The annual accounts, or financial statements, are a formal, historical record of the institution's stewardship of its financial resources. They are an important element of accountability, besides being a very useful source of information. They are necessarily an overview - only really significant transactions are set out. The thousands of day to day receipts and payments will have been sorted into like items and summarised. So there will be much more financial information available behind them, some of which governors should see as part of routine financial reporting during the year. But the accounts are the public record and will carry an independent audit certificate to give assurance to readers that they can be relied upon. The standardisation of accounts across the higher education sector enables useful comparisons to be made with peer institutions.
The annual accounts of higher education institutions must conform to a specific format set out in the Statement of Recommended Practice: Accounting in Further and Higher Education (SORP) as well as relevant accounting standards. There are 3 main elements:
Capital items are dealt with by carrying their initial cost on the balance sheet and ‘drip-feeding’ it over the projected life of the asset through applying an annual depreciation charge to the income and expenditure account. Similarly, grants received towards the cost of such items are also carried on the balance sheet and released to the income and expenditure account over the same period. Institutions are also permitted from time to time to revalue their assets.
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