The UK’s Ministry of Defence (MoD) has failed to identify whether its contracts contain leases for the seventh year running under the International Financial Reporting Standard (IFRS), according to the National Audit Office (NAO).
Amyas Morse, the Comptroller and Auditor General (C&AG), has “qualified his audit opinion” on the Ministry of Defence’s accounts for the seventh time.
A spokeswoman for the NAO said a qualified opinion is a statement issued after an audit is done by a professional auditor that suggests the information provided was limited in scope and/or the company being audited has not maintained IFRS accounting principles.
The C&AG said he had qualified his opinion for the seventh year running because the Department had again not complied with the accounting requirement under the IFRS for determining whether a contract contains a lease (the kind of contract which provides the Department with exclusive or near-exclusive use of assets and capability).
The MoD has previously confirmed that compliance with the standard is possible for existing contracts – but in practice this would create significant challenges. There would be a need for changes in business systems and processes, as well as for wider interaction by the MoD with its supplier base to obtain the necessary asset and liability information.
In 2015-16 the MoD formally decided to improve compliance with International Accounting Standard (IAS) 17 for new single contracts impacting a single site, with effect from 2016-17.
The MoD said it intends this to act as a pilot to allow it to develop further understanding of the challenges and resources required to improve compliance. The MoD intends to review the progress and results of this exercise during 2016-17 including consideration of whether it can be expanded further.
The National Audit Office scrutinises public spending for Parliament and is independent of the government; the C&AG certifies the accounts of all government departments and many other public sector bodies.