Education is in the spotlight as never before. Prime minister Tony Blair is fighting the forces of conservatism that are rife in the sector, and has made no bones about saying that future failure will not be tolerated. Meanwhile, on the financial front, the sector has come in for fierce criticism. For evidence, look no further than the scathing comments made about financial management at Halton FE College by the Commons' Public Accounts Committee last month. Its message to Halton and other colleges was simple: shape up now. In these uncertain times, a new draft statement of recommended practice for the further and higher education sectors has just landed on the desks of education accountants. And it attempts to right many of these existing wrongs. Like the rest of the public sector, education is experiencing a period of significant change - particularly in terms of finances and income. Public funds now form a decreasing proportion of educational organisations' total income, so they must generate additional funds from an increasingly wide range of activities. The financial role within institutes of higher education has also faced an overhaul in the past few years. From being concerned mainly with the stewardship of funds, education bodies now have a more central role in developing financial strategies and having a hand in decision making. The statement of recommended practice will require further education institutions to alter the form of their accounts and, in many respects, start again. Many further education organisations have been reporting using the existing higher education SORP - but for those that do not, the SORP represents the most significant change to hit the sector's accounts in years. The role of education accountants is no longer just about keeping a check on finance. It is also about playing a much fuller part in planning the strategic direction of institutions and in ensuring detailed plans are delivered. Education is not a business in the traditional sense of the term. But this does not mean that universities and colleges of higher education are inefficient. The opposite is, in fact true, according to officials from the Committee of Vice Chancellors and Principals, the SORP-making body for higher and further education. According to the CVCP, the sector has improved its productivity by nearly 40% since 1989/90. This has been achieved during a period of increasing student numbers and sustained improvements in teaching and research. But costs have been tightly controlled and there have been significant developments in how teaching is delivered, with an increasing focus on student-assisted learning. The draft SORP is the first accounting standard to cover both sectors. It sets out the rules for the presentation of financial statements for education institutions in both sectors. Accounting Standards Board officials invited the CVCP to take the lead in developing a new SORP to cover accounting standards for both higher and further education. It is the first update of the SORP for the education sector since 1994. The new SORP is the first to combine the requirements of institutions in the further and higher education sectors. It has developed from the existing SORP for higher education institutions and a similar series of accounting requirements operating in further education institutions. It states that financial statements of institutions should, where possible, be prepared on a similar basis to the accounts of other corporate organisations, and should follow all relevant accounting standards, including those introduced after the publication of the SORP. Ian Lewis, head of finance at the Higher Education Funding Council for England, said the SORP forms the grounding for much of the council's work. 'We use the SORP as the basis for financial reporting from institutions, so we have consistency from their accounts,' he says. 'It is a very valuable tool for us and others that are looking at financial information from higher education.' The new document - the SORP has been in existence since 1989 - has been demanded by the ASB because of rules that call for a review of SORPs every few years to keep pace with changes to accounting standards. 'It is basically an update and will take account of accounting standards which have come in since 1994,' says Lewis. 'We will still get the same information we did then.' Graham Marsden, PricewaterhouseCoopers public sector partner, believes the SORP is 'another step in the right direction' as the public sector moves towards adopting UK generally accepted accounting principles (UK GAAP) and becomes more commercially minded. 'Given where higher education institutions are with limited company subsidiaries and joint ventures, for example, a degree of consistency is inevitable and preferable,' he says. 'Bringing the two sectors together makes sense too. They are both in the same sorts of business and draw from the same sorts of funding. 'For the accounting arrangements to be taken on by a more professional organisation (the ASB) is good.' Professor John Bull, vice-chancellor of the University of Plymouth, says the new SORP has been an important 'tidying up' exercise: 'In general terms it reflects an updated version in which the only change is in relation to FRS12 on provisions for long-term maintenance.' While the new SORP represents a minor revision rather than a radical revamp, other issues are affecting education sector finances too. The emergence of the private finance initiative and its popularity in Whitehall, and the unprecedented move by the government to encourage private firms to take over failing education services, have taken their toll. Even Andersen Consulting is muscling in on the act with its bid to run education services in Islington. The urgency with which central government has advertised for private-sector help shows the speed at which local education authorities are likely to lose influence. This may go as far as to include financial clout before long. But for many in the sector, the private finance initiative could be the answer to longer-term funding for capital projects. With complicated financial arrangements, such as the private finance initiative being introduced, and private-sector firms entering the education arena, a good and consistent standard of financial reporting is a very necessary evil.
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