the SRA and the latter’s requirement to prepare accounts in line with the Accounts Direction issued by the Secretary of State for Transport, including the requirement for the accounts to comply with ‘Executive Non-Departmental Public Bodies: Annual Reports and Accounts Guidance’ issued by HM Treasury.

"The policy is in addition consistent with International Accounting Standards which are planned to be adopted from 2005, whereas the previous basis of valuing the railway network was not consistent with these Standards."

Sir John


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