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The Limitations of General Purpose Financial Statements in the context of Pricing Policy

The Limitations of General Purpose Financial Statements in the context of Pricing Policy. Andrew Baigent Director, Financial Audit Policy UK National Audit Office. Audit role in of Increased transparency. Validation of reporting of total costs for cost based pricing Marginal Costs

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The Limitations of General Purpose Financial Statements in the context of Pricing Policy

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  1. The Limitations of General Purpose Financial Statements in the context of Pricing Policy Andrew Baigent Director, Financial Audit Policy UK National Audit Office

  2. Audit role in of Increased transparency • Validation of reporting of total costs for cost based pricing • Marginal Costs • Total costs • Related Income • Reporting of actual costs • Annual report and accounts • Other performance information

  3. What is a General Purpose Financial statement (GPFS) • Prepared for non-specific use • Retrospective • To standard framework and format within each jurisdiction, e.g. • International Financial Reporting Standards • International Public Sector Accounting Standards • US GAAP

  4. Purpose of GPFS • Decision usefulness • Buy/hold/sell? • Other Decisions? • Stewardship/entity accountability

  5. Accuracy and Validation of GPFS • Prepared to ensure accuracy of the statements as a whole • Concentrate on effect on overall financial performance and overall assets and liabilities • Audited to confirm GPFS are not ‘materially misstated’

  6. Use of GFPS in pricing policy • Provide outturn cost and income/revenue data for an entity • Materiality concept may provide sufficient precision to help pricing policy (marginal and full cost recovery) • Set a framework for recovering total costs, including costs of production and/or IPR • No validation of volumes/units

  7. Limitations of GPFS • Data not prepared for pricing purposes • Compiled on a ‘whole entity’ basis • Insufficient granularity • Standard framework may not include all costs • Lack of sufficient precision?

  8. Options for the use of GPFS/SPFS • Alteration to GFPS framework, e.g. specific requirements • Developing Specific Purpose Financial statements • Precise engagement of auditors

  9. Additional reporting information • UK Public Sector accounts include further information on full costs and revenues of material income streams • Not limited to PSI • Split by material service type and charging regime (e.g. commercial and non-commercial use) • Information is audited • Consistently reported but not overly sophisticated and highly judgemental

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