report & financial statements

Transcription

1 report & financial statements

2 officers of the university Chancellor The Rt Hon the Lord Hope of Craighead BA MA LLB PC FRSE HonLLD Principal and Vice-Chancellor Professor Andrew Hamnett DL MA DPhil Hon DSc CChem FRSC FRSE Convener of Court J Fraser Livingston FRICS Vice-Principal Professor James Love BA MSc PhD Pro Vice-Principal Professor Kenneth Miller LLB LLM PhD Deputy Principals Professor Rae Condie BSc BA MSc MA(Ed) PhD FRSA Professor Allister Ferguson BSc MA PhD CPhys FInstP FRSE FIEEE FOSA Professor James McDonald BSc MSc PhD CEng FREng FRSE FIEE FInstP SMIEE Anne Hughes DCE ITQ SQN MPhil Secretary Peter West OBE DL MA DUniv DPhil Librarian and Head of Information Resources Directorate Professor Derek Law MA DUniv FIInfSc FKC FCLIP FRSE

3 financial statements for the year to 31 July contents Financial Highlights and Other Key Statistics 2 Operating and Financial Review 3 Corporate Governance 6 Statement of Responsibilities of the University Court 8 Independent Auditors' Report to the University Court 10 Consolidated Income and Expenditure Account 12 Statement of Consolidated Total Recognised Gains and Losses 13 Balance Sheet 14 Consolidated Cash Flow Statement 16 Notes to the Financial Statements 17 Court Membership /

4 financial highlights and other key statistics Summary Income and Expenditure Account Funding Council grants 96,715 91,072 Tuition fees and education contracts 60,037 55,824 Research grants and contracts 35,686 31,580 Other income 26,837 25,513 Total income 219, ,989 Gain on disposal of fixed assets - 8,272 Total expenditure (209,557) (196,550) Transfer from accumulated income in endowment funds Surplus for the year 9,743 15,778 Summary Balance Sheet Net assets 225, ,189 Summary Cashflow Increase in net funds 16,378 24, Research Income () 35,686 31,580 29,398 Staff Numbers (average) 3,625 3,603 3,574 Full and part-time graduating students (headcount) Undergraduate Home/EU 15,002 15,627 15,013 Overseas Postgraduate instructional Home/EU 6,952 7,157 7,249 Overseas 1,298 1,078 1,078 Postgraduate research Home/EU 1,222 1,115 1,007 Overseas Total Home/EU 23,176 23,899 23,269 Overseas 2,351 2,140 1,835 25,527 26,039 25,104 Undergraduates entering employment or further % employed or studying study Strathclyde Benchmark 2006/ / / Access to Higher Education 2006/07(%) Entrants from: Strathclyde Benchmark State Schools NS-SEC classes

5 operating and financial review The Financial Statements for the year ended 31 July, which have been approved by the Court, represent the consolidated results of the University and its subsidiaries (the Group). Results for the year The Group's results for the year ended 31 July are summarised on page 2 of the Financial Statements. Income from continuing operations rose by 15.3M to 219.3M whilst expenditure rose by 13.0M to 209.6M, resulting in an increase in operating surplus from 7.4M to 9.7M. There were no gains on disposal in the year (2006/07 8.3M). The growth in income is largely attributable to an increase in Funding Council grants, tuition fees and income from research grants and contracts. Scottish Funding Council (SFC) grants rose by 6.2% to 96.7M. Despite a further transfer of 1.4M from SFC grants to tuition fees as a result of the revised funding arrangements for Home/EU new entrants on degree courses, the recurrent teaching grant increased by 1.7M (2.9%). SFC funding for research rose significantly during the period. In addition to an increase in the recurrent research grant of 6.2% ( 1.2M), non recurrent research grant income also rose by 0.8M. This is largely attributable to funding for new research pooling partnerships and greater activity in existing partnerships. The application of infrastructure funds to major refurbishment projects also increased by 1.4M. Tuition fees increased by 4.2M to 60.0M, an increase of 7.5%. Whilst the growth in Home/EU fees of 1.7M (7.0%) is largely attributable to revised funding arrangements, the growth in overseas fees of 2.9M (16.2%) reflects expansion of student numbers. Growth in Science, Business and Engineering student numbers was particularly notable. The growth in Research Grant and Contract income from 31.6M to 35.7M (13.0%) reflects both greater research activity and higher levels of overhead recovery. Overheads on research grants and contracts have risen from 7.3M to 9.0M. Interest receivable has contributed greatly to the surplus for the year, rising from 4.0M to 5.9M. Cash and deposits rose from 82M to 98M during the year. The University took advantage of favourable interest rates available in the market by depositing surplus funds for terms of between one and six months. Investment performance With the exception of the portfolio of endowment investments transferred from the University of Strathclyde Foundation in 2001, the University's portfolios are managed by Newton Investment Management. At the year end, the University's investment of expendable and permanent endowments, including the Hunter Endowment, managed by Newton Investment Management, had a market value of 12.6M. In addition to its endowments, the University has a general portfolio of investments that are intended to be held for use on a continuing basis in the activities of the University. These are included within fixed asset investments and had a market value of 6.1M at the end of the financial year. In reviewing the performance of Newton Investment Management, the performance of each portfolio has been compared to the return on the relevant World Market Index (WMI): / /07 Return on Return on Portfolio WMI Portfolio WMI General portfolio (7.6%) (8.4%) 10.8% 12.2% Main endowment fund (6.0%) (7.7%) 12.0% 11.6% Hunter endowment fund (7.0%) (5.1%) 9.8% 8.0% Notwithstanding the underperformance of the Hunter Endowment in /08, over the past six years all of the funds managed by Newton have outperformed their benchmark index. 3

6 operating and financial review Investment performance The portfolio transferred from the University of Strathclyde Foundation is managed separately by Tilney Investment Management and had a market value of 3.7M at the year end. The benchmark index for this portfolio is the Association of Private Client Investment Managers and Stockbrokers (APCIMS) Balanced Portfolio Index. The return on the portfolio compared to the benchmark was: / /07 Return on Return on Portfolio APCIMS Portfolio APCIMS Endowment portfolio (8.8%) (7.6%) 9.3% 9.3% The investment performance and strategy of each portfolio is regularly reviewed. Cashflow The University generated a net increase in funds during the year of 16.4M. The principal factors impacting net funds are an inflow from operating activities of 11.6M, a net inflow from returns on investments and servicing of finance of 5.5M and a net outflow for capital expenditure and financial investment of 0.7M. Further details are given in Notes 24 to 30 of the Financial Statements. Treasury management The University actively manages its cash flow according to the Treasury Management Code of Practice approved by Court. Available funds are deposited in a variety of Treasury accounts, ranging from overnight to six month deposits. The University has a facility to deposit surplus cash, up to the value of the long term loan, on a back-to-back basis. The University Court continues to review the Code of Practice in light of the uncertainties in the financial markets. Current and future developments During the year, the University to implement its Strategic Plan At the heart of the plan is an Agenda for Excellence which sets challenging targets in the areas of Research, Education and Knowledge Exchange. It provides a clear framework for future development and, by delivering its Strategic Plan targets, the University has an opportunity to create a step-change in performance. Implementation of the plan is being underpinned by strategic funding for activities in all three main areas. The University Estates Strategy will ensure that appropriate investment in infrastructure and facilities will support the implementation of the Strategic Plan. The proposed expenditure on developing the Estate over a ten year period is 300M. This includes plans to provide facilities for the Faculty of Education on the city centre campus. In /08, a total of 11.7M was incurred on additions to the Estate. Some 3.9M of expenditure was incurred in respect of four new-build projects. This included 2.4M in respect of design and site clearance costs for the new Strathclyde Institute of Pharmaceutical and Biomedical Sciences building. Expenditure on design fees and site investigation works was incurred in respect of the new Jordanhill building for the Faculty of Education, the new Sports and Health building on Cathedral Street and a new Advanced Forming Research Centre at Inchinnan. 4 Other major projects included 3.2M in the Thomas Graham building, enhancing research facilities for both Pure and Applied Chemistry and Chemical and Process Engineering and improving services to the building; 1.0M on improving teaching facilities in the McCance building; 0.7M to complete projects in the Royal College which will provide additional research facilities for Physics and Pure and Applied Chemistry; 0.6M on providing improved research facilities for Mechanical Engineering.

7 operating and financial review Staff and students with disabilities The University has a policy for promoting opportunities for staff and students with disabilities. This covers recruitment, appraisal and training opportunities, support, awareness training for staff, implementation and monitoring, and a complaints procedure. The University employs a Disability Adviser and an Equal Opportunities Officer to assist in improving opportunities for staff and students with disabilities and to monitor progress towards that aim. The University has an ongoing programme of expenditure to ensure it meets the requirements of the Disability Discrimination Act. Funds of 3.2M have been made available for this purpose. Payment of creditors The University attempts to ensure good relations with suppliers by making payment within 30 days of the invoice date or receipt of goods, whichever is later. At the year end, the University had trade creditors outstanding of 4.8M. Given that the University paid a total of 69.7M to trade creditors during the year, the amount outstanding at the year end represents 25 days (2006/07 29 days). During the year no interest was paid in relation to the Late Payment of Commercial Debts (Interest) Act, Conclusion An operating surplus of 9.7M is a highly satisfactory financial result and continues the trend of recent years as the University prepares for its major investment in estate development. However that necessary investment will result in both reduced income as cash balances contract and increased costs as backlog maintenance is carried out and appropriate depreciation provision made for new assets. Add to that the higher than anticipated salary settlement in and it is clear that there is no room for complacency. Difficult decisions lie ahead and budgetary discipline will be essential. Once again I wish to record my appreciation of the professionalism displayed by the Finance Director and his staff over the year. T J Monaghan, Treasurer 22 November 5

8 corporate governance The University is committed to exhibiting best practice in all aspects of corporate governance. This summary describes the manner in which the University has complied with and applied the principles set out in Section 1 of the Combined Code on Corporate Governance issued by the Financial Reporting Council (FRC) in June 1998 and revised in July The purpose of this summary is to help the reader of the Financial Statements understand how the principles of the Combined Code have been applied. Under the terms of the University Charter and Statutes, Court is the Governing Body of the University and, as such is responsible for overseeing the management and administration of the whole of the revenue and property of the University. Court exercises general control over the University and all its affairs, purposes and functions, taking all final decisions on matters of fundamental concern to the University. As part of its primary responsibilities, Court is responsible for the University's system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. There is a process for identifying, evaluating and managing the University's significant risks which complies with the internal control guidance for directors in the 1998 Combined Code as amended by the British Universities Finance Directors Group and as updated in The University's processes combine both a top-down and bottom-up approach to identification of risk, and involve a regular process of presentation and assessment. Strategic risks are identified and considered at various levels e.g. by the Senior Management Team, and, thereafter, are considered by the University's Management Committee (UMC), Audit Committee and Court. Similarly, every area of activity, both academic and administrative, reporting to UMC, is required to incorporate into its annual report its own risk assessment. The risk assessments are the subject of discussion at UMC and those are summarised into a formal report from UMC to Court. The Court has a majority of lay members and includes members of academic staff, non-teaching staff and a student member. It meets six times a year and much of its detailed work is initially handled by several committees, including a Staff Committee, a Remuneration Committee, a Court Membership Group, an Audit Committee, an Estates Strategy Committee and a Business Ventures Group. All of these committees are formally constituted, with terms of reference approved by Court, are chaired by lay members and report formally to Court on a regular basis. The Staff Committee is responsible for employment policy, equal opportunities, staff development and well being, and partnership working with recognised Trade Unions. The Court Membership Group considers nominations for co-opted vacancies in the Court's membership under Statute XIII of the University's Statutes, and also considers the matter of succession planning in relation to Court membership. A number of lay members are appointed by external bodies. These lay members are eligible for reappointment by the relevant bodies when their period of office expires. The Remuneration Committee determines remuneration of the most senior staff, including the Principal. The Estates Strategy Committee is responsible for all major property developments, and reports to Court on the implementation of the capital development programme. The Business Ventures Group oversees and provides support for projects emanating from the University s own research activities which are considered to merit commercial development. 6 The Audit Committee has a key role to play in assisting Court review the arrangements for internal control and risk management. It meets four times a year, with the internal auditors in attendance at all meetings and the External Auditors in attendance at two meetings per year. The Committee considers detailed reports together with recommendations for the improvement of the University's systems of internal control and management's responses and implementation plans. It also receives and considers

9 corporate governance the annual risk report, reports from the Funding Council and other bodies as they affect the University's business and monitors adherence to regulatory requirements. Whilst senior executives attend meetings of the Audit Committee as necessary, they are not members nor do they have voting rights. Committee members meet on their own and with the External Auditors for independent discussions. In respect of its strategic and development responsibilities the Court receives recommendations and advice from the UMC, which reports to both Court and Senate, Senate being the body responsible for the University's academic affairs. The UMC is a formally constituted committee with the Principal in the chair and includes the primary budget holders of the University. The Convener of Court and the Treasurer attend its meetings. The UMC also recommends to the Court the University's annual revenue and capital budgets and monitors performance in relation to the approved budgets. Court has in place a range of financial and non-financial performance measures related to the University's strategic objectives. A detailed schedule of reports is in place to ensure that the main strands of University strategy are reviewed annually and in a consistent manner. In particular, there is an annual residential meeting which is used to assess organisational performance against strategy. The UMC receives reports setting out key performance and risk indicators and considers possible risk control issues brought to its attention by early warning mechanisms which are embedded within the operational units and reinforced by risk awareness training. Issues of concern, potential risks both University-wide and more localised are then formally reported by UMC to the governing body. UMC also receives reports from the Statutory Advisory Committee on Safety and Occupational Health, and the Audit Committee receives reports from Internal Audit, both of which include recommendations for improvement. The Audit Committee's role in this area is one of a high level review of the arrangements for internal control. The emphasis is on obtaining the relevant degree of assurance and not merely reporting by exception. Court keeps issues of control and risk under review and receives reports thereon from both the UMC and the Audit Committee. At its October meeting Court carried out the annual assessment for the year ended 31 July by considering documentation from the UMC, and taking account of events since 31 July. Court is of the view that there is an ongoing process for identifying, evaluating and managing the University's significant risks that has been in place throughout the year ended 31 July and up to the date of the annual report and accounts. The Court considers that the University has adequate resources to continue in operational existence for the foreseeable future. The Court has previously considered its operating practices and has compared them with those advocated by the Committee of University Chairmen Guide for Members of Higher Education Governing Bodies in the UK (published in November 2004). The Court is satisfied that the University has a high level of compliance with this Guide and has adapted its practices to meet them as far as its Statutes so permit except that the University Court s current membership is 28 rather than 25. This was reviewed again in 2005 and the Court has reiterated that it does not wish to reduce its size any further at present. Court reviewed its effectiveness in session /08, which has led to some adjustments to the formal presentation of business and to a more focused strategic approach to the governance of the University. Senate and other committees have also been reviewed and some significant changes have been made to the academic committee structures in order to provide a more effective and strategic approach to the academic business of the University. The University Court has adopted a Code of Conduct for its members which is set out in the Handbook for Members of Court and maintains a register of interests of members of the Court. J F Livingston Convener of Court 22 November 7

10 statement of responsibilities of the university court Under the terms of the University Charter and Statutes, Court is the Governing Body of the University. It has adopted a Statement of Primary Responsibilities which is available on the following web site The Statement of Primary Responsibilities specifies the Court s main responsibilities which cover the areas of staff and students; financial responsibilities; strategic responsibilities; controls; and monitoring performance and effectiveness. The Court is required to present audited Financial Statements for each financial year. It is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the University and which enable it to ensure that the Financial Statements are prepared in accordance with the University's Charter, the Statement of Recommended Practice: Accounting for Further and Higher Education and other relevant accounting standards. In addition, within the terms and conditions of a Financial Memorandum agreed between the Scottish Funding Council and the Court of the University, the Court, through its designated office holder, is required to prepare Financial Statements for each financial year which give a true and fair view of the state of affairs of the University and of the surplus or deficit and cash flows for that year. The Principal is the University's Accounting Officer who is responsible for satisfying Court that there is compliance with the conditions of the Financial Memorandum. With regard to the Financial Statements, the Court is required to ensure that: suitable accounting policies are selected and applied consistently; judgements and estimates that are made are reasonable and prudent; applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; the going concern basis is applied unless it is inappropriate to presume that the University will continue in operation. The Court has taken reasonable steps to: ensure that funds from the Scottish Funding Council are used only for the purposes for which they have been given and in accordance with the Financial Memorandum with the Funding Council and any other conditions which the Funding Council may from time to time prescribe; ensure that there are appropriate financial and management controls in place to safeguard public funds and funds from other sources; safeguard the assets of the University and hence to take reasonable steps to prevent and detect fraud; secure the economic, efficient and effective management of the University's resources and expenditure. 8

11 statement of responsibilities of the university court The key elements of the University's system of internal financial control, which is designed to discharge the responsibilities set out above, include the following: clear definitions of the responsibilities of, and the authority delegated to, heads of academic and administrative departments; a comprehensive medium and short-term planning process, supplemented by detailed annual income, expenditure, capital and cash flow budgets; regular reviews of academic performance and monthly reviews of financial results involving variance reporting and updates of forecast outturns; clearly defined and formalised requirements for approval and control of expenditure, with major investment decisions involving capital or revenue expenditure being subject to formal detailed appraisal; comprehensive Financial Regulations, detailing financial controls and procedures, approved by the Audit Committee and Court; a suitably qualified Internal Audit team whose annual programme is approved by the Audit Committee. The Audit Committee, on behalf of Court has reviewed the effectiveness of the University's system of internal control. Any system of internal control can, however, only provide reasonable, but not absolute, assurance against material misstatement or loss. 9

12 independent auditors report to the University Court of the University of Strathclyde We have audited the Group and University financial statements for the year ended 31 July which comprise the Consolidated Income and Expenditure Account, Statement of Consolidated Total Recognised Gains and Losses, Group and University Balance Sheets, Consolidated Cash Flow Statement, and the related notes 1 to 35. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the University Court of the University of Strathclyde, as a body, in accordance with Financial Memorandum of the University. Our audit work has been undertaken so that we might state to the University Court those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the University Court as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the University Court and Auditors The University Court is responsible for preparing the financial statements in accordance with the Statement of Recommended Practice: Accounting for Further and Higher Education and other applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) as set out in the Statement of Responsibilities of the University Court. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Statement of Recommended Practice: Accounting for Further and Higher Education. We also report to you if, in our opinion, the University has not kept proper accounting records or if we have not received all the information and explanations we require for our audit. We are also required to report to you whether, in our opinion, funds, from whatever source, administered by the University for specific purposes have, in all material respects, been properly applied to those purposes and managed in accordance with the terms and conditions attached to them and whether income has, in all material respects, been applied in accordance with the relevant legislation and with the Financial Memorandum with the Scottish Funding Council. We read other information contained in the Operating and Financial Review and Corporate Governance Statement and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board and the Code of Audit Practice issued by the Scottish Funding Council. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the University Court in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group s circumstances, consistently applied and adequately disclosed. 10

13 independent auditors report to the University Court of the University of Strathclyde We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of affairs of the Group as at 31 July, and of the surplus of the Group s income over expenditure and the Group s cash flows for the year then ended and have been properly prepared in accordance with the Statement of Recommended Practice: Accounting for Further and Higher Education; funds from the Scottish Funding Council, grants and income for specific purposes and from other restricted funds administered by the University have, in all material respects, been applied only for the purposes for which they were received; and income has, in all material respects, been applied in accordance with the Further and Higher Education (Scotland) Act 1992 and, where appropriate, with the Financial Memorandum dated 1 January 2006 with the Scottish Funding Council. Ernst & Young LLP Registered Auditor Glasgow 24 November 11

14 consolidated income and expenditure account for the year ended 31 July Income Note Restated Funding Council grants 2 96,715 91,072 Tuition fees and education contracts 3 60,037 55,824 Research grants and contracts 4 35,686 31,580 Other income 5 19,837 20,438 Endowment and investment income 6 7,000 5,075 Total income 219, ,989 Expenditure Staff costs 7 129, ,716 Exceptional restructuring costs Other operating expenses 9 67,858 62,931 Depreciation 11 11,725 10,444 Interest and other finance costs Total expenditure 9 209, ,550 Surplus after depreciation of tangible fixed assets at cost 9,718 7,439 Exceptional items: Disposal of fixed assets 10-8,272 Surplus after depreciation of assets at cost, disposal of assets and tax 9,718 15,711 Surplus for the year transferred from accumulated income in endowment funds Surplus for the year retained within general reserves 21 9,743 15,778 The consolidated income and expenditure of the University and its subsidiaries relate wholly to continuing operations. There is no difference between the surplus on a historical cost basis and the surplus for the year presented above. 12

15 statement of consolidated total recognised gains and losses for the year ended 31 July Note Restated Surplus on continuing operations after taxation 9,718 15,711 (Depreciation)/appreciation on revaluation of fixed asset 12, 21 (642) 148 investments (Depreciation)/appreciation of endowment assets 20 (2,033) 1,168 New endowments Total recognised gains relating to the year 7,407 17,541 Reconciliation Opening reserves and endowments 143, ,379 Total recognised gains and losses for the year 7,407 17,541 Closing reserves and endowments 151, ,920 13

16 balance sheet as at 31 July Consolidated University Note Restated Restated Fixed assets Tangible assets , , , ,333 Investments 12 6,774 7,379 6,774 7, , , , ,712 Endowment assets 13 19,503 21,197 19,503 21,197 Current assets Surplus assets for disposal Stock Debtors 14 11,154 11,275 11,158 11,279 Investments 15 75,000-75,000 - Cash at bank and in hand 22,560 81,723 22,554 81, ,084 93, ,082 93,380 Creditors: amounts falling due within one year 16 (43,118) (42,378) (43,116) (42,376) Net current assets 65,966 51,004 65,966 51,004 Total assets less current liabilities 248, , , ,913 Creditors: amounts falling due after more than one year 17 (13,357) (14,304) (13,357) (14,304) Provisions for liabilities 18 (9,309) (9,420) (9,309) (9,420) Net assets 225, , , ,189 14

17 balance sheet as at 31 July Consolidated University Note Restated Restated Deferred capital grants 19 74,649 64,269 74,649 64,269 Endowments Expendable , ,037 Permanent 20 18,965 20,160 18,965 20,160 19,503 21,197 19,503 21,197 Reserves Income and Expenditure Account , , , ,385 Revaluation reserve , , , , , ,723 Total Funds 225, , , ,189 The Financial Statements were approved by the University Court on 22 November, and signed on its behalf by: J F Livingston Convener of Court T J Monaghan Treasurer Professor A Hamnett Principal and Vice-Chancellor 15

18 consolidated cash flow statement for the year ended 31 July Note Restated Net cash inflow from operating activities 24 11,627 14,089 Returns on investments and servicing of finance 25 5,490 4,209 Capital expenditure and financial investment 26 (739) 5,819 Management of liquid resources 27 (75,000) - Financing 28 (877) (937) (Decrease)/increase in cash in the year (59,499) 23,180 Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash in the year (59,499) 23,180 Change in short term deposits 27 75,000 - Change in debt Change in net funds 16,378 24,117 Net funds at 1 August 70,948 46,831 Net funds at 31 July 87,326 70,948 16

19 notes to the financial statements 1. Principal Accounting Policies Basis of preparation The Financial Statements have been prepared in accordance with the Statement of Recommended Practice (SORP): Accounting for Further and Higher Education and in accordance with applicable Accounting Standards. The Financial Statements are prepared under the historical cost convention modified by the revaluation of endowment asset investments and certain fixed asset investments. Basis of consolidation The consolidated Financial Statements consolidate the Financial Statements of the University and its subsidiary undertakings for the financial year to 31 July. The consolidated financial statements do not include those of the Students' Association because the University does not control those activities. Changes in accounting policy The revised SORP was published in July and takes effect from 1 August. The guidance relating to charitable donations has been amended considerably in the revised SORP. The SORP introduces the terms restricted and unrestricted to distinguish how charitable donations should be categorised in accordance with the wishes of donors. In addition, the SORP introduces the terms permanent endowment and expendable endowment. Unlike a permanent endowment where there is a requirement to maintain permanently the capital of the endowment fund, an expendable endowment arises when a donor specifies that the donation must be used for a particular objective but does not specify any requirement to maintain the capital intact. As a result of this revised guidance, some changes are necessary to the accounting treatment of certain endowment funds. This prior year adjustment has no impact on the net assets at 1 August or on the surplus for the year ended 31 July. However, it does result in some recategorisation within the Balance Sheet at 31 July. Endowment Assets and Endowment Funds both decrease by 1,280,000 whilst Fixed Asset Investments, Cash at Bank and in Hand and Reserves increase by 876,000, 404,000 and 1,280,000 respectively. The accounting treatment for the tuition fee element of grants made in support of the training of research students has been amended to reflect the latest guidance from the Higher Education Statistics Agency (HESA). This prior year adjustment has no impact on the net assets at 1 August or on the surplus for the year ended 31 July. However, it does result in some recategorisation within the 2006/07 Income and Expenditure Account. Research Training Support Grant income increases by 628,000 whilst Research Income and Non-Credit Bearing Tuition Fees decrease by 530,000 and 98,000 respectively. There are corresponding changes in expenditure with Academic Department expenditure increasing by 628,000 and Research Expenditure and Other Expenditure decreasing by 530,000 and 98,000 respectively. Income Recognition Funding council block grants are accounted for in the period to which they relate. Fee income is stated gross and credited to the Income and Expenditure Account over the period in which students are studying. Where the amount of the tuition fee is reduced by a discount, income receivable is shown net of the discount. Bursaries and scholarships are accounted for gross as expenditure and not deducted from income. 17

20 notes to the financial statements 1. Principal Accounting Policies Recurrent income from research grants, contracts and other services rendered is included to the extent of the related expenditure incurred during the year, together with any related donations received towards overhead costs. Any payments received in advance of such performance are recognised on the balance sheet as liabilities. Donations with restrictions are recognised when relevant conditions have been met; in many cases recognition is directly related to expenditure incurred on specific purposes. Donations which are to be retained for the benefit of the institution are recognised in the Statement of Total Recognised Gains and Losses and in endowments; other donations are recognised by inclusion as other income in the Income and Expenditure Account. Non-recurrent grants received in respect of the acquisition or construction of fixed assets are recorded as deferred capital grants. An annual transfer is made to the Income and Expenditure account over the useful economic life of the asset, at the same rate as the depreciation charge on the asset for which the grant was awarded. Income from the sale of goods or services is credited to the Income and Expenditure Account when the goods or services are supplied to the external customers or the terms of the contract have been satisfied. Endowment and investment income is credited to the Income and Expenditure Account on a receivable basis. Income from restricted endowments not expended in accordance with the restrictions of the endowment is transferred from the Income and Expenditure Account to restricted endowments. Any realised gains or losses from dealing in the related assets are retained within the endowment in the Balance Sheet. Any increase in value arising on the revaluation of fixed asset investments is carried as a credit to the revaluation reserve, via the Statement of Total Recognised Gains and Losses. Any diminution in value is charged to the Income and Expenditure Account, to the extent that it is not covered by a previous revaluation surplus. Increases or decreases in value arising on the revaluation or disposal of endowment assets is added to or subtracted from the funds concerned and accounted for through the Balance Sheet by debiting or crediting the endowment asset, crediting or debiting the endowment fund and is reported in the Statement of Total Recognised Gains and Losses. Agency arrangements Funds the institution receives and disburses as paying agent on behalf of a funding body or other body, where the institution is exposed to minimal risk or enjoys minimal economic benefit related to the receipt and subsequent disbursement of the funds, are excluded from the income and expenditure of the institution. Value Added Tax (VAT) Any irrecoverable VAT on inputs is included in the costs of such inputs. Any irrecoverable VAT allocated to tangible fixed assets is included in their cost. 18

21 notes to the financial statements 1. Principal Accounting Policies Accounting for charitable donations Unrestricted donations Charitable donations are recognised in the accounts when the charitable donation has been received or if, before receipt, there is sufficient evidence to provide the necessary certainty that the donations will be received and the value of the incoming resources can be measured with sufficient reliability. Endowment funds Where charitable donations are to be retained for the benefit of the institution as specified by the donors, these are accounted for as endowments. There are three main types: Unrestricted permanent endowments the donor has specified that the fund is to be permanently invested to generate an income stream for the general benefit of the institution Restricted expendable endowments the donor has specified a particular objective other than the purchase or construction of tangible fixed assets, and the institution can convert the donated sum into income Restricted permanent endowments the donor has specified that the fund is to be permanently invested to generate an income stream to be applied to a particular objective. Donation for fixed assets Donations received to be applied to the cost of a tangible fixed asset are shown on the Balance Sheet as a deferred capital grant. The deferred capital grant is released to the Income and Expenditure Account over the same estimated useful life that is used to determine the depreciation charge associated with the tangible fixed asset. Accounting for retirement benefits The University contributes to the Universities Superannuation Scheme (USS), the Strathclyde Pension Fund (SPF) and the Scottish Teachers Superannuation Scheme (STSS). All schemes are multi-employer defined benefit schemes and it is not possible to identify the assets of the scheme, which are attributable to the University. In accordance with FRS17 these schemes are accounted for on a defined contribution basis and contributions to these schemes are included as expenditure in the period in which they are payable. Foreign currencies Assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the end of the financial year, with all the resulting exchange differences being taken to the Income and Expenditure Account in the year in which they arise. Land and buildings Land and buildings are stated at cost less depreciation and, where appropriate, any provisions for estimated losses on disposal. Land which is held freehold is not depreciated as it is considered to have an indefinite useful life. Freehold buildings are depreciated over their expected useful lives of up to 50 years. Leasehold land and buildings are amortised on the life of the lease up to a maximum of 50 years. Alterations and additions to buildings are depreciated over the expected useful life of the work carried out. 19

22 notes to the financial statements 1. Principal Accounting Policies A review for impairment of a fixed asset is carried out if events or changes in circumstances indicate that the carrying amount may not be recoverable. Buildings under construction are accounted for at cost, based on the value of architects certificates and other direct costs incurred to 31 July. The buildings are not depreciated until they are brought into use. The cost of buildings includes the related interest cost incurred. Buildings which are acquired with the aid of specific grants are recognised and depreciated as above. The related grants are treated as deferred capital grants and released to the Income and Expenditure Account over the expected useful lives of the buildings. Costs incurred in relation to a tangible fixed asset, after its initial purchase or production, are capitalised to the extent that they increase the expected future benefits to the University from the existing tangible fixed asset beyond its previously assessed standard of performance. The cost of any such enhancement is added to the gross carrying amount of the tangible fixed asset concerned. Equipment Equipment, including personal computers and software, costing less than 10,000 per individual item or group of related items, is written off in the year of acquisition. All other equipment is capitalised. Capitalised equipment is stated at cost and depreciated over its expected useful economic life, as follows: General equipment - 5 years Equipment acquired for specific research projects - 2 years Where equipment is acquired with the aid of specific grants it is recognised and depreciated as above. The related grant is treated as a deferred capital grant and released to income over the expected useful life of the equipment. Where equipment is part of a capital project, it may be depreciated over periods of between five and ten years. Heritage Assets Works of art and items of historical interest are not recognised, since reliable cost information is not available for items acquired many years ago and significant costs are involved in arriving at valuations. Surplus assets for disposal Surplus assets for disposal are land and buildings which are no longer in use by the University and which the University is committed to sell and not replace. These assets are valued at the lower of carrying amount and net realisable value. Repairs and maintenance Expenditure to ensure that a tangible fixed asset maintains its previously assessed standard of performance is recognised in the Income and Expenditure Account in the period it is incurred. The University has a planned maintenance programme, which is reviewed on an annual basis. 20

23 notes to the financial statements 1. Principal Accounting Policies Investments Fixed Asset Investments are those investments intended to be held for use on a continuing basis in the activities of the University. Fixed Asset Investments are included in the Balance Sheet at market value except for investments made by the University s Business Ventures Group which are held at the lower of cost and net realisable value. Endowment Assets are those investments held for endowment funds where the income and/or capital of the funds require to be used for restricted or unrestricted purposes of the University as determined by the terms of the endowment. Endowment Asset Investments are included in the Balance Sheet at market value. Current Asset Investments are shown at the lower of cost and net realisable value. Stock Stocks for maintenance, catering, and central stationery are valued at the lower of cost and net realisable value. Departmental stocks are charged to the Income and Expenditure Account in the year of purchase. Provisions, contingent liabilities and contingent assets Provisions are recognised when the University has a present, legal, or constructive obligation as a result of a past event, it is probable that a transfer of economic benefit will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is discounted to present value where the time value of money is material. The discount rate used reflects current market assessments of the time value of money and reflects any risks specific to the liability. Contingent liabilities are disclosed by way of a note, when the definition of a provision is not met and includes three scenarios: possible rather than a present obligation; a possible rather than a probable outflow of economic benefits; an inability to measure the economic outflow. Contingent assets are disclosed by way of a note, where there is a possible, rather than present asset arising from a past event. Cash flows and liquid resources Cash flows comprise increases or decreases in cash. Cash includes cash in hand, cash at bank and deposits repayable on demand. Deposits are repayable on demand if they are available within 24 hours without penalty. No other investments, however liquid, are included as cash. Liquid resources comprise assets held as readily disposable stores of value. They include term deposits, government securities and loan stock held as part of the Institution s treasury management activities. They exclude any such assets held as endowment asset investments. 21

24 notes to the financial statements 2. Funding Council grants SFC Higher Education recurrent teaching grant 59,887 58,196 Funding for increased STSS contributions SFC recurrent research grant 20,803 19,593 SFC non-recurrent research grant 4,454 3,688 Learning and Teaching Infrastructure Fund grants 1, Released from deferred capital grants 3,478 2,845 Other SFC grants 6,289 6,260 96,715 91, Tuition fees and education contracts Restated UK and EU fees 26,627 24,886 Non EU fees 20,507 17,643 Non credit bearing course fees 8,487 9,122 Education contracts 3,156 3,186 Other contracts 1, ,037 55, Research grants and contracts Restated Research Councils 16,251 11,398 UK based charities 3,071 3,063 European Commission 2,634 2,890 Other grants and contracts 12,767 13,458 Released from deferred capital grants Other income 35,686 31,580 Residences and catering 9,046 8,825 Other services rendered 3,766 3,882 Released from deferred capital grants Royalty income Accommodation charges and rental income Other departmental income 3,162 3,238 Donations and subventions Other income 1,351 1,785 19,837 20,438 22

25 notes to the financial statements 6. Endowment and investment income Restated Income from expendable endowments Income from permanent endowments Interest receivable 5,879 3,998 Investment income Staff costs 7,000 5,075 Wages and salaries 107, ,161 Social security costs 8,675 8,302 Other pension costs (Note 31) 13,250 12, , ,716 Average staff numbers by major category: Number Number Academic and academic-related 2,077 2,020 Technical Clerical Operational ,625 3,603 Remuneration, excluding employer's pension contributions, of the Principal and Vice-Chancellor was: Included within the figures are amounts in respect of benefits-in-kind. The University's contributions to USS are paid at the same rates as for other staff and amounted to 27,000 ( 25,000). The number of staff, including senior postholders and the Principal, who received emoluments in the following ranges was: Senior Other Total Senior Other Total 70,001-80, ,001-90, , , , , , , , , , , , , , , , , , , The figures shown in the table above include fees earned in respect of work performed for external bodies. 23