Note 13 to the Departmental Resource Accounts
13. Financial Instruments
Because of the largely non-trading nature of its activities and the way in which government departments are financed, the CPS is not exposed to the degree of financial risk faced by business entities. Moreover, financial instruments play a much more limited role in creating or changing risk than would be typical of a trading entity. The Department has no power to borrow or invest surplus funds and financial assets and liabilities are generated by day-to-day operational activities and are not held to change the risks facing the Department in undertaking its activities. The Department holds no assets that are available for sale, nor does it hold or trade in investments.
Liquidity risk
The Department's net revenue resource and capital requirements are financed by resources voted annually by Parliament. The CPS is not therefore exposed to liquidity risks.
Interest-rate and Foreign currency risk
The Department has no material transactions in foreign currency; all material assets and liabilities are denominated in sterling. The CPS is not exposed to any material interest rate or currency risk.
Credit risk
The Department does not consider that any credit risk arises from trading with other government departments. In trading with commercial concerns, the Department undertakes regular investigation of creditworthiness and employs robust systems to ensure that monies due are collected on time. As stated in Note 1.8, the CPS receives awards of costs made against convicted defendants at the discretion of the judge or magistrates. Magistrates' courts are responsible for recording, enforcing and collecting these costs and forwarding collected monies to the CPS. As a result, the Department is not in a position to perform any checks on creditworthiness in advance, and has to rely on systems employed at magistrates' courts to ensure overdue balances are minimised and collected. There remains a significant risk that balances will not be collected in full and on time, and therefore bad debts are provided for on the basis of the historical relationship between costs awarded and cash collected. As a result the Department considers that credit risk in respect of cost award debtors is adequately provided against.
Fair values
The following statement is a comparison by category of original cost and fair values of the Department's financial assets and liabilities at 31 March 2012.
| Financial assets and liabilities | 2011-12 £000 Original cost |
2011-12 £000 Fair value |
2010-1` £000 Original cost |
2010-11 £000 Fair value |
Basis of fair valuation |
|---|---|---|---|---|---|
| Financial assets: | |||||
| Loans and receivables | 66,263 | 46,612 | 69,422 | 50,152 | Note a |
| Cash at bank and in hand | 28,590 | 28,590 | 13,106 | 13,106 | |
| 94,853 | 75,202 | 82,528 | 63,258 | ||
| Financial liabilities: | |||||
| Other financial liabilities | (86,563) | (86,563) | (89,034) | (89,034) | |
| (86,563) | (86,563) | (89,034) | (89,034) |
Note a – With the exception of cost awards, all receivables are stated at original cost. As stated in Note 1.8, the CPS receives awards of costs made against convicted defendants at the discretion of the judge or magistrates. Magistrates’ courts are responsible for recording, enforcing and collecting these costs and forwarding collected monies to the CPS. Magistrates’ courts record and account for individual cost award debtors, but report transactions to the CPS only on an aggregated basis. While the CPS can therefore account fully for aggregate costs awarded, the Department does not hold records of individual balances and transactions so it is not possible to analyse cost award receivables by anticipated future periods of receipt and the resultant cash flows cannot be estimated, nor can the CPS review individual balances for collectability. As a result, bad debts are provided for on the basis of the historical relationship between costs awarded and cash collected. The CPS considers that providing in this way against the aggregate balance of cost award debtors represents a fair value. The future timing of cash flows from cost award receivables remains uncertain, since detailed records of individual debtors’ payment arrangements rest with the magistrates’ courts. Since bad debts have effectively been excluded from the stated balance of cost award debtors the Department considers that remaining balances will be paid on a timely basis, and that discounting future cash flows would not provide a significantly different overall net position.
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