The FReM provides statutory guidance for government bodies preparing annual reports and accounts.

The revisions have been proposed in light of the government financial reporting review and a thematic review of the Statement of Parliamentary Supply (SoPS), and are intended to improve reporting in annual reports and accounts, and supporting guidance for preparers.

The consultation is looking for feedback on a number of issues, including improving readability and revised structure of the manual, with a push to tighten up financial reporting standards. Due to the extent of the proposed changes, the Treasury has indicated that the revisions are part of a two-phase exercise, with further consultation to follow.

The Treasury said: ‘The second phase of the review will pick up on any outstanding issues, but otherwise focus more on the style and structure of the FReM as a piece of guidance. Changes will be made to the 21-22 FReM for publication in December 2020.’

A new section on government financial reporting principles has been added. This introduces, for the first time, the four purposes of government financial reporting, relating to the needs of a different report user. The chapter discusses the importance of user engagement, and also clarifies that, for annual reports and accounts, the needs of Parliament as the primary user take precedence.

There is also additional guidance on the use of narrative reporting, with examples of good practice.

To improve ease of reference, a new chapter has been created bringing together different sections of the existing FReM, all of which relate to the annual report and accounts as a whole. It consists of:

• elements from existing Chapter 1, Introduction, that deal with budgetary controls and applying accounting principles to various kinds of bodies (ie, charities, trading funds, etc);
• existing Chapter 2, Accounting principles;
• high level elements of existing Chapter 4, Accounting boundaries; and
• elements of existing Chapter 5, Form and content of the annual report and accounts, that apply to the whole of the annual report and accounts.

Chapter 5 has been extensively revised and contains substantive changes to reporting requirements. The performance report is a key section of the annual reports and accounts, that should provide the user with a complete understanding of the reporting entity and how it has performed. To meet the objectives of government financial reporting, reporting requirements on progress against goals, structure, risk, key information and financial performance have all been strengthened.

There are also a number of new mandatory reporting requirements covering the performance review, which will have to include the following from 2020:

• a brief description or diagram detailing organisational structure, if not already included;
• a summary of single departmental plan objectives, or any other organisational goals;
• other performance overview requirements have been carried forward, although some have been expanded. In particular, risk reporting has been enhanced by strengthening the requirement to report on risk, how risks have been mitigated and how they will affect future performance.

Entities will also have to apply the requirements of the UK Corporate Governance Code 2018 and Orange Book when considering the content of their risk disclosures in the governance statement.

Public sector bodies will also have to report staff turnover in line with new Cabinet Office guidance which is due to be published soon.

The government is also recommending that the Statement of Parliamentary Supply name is changed as feedback from the Parliamentary Scrutiny Unit has indicated that the title may not adequately explain the purpose of the statement, especially to a user not familiar with public spending. Consequently, the Treasury wants feedback on views on changing to a different title and has proposed the following options:

1. Statement of Outturn against Parliamentary Supply (SoPS);
2. Statement of Outturn Compared to Supply (SoCS)
3. retaining the current name –Statement of Parliamentary Supply (SoPS).

A revised Government Financial Reporting Manual (FReM) 2020-21 exposure draft has been released for review and the Treasury has indicated that the final version will be published in December 2019, after consultation responses have been reviewed.

The closing date for comment is 25 October 2019.

Treasury consultation: Government financial reporting manual 2020 to 2021: consultation on revisions 

Exposure draft, The Government Financial Reporting Manual 2020-21