Annual Report & Accounts 1997-98

NOTES TO THE ACCOUNTS

1. Accounting policies

(a) Accounting convention

The accounts are prepared under the historical cost convention modified to include the revaluation of fixed assets to their value to the business by reference to current costs.

(b) Without limiting the information given, the accounts meet:

(i) the accounting and disclosure requirements of the Companies Acts;

(ii) best commercial accounting practices including accounting and financial reporting standards issued or adopted by the Accounting Standards Board; and

(iii) any disclosure and accounting requirements which the Treasury may issue from time to time in respect of accounts which are required to give a true and fair view.

(c) Income recognition

(i) Income from licenses issued under the Wireless Telegraphy Act 1949 is recognised on the issue of a new licence, or on the renewal date.

(ii) Income from government departments is recognised on invoice date, provided that this is not earlier than the date from which the licence is provided.

(iii) Fees for the examination of radio officers are recognised on receipt.

(iv) Type approval testing and type approval certification fees are recognised on completion of the work.

(d) Fixed assets and depreciation

(i) The threshold above which items are recorded as fixed assets is reviewed each year for all categories of asset.

(ii) The cost of time spent in constructing assets (including computer systems) is capitalised only where a clearly defined asset is created which will generate quantifiable income or cost savings over its anticipated useful life.

(iii) Depreciation is provided on a straight line method to write off the cost or valuation less any residual value of each asset evenly over its anticipated useful life as follows:

Asset	Life in years
Buildings Computer equipment Plant and machinery Satellite monitoring equipment Vehicles Furniture and office equipment	3 2 5 7 2 5	to to to to to to	50 7 25 30 10 10

All assets, except for assets under construction, computer software and buildings, are revalued monthly by reference to a series of indices published by the Central Statistical Office. Assets under construction and computer software are recorded at cost.

A sample of all assets is regularly checked and the book value of each asset is compared with an estimate of its current replacement cost. Where the difference is significant, the asset valuation is adjusted to reflect the estimate of its current replacement cost. The change in valuation is transferred to the revaluation reserve, as is the related backlog depreciation.

(e) Research and development

Research and development expenditure is written off as incurred.

(f) Consumable stores

The Agency has no significant stocks. Expenditure on consumable items such as fuel oil, stationery and small items held as spares or for repairs is written off as incurred.

(g) VAT

Most of the Agency's supplies are outside the scope of VAT. Input tax is not normally recoverable on inputs relating to such supplies. However, under Treasury directions, certain contracted-out services are eligible for recovery of VAT and the Agency recovers this quarterly in arrears. The remaining irrecoverable VAT is charged to the income and expenditure account in the year in which it is incurred, except that which is capitalised as part of asset values.

(h) Cash

The Agency does not operate a bank account. Receipts are credited to the Agency's Vote account and remitted to the DTI's account at the Bank of England. Payments are made from the same account. The excess cash receipts for the year are surrendered to the DTI and debited directly to the Agency's general fund in accordance with Treasury guidance.

(i) Early Retirement Scheme

The DTI operates an Early Retirement Scheme which gives retirement benefits to certain qualifying employees, including those at its On-Vote Agencies. These benefits conform to the rules of The Principal Civil Service Pension Scheme. Since the DTI accepts full liability for the costs of these benefits until the normal retirement age of the employees retired under the Early Retirement Scheme, the Agency does not provide in its accounts for the cost of future pension payments under the scheme.

(j) Notional charges

In accordance with Treasury guidance, notional items are charged to the income and expenditure account as follows:

(i) Interest on capital employed (see note 6).

(ii) A notional insurance charge based on a formula advised from time to time by the Treasury.

(iii) A notional audit fee.

(k) Insurance

In accordance with Treasury guidance, the Agency does not generally purchase commercial insurance (but see also (j) (ii) above). Instead, it self-insures from its own resources for minor uninsured losses, but looks to the DTI as its insurer for major uninsured losses. Where the DTI meets material uninsured revenue losses on the Agency's behalf, the losses are accounted for as exceptional costs and the recoveries from the DTI as income in the Agency's accounts. Capital funding from the DTI for uninsured losses is accounted for initially as deferred income and is then credited to income over the lives of the related assets so as to match the depreciation charges on those assets each year.

(l) Operating leases

Rentals due under operating leases are charged over the lease term on a straight line basis or on the basis of actual rentals payable where this fairly reflects usage.

2. Gross income

For the purposes of company law and accounting standards, the Agency has only one class of business and all income arises in the United Kingdom.

The following information is given to satisfy the additional disclosure requirements of the HM Treasury Fees and Charges Guide, in accordance with paragraph 3(d) of the Agency's Accounts Direction.

Gross Income
Miscellaneous income consists principally of income from investigation of domestic interference complaints. The Agency's full cost for other minor sources of miscellaneous income continue not to be separately identified and reported.

The above summary excludes all uninsured losses fully recoverable from the DTI. See also note 18.

Paragraph 3.8 of the Fees and Charges Guide requires the disclosure of the financial objective, full cost, income, surplus or deficit, and performance against the financial objective for each form of a statutory service which has a full cost of more than £1 million. By agreement with the Treasury, statutory service is taken to be the same as the Agency's business reporting sector rather than the individual licence classes and sub-classes within such sectors. The business reporting sectors reflect the broad types of radio use recognised in the radio industry.

The financial objective in each case is to recover the full cost from customers. Full cost for each sector is calculated by the Agency's costing system and involves a significant apportionment of overhead costs which cannot be directly allocated at this level of detail.

3. Performance against key financial targets

The Agency's key financial target is to recover its full costs from its customers. This target was achieved for the year ended 31 March 1998 (as it has been each year since the inception of the Agency). The income and expenditure account shows that income exceeded expenditure by £1,689,032.

4. Staff costs

All staff

Management Board
The remuneration (excluding pension fund contributions) of the Management Board (excluding the Chief Executive) fell within the following ranges:

The Chief Executive receives a basic annual bonus on the same terms as all staff, based on the Agency's performance against key performance targets. In addition, he receives a Chief Executive's bonus limited to a maximum of 10% of salary. This is based on his assessed performance in the previous financial year. The amount of this bonus is recommended by the Steering Board and approved by the DTI.

Pensions
The employees of the Agency are civil servants to whom the conditions of the Superannuation Acts 1965 and 1972 and subsequent amendments apply. For the year ended 31 March 1998, contributions were paid to the Paymaster General at rates of 11.0 to 19.5% (according to grade) of wages and salaries as determined by the Government Actuary and advised by the Treasury.

Early retirement
In 1997/98, 5 staff (1996/97: 1 staff) retired early from the Agency. The cost for the year of early retirement benefits paid in respect of Agency staff retiring early in all years up to and including 1997/98 amounted to £328,465 (1996/97: £215,302). Since the DTI accepts full liability for these costs (see Note I (i)), they have not been charged to the Agency's income and expenditure account. At 31 March 1998, the estimated cost of future pension payments under the scheme for Agency staff who had retired early amounted to £863,862 (31 March 1997: £677,135).

Steering Board
The Agency Steering Board comprises eight members, four of whom are civil servants (details are given in the Foreword to the Accounts). The Chief Executive is one of these members and his remuneration is borne by the Agency and disclosed above. The costs of the other civil servant members are borne by the DTI. These members do not receive any remuneration for Board duties in addition to their normal salaries. The external members of the Steering Board are remunerated directly by the DTI and their total remuneration for the year was £9,269 (1997: £12,704).

5. Other operating charges

6. Notional interest

A notional interest charge is made calculated on the Treasury formula (currently based on a rate of 6% p.a. of capital employed). See note 1 (j) (i).

7. Exceptional items

The following amounts in respect of relocation and disaster recovery have been charged/(credited) in the year. See also note 16.

 

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