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Comments from ACCA
September 2004

ACCA is pleased to comment on the draft guidance prepared by the Commission on the above matter.

As a general point, we would caution the Commission against adopting the principles and requirements of the DTI's proposed OFR as a template for the reporting requirements of political parties. The OFR is intended as an added-value document for the information of shareholders of listed companies which offers them information over and above that which is available from the standard financial statements. The specific elements and disclosure requirements of the OFR have been developed with the circumstances and stakeholder relationships of the listed company very much in mind. These circumstances and stakeholder relationships are influenced substantially by the evolving thinking about the purpose of the limited company and the nature and scope of the stewardship responsibilities of their directors.

Given that the OFR is a customised statement for the listed company sector, we query whether the OFR is the correct template to adopt for reporting rules for political parties.

For similar reasons, we would query the reference in the consultation paper to requiring political parties to disclose the extent to which they have adopted or converged with IFRS. Compliance with IFRS will indeed be a legal requirement as from 2005, but this requirement will only extend to listed companies. IFRS have in fact been prepared, over the years, with the express purpose of reflecting the information needs of stakeholders of listed companies ¿ they were never intended for adoption by entities other then listed companies and are widely considered to be inappropriate for them. The International Accounting Standards Board (IASB) has recently embarked on a project to draft amended or adapted versions of IFRS with the circumstances of SMEs in mind, but this project is only at a very early stage of development and no new, more widely-applicable generation of IFRS is expected for some time. Until such time as IASB does produce SME versions of IFRS, most companies other than listed companies and their group companies are likely to continue to follow the requirements of UK accounting standards.

In respect of both the OFR and IFRS, therefore, we would advise the Commission against giving the impression that these are models of best reporting practice which should be followed irrespective of context.

We set out below our reactions to specific questions posed in the paper:

Users of accounts (paragraph 4.3)

We would suggest that the reference to ¿parliamentary members' be expanded so as to cover all persons who hold elected office on behalf of the party concerned. A separate category of user should be the tax authorities. Conceivably, additional categories could include persons who have rights of access to information under the Freedom of Information Act and Data Protection Act, creditors and individual members of the parties.

The inclusion of ¿students' in the list is, in our view, questionable. Would not the legitimate research interests of students be covered by the reference to the general public?

Additional disclosures (paragraph 5.3)

We would support the adoption of new disclosures on government investigations (para 5.2.7), contingent liabilities (5.2.8), retirement benefits (5.2.9) and bank overdraft (5.2.12).

Additional disclosures (paragraph 5.4)

It is proposed in para 5.2.3 that there should be increased disclosure requirements in the overview section, to include a discussion on the outlook and future performance of the party or accounting unit. This appears to be modelled on corresponding provisions of the draft regulations on the OFR. It occurs to us, however, that the future activities of a political party are likely to be wholly conditioned by its cycle of electoral commitments. For this reason, the stakeholders of a political party are not likely to benefit from the same sort of information on future corporate strategies as are stakeholders in a listed company. We suggest that any disclosure of the kind envisaged need go no further than a statement on the party's financial capacity to participate in electoral events either on an unlimited basis or over the next twelve months.

As indicated in our general points above, we suggest that a standard statement on convergence with IFRS would be inappropriate.

Unnecessary or onerous disclosures (paragraph 5.6)

We have no suggestions for items to add to the list of disclosures.

Unnecessary disclosures (paragraph 5.7)

We would only query whether there needs to be separate disclosure in the financial statements of ¿Conference Expenditure'. We accept that separate information on conference expenditure might be of interest to some stakeholders but suggest that this could be reported in the notes to the accounts.

Format of the SOA (paragraph 5.10)

We agree that the annual report is a suitable vehicle for the SOA.

Format of the SOA (paragraph 5.12)

As things stand, the Overview section appears to be a fairly disparate gathering place for information on i) administrative matters, ii) corporate governance and internal control, iii) political activities and iv) financial activities. To this extent it mirrors the content of the Companies Act's Directors Report. As a venue for disclosure of given categories of narrative information, the section appears to us to be acceptable, although, as with any statement of this kind, its potential usefulness to users may be impaired by the encouragement it gives to preparers to simply set out an accumulation of data with little in the way of a coherent overriding purpose. If there were a desire to make the Overview into a more coherent and co-ordinated report, one option would be to adopt the spirit of the OFR and introduce a guiding ¿objective' for the statement which would inform the party's decisions on what types of information to include in the statement and to what end. But a guiding objective of this kind is only really feasible in cases where there is a clear understanding of the intended audience for the statement and the reasons why that audience need to have the information concerned. In the case of political parties, the range of users and their information needs would appear to be wide. We would therefore favour the retention of the Overview in its current format, perhaps though with an amended title, such as Financial and Management Review.

Format of the SOA (paragraph 5.14)

As stated above, we query the need for separate disclosure on the Income & Expenditure Account of conference expenditure.

Format of the SOA (paragraph 5.22)

We suggest that the first paragraph of the model auditor's report should incorporate a reference to the statement of total recognised gains and losses, which is considered to be an integral element of the financial statements of limited liability entities.

In the fourth paragraph, there is a reference to the accounts being prepared in accordance with legal requirements and ¿other direction' issued by the Commission. Given that the Commission has so far issued not regulations but guidance, we query whether the reference to direction should be expanded.

As a final point of detail, the guidance contains, at paragraph 8.9, a statement to the effect that the guidance should be regarded as ¿standard' as from the specified date. The term ¿standard' is normally used with respect to mandatory guidance, e.g. in accounting standards; non-mandatory guidance, such as in Statements of Recommended Practice, normally use terminology such as ¿the guidance is effective from' a specified date. We recommend that this latter practice be adopted in the Commission's guidance.

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