Information

Scottish Government consolidated accounts: 2018-2019

Annual report of consolidated financial results of the Scottish Government, its Executive Agencies and the Crown Office, prepared in accordance with IFRS.


10. Financial Instruments

The Scottish Government measures and presents financial instruments in accordance with International Accounting Standard (IAS) 32, International Financial Reporting Standard (IFRS) 7 and IFRS 9 as interpreted by the Financial Reporting Manual. IFRS 7, Financial Instruments: Disclosures, requires disclosure of the role that financial instruments have played during the period in creating or changing the risks that an entity faces in its activities. The Scottish Government is not exposed to the degree of financial risk faced by business entities because of the largely non-trading nature of its activities and the way that government is financed. Moreover, financial instruments play a much more limited role in creating or changing risk than would be typical of the listed companies to which IFRS 7 mainly applies. Financial assets and liabilities are generated by day to day operational activities and are not held to change the risks facing the Organisation in undertaking its activities.

Liquidity Risk

The Scottish Parliament makes provision for the use of resources by the Scottish Government, for revenue and capital purposes, in a Budget Act for each financial year. Resources and accruing resources may be used only for the purposes specified and up to the amounts specified in the Budget Act. The Act also specifies an overall cash authorisation to operate for the financial year. The Scottish Government is not, therefore, exposed to significant liquidity risks.

A maturity profile of the carrying amount of financial liabilities is presented below. This analysis satisfies the disclosure requirements of International Financial Reporting Standard 7, Financial Instruments: Disclosures (IFRS 7). The maturity profile for NLF loans is matched by the corresponding profile for the related fixed asset investments. The amounts disclosed are undiscounted cash flows as per IFRS 7.

Maturity Profile

Financial Liabilities <1yr 1 - 2 yrs 2 - 5 yrs >5yrs 2018-19
Total
2017-18
Total
£m £m £m £m £m £m
Trade payables 504 - - - 504 449
Accruals 1,561 2 - - 1,563 1,622
Other payables 337 106 - - 443 411
NLF loans 27 33 176 355 591 622
Accrued Interest due on NLF Loans 8 - - - 8 9
Balances Payable to SCF 24 - - - 24 -
Corporate balance with SCF 979 - - - 979 585
PFI Deferred Residual Interest - - - - - -
PFI Imputed finance leases 91 78 252 2,694 3,115 2,988
Lease payables 1 1 5 16 23 25
Bank overdraft - - - - - 2
Financial guarantees - - - - - 18
Total 3,532 220 433 3,065 7,250 6,731

Credit risk

Credit risk is the risk that a third party will default on its obligations. The maximum exposure to credit risk at the Statement of Financial Position date in relation to each class of financial asset is the carrying amount of those assets net of any impairment. No collateral is held as security.

Cash at bank is held with major UK banks. The credit risk associated with cash at bank is considered to be low.

The only area where the Scottish Government has significant concentrations of credit risk is on student loans. The Scottish Government has a statutory obligation to issue student loans and seek repayments in line with legislation. The Scottish Government is not permitted to withhold loans on the basis of poor credit rating nor is it able to seek collateral. The Scottish Government is therefore exposed to the risk that some student loans will not be repaid, although this is partly mitigated by the fact that most repayments are collected by Her Majesty's Revenue and Customs as part of the tax collection process. In addition this risk is mitigated through the valuation of student loans at fair value.

Market risk

There are a number of areas where the Scottish Government is exposed to potential market risk. These relate to interest rates, foreign currency risk and housing market risks.

Interest Rate Risk

65% (2017-18: 67%) of the Scottish Government's financial assets and 100% (2017-18: 100%) of its financial liabilities carry nil or fixed rates of interest and they are not therefore exposed to significant interest rate risk. The portion of the Scottish Government's financial assets that carry a floating rate of interest relates in the main to student loans.

Foreign Currency Risk

Within payables, the Scottish Government has a balance that is subject to exchange rate fluctuations. This relates to advances received by the Economy, Jobs and Fair Work portfolio from the European Commission (EC) for the 2014-20 European Structural Funds (ESF) programme. The year end balance of £27.455m is the sterling equivalent of €32.110m translated at the accounting date (using the official EU exchange rate as at 31 March 2019).

The Scottish Government has instituted funding advances for certain EU CAP payments. Euro denominations are sold once EU funding is received. As at 31 March the year end balance of £95.488m is the sterling equivalent of €106.888m.

Where there are other transactions denominated in Euros the exchange rate is managed within the programmes.

The Scottish Government has no other significant exposure to foreign currency risk.

Housing Market Risk

The Scottish Government engages in a number of shared equity housing schemes, and is exposed to the risk of potential falls in the value of the housing market. The current investment in such schemes is £952.6m (2017-18: £860.7m).

Categories of financial assets and financial liabilities

The Scottish Government has the following categories of financial assets and financial liabilities:

Financial Assets
Current Year
Fair Value
Through
Profit and
Loss
Loans and
Receivables
Shares Held in or Loans
Advanced to Public
Sector
2018-19
Note Note a Note b Note c Total
Description £m £m £m £m
Voted loans 9a - 6 3,284 3,290
NLF loans 9a - - 591 591
Housing loans 9a 218 - 218
Shared Equity Housing loans 9a - 952 952
Energy related loans 9a - 146 146
EU CAP funds 9a - 256 256
Other Funds 9a - 100 100
Student loans 9a 3,459 - 3,459
Interests in nationalised industries 9a - - 27 27
Trade receivables 11 - 55 55
Accrued income 11 - 749 749
Interest receivable 11 - 33 33
Amounts receivable from the SCF 11 - - -
Other receivables 11 - 85 85
Corporate balance with the SCF 11 - - -
Cash and cash equivalents 2 - 1,020 1,020
Total 3,677 3,402 3,902 10,981

Note: As not all assets are financial instruments, the above table excludes VAT £66m and prepayments £359m included in the associated asset note (Note 11).

Financial Assets
Restated
Prior Year
Note Fair Value
Through
Profit and
Loss
Restated
Loans and
Receivables
Restated
Shares Held in or Loans
Advanced to Public
Sector
2017-18
Note a Note b Note c Total
Description £m £m £m £m
Voted loans 9a - 5 3,064 3,069
NLF loans 9a - - 622 622
Housing loans 9a 191 - 191
Shared Equity Housing loans 9a 860 860
Energy related loans 9a 128 - 128
EU CAP funds 9a - 323 - 323
Other Funds 9a - 182 - 182
Student loans 9a 3,436 - - 3,436
Interests in nationalised industries 9a - - 25 25
Trade receivables 11 - 66 - 66
Accrued income 11 - 703 - 703
Interest receivable 11 - 33 - 33
Amounts receivable from the SCF 11 - 141 - 141
Other receivables 11 - 91 - 91
Corporate balance with the SCF 11 - 1 - 1
Cash and cash equivalents 2 - 585 - 585
Total 3,627 3,118 3,711 10,456

Note: As not all assets are financial instruments, the above table excludes VAT £60m and prepayments £342m included in the associated asset note (Note 11).

Financial Liabilities
Current Year
Note Fair Value
Through
Profit and
Loss
All Other
Financial
Liabilities
Shares Held in or Loans
Advanced to the Public
Sector
2018-19
Note a Note d Note c Total
Description £m £m £m £m
Trade payables 12 504 504
Accruals 12 1,563 1,563
Other payables 12 443 443
NLF loans 12 591 591
Accrued Interest due on NLF Loans 12 8 8
Balances payable to the SCF 12 24 24
Corporate balance with SCF 12 979 979
PFI Imputed finance leases 12 3,115 3,115
Lease payables 12 23 23
Bank overdraft 12 - -
Financial guarantees 12 - -
Total - 6,651 599 7,250

Note: As not all liabilities are financial instruments, the above table excludes deferred income £132m, other tax and social security £146m, superannuation payable £102m and employee benefit accrual £68m included in the associated liability note (note 12). The finance leases are disclosed at the discounted cash flow value.

Financial Liabilities
Prior year
Note Fair Value
Through Profit and
Loss
All Other
Financial
Liabilities
Shares Held in or Loans
Advanced to the Public
Sector
2017-18
Note a Note d Note c Total
Description £m £m £m £m
Trade payables 12 - 449 - 449
Accruals 12 - 1,622 - 1,622
Other payables 12 - 411 - 411
NLF loans 12 - - 622 622
Accrued Interest due on NLF Loans 12 - - 9 9
Corporate balance with SCF 12 - 585 - 585
PFI Imputed finance leases 12 - 2,988 - 2,988
Lease payables 12 - 25 - 25
Financial guarantees 12 - 18 - 18
Total - 6,100 631 6,731

Note: As not all liabilities are financial instruments, the above table excludes deferred income £130m, other tax and social security £139m, superannuation payable £99m and employee benefit accrual £61m included in the associated liability note (note 12). The finance leases are disclosed at the discounted cash flow value.

Note a: Assets and liabilities held at fair value through the profit and loss are measured at fair value with gains or losses being accounted for through the outturn statement.

Note b: Loans and receivables are measured at amortised cost using the effective interest methods, and any impairment losses go through the outturn statement. Disposal may give rise to a gain or loss, which is recognised through the outturn statement.

Note c: Shares held in or loans advanced to public sector or due to the NLF are held at historic cost less impairment, and any impairment losses go to the outturn statement.

Note d: All other financial liabilities will be measured at fair value initially and subsequently at amortised cost.

The fair value of financial instruments is equivalent to the carrying value disclosed in the financial statements. No financial assets or financial liabilities have been offset and presented net in these accounts.

Contact

Email: alison.douglas@gov.scot

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