No 6169
Monday 30 November 2009
Vol cxl No 10
pp. 293–340
Consolidated income and expenditure account for the year ended 31 July 2009 Consolidated statement of total recognised gains and losses for the year ended 31 July 2009 Balance sheets as at 31 July 2009 Consolidated cash flow statement for the year ended 31 July 2009 Notes to the AccountsThe commentary that follows is intended to give the readers of the financial statements an overview of the finances and operations of the full University group including Cambridge Assessment and Cambridge University Press. It should be read in conjunction with the Annual Report of the Council and the Annual Report of the General Board to the Council for the academical year 2008–09, which are published alongside these financial statements. The financial position of the teaching and research activities of the University may be seen more clearly in the Financial Management Information published in the Reporter. Further detailed information about the finances and operations of Cambridge Assessment and Cambridge University Press is given in the annual reports of those entities which are also published.
The consolidated financial statements cover the teaching and research activities of the University, its subsidiary companies which undertake activities which for legal or commercial reasons are more appropriately carried out by limited companies, Cambridge Assessment and Cambridge University Press and their subsidiary companies and joint ventures, the Gates Cambridge Trust, and certain other Trusts (the ‘Associated Trusts’).
Cambridge Assessment and Cambridge University Press are constituent parts of the corporation known as the Chancellor, Masters, and Scholars of the University of Cambridge. Cambridge Assessment’s primary work is the conduct and administration of examinations in schools and for persons who are not members of the University. Cambridge University Press is the printing and publishing house of the University dedicated to printing and publishing for the advancement of knowledge, education, and learning worldwide.
The Gates Cambridge Trust and the Associated Trusts are separately constituted charities. They are deemed to be subsidiary undertakings of the University since the University appoints the majority of the trustees of each Trust. The purposes of the Gates Cambridge Trust and the Associated Trusts are to support the University by enabling persons from outside the United Kingdom to benefit from education in the University by the provision of scholarships and grants and otherwise. The assets of the Gates Cambridge Trust and the Associated Trusts are therefore not available for the general purposes of the University.
The mission of the University of Cambridge is to contribute to society through the pursuit of education, learning, and research at the highest international levels of excellence.
Its principal activities are teaching and learning, research, stewardship of collections and ancient buildings, and the activities of Cambridge Assessment and Cambridge University Press.
The sources of income of the University are:
•the Government, which through the Higher Education Funding Council provides a block grant for teaching and a grant determined by the quality and volume of research through the Research Assessment Exercise last carried out in 2008
•students through fees charged for instruction and facilities
•research income from publicly funded Research Councils, charitable foundations, and through collaborations with the private sector
•benefactions and donations for current use
•investment income from our accumulated endowment
•income from services provided to external customers, including the customers of Cambridge Assessment and Cambridge University Press
•a small but increasing income from commercialization of intellectual property.
The main investment pool generating endowment and investment income is the Cambridge University Endowment Fund (CUEF). As described later in this Financial Review the CUEF is managed on a total return basis, such that the amount distributed for budgetary expenditure is determined by a formula which has regard to the total return reasonably to be expected in the long term. The CUEF’s portfolio has been steadily transitioned from direct, income-yielding investments to an indirect investment approach intended to maximize total investment return. A substantial proportion of the CUEF’s current underlying investments yield little or no income in the form of dividends, interest, and rents. In the year ended 31 July 2009, distributions by the CUEF exceeded the income received from its underlying investments by £25.8m (2008: £4.5m), the balance of the distributions being funded by drawing on long-term capital growth. It is appropriate, for accounting purposes, to ‘look through’ the CUEF to the underlying investments in order to determine the income receivable by the University.
In these financial statements total endowment and investment income includes the income from CUEF’s underlying investments rather than the distributions made by the CUEF. The impact is that endowment and investment income is £25.8m less than it would have been under the former basis, with a corresponding increase in capital gains. For the individual trust funds and other endowment funds which have invested capital in the CUEF the full distribution remains available as income.
Following a review of categorization of income, an element of income from research sponsors is now classified as Other Income, and certain grants received on an agency basis are now excluded. Comparative figures for 2007–08 have been restated.
The threshold for capitalization of expenditure on equipment has been increased to £30,000 per item.
The consolidated results for the year ended 31 July 2009 are summarized in Table 1 below.
|
2008–09 £m |
2007–08 £m Restated |
Change % |
|
|
Income |
1,140 |
1,062 |
+7.3% |
|
Expenditure |
(1,156) |
(1,048) |
+10.3% |
|
(Deficit)/surplus on continuing operations before donations of heritage assets |
(16) |
14 |
|
|
Donations of heritage assets |
1 |
9 |
|
|
(Deficit)/surplus on continuing operations |
(15) |
23 |
|
|
Transfer from restricted endowments |
19 |
14 |
|
|
Surplus for the year retained within general reserves |
4 |
37 |
|
|
Net assets |
2,182 |
2,321 |
–6.0% |
This consolidated position is built up from the University’s three main segments: its core academic activities and the assessment and publishing activities carried out by Cambridge Assessment and Cambridge University Press respectively. Within the group there are a number of intra-group transactions, principally the financial and other support for the University’s academic activities made by both Cambridge Assessment and the Press. Table 2 gives segmental information.
Income |
Expenditure |
Surplus/(deficit) |
Surplus to reserves |
|||||
£m |
£m |
£m |
£m |
|||||
Results by segment |
Education and research |
721 |
746 |
(24) |
(8) |
|||
Cambridge Assessment |
242 |
228 |
14 |
17 |
||||
Cambridge University Press |
209 |
208 |
1 |
1 |
||||
Eliminations |
Press sales to Cambridge Assessment |
(2) |
(2) |
– |
– |
|||
Financial support to the University from |
||||||||
Cambridge Assessment |
(25) |
(25) |
– |
– |
||||
Pension scheme and other adjustments |
(5) |
1 |
(6) |
(6) |
||||
1,140 |
1,156 |
(15) |
4 |
|||||
The education and research activities of the University group were at a deficit after accounting for investment income as described above. Income benefited from increased fee income from a further transitional year of Home/EU undergraduates paying fees at the higher rate, improved recovery of indirect costs of research through FEC costing, and a transfer of £25m from Cambridge Assessment (including a £12m special transfer) in support of academic activities. Expenditure increased by £65m to £746m with increased research activity, an above-budget general pay increase of 5% in the year, and general cost pressures, notably in utility costs.
The Cambridge Assessment group is organized into three main business streams: University of Cambridge International Examinations (CIE), Oxford Cambridge and RSA Examinations (OCR), and University of Cambridge ESOL Examinations (Cambridge ESOL). Services are provided to customers in around 160 countries. Income from its examination fees and other educational and assessment services grew to £237m from £216m due to increased demand across all three business streams, resulting in a healthy surplus. The English language business was particularly strong. Investment continues to be made in information technology, increasingly important in the delivery and administration of assessment services, and in logistical systems.
Cambridge University Press is organized into two main business streams: Academic publishing of books and journals; and Cambridge Learning, which covers English Language Teaching and educational publishing. Its geographic regions are Europe, Middle East and Africa; Americas; and Asia-Pacific. The Press continued its favourable trend with good increases in sales, which exceeded £200m, aided by a strengthening US dollar. English Language Teaching publishing was the Press’s highest growth business and academic and professional publishing held up well. During the period the Press scaled down its printing business in response to changing market conditions. Overall the Press maintained a small operating surplus.
Table 3 below gives the movement in net assets showing the capital flows into the group, analysed into its three main segments, and the impact of changes in the values of investment assets.
|
Education and research |
Cambridge Assessment |
Cambridge University Press |
University Pension scheme |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
|
|
Net assets at 31 July 2008 |
2,183 |
191 |
62 |
(115) |
2,321 |
|
(Deficit)/surplus on continuing operations |
(24) |
14 |
1 |
(6) |
(15) |
|
Currency adjustments |
– |
– |
4 |
– |
4 |
|
New endowment capital |
47 |
– |
– |
– |
47 |
|
External funding for capital expenditure |
16 |
– |
– |
– |
16 |
|
Actuarial loss on retirement benefits |
– |
(1) |
(31) |
(62) |
(94) |
|
Decrease in investment values |
(93) |
(4) |
– |
– |
(97) |
|
Net assets at 31 July 2009 |
2,129 |
200 |
36 |
(183) |
2,182 |
Further capital inflows were received for endowments and in support of the building programme. The adverse investment markets had a major impact on the long-term investment assets of the endowment fund and pension fund assets.
The University group continued to invest in its physical facilities over 2008–09, although expenditure in the year was slightly lower than in recent years. Total capital expenditure was £85m, of which £63m was in respect of the University’s academic activities. During the year the Alan Reece Building for the Institute for Manufacturing was completed, and there was major expenditure on the Hauser Forum at West Cambridge, the Kavli Institute of Cosmology, the new Sainsbury Laboratory for plant sciences, and on the University Library. Cambridge Assessment continued to invest in its information technology systems.
New works in progress include a new building for Materials Science and Metallurgy at West Cambridge, and at 7 West Road on the Sidgwick Avenue Site which will bring together seven different institutions of the School of the Humanities and Social Sciences. Both these projects will be funded by the HEFCE Capital Investment Framework funding stream.
The majority of capital expenditure for academic activities is funded by external sources: Funding Council capital grants, donations for buildings, and equipment costs funded by research grants.
The University continues to review options for the renewal of the central sites, notably the Old Press Site and the New Museums Site.
The University group’s investment assets are significant. Although investment income provides only a small percentage of the operating budget of the University’s academic activities it supports posts and activities and gives important financial assistance to students. The investment assets, analysed and disclosed in the financial statements according to the various purposes for which they are held, are managed in three principal pools.
(i) Cambridge University Endowment Fund (CUEF)
The majority of fixed asset investments and endowment assets are invested in the CUEF. As at 31 July 2009 the CUEF had a market value of £956m (2008: £907m), which includes net new funds invested during the period of £136m, including further investment of £100m of the University’s general reserves. Since 2004 the CUEF has been managed on a total return basis, such that the amount distributed for budgetary expenditure is determined by a formula based on underlying capital values combined with factors which smooth the rate of spending changes from year to year, allowing a degree of certainty for planning purposes.
The performance of the CUEF is measured to a 30 June year-end in order to utilize more accurate valuation and benchmark information and to allow comparisons with similar endowment investment funds. The investment performance of the CUEF was –11.1% over the twelve months to 30 June 2009. The difficult investment environment experienced over the previous year persisted as illustrated by the equity benchmark indices FTSE All-Share (–20.5%) and MSCI All Country World (–14.5%). The CUEF performance was satisfactory in such circumstances and ahead of its historical WM Charities benchmark. Performance has recovered since the year-end in line with improvements in investment markets.
The University’s Investment Office, overseen and advised by the Investment Board, manages the CUEF. In response to the exceptional conditions and volatility in investment markets during the year the Investment Office, with the support of the Investment Board, took a tactical approach to asset allocation and introduced a corporate credit class into the portfolio. The asset allocation as at 30 June 2009 was: global equities 54%, private investments 2%, absolute return including hedge funds 11%, credit 11%, real assets including property 14%, and fixed income including cash 9%.
(ii) The Gates Cambridge Trust
The Gates Cambridge Trust investments pool is managed separately through its own investment committee and external investment adviser. As at 31 July 2009 the Gates Cambridge Trust had assets of £148m (2008: £166m). The Trust’s assets were similarly adversely affected by market conditions over 2008–09.
(iii) Money market investments
The majority of the University and Group current asset investments are invested in the deposit pool. This pool is managed by the Finance Division according to guidelines on diversification, exposure, and credit quality agreed by the Finance Committee and subject to external advice. The investments are principally short-term deposits with banks and similar institutions. A provision of £1.9m has been made in respect of deposits outstanding of £9.6m with Iceland-related banks.
Staff costs constitute the greater part of the University’s expenditure, and future pension costs and liabilities remain of great materiality and uncertainty. Staff costs by segment were:
|
2008–09 £m |
2007–08 £m |
Increase % |
|
|
Education and research activities |
389 |
352 |
+10.5% |
|
Cambridge Assessment |
61 |
54 |
+13.0% |
|
Cambridge University Press |
62 |
60 |
+3.3% |
The University’s education and research activities took actions to accommodate the above-budget nationally agreed general increase in salaries of 5% as at 31 October 2008 by exercising control over filling vacant posts, aided by the additional income from fees and transfer from Cambridge Assessment. The staff costs for Cambridge Assessment and Press increased in line with their business growth.
The pension schemes to which the University is exposed are facing growing pressure from factors such as uncertainty over future investment returns, improving life expectancy, and salary levels. The University’s principal scheme is the Universities Superannuation Scheme (USS). As at the last triennial valuation at 31 March 2008 the USS was sufficiently funded on the technical provisions basis, but an informal update as at 31 March 2009 reduced the funding level to 75%. The employer’s contribution rate to the USS increased from 14% to 16% of salary from 1 October 2009. The USS is a very large multi-employer scheme. Participating employers and the members represented by the University and College Union are currently discussing ways in which the scheme can remain attractive but also affordable and sustainable.
The other main scheme, the Cambridge University Assistants’ Contributory Pension Scheme (CPS), is similarly affected by investment performance, actuarial assumptions, and salary increases. The employer’s contribution was increased by 4% to a total of 23.7% from August 2009. The results of a full triennial valuation as at 31 July 2009 will shortly be available and further increases in funding requirements are likely. The Finance Committee is actively exploring the options to ensure that this scheme too remains affordable and sustainable.
Cambridge University Press has a number of schemes in the UK and United States, and certain actions have been taken to contain liabilities in respect of future service.
The CPS and the Press’s schemes, being single-employer schemes, are included in the financial statements following Financial Reporting Standard 17 (FRS 17). The total pension liability under FRS 17 has increased from £158m to £258m, of which £74m relates to the Press’s schemes, primarily due to falls in scheme investment asset values.
2009 marks the 800th anniversary of the University of Cambridge. Launched publicly in 2005 the Cambridge 800th Anniversary Campaign aims to raise at least £1 billion across the University and Colleges. As at 31 July 2009 gifts and pledges in response to the campaign totalled over £900m across collegiate Cambridge. Within the University approximately £42m has been added to endowments in 2008–09, with further donations for capital expenditure and expendable gifts. The benefits are long-term, strengthening Cambridge’s financial security for posterity at a time of intensifying global competition and uncertainty, and cannot be expected to improve significantly the finances of the University in the short term.
Further progress has been made on proposals for the development of the University’s land at North West Cambridge. Following approval of the Area Action Plan for the site the range of uses to be provided for the site comprise: housing to address the recruitment and retention problems of staff, with an indicative provision of 3,000 units; student accommodation of Collegiate units for up to 2,000 students (undergraduate and post-graduate); and academic and University-linked private research space of 100,000 sq.m. to provide for needs beyond those at West Cambridge; and community and retail facilities.
Subject to University and other approvals the earliest date for delivery of a first phase of development is likely to be mid-2013.
The past decade has seen healthy growth in the University’s operating budget and an improvement in the overall financial position. Income from all sources has increased at rates well above inflation and this has allowed the University to support additional expenditure, including substantial increases in pay costs arising from pay awards, increased numbers of promotions, implementation of the new pay and grading policy, and rising pension costs. At the same time, external funding streams from the Funding Council and from benefactors have supported a major programme of capital development, providing improved accommodation and expanded capacity. Cambridge Assessment’s activities have grown well and are now generating good surpluses for investment in the business and for supporting the University’s teaching and research activities. Cambridge University Press’s operations have been restored to give a small surplus.
However the unprecedented events in the global financial conditions during the past twelve months, and the consequent economic downturn, have introduced great uncertainty. Most of the University’s income sources will be affected: funds from the public purse to the Funding Council and Research Councils are expected to reduce from 2010; charities, a major source of research funds, are already reducing funding; industry and commerce are likely to reduce investment in R&D; and the level of donations and benefactions may decrease. At the same time, pension fund assets have fallen and pension costs will rise.
Against this background, the principal risks the University must address are the long-term ability to maintain and develop its research funding, to attract the best students, and to maintain and renew its physical facilities. The businesses of Cambridge Assessment and the Press are subject to the usual pressures of competing internationally against major competitors. They must balance the need to generate sufficient net income to ensure that they thrive with the need to support the University’s core academic activities whenever possible.
The key financial risks are:
•reductions in HEFCE funding through the teaching and for research funding streams, as a result of central government spending cuts
•reductions in Research Council funding, and the significant contributions to indirect costs and support of research students
•reduction in funding by charities and foundations of sponsored research and capital projects as a result of adverse investment markets
•further deterioration in investment markets reducing the value of the endowment and other investment assets
•the increasing costs of pension provision
•a weaker economic and financial environment putting additional pressure on donations for endowment, for capital expenditure, and for current use
•the economic success of Cambridge Assessment and the Press, which operate in challenging international markets and in worsening economic conditions. Cambridge Assessment provides an increasingly important source of unrestricted funding for the University.
The Council is addressing the near- and medium-term financial challenges. Actions are being taken to mitigate the impact of the expected downturns in income streams and the planning options for operating effectively within a tightly constrained budget.
The University group’s operations generated a small surplus on reserves in 2008–09. The University seeks, and has been successful in, diversification of income sources to reduce its exposure to changes in economic conditions or policy. However the short- and medium-term outlook is extremely challenging as multiple funding streams come under pressure and costs, notably pensions, are uncertain.
Professor Steve Young
Pro-Vice-Chancellor (Planning and Resources)
1. The following statement is provided by the Council to enable readers of the financial statements to obtain a better understanding of the arrangements in the University for the management of its resources and for audit.
2. The University endeavours to conduct its business in accordance with the seven principles identified by the Committee on Standards in Public Life (selflessness, integrity, objectivity, accountability, openness, honesty, and leadership) and within the general principles of the Guidance to Universities which has been provided by the Committee of University Chairmen and its ‘Guide for Members of Governing Bodies of Universities and Colleges in England, Wales and Northern Ireland’. Further information is given at paragraph 9 below.
Under the Statutes, the Governing Body of the University is the Regent House which comprises the resident senior members of the University and the Colleges, together with the Chancellor, the High Steward, the Deputy High Steward, and the Commissary. Subject to the Regent House, the Council of the University is the principal executive and policy-making body of the University, with general responsibility for the administration of the University, for the planning of its work, and for the management of its resources. The membership of the Council includes four external members, one of whom chairs the Audit Committee (see paragraph 7 below). The Statutes provide for the appointment of a Deputy Chairman of the Council, normally one of the external members, to take the chair as necessary or when it would be inappropriate for the Vice-Chancellor to do so, in particular in relation to her own accountability. The General Board of the Faculties is responsible, subject to the Regent House and to the responsibilities of the Council, for the academic and educational policy of the University.
3. The University is an exempt charity and will be subject to regulation by the Higher Education Funding Council for England. The members of the University Council are the charity trustees and are responsible for ensuring compliance with charity law.
4. The Council is advised in carrying out its duties by a number of Committees, including the Planning and Resources Committee, the Finance Committee, the Audit Committee, the Remuneration Committee, the Investment Board, and the Risk Steering Committee. The Planning and Resources Committee is a joint committee of the Council and the General Board. Its responsibilities include the development and oversight of the University’s Strategic Plan, and the preparation of the University’s budget. The Finance Committee is chaired by the Vice-Chancellor and advises the Council on the management of the University’s assets, including real property, monies, and securities, and on the care and maintenance of all University sites and buildings. The Audit Committee, which has a majority of external members, governs the work of the Internal and External Auditors, reporting on these matters directly to the Council. The Remuneration Committee is chaired by an external member of Council and advises the Council on the remuneration of senior staff in the University. The Investment Board, which has a majority of external members, advises the Council on the management of the University’s investment assets. The Risk Steering Committee is responsible to the Council for the identification of the major corporate risks and their management.
5. The Vice-Chancellor is, de facto, the principal academic and administrative officer of the University. Under the terms of the Financial Memorandum between the University and the Higher Education Funding Council for England the Vice-Chancellor is the Designated Officer of the University.
6. Under the Statutes, it is the duty of the Council to exercise general supervision over the finances of all institutions in the University other than the University Press (which is governed by the Council and the Press Syndicate through separate statutory arrangements); to keep under review the University’s financial position and to make a report thereon to the University at least once in each year; to recommend bankers for appointment by the Regent House; to prepare and publish the annual accounts of the University in accordance with UK applicable accounting standards such that the accounts give a true and fair view of the state of affairs of the University.
7. It is the duty of the Audit Committee to keep under review the effectiveness of the University’s internal systems of financial and other controls; to advise the Council on the appointment of external and internal auditors; to consider reports submitted by the auditors, both external and internal; to monitor the implementation of recommendations made by the internal auditors; to satisfy themselves that satisfactory arrangements are adopted throughout the University for promoting economy, efficiency, and effectiveness; to establish appropriate performance measures and to monitor the effectiveness of external and internal audit; to make an annual report to the Council, the Vice-Chancellor, and the Higher Education Funding Council for England; to receive reports from the National Audit Office and the Higher Education Funding Council for England. Membership of the Audit Committee includes as a majority five external members (including the chair of the Committee), appointed by the Council with regard to their professional expertise and experience in comparable roles in corporate life.
8. There are Registers of Interests of Members of the Council, the General Board, the Finance Committee and the Audit Committee, and of the senior administrative officers. Declarations of interest are made systematically at meetings.
9. The University is a self-governing community whose members act in accordance with the seven principles of public life (see paragraph 2 above) and in pursuit of the objectives and purposes of the University as set out in its Statutes. The University complies with most but not all of the voluntary Governance Code of Practice published in November 2004 by the Committee of University Chairmen. In particular the Vice-Chancellor is chair of the Council, which does not have a majority of external members, and the Council is subject to the statutory authority of the Regent House. The University has no immediate plans to change these arrangements, which have proved reliable over many years in enabling the University to achieve its academic objectives.
The Chancellor and the Vice-Chancellor
Prof. William Brown
Prof. Frank Kelly
Prof. Anthony Badger (to 31 Dec 2008)
Lord Wilson of Dinton (to 31 Dec 2008)
Prof. Martin Daunton (from 1 Jan 2009)
Sir Christopher Hum (from 1 Jan 2009)
Prof. Ross Anderson
Dr Liba Taub (to 31 Dec 2008)
Prof. David Abulafia
Prof. Athene Donald (from 1 Jan 2009)
Prof. Steve Young (to 31 Mar 2009)
Dr Michael Clark (from 5 May 2009)
Dr Nick Bampos
Dr Stephen Cowley
Ms Deborah Lowther
Dr Joan Whitehead
Dr Michael Clark (to 3 Dec 2008)
Mr Robert Dowling (to 3 Dec 2008)
Dr Donald MacDonald (to 3 Dec 2008)
Dr George Reid (to 3 Dec 2008)
Dr Richard Barnes (from 1 Jan 2009)
Mr Robert Dowling (from 1 Jan 2009)
Dr David Good (from 1 Jan 2009)
Dr Rachael Padman (from 1 Jan 2009)
Mr Nigel Brown OBE
Dr Vanessa Lawrence CB
Dame Mavis McDonald
Lord Simon of Highbury
(to 30 June 2009)
Mr Anthony Bagshaw
Mr William Bortrick
Ms Freya Morrissey
(from 1 July 2009)
Mr Thomas Chigbo
Ms Julia Li
Mr David Lowry
1. The Council is responsible for maintaining a sound system of internal control that supports the achievement of policies, aims, and objectives, while safeguarding the public and other funds and assets for which the Council is responsible, in accordance with the Statutes and Ordinances and the Financial Memorandum with the HEFCE.
2. The system of internal control is designed to manage rather than eliminate the risk of failure to achieve policies, aims, and objectives; it therefore provides reasonable but not absolute assurance of effectiveness.
3. The system of internal control is designed to identify the principal risks to the achievement of policies, aims, and objectives, to evaluate the nature and extent of those risks and to manage them efficiently, effectively, and economically. This process was in place for the year ended 31 July 2009 and up to the date of approval of the financial statements, and accords with HEFCE guidance.
4. The Council is responsible for reviewing the effectiveness of the system of internal control. The following processes have been established:
(a)The Council meets eleven times throughout the year to consider the plans and strategic direction of the University.
(b)The Council receives periodic reports from the Chairman of the Audit Committee concerning internal control and the minutes of all meetings of the Audit Committee.
(c)The Council’s Risk Steering Committee oversees risk management. The Council receives periodic reports from the Chairman of the Risk Steering Committee and the minutes of all meetings of the Risk Steering Committee.
(d)The Audit Committee receives regular reports from the internal auditors, which include the internal auditors’ independent opinion on the adequacy and effectiveness of the University’s system of internal control and risk management, together with recommendations for improvement. Each meeting of the Audit Committee receives a report from the Chairman of the Risk Steering Committee.
(e)The University (through the Chair and Secretary of the Risk Steering Committee) offers tailored training and briefings (either on a one-to-one basis or in relevant groupings) to those whose roles involve risk management.
(f)A system of indicators has been developed for the University’s key risks.
(g)A robust risk prioritization methodology based on risk ranking and cost-benefit analysis has been established.
(h)A University-wide risk register is maintained as are registers at School level.
(i)Key risks have been assigned to risk owners and risk reporting channels established.
5. The Council’s review of the effectiveness of the system of internal control is informed by the work of the internal auditors Grant Thornton UK LLP. They operate to the standards defined in Accountability and Audit: HEFCE Code of Practice.
6. The Council’s review of the effectiveness of the system of internal control is also informed by the work of the senior officers and the risk owners within the University, who have responsibility for the development and maintenance of the internal control framework, and by comments made by the external auditors in their management letter and other reports.
1. Under the University’s Statutes it is the duty of the Council to prepare and to publish the annual accounts of the University in accordance with UK applicable accounting standards such that the accounts give a true and fair view of the state of affairs of the University.
2. The Council are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the University.
3. In preparing the financial statements the Council are required to:
(a)select suitable accounting policies and then apply them consistently;
(b)make judgements and estimates that are reasonable and prudent;
(c)state whether applicable accounting standards have been followed;
(d)prepare the financial statements on a going concern basis unless it is inappropriate to presume that the University will continue to operate;
(e)ensure that income has been applied in accordance with the University’s Statutes and Ordinances, and its Financial Memorandum with the HEFCE and the funding Agreement with the Training and Development Agency for Schools; and
(f)safeguard the assets of the University and take reasonable steps to prevent and detect fraud and other irregularities.
We have audited the group financial statements of the University of Cambridge for the year ended 31 July 2009 which comprise the Consolidated income and expenditure account, the Note of consolidated historical cost result, the Consolidated statement of total recognised gains and losses, the Group and University balance sheets, the Consolidated cash flow statement, the Statement of Principal Accounting Policies and the related notes. These financial statements have been prepared under the accounting policies set out therein.
The Council’s responsibilities for preparing the financial statements in accordance with the Accounts Direction issued by the Higher Education Funding Council for England, the Statement of Recommended Practice – Accounting for Further and Higher Education, applicable United Kingdom Law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of the Responsibilities of the Council.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements, and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Council in accordance with the Statutes and Ordinances of the University. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or in to whose hands it may come save where expressly agreed by our prior consent in writing.
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 report to you whether in our opinion, income from funding bodies, grants and income for specific purposes and from other restricted funds administered by the University, have been properly applied in all material respects for the purposes for which they were received, and whether income has been applied in all material respects in accordance with the University’s Statutes and Ordinances and where appropriate with the financial memorandum with the Higher Education Funding Council for England (HEFCE) and with the funding agreement with the Training and Development Agency for Schools.
We also report to you if, in our opinion, the information given in the Financial Review is not consistent with those financial statements, if the University has not kept adequate accounting records, if the financial statements are not in agreement with the accounting records or if we have not received all the information and explanations we require for our audit.
We read the other information contained in the Financial Review, the Corporate Governance Statement (incorporating the Members of the Council during the year ended 31 July 2009), and the Statement of the Responsibilities of the Council and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements.
We also review the Statement of Internal Control and comment if the statement is inconsistent with our knowledge of the University. We are not required to consider whether the statement of internal control covers all risks and controls, or to form an opinion on the effectiveness of the University’s corporate governance procedures or its risk and control procedures. 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.
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board and with the HEFCE Accountability and Audit Code of Practice contained in the Financial Memorandum 2008/19. 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 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 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.
In our opinion:
i.the financial statements give a true and fair view of the state of affairs of the Group and the University at 31 July 2009, and of the Group’s income and expenditure, recognised gains and losses, and statement of cash flows for the year then ended;
ii.the financial statements have been properly prepared in accordance with the Statement of Recommended Practice – Accounting for Further and Higher Education, and United Kingdom Generally Accepted Accounting Practice;
iii.in all material respects, income from the Higher Education Funding Council for England, the Training and Development Agency for Schools grants and income for specific purposes and from other restricted funds administered by the University have been applied only for the purposes for which they were received; and
iv.in all material respects, income has been applied in accordance with the University’s Statutes and Ordinances and where appropriate in accordance with the financial memorandum (2008/19) with the Higher Education Funding Council for England and the funding agreement with the Training and Development Agency for Schools.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Cambridge
23 November 2009
The maintenance and integrity of the University’s website is the responsibility of the Council; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The financial statements have been prepared in accordance with applicable United Kingdom accounting standards and the Statement of Recommended Practice: Accounting for Further and Higher Education (the SORP).
The income and expenditure account includes captions additional to those specified by the SORP in order to present an appropriate overview for the specific circumstances of the University.
The financial statements have been prepared under the historical cost convention, modified in respect of the treatment of investments and certain operational properties which are included at valuation.
The consolidated financial statements include the University and its subsidiary undertakings including the Gates Cambridge Trust and other Associated Trusts. Details of the subsidiary undertakings included are given in note 31. Intra-group transactions and balances are eliminated on consolidation.
The Gates Cambridge Trust is a separately constituted exempt charity which is accounted for as a subsidiary undertaking of the University since the University appoints the majority of its trustees. The purposes of the Gates Cambridge Trust are to support the University by enabling persons (to be known as ‘Gates Cambridge Scholars’) from any part of the world outside the United Kingdom to benefit from education in the University by provision of scholarships and grants and otherwise. These purposes cannot be changed without the consent of the settler, The Bill & Melinda Gates Foundation. The assets of the Gates Cambridge Trust are therefore not available for the general purposes of the University.
The Associated Trusts are similarly constituted exempt charities with purposes primarily to provide support to enable students ordinarily resident or domiciled in countries outside the United Kingdom to benefit from education in the University. The assets of the Associated Trusts are therefore not available for the general purposes of the University.
The consolidated financial statements do not include the accounts of the 30 Colleges and one Approved Society in the University (‘the Colleges’), each of which is an independent corporation. Transactions with the Colleges are disclosed in note 33.
The consolidated financial statements do not include the accounts of Cambridge University Students Union or of the Cambridge University Graduate Union, as these are separate bodies in which the University has no financial interest and over whose policy decisions it has no control.
Recurrent grant is received from the Higher Education Funding Council for England (HEFCE) and the Training and Development Agency for Schools. Recurrent grant is recognised as income in the period to which it relates.
Grants are received for restricted purposes, principally from HEFCE and research sponsors. Restricted grants are recognised as income to the extent that relevant expenditure has been incurred.
Charitable donations are recognised on receipt or where there is certainty of future receipt and the value can be measured reliably. The accounting treatment of a donation depends on the nature and extent of restrictions specified by the donor. Donations with no substantial restrictions are recognised as income in the income and expenditure account. Donations which are to be retained for the future benefit of the University, and other donations with substantially restricted purposes, other than for the acquisition or construction of tangible fixed assets, are recognised in the statement of total recognised gains and losses as new endowments.
Grants and donations are received for the purposes of funding the acquisition and construction of tangible fixed assets. In the case of depreciable assets these are credited to deferred capital grants when the related capital expenditure is incurred and released to income over the expected useful life of the respective assets in line with the depreciation policy. Grants and donations of, or for the acquisition of, freehold land or heritage assets, which are non-depreciable assets, are credited to the income and expenditure account in the year of acquisition.
Tuition fees for degree courses are charged to students by academic term. Income is recognised for academic terms falling within the period. For short courses, fees are charged in advance for the entire course and income is recognised to the extent that the course duration falls within the period.
Income from assessment is recognised when services are rendered and substantially completed.
Income is recognised on delivery of the goods to the customer.
Income is received from a range of activities including residences, catering, conferences, and other services rendered. Income is recognised on the exchange of the relevant goods or services.
All investment income is credited to the income and expenditure account in the period in which it is earned. 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.
Transactions denominated in foreign currencies are recorded at the rate of exchange ruling at the date of the transactions. Where foreign branches of Cambridge University Press (CUP) accounting in foreign currencies operate as separate businesses, all their assets and liabilities are translated into sterling at year-end rates and the net effect of currency adjustments is taken directly to reserves. Otherwise, monetary assets and liabilities denominated in foreign currencies are translated into sterling at year-end rates and translation differences are taken to the income and expenditure account.
Operational land and buildings are included in the financial statements at their 1994 valuation with subsequent additions at cost. On the adoption of Financial Reporting Standard (FRS) 15 (Tangible fixed assets), the University followed the transitional provision to retain the book value of land and buildings, which were revalued on 1 August 1994 by AK Rodgers, Chartered Surveyor, but not to adopt a policy of revaluations of these properties in the future.
No depreciation is provided on freehold land or on assets in construction. Freehold buildings are written off on a straight line basis over their estimated useful lives, which are between 15 and 50 years, and leasehold properties are written off over the length of the lease.
Equipment costing less than £30,000 per individual item is written off in the year of purchase. All other equipment is capitalised and depreciated so that it is written off on a straight line basis over its estimated useful life of between four and ten years.
The University holds and conserves a number of collections, exhibits, artefacts, and other assets of historical, artistic or scientific importance. In accordance with FRS 15 and FRS 30 (Heritage assets), heritage assets acquired before 1 August 1999 have not been capitalised, since reliable estimates of cost or value are not available on a cost-benefit basis. Acquisitions since 1 August 1999 have been capitalised at cost or, in the case of donated assets, at expert valuation on receipt. In line with the general fixed assets accounting policy, the threshold for capitalising assets is £30,000. Heritage assets are not depreciated since their long economic life and high residual value mean that any depreciation would not be material. As encouraged by FRS 30, the University has chosen to apply the requirements of this standard in advance of its effective date.
Goodwill arises on consolidation and is based on the fair value of the consideration given for the subsidiary and the fair value of its assets at the date of acquisition. Goodwill is amortised over its estimated economic life of between five and ten years on a straight line basis. Where there is impairment in the carrying value of goodwill, the loss is included in the results of the period.
Fixed asset investments and endowment assets are included in the balance sheet at market value, except for investments in subsidiary undertakings which are stated in the University’s balance sheet at cost and eliminated on consolidation. Properties held for investment purposes are valued annually on the basis of estimated open market values on an existing use basis by Knight Frank or, in the case of local non-operational properties, by chartered surveyors employed by the University. Marketable securities are valued at midmarket valuation on 31 July. Non-marketable securities, including investments in spin-out companies, are included at valuation by the Council. Current asset investments are included in the balance sheet at the lower of cost and net realisable value.
Stocks are stated at the lower of cost and net realisable value after making provision for slow moving and obsolete items.
Endowment funds are classified under three headings:
Where the donor has specified that the fund is to be permanently invested to generate an income stream for the general purposes of the University, the fund is classified as an unrestricted permanent endowment.
Where the donor has specified that the fund is to be permanently invested to generate an income stream to be applied for a restricted purpose, the fund is classified as a restricted permanent endowment.
Where the donor has specified a particular objective other than the acquisition or construction of tangible fixed assets, and that the University must or may convert the donated sum into income, the fund is classified as a restricted expendable endowment.
The University contributes to a number of defined benefit pension schemes and accounts for the costs in relation to these schemes in accordance with FRS 17 (Retirement benefits).
Where the University is unable to identify its share of the underlying assets and liabilities in a scheme on a reasonable and consistent basis, it accounts as if the scheme were a defined contribution scheme, so that the cost is equal to the total of contributions payable in the year.
For other defined benefit schemes, the assets of each scheme are measured at fair value, and the liabilities are measured on an actuarial basis using the projected unit method and discounted at an appropriate rate of return. The University’s share of the surplus or deficit of the scheme is recognised as an asset or liability on the balance sheet. The current service cost, being the actuarially determined present value of the pension benefits earned by employees in the current period, and the past service cost are included within staff costs. Endowment and investment income includes the net of the expected return on assets, being the actuarial forecast of total return on the assets of the scheme, and the interest cost being the notional interest cost arising from unwinding the discount on the scheme liabilities. All changes in the pension surplus or deficit due to changes in actuarial assumptions or differences between actuarial forecasts and the actual out-turn are reported in the statement of total recognised gains and losses.
The University operates in a number of different classes of business. For the purpose of segmental reporting as required by Statement of Standard Accounting Practice 25 (Segmental reporting), classes of business have been identified by reference to the nature of activity, the nature of funding and the management organisation.