FINANCIAL STATEMENTS FOR THE YEAR TO 31 JULY The University of Reading Financial Statements [ 1 ]

Transcription

1 FINANCIAL STATEMENTS FOR THE YEAR TO 31 JULY 2004 The University of Reading Financial Statements [ 1 ]

2 [ 2 ] Financial Statements The University of Reading

3 Page 5 Treasurer s financial review 10 Statement of corporate governance 13 Responsibilities of the University s Council 15 Report of the auditors to the University s Council 18 Income and expenditure account 19 Balance sheet 20 Cash flow statement Statement of principal accounting policies Notes to the accounts The University of Reading Financial Statements [ 3 ]

4 [ 4 ] Financial Statements The University of Reading

5 TREASURER S FINANCIAL REVIEW This commentary reviews the University s financial performance for the year ended 31 July 2004 and considers the factors affecting future performance. Scope of the financial statements The financial statements comprise the consolidated results of the University of Reading and those of the University of Reading Science and Technology Centre Limited, a wholly owned subsidiary. They exclude the results of the University s other subsidiary companies, on the grounds of immateriality, and those of the Reading University Students Union, which is not an associated body. Comparison of performance against budget A key objective of our Corporate Plan for the five years to 2009 is to enhance the University s financial viability. To assist in achieving this, the University plans to generate surpluses rising from 0.5m in to a sum equivalent to 3% of income by The operating surplus of 531,000 achieved for the year ended 31 July 2004 marginally exceeded the budgeted target. Income The University s income increased by a modest 1% in the year, rising from 137.2m to 138.4m. Funding Council grants increased by 2.1m due in the main to the University s strong performance in the Research Assessment Exercise of 2001 which generated increased block grant for research. Tuition fee income rose by 1.4m due to higher student numbers, particularly on self-financing degree programmes and an increase in overseas student numbers. However, the additional income generated from these sources was partially offset by lower other operating income. The University received unusual amounts of one-off other income in 2003 that was not repeated in The steady growth in research activity of the last few years has slowed with the value of external research income increasing by just 1.5%. In the year under review, Research Council grants accounted for 43% of the research volume, an increase from 41% in the previous year, with the remainder being derived from commerce, industry, charities and a diverse range of other sponsors reflecting the University s commitment to strengthen links with the wider business community. Expenditure The University s expenditure increased by 1.5% from 135.9m in 2003 to 137.9m in There was a 2.6m increase in staff costs resulting mainly from the annual pay settlement (averaging 3.5%) which took effect for the first time from a common settlement date of 1 August for all staff. A 1% increase in employer s national insurance contributions also came into effect from 6 April Pension costs rose by 0.9m following an increase in the employer s contribution rate from 8.5% to 14% for the University of Reading Employees Pension Fund. Pension costs will continue to rise with contribution rates for the Fund planned to be 20% by Reductions in costs of 2.6% arose in other operating expenses notably within residential and catering activities. The Financial Position of the University The balance sheet shows an increase in net assets of 39m, from 137.5m to 176.5m. This is largely accounted for by surpluses generated following the sale of property giving rise to an increase in endowment assets of 27.4m. Tangible fixed assets also increased (by 17.7m) as a result of the substantial ongoing The University of Reading Financial Statements [ 5 ]

6 TREASURER S FINANCIAL REVIEW programme of capital investment. Part of this programme was funded by capital grants from the Government giving rise to an increase of 11.2m in deferred capital grants. Investment in facilities and infrastructure The University s Corporate Plan includes an estates strategy which aims to ensure that the University focuses its physical and financial resources to provide high quality academic, student, research and enterprise facilities. As part of this strategy, the University is currently undertaking a major programme to upgrade and enhance its infrastructure. Examples of strategic investments made during the year are: Construction of the Psychology and Meteorology building 2.2 Refurbishment of the Palmer Building 2.8 Formation of the Biocentre 5.8 The Museum of English Rural Life 4.9 Refurbishment of Foxhill House for the School of Law 2.1 m The year saw the completion and official opening of the 5.2m Psychology & Meteorology Building, allowing significant expansion of teaching and research activity in these areas. The Biocentre project was also completed in the year. The Biocentre provides an innovative interdisciplinary approach to the grouping of research teams in the sciences. This will be complemented by the future development of the Philip Lyle Building (costing some 8.3m) funded by the SRIF 2 initiative bringing together a wide range of researchers in a state-of-the-art setting, encouraging cross-fertilisation of ideas and the optimal use of specialist expertise. Some 4.9m was invested in the new Museum of English Rural Life. When open next year, the Museum s innovative approach to displaying its collection, and its links to the local and wider community, will make it a site of international importance. The Heritage Lottery Fund has continued to fund 50% of the project, and a new appeal has been successfully launched to ensure that the exhibition space is as impressive as its architectural surroundings. The University has spent over 400,000 in the year to 31 July 2004 to ensure buildings are accessible to those with disabilities. A further 1m has been earmarked for additional works over the next year. Cash Flow and Debt The University s net cash inflow in the year was 2.5m compared to a net cash outflow of 8.5m in The University s overall net debt at 31 July 2004 was 17.2m, a reduction from the 20.1m reported last year. The net debt includes a long term loan of 19.6m. Creditors payments policy It is the University s policy to pay all suppliers within agreed credit terms. The Farms The University s operations at both Sonning Farm and the Centre for Dairy Research (CEDAR) have seen significant change this year. The University bought the business and assets of Whiteknights Farming Limited (a subsidiary [ 6 ] Financial Statements The University of Reading

7 TREASURER S FINANCIAL REVIEW of the University) on 31 December 2003, bringing all the University s farming operations together. Work has also begun on planning for the redevelopment of the various farms within CEDAR, encompassing environmental protection measures and changes to the buildings to provide for an expansion of the herd size. This redevelopment project will be funded by the NIRD Trust, and will ensure that CEDAR remains the leader in dairy research. The total amount to be invested in this project is 5.3m. Strategy for Enterprise The University has in place a range of activities brought together in an enterprise strategy covering collaborative research, consultancy, knowledge transfer partnerships (KTPs), input into degree courses, student placements, licences and spin-out companies. The Cascade Fund is proving to be a key enabler in the progression of commercial opportunities. Cascade has helped fund market research costs on behalf of Whitfield Solar Limited, a University spin-out company specialising in the conversion of sunlight into electricity using photovoltaics. The University received a grant of 2.4 million aimed at increasing its interaction with business and the community in the second round of funding from the Government s Higher Education Innovation Fund (HEIF2). Environmental Policy The University of Reading acknowledges the impact its activities have on the environment and recognises the influence its teaching and research have on future generations and on the world at large. The University seeks to promote sound environmental management policies and practices in all areas. Fundraising activities The University recognises that, in today s environment, fundraising provides important support for its activities. To this end, the University is currently working to form a new charitable company, the University of Reading Foundation, and created a Development and Alumni Relations Office to lead and develop both the University s fundraising activities and services for former students. Widening participation The University has in place a wide range of initiatives in support of widening participation in higher education. During the year around 5,000 pupils from schools and colleges have taken part in a range of activities and projects in support of widening participation in the sciences or have visited the campus to find out more about higher education. The University is the lead institution for Aimhigher in Berkshire, and has worked with schools, FE Colleges and other HE institutions in the area to devise and run activities ranging from individual mentoring to residential educational experiences designed to raise aspiration and attainment. The University also entered a new partnership, the Associated College Network, with five local Further Education Colleges to promote collaboration between the institutions and develop more education opportunities for the people of Berkshire and North Hampshire. The purpose of the venture is to provide opportunities for each institution to build on its strengths and to enhance engagement with business, education and the community in the local region. The Network also aims to develop and enhance progression routes from 14-plus to post-graduate education, including lifelong learning opportunities. The University of Reading Financial Statements [ 7 ]

8 TREASURER S FINANCIAL REVIEW The New Technology Institute Thames Valley, also provides a ladder of progressive education through sector-recognised vocational qualifications up to post-graduate level to develop the ICT skills of the region s workers. London Road Campus Since the end of the year the University has taken over the operation of Witan International College (WIC), based at London Road, and has also acquired the associated assets and liabilities of the College. The University will ensure that enrolled students are able to complete their courses as expected. The last of the presently registered students are expected to graduate in March The University set up a wholly owned subsidiary company, Witan College Limited, incorporated on 8 September 2004 to manage the activities of WIC. The staff employed by the College have transferred to the new company and this company will make every effort to ensure continuity of teaching and support for the enrolled students. The way forward The University has adopted a new Corporate Plan covering the period up to The Plan contains a clear strategy in relation to teaching and learning, enterprise and research to help achieve its mission. Work on the development of the School of Pharmacy is well underway with 4.5m capital investment having been pledged by the University and HEFCE. The University is working closely with the Royal Pharmaceutical Society of Great Britain to achieve accreditation. We aim to recruit the first cohort of pharmacy students in October A financial strategy has been developed alongside the University s Corporate and Operational Plans and is integrated within these and other corporate strategies. The financial strategy sets out a number of clear and measurable objectives which address the need to develop the University s capacity to use its resources effectively. This strategy addresses the University s intention to have a sound process to match resources against corporate objectives, ensuring that strategic alternatives are evaluated thoroughly and that risks are clearly understood and managed. Finally, in concrete terms, the University s corporate plan for the next five years includes a range of major projects, investing in research, teaching and student life. These include a 5m Student Services Building to ensure that students will have a high quality single resource point for their administrative and pastoral needs. Investment in IT infrastructure will provide students in halls with highspeed internet access in every room. In addition, major investment is planned in the University s sports facilities. Financial future The White Paper The Future of Higher Education, issued on 22 January 2003 set out the Government s plans for significant reform to the funding of Higher Education including the introduction of variable fees. The University has decided to set fees for home and European Union students on full-time undergraduate degree programmes from 2006 at the maximum level of 3,000 subject to suitable agreement with the Office of Fair Access (OFFA). A significant proportion of the additional income will be set aside as bursaries and scholarships to be returned to students, ensuring that the University will continue to be accessible to students from various backgrounds. [ 8 ] Financial Statements The University of Reading

9 TREASURER S FINANCIAL REVIEW The University, in an increasingly competitive environment continues to work to provide high-quality facilities to attract excellent teachers, researchers and students. It will continue to develop links with commerce, identify commercial opportunities and provide our communities with innovations, ideas and insights. Financially, the University is well positioned to meet these challenges and to plan with confidence. David Luffrum Treasurer 8 November 2004 The University of Reading Financial Statements [ 9 ]

10 STATEMENT OF CORPORATE GOVERNANCE AT THE UNIVERSITY OF READING The University welcomes the HEFCE corporate governance guidelines encouraging higher education institutions to provide information on internal control and risk management in the published accounts. The University is committed to continuing to follow best practice in this area. Governance Structure The University is an independent corporation whose legal status derives from a Royal Charter granted in Its objects, powers and framework of governance are set out in the Charter and its supporting Statutes as subsequently amended. The Charter and Statutes require the University to have three separate bodies, each with clearly defined functions and responsibilities, to oversee and manage its activities: The Court is a mainly formal body which normally meets once a year to receive the Annual Review and Financial Statements of the University. A significant part of the membership of the Court is drawn from outside the University but it also includes representatives of the staff and the student body, as well as all members of the Senate and Council. The Council, which has a majority of lay members, acts as the executive body of the University with responsibility for the ongoing strategic direction of the University, managing the University s financial and other resources, approving changes to the Charter, Statutes, and Ordinances, appointing Officers of the University, Professors and other staff (delegated to Committees of Selection to which it appoints representatives), reviewing and promoting teaching and research in the University, and acting as the ultimate body to deal with grievances by staff or students. None of the lay members receives any payment, apart from the reimbursement of expenses, for work done for the University. The roles of President and Vice-President of Council are separated from the role of the University s Chief Executive, the Vice-Chancellor. The matters specially reserved to the Council for decision are set out in the Statutes of the University, by custom and under the Financial Memorandum with the Higher Education Funding Council for England and the Financial Memorandum with the Teacher Training Agency. The Council meets at least three times each academic year and has a number of sub-committees, including the Finance and General Purposes Committee, an Audit Committee, a Remuneration Committee and a Nomination Committee. These are formally constituted as committees of the Council with written terms of reference and specified membership, including a majority of lay members. The Senate is the academic authority of the University and draws its membership entirely from the academic staff and the students. Its role is to direct and regulate the teaching and research of the University and to advise the Council on academic matters. The principal academic and administrative officer of the University is the Vice- Chancellor who is responsible to the Council for securing the implementation of the decisions of the Council and maintaining and promoting the efficiency and good order of the University. The Vice-Chancellor is also, under the terms of the Financial Memorandum between the University and the Higher Education Funding Council for England, the Principal Officer designated by the University. [ 10 ] Financial Statements The University of Reading

11 STATEMENT OF CORPORATE GOVERNANCE The Finance and General Purposes Committee, meets six times a year, and inter alia has responsibility to the Council for preparing financial plans and annual budgets, recommending and implementing general financial policy, controlling the overall distribution of resources, monitoring performance in relation to approved budgets, overseeing and authorising financial dealings with outside bodies and receiving the annual Financial Statements for presentation to the Council. The Audit Committee meets three times a year, with the University s external and internal auditors in attendance. The Committee considers recommendations for the improvement of the University s systems of internal control, together with management s responses and implementation plans. The Committee reviews the University s annual Financial Statements, and those of subsidiary companies and Trusts, together with accounting policies. It also receives and considers reports from the Higher Education Funding Council for England as they affect the University s business and monitors adherence to the regulatory requirements. While senior officers attend the meetings of the Audit Committee as necessary, they are not members of the Committee and, at least once a year, the Committee meets with the external auditors on their own for independent discussions. Members of the Finance and General Purposes Committee may not be members of the Audit Committee. The decisions of the Audit Committee are formally reported to the Council. The Remuneration Committee has responsibility for all matters relating to the remuneration of the Vice-Chancellor, Professors and other senior staff. It also determines the terms of any severance or early retirement arrangements for any senior staff of the University. Risk Management The University s governing body, the Council, 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. In 2001 the University developed a risk management policy and a corporate risk register. The risk register has since developed on an ongoing basis to identify key corporate risks and assess their impact on the University. Responsibility for overseeing the University s risk management arrangements lies with the Director of Finance and Corporate Services. The risks identified in the risk register have been assessed and responsibility for monitoring each risk has been assigned to a senior officer of the University. This monitoring activity is overseen by the Risk Management Group, a sub-committee of the Senior Management Board which also undertakes regular reviews of the University s risk profile. In addition, the Group oversees work on major incident and business continuity planning on which progress was made in The system of internal control follows accepted good practice and is based on an ongoing process designed to identify the principal risks which may prevent or inhibit the achievement of the University s aims and objectives, to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically. During the University has concentrated on embedding the risk-based management approach in its routine operations and each Faculty and administrative Directorate has developed risk registers covering their own The University of Reading Financial Statements [ 11 ]

12 STATEMENT OF CORPORATE GOVERNANCE activities. These registers and arrangements for monitoring the risks identified are reported to the Senior Management Board and Finance and General Purposes Committee. The Council is satisfied that the University has achieved full compliance with HEFCE s Corporate Governance guidelines throughout The focus of efforts in the year has been aimed at further developing and monitoring risk at Faculty and Directorate level within the University, as well as ongoing arrangements for monitoring of the corporate risk register and the use of a riskbased approach in capital project monitoring. In addition, the internal audit programme has been recast to be consistent with the corporate risk register and the Senior Management Board now receives regular reports from the Head of Internal Audit Services on key audit recommendations and any other areas of concern. The University also maintains a Register of Interests of members of the Council which may be consulted by arrangement with the Secretary to the Council. [ 12 ] Financial Statements The University of Reading

13 RESPONSIBILITIES OF THE UNIVERSITY S COUNCIL In accordance with the University s Charter of Incorporation, the Council is responsible for the administration and management of the affairs of the University and is required to present audited financial statements for each financial year. The Council is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the University and to enable it to ensure that the financial statements are prepared in accordance with the University s Charter of Incorporation, the Statement of Recommended Practice on Accounting in Higher Education Institutions and other relevant accounting standards. In addition, within the terms and conditions of a Financial Memorandum agreed between the Higher Education Funding Council for England and the Council of the University, the Council, 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. In preparing the financial statements, the Council is required to ensure that: suitable accounting policies are selected and applied consistently; judgements and estimates are made that are reasonable and prudent; applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; financial statements are prepared on the going concern basis unless it is inappropriate to presume that the University will continue in operation. The Council is satisfied that it has adequate resources to continue in operation for the foreseeable future; for this reason the going concern basis continues to be adopted in the preparation of the financial statements. The Council has taken reasonable steps to: ensure that income has been applied in accordance with the University s statutes and its Financial Memorandum with the Higher Education Funding Council for England and its funding agreement with the Teacher Training Agency; 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 to prevent and detect fraud and other irregularities; secure the economical, efficient and effective management of the University s resources and expenditure. The key elements of the University s system of internal financial controls 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 schools and administrative directorates and such other staff to whom such authority and responsibility is from time to time delegated; a medium and short term planning process supplemented by annual budgets; regular reviews of business and financial performance; clearly defined and formalised requirements for approval and control of expenditure, with capital expenditure being subject to formal detailed appraisal and review according to approval levels set by the Council; The University of Reading Financial Statements [ 13 ]

14 RESPONSIBILITIES OF THE UNIVERSITY S COUNCIL comprehensive financial regulations, detailing financial controls and procedures, approved by the Audit Committee; independent Internal Audit team whose annual programme is approved by the Audit Committee and endorsed by the Council and whose head provides the Council with a report on internal audit activity within the University and an opinion on the adequacy and effectiveness of the University s system of internal control including internal financial control. Any system of internal financial control can, however, only provide reasonable but not absolute assurance against material misstatement or loss. [ 14 ] Financial Statements The University of Reading

15 REPORT OF THE AUDITORS TO THE COUNCIL OF THE UNIVERSITY OF READING We have audited the financial statements on pages 18 to 37 which have been prepared under the historical cost convention, as modified by the revaluation of certain assets, and in accordance with the accounting policies set out in the Statement of Accounting Policies. This report is made solely to the Council, in accordance with the Charter and Statutes of the University. Our audit work has been undertaken so that we might state to the Council those matters we are required to state to it in an auditor s 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 Council, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Council and of the independent auditors The University s Council is responsible for preparing the financial statements. Our responsibilities as independent auditors are established by statute, the Auditing Practices Board, the Higher Education Funding Council for England and our profession s ethical guidance. 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 on Accounting in Further and Higher Education Institutions. We also report to you whether income from funding bodies, grants and income for specific purposes and from other restricted funds administered by the University have been properly applied only for the purposes for which they were received and whether income has been applied in accordance with the Statutes and, where appropriate, with the Financial Memorandum with the Higher Education Funding Council for England and the Teacher Training Agency. We also report to you if, in our opinion, the Treasurer s Financial Review is not consistent with the financial statements, if the University has not kept proper accounting records, the accounting records do not agree with the financial statements or if we have not received all the information and explanations we require for our audit. We have also, at the request of the Council, reviewed whether the Corporate Governance Statement on pages 10 to 12 reflects the University s compliance with the relevant provisions of the Combined Code specified for our review in so far as they apply to the Higher Education Sector, and we report if it does not. We are not required to consider whether the statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the University s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report (including the Corporate Governance Statement) and consider the implications for our report if we become aware of any apparent misstatements within it. Basis of opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board and the Audit Code of Practice issued by the Higher Education Funding Council for England. 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 judgements made by the University s Council in the preparation of the financial statements and of whether the accounting policies are appropriate to the University s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations that we considered necessary in order to provide us with sufficient The University of Reading Financial Statements [ 15 ]

16 REPORT OF THE AUDITORS 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: (a) the financial statements give a true and fair view of the state of affairs of the University and the group as at 31 July 2004 and of the group s surplus of income over expenditure, recognised gains and losses and cashflows for the year and are properly prepared in accordance with the Statement of Recommended Practice Accounting for Further and Higher Education Institutions; (b) in all material aspects, income from the Higher Education Funding Council for England and the Teacher Training Agency grants and income for specific purposes and from other restricted funds administered by the University have been applied for the purposes for which they were received; (c) in all material aspects, income has been applied in accordance with the University s statutes and, where appropriate, with the Financial Memorandum with the Higher Education Funding Council for England and the Funding Agreement with the Teacher Training Agency. KPMG LLP Chartered Accountants Registered Auditor Arlington Business Park Reading RG7 4SD 15 December 2004 [ 16 ] Financial Statements The University of Reading

17 Page 18 Income and expenditure account 19 Balance sheet 20 Cash flow statement Statement of principal accounting policies Notes to the accounts The University of Reading Financial Statements [ 17 ]

18 INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 JULY 2004 Consolidated University Income Note 1 Funding Council grants 47,792 45,582 47,723 45,582 2 Tuition fees and education contracts 30,843 29,740 30,843 29,740 3 Research grants and contracts 24,477 24,108 24,477 24,108 4 Other operating income 33,729 35,743 33,340 35,515 5 Endowment and investment income 2,033 2,198 2,053 2,220 Total income 138, , , ,165 Expenditure 6 Staff costs 89,567 86,874 89,387 86,752 8 Other operating expenses 41,631 42,637 41,405 42,533 9 Interest payable 1,223 1,211 1,223 1, Depreciation 5,927 5,456 5,890 5,436 Total expenditure 138, , , ,932 Surplus on continuing operations after depreciation of tangible fixed assets at valuation and disposal of fixed assets but before tax 526 1, , Taxation Surplus on continuing operations after depreciation of assets at valuation, disposal of assets and tax 526 1, ,233 STATEMENT OF TOTAL RECOGNISED GAINS AND (LOSSES) Consolidation University Surplus on continuing operations after depreciation of assets at valuation, disposal of assets and tax 526 1, , (Decrease)/increase in value of endowment asset investments (1,699) 869 (1,699) Net endowment income for year 29, , Revaluation of investments (96) 144 (96) 144 Total recognised gains relating to the year 27,813 2,584 27,818 2,624 Reconciliation Opening reserves and endowments 100,454 97, ,553 97,929 Total recognised gains for the year 27,813 2,584 27,818 2,624 Closing reserves and endowments 128, , , ,553 [ 18 ] Financial Statements The University of Reading

19 BALANCE SHEET AS AT 31 JULY 2004 Consolidated University Fixed assets Note 12 Tangible assets 132, , , , Investments , , , , Endowment assets 77,423 50,040 77,423 50,040 Current assets Stock 1,270 1,252 1,270 1, Debtors 13,932 17,423 14,414 17,853 Cash at bank and in hand 3, , ,668 19,333 18,682 19, Creditors Amounts falling due within one year 33,077 27,181 32,776 27,059 Net current (liabilities) (14,409) (7,848) (14,094) (7,638) Total assets less current liabilities 195, , , ,480 17,18 Creditors Amounts falling due after more than one year 19,302 19,644 19,302 19, Provisions for liabilities and charges Net assets 176, , , , Deferred capital grants 48,149 36,925 48,137 36,908 Endowments 14 Specific 29,971 20,509 29,971 20, General 47,452 29,531 47,452 29,531 77,423 50,040 77,423 50,040 Reserves 21 General reserve 50,844 50,414 50,948 50,513 Total funds 176, , , ,461 The financial statements on pages 18 to 37 were approved by Council on 14 December 2004, and signed on its behalf by: T G Ford R G Marshall CBE D C L Savage President of the Council Vice-Chancellor Director of Finance The University of Reading Financial Statements [ 19 ]

20 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 JULY 2004 Consolidated University Note 22 Cash flow from continuing activities 24,625 2,186 24,348 1, Returns on investments and servicing of finance , Capital expenditure and financial investment (22,383) (10,895) (22,252) (10,785) 25 Financing (428) (501) (428) (501) 26 Increase/(decrease) in cash for the period 2,624 (8,223) 2,498 (8,535) Reconciliation of net cash flow to movement in net funds/debt 26 Increase/(decrease) in cash for the year 2,624 (8,223) 2,498 (8,535) 26 Cash outflow from repayment of secured loan Movement in net funds in the year 3,052 (7,722) 2,926 (8,034) Net debt at 1 August (19,744) (12,022) (20,086) (12,052) 26 Net debt at 31 July (16,692) (19,744) (17,160) (20,086) [ 20 ] Financial Statements The University of Reading

21 STATEMENT OF PRINCIPAL ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared in accordance with both the Statement of Recommended Practice (SORP): Accounting in Further and Higher Education Institutions and applicable Accounting Standards. They conform to guidance published by the Higher Education Funding Council for England (HEFCE). Basis of consolidation The consolidated financial statements include the financial statements of the University and of the University of Reading Science and Technology Centre Limited. Other companies wholly owned by the University or other subsidiary undertakings have not been included in these consolidated statements on the grounds of non-materiality. In accordance with Financial Reporting Standard 2, the activities of the students union have not been consolidated because the University does not control its activities. Basis of accounting The financial statements are prepared under the historical cost convention, as modified by the revaluation of endowment and fixed asset investments. Recognition of income Income from specific endowments and donations, research grants, contracts and other services rendered is included to the extent of the expenditure incurred during the year, together with contributions towards related overhead costs. All income from short-term deposits and general asset endowments is credited to the income and expenditure account on a receivable basis. Recurrent grants from funding councils are recognised in the period in which they are receivable. Non-recurrent grants or donations from funding councils or other bodies received in respect of the acquisition or construction of fixed assets are treated as deferred capital grants and amortised in line with depreciation over the life of the assets. Foreign currency translation Transactions denominated in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling either at year end rates or, where they are related to forward foreign exchange contracts, at contract rates. The resulting exchange differences are dealt with in the determination of income and expenditure for the financial year. Pension schemes The two principal pension schemes for the University s staff are the Universities Superannuation Scheme (USS) and the University of Reading Employees Pension Fund (UEPF). The schemes are defined benefit schemes which are externally funded and contracted out of the State Earnings-Related Pension Scheme. USS provides benefits for academic and related employees of all UK universities. UEPF provides benefits for other staff of the University. A small number of staff remain in other pension schemes. The funds are valued every three years by professionally qualified independent actuaries using the projected unit method, the rates of contribution payable being determined by the trustees on the advice of the actuaries. In the intervening years, the actuaries review the progress of the schemes. Pension costs are assessed in accordance with the advice of the actuaries, based on the latest actuarial valuation of the schemes, and are accounted for on the basis of The University of Reading Financial Statements [ 21 ]

22 STATEMENT OF PRINCIPAL ACCOUNTING POLICIES charging the cost of providing pensions over the period during which the institution benefits from the employees services. Variations from regular cost are spread over the expected average remaining working lifetime of members of the schemes after making allowances for future withdrawals. Leases Assets held under finance leases and other similar contracts, which confer rights and obligations similar to those attached to owned assets, are capitalised as tangible fixed assets and are depreciated over the shorter of the lease terms and their useful lives. The capital elements of future lease obligations are recorded as liabilities, while the interest elements are charged to the income and expenditure account over the period of the leases to produce a constant rate of change on the balance of capital repayments outstanding. Hire purchase transactions are dealt with similarly, except that assets are depreciated over their useful lives. Rentals under operating leases are charged on a straight-line basis over the period of the lease. Land and buildings Land and buildings are stated at cost. Land is held freehold and is not depreciated as it is considered to have an indefinite useful life. Buildings are depreciated over their expected useful lives of 50 years and building improvements and extensions over a maximum of 30 years. Where buildings are acquired with the aid of specific grants they are capitalised and depreciated as above. The related grants are treated as deferred capital grants and released to income over the expected useful life of the buildings. Buildings under construction are accounted for at cost, based on the value of architects certificates and other direct costs incurred to 31 July. They are not depreciated until they are brought into use. Equipment Equipment costing less than 10,000 per individual item or group of related items is charged to the income and expenditure account in the year of acquisition. All other equipment is capitalised and depreciated over its expected useful life, as follows: Furniture Computer systems and associated software Motor vehicles and other general equipment Equipment acquired for specific research projects 10 years 4 10 years 4 years 3 years Where equipment is acquired with the aid of specific grants it is capitalised and depreciated in accordance with the policy given above with the related grant being treated as a deferred capital grant and released to income over the expected useful life of the equipment as above. Cash flows and liquid resources Cash flows comprise increases or decreases in cash. Cash includes cash in hand, deposits repayable on demand and overdrafts. Deposits are repayable on demand if they are in practice available within 24 hours without penalty. No investments, however liquid, are included as cash. Liquid resources comprise assets held as a readily disposable store of value. They include term deposits, government securities and loan stock held as part [ 22 ] Financial Statements The University of Reading

23 STATEMENT OF PRINCIPAL ACCOUNTING POLICIES of the University s treasury management activities. They exclude any such assets held as endowment asset investments. Investments Fixed asset investments that are not listed on a recognised stock exchange are carried at historic cost. Other investments have been included in the balance sheet at market value. Stock Stock is stated at the lower of cost and net realisable value. Maintenance of premises The cost of maintenance is charged to the income and expenditure account as incurred. Taxation status The University is an exempt charity within the meaning of Schedule 2 of the Charities Act 1993 and as such is a charity within the meaning of Section 506(1) of the Taxes Act Accordingly, the University is potentially exempt from taxation in respect of income or capital gains received within categories covered by Section 505 of the Taxes Act 1988 or Section 256 of the Taxation of Chargeable Gains Act 1992 to the extent that such income or gains are applied to exclusively charitable purposes. The University receives no similar exemption in respect of Value Added Tax. Deferred taxation Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or less tax in the future have occurred at the balance sheet date. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Provisions Provisions are recognised when the institution has a present legal or constructive obligation as a result of a past event and it is probable that a transfer of economic benefit will be required to settle the obligation and reliable estimate can be made of the amount of the obligation. The University of Reading Financial Statements [ 23 ]

24 NOTES TO THE ACCOUNTS 1 Funding Council grants Consolidated and University HEFCE TTA Consolidated Recurrent grant 42,315 2,090 44,405 41,477 Specific grants 1, ,300 3,063 Deferred capital grants released in year: Buildings (note 20) 1, , Equipment (note 20) ,273 2,519 47,792 45,582 HEFCE TTA University Recurrent grant 42,315 2,090 44,405 41,477 Specific grants 1, ,236 3,063 Deferred capital grants released in year: Buildings (note 20) 1, , Equipment (note 20) ,204 2,519 47,723 45,582 2 Tuition fees and education contracts Consolidated and University Full-time students fees 11,862 11,635 Full-time students charged overseas fees 7,963 7,398 Part-time students fees 1,273 1,417 Research training support grants Short course fees 8,889 8,240 Total fees paid by or on behalf of individual students 30,379 29,017 Education contracts ,843 29,740 3 Research grants and contracts Consolidated and University Research Councils 10,519 9,959 UK-based charities 2,511 2,165 European Commission 2,388 2,757 Other grants and contracts 8,506 8,541 Releases from deferred capital grants (note 20) ,477 24,108 In addition to these figures, 1.2m of endowment income (included in note 5) has been used to sponsor specific research projects. 4 Other income Consolidated University Residences, catering and conferences 17,266 16,794 17,266 16,794 Other income-generating activities 5,512 4,536 5,123 4,308 Other income 10,951 14,413 10,951 14,413 33,729 35,743 33,340 35,515 [ 24 ] Financial Statements The University of Reading

25 NOTES TO THE ACCOUNTS 5 Endowment and investment income Consolidated University Transferred from specific endowments (note 14) General endowment asset investment income (note 14) 1,286 1,435 1,286 1,435 Interest receivable ,033 2,198 2,053 2,220 6 Staff costs The average weekly number of persons employed by Consolidated University the University, expressed as full-time equivalents is as follows: Number Number Number Number Academic departments 1,062 1,105 1,062 1,105 Academic support services Other support services Administration and central services Premises Residence and catering services Other ,827 2,861 2,819 2,856 Analysis of staff costs Wages and salaries 74,006 71,956 73,852 71,850 Social Security costs 6,125 5,505 6,114 5,499 Superannuation contributions 8,384 7,443 8,369 7,433 Other pension costs 1,052 1,970 1,052 1,970 89,567 86,874 89,387 86,752 Consolidated & University The number of staff, including the Vice-Chancellor, who received emoluments in the following ranges was: Number Number 70,001 to 80, ,001 to 90, ,001 to 100, ,001 to 110, ,001 to 120, ,001 to 130, ,001 to 140, ,001 to 150, ,001 to 160, ,001 to 170, ,001 to 180, The University of Reading Financial Statements [ 25 ]

26 NOTES TO THE ACCOUNTS 7 Emoluments of the Vice-Chancellor R G Marshall appointed 1 January 2003 Salary 146,830 80,500 Benefits in kind 6,215 3, ,045 83,793 Pension contributions 20,556 11,309 8 Expenditure by activity Consolidated Other Staff operating Interest Depreci costs expenses payable ation Total Academic departments 47,317 11, ,180 59,733 Academic services 4,562 2, ,319 7,339 Administration and central services 7,943 4, ,958 11,770 Premises (excl Residential and Catering) 5,424 8, ,935 16,412 15,696 Residences and catering operations 6,187 7,614 1,167 1,365 16,333 15,861 Research grants and contracts 13,046 6, ,727 19,490 Other expenditure 5,088 1, ,419 6,289 89,567 41,631 1,223 5, , ,178 University Other Staff operating Interest Depreci costs expenses payable ation Total Academic departments 47,317 11, ,282 59,836 Academic services 4,562 2, ,319 7,339 Administration and central services 7,943 4, ,958 11,770 Premises (excl Residential and Catering) 5,424 8, ,935 16,412 15,696 Residences and catering operations 6,187 7,614 1,167 1,365 16,333 15,861 Research grants and contracts 13,046 6, ,727 19,490 Other expenditure 4, ,874 5,940 89,387 41,405 1,223 5, , ,932 Consolidated University Other operating expenditure includes: Auditor s remuneration External audit Other services Operating leases Interest payable Consolidated and University On bank loans, overdrafts and other loans: Repayable within 5 years, not by instalments Repayable within 5 years, by instalments 0 8 Repayable wholly or partly in more than 5 years 1,167 1,180 1,223 1,211 [ 26 ] Financial Statements The University of Reading

27 NOTES TO THE ACCOUNTS 10 Taxation Consolidated University UK Corporation Tax Surplus on continuing operations for the year The surplus on continuing operations for the year is made up as follows: Consolidated University Surplus for the year 467 1, Surpluses generated by subsidiary undertakings and transferred to the University by Gift Aid , , Tangible fixed assets Consolidated University Freehold Freehold land and Equip- land and Equipbuildings ment Total buildings ment Total Cost or valuation At 1 August ,363 13, , ,362 13, ,553 Additions 19,001 4,765 23,766 18,896 4,738 23,634 At 31 July ,364 18, , ,258 17, ,187 Depreciation At 1 August ,719 5,331 41,050 35,719 5,311 41,030 Charge for the year 3,561 2,366 5,927 3,550 2,340 5,890 At 31 July ,280 7,697 46,977 39,269 7,651 46,920 Net Book Value at 31 July ,084 10, , ,989 10, ,267 Net Book Value at 1 August ,644 7, , ,643 7, ,523 Financed by: Capital grant 43,854 4,295 48,149 43,854 4,283 48,137 Other 78,230 6,060 84,290 78,135 5,995 84, ,084 10, , ,989 10, ,267 The transitional rules set out in FRS 15 Tangible Fixed Assets were applied on implementing FRS 15. Accordingly, the book values at implementation were retained. Buildings with a net book value of 31.6m ( 26.4m 2003) have been financed by exchequer funds. Should these particular assets be sold the University may be liable, under the terms of the Financial Memorandum with HEFCE, to surrender the proceeds. At 31 July 2004, freehold land and buildings included 21.6m in respect of buildings under construction. The net book value of fixed assets includes an amount of 234,000 in respect of assets held under finance lease. The depreciation charge on these assets in the year was 26,000. The University of Reading Financial Statements [ 27 ]