Skip to main contentCambridge University Reporter

No 6205

Monday 29 November 2010

Vol cxli No 9

pp. 213–260

Reports and financial statements for the year ended 31 July 2010

FINANCIAL REVIEW

Preliminary

The 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 2009–10, 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.

Scope of the Financial Statements

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.

Mission

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.

Funding

The sources of income of the University are:

– The Government, which through the Higher Education Funding Council for England (HEFCE) 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.

Accounting for endowment and investment income

The main investment pool generating endowment and investment income is the Cambridge University Endowment Fund (CUEF). 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 is invested to maximize total investment return and a substantial proportion of the underlying investments yield little or no income in the form of dividends, interest, and rents. In the year ended 31 July 2010, distributions by the CUEF exceeded the income received from its underlying investments by £40m (2009: £26m), the balance of the distributions being funded by drawing on long-term capital growth. The investment performance of CUEF is discussed below.

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 £40m less than it would have been had it been based on distribution, with a corresponding increase in capital gains. For the individual trust funds and other endowment funds which have invested capital in the CUEF the distribution remains available as income.

Financial performance for the year

The consolidated results for the year ended 31 July 2010 are summarized in Table 1 below.

Table 1

2009–10

£m

2008–09

£m

Change

%

Restated

Income

1,190

1,134

+ 4.8%

Expenditure

(1,191)

(1,156)

+ 3.1%

Deficit on continuing operations before donations of heritage assets

(1)

(22)

Donations of heritage assets

3

1

Surplus/(deficit) on continuing operations

2

(21)

Transfer from restricted endowments

18

19

Surplus for the year retained within general reserves

20

(2)

Net assets

2,415

2,163

+ 11.7%

Corresponding figures including the element of Endowment Fund distributions funded out of long-term capital growth, as explained above, are:

2009–10

£m

2008–09

£m

Restated

Income

1,230

1,160

Surplus for the year retained within general reserves

60

24

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.

Table 2

(Deficit)/surplus on continuing operations

Income

Expenditure

Surplus/(deficit)

£m

£m

£m

Results by segment

Education and research

719

754

(35)

Cambridge Assessment

266

231

35

Cambridge University Press

223

217

6

Eliminations

Financial support to the University from

Cambridge Assessment

(15)

(15)

Cambridge University Press

(3)

(3)

Pension scheme and other adjustments

7

(7)

1,190

1,191

(1)

The education and research activities of the University group were at a deficit after accounting for investment income as described above. Funding Council funding was flat overall, although there was a small increase in the value of the recurrent grant. Tuition fees increased after the final transition of Home/EU undergraduates paying fees at the higher rate of £3,225 a year and increased fees in certain masters courses. Income from sponsored research increased by 3%, with charity-sponsored research making up for level income from Research Councils. Staff costs increased with additional pension costs but other expenditure was constrained in anticipation of a future challenging funding position.

Cambridge Assessment is the University’s international exams group. Its mission is to promote educational excellence. It pursues this by researching, developing, and delivering qualifications to more than eight million learners in over 160 countries each year. Cambridge Assessment offers these qualifications through three exam boards: Oxford Cambridge and RSA Examinations (OCR), University of Cambridge International Examinations (CIE), and University of Cambridge ESOL Examinations (English for Speakers of Other Languages). In 2009–10 income from its examination and assessment services increased by 12% to £260m, with particularly strong growth in its international activities. Substantial investment in information technology for the delivery and administration of assessment services has been maintained and is now planned to intensify further.

Cambridge University Press’s mission is to further through publication the University’s objective of advancing learning, knowledge, and research worldwide. The Press is organized into two main streams: Academic publishing of books and journals; and Cambridge Learning, comprising school books and English Language Teaching materials. It operates world-wide. Over 2009–10 the positive performance trend of recent years was maintained despite difficult economic conditions in certain markets. Overall income increased despite the strategic decision to cease printing activities for third-party customers made in 2008–09, and the Press’s operations generated a surplus of £6m. The Press plans to continue to invest in growth and in the opportunities presented by a rapidly developing technological landscape, whilst at the same time controlling its costs.

Change in financial position

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.

Table 3

Movement in net assets

Education and research

Cambridge Assessment

Cambridge University Press

University Assistants Pension scheme

Total

£m

£m

£m

£m

£m

Net assets at 31 July 2009 (restated)

2,129

181

36

(183)

2,163

(Deficit)/surplus on continuing operations

(35)

35

6

(7)

(1)

Donations of heritage assets

3

3

Currency adjustments

6

6

New endowment capital

48

48

External funding for capital expenditure

37

37

Actuarial loss on retirement benefits

(1)

(1)

(6)

(8)

Increase in investment values

158

9

167

Other items

1

(1)

Net assets at 31 July 2010

2,341

224

46

(196)

2,415

Capital receipts included £48m for endowments and £60m to support the building programme. Favourable investment markets and sound investment management led to a major increase in the market values of the University’s endowment and other long-term investment assets, however the pension schemes’ deficit increased.

Capital expenditure programme

During the past decade the University’s estate has been improved by a programme of large-scale refurbishments and through construction of new buildings on the West Cambridge, Sidgwick Avenue, Addenbrooke’s, and Tennis Court Road sites. In 2009–10 the University group invested £107m in tangible fixed assets of which £87m was in respect of the University’s academic activities. The Sainsbury Laboratory building for plant science was the largest individual investment and is now nearing completion. Expenditure continued on a number of other major projects including the University Library extension, 7 West Road, and the Hauser Forum and the new building for Materials Science, both at the West Cambridge site. Cambridge Assessment continued to invest in its information technology systems and its warehousing facility.

The majority of capital expenditure for academic activities is funded by external sources: Funding Council capital streams, donations for buildings, and equipment costs funded by research grants. The University is considering its approach to funding its investment in its physical infrastructure in the context of the uncertainty of the level of future Funding Council capital grants. In particular the University continues to review options for the renewal of the central sites, notably the New Museums Site, and is developing a more integrated approach in its plans for capital expenditure.

Endowment and investment performance

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 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, which is managed by the University’s Investment Office with the advice and oversight of the Investment Board. The CUEF is managed on a total return basis with a long-term investment objective of RPI plus 5.25%. 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.

Arrangements were made during the year to permit Colleges and other charities linked with the University to invest in the CUEF, to gain from its scale, diversification, and professional management. Two Colleges had made such investments shortly before the year-end.

As at 31 July 2010 the CUEF had a market value of £1,141m (2009: £956m). The increase is a result of net new funds invested during the year, strong investment performance, less the amounts distributed for spending on operations.

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 19.2% over the twelve months to 30 June 2010, which was considered very satisfactory. As at 30 June 2010 the actual asset allocation was global equities 55%, equity long-short 9%, private investments 2%, absolute return including hedge funds 12%, credit 6%, real assets including property 13%, and fixed income including cash 3%.

(ii) The Gates Cambridge Trust

As at 31 July 2010 the Gates Cambridge Trust had assets of £160m (2009: £148m). The Trust’s investments pool has been managed separately through its own investment committee and external investment adviser. Since the year-end the majority of the assets of the Gates Cambridge Trust have been invested in the CUEF.

(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.

Staff costs and pensions

Staff costs constitute the greater part of the University’s expenditure, and pension costs and liabilities remain of great materiality and concern.

The staff costs attributable to the University’s education and research activities increased because of higher pension contributions, a full year following nationally agreed general increase in salaries of 5% as at 1 October 2008, and a general increase of 0.5% made in 2009. Posts are being held vacant where possible in anticipation of funding constraints. The staff costs for Cambridge Assessment and the 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) a very large multi-employer scheme. 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 2010 reduced the funding level to 91%. Proposals have been made to adjust benefits for new joiners of the scheme and to make certain other changes in order that the scheme remains affordable and sustainable. The deficit of the USS is not reflected in the University’s balance sheet but is a major exposure for the University.

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 is currently 23.7% of pensionable pay. The full triennial valuation carried out using the CPS trustees’ assumptions as at 31 July 2009 indicated that the CPS had a deficit of £139m and was 67% funded. The University will make deficit-recovery contributions to the scheme of £14.6m a year for fifteen years commencing August 2011. The University will be discussing proposals with its staff to ensure that the CPS too remains attractive but also 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. A full triennial valuation of the schemes is being carried out for funding purposes, and it is expected that a plan to recover a material deficit will be needed.

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 £258m to £274m, of which £77m relates to the Press’s schemes. Over the year asset values increased by more than had been assumed, but the increased valuation of liabilities more than offset this gain.

Development and fundraising

The Cambridge 800th Anniversary Campaign, which commenced in 2005, has now achieved a milestone of £1 billion raised across the University and Colleges.

During 2009–10 £48m was added to University’s endowments, with further donations received for capital expenditure and as expendable gifts. The benefits of development and fundraising 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.

North West Cambridge

Work continues to develop long-term proposals for the University’s land at North West Cambridge to provide housing for staff and students together with provision for future academic and research accommodation. The Council expects to make detailed proposals in the course of 2010–11.

Subject to University and other approvals and depending on the form of the first phase and market conditions, the earliest date for delivery of a first phase of development is likely to be late 2014.

The funding outlook

The Government’s plans for reforms to higher education and student finance, in response to Lord Browne’s proposals, and the outcome of the Comprehensive Spending Review (CSR) have been made public. The science budget is to be held at flat cash for the next four years which is likely to represent a cut in real terms over the period. However, the University’s overall position will only become clear once the full detail of the Government’s proposals and of the CSR have been provided.

The implications for the University regarding research funding should be broadly manageable provided that current actions continue in mitigating the impact through improving grant application success rates, maintaining research volume, and maintaining recovery of the indirect cost of research. However the situation with undergraduate funding and the HEFCE Teaching grant is less clear.

In the University’s other areas of activity Cambridge Assessment continues to invest for growth and the Cambridge University Press is focusing on operating at a surplus to generate the funds to allow it to make the necessary investments in its activities.

Principal risks and uncertainties affecting the long-term financial position

The principal risks the University must address are the long-term ability to maintain and develop its research funding, to attract the best staff and students, and to maintain and renew its physical facilities. The activities of Cambridge Assessment and the Press are subject to the pressures of international competition, and 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 uncertainties and risks are:

– The full extent and impact on Cambridge of Government funding cuts on teaching and research funding and on capital funding streams.

– Reductions in Research Council funding, and the significant contributions made to indirect costs by Research Council-sponsored research.

– Funding by charities and foundations of sponsored research and capital projects.

– Movements in investment markets reducing the value of the endowment and other investment assets.

– The increasing costs of pension provision.

– An uncertain economic and financial environment putting additional pressure on donations for endowment, capital expenditure, and for current use.

– The economic success of Cambridge Assessment and the Press, which operate in challenging international markets. Cambridge Assessment provides an increasingly important, but vulnerable, source of unrestricted funding for the University.

In conclusion

The University group’s operations were broadly at break-even in 2009–10, largely due to the hard work on cost control in the education and research activities of the University and the excellent financial performance of Cambridge Assessment. Viewed on a ‘distribution basis’ for investment income, as described above, the operating surplus was £39m or around 3% of total income.

The University’s diverse sources of income help accommodate changes in economic conditions or policy. However the cuts to Government funding, even though balanced to some extent by likely flexibility on fee levels, make the outlook challenging.

Professor Steve Young

Senior Pro-Vice-Chancellor

CORPORATE GOVERNANCE

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 the Vice-Chancellor’s 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 is 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 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 Accountable 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.

Members of the Council during the year ended 31 July 2010

The Chancellor and the Vice-Chancellor

Elected as Heads of Colleges

Prof. William Brown

Prof. Martin Daunton

Sir Christopher Hum

Prof. Frank Kelly

Elected as Professors or Readers

Prof. David Abulafia

Prof. Ross Anderson

Dr Michael Clark

Prof. Athene Donald

Elected as members of the Regent House

Dr Nick Bampos

Dr Richard Barnes

Dr Stephen Cowley

Mr Robert Dowling

Dr David Good

Ms Deborah Lowther

Dr Rachael Padman

Dr Joan Whitehead

Members in class (e) (external members)

Mr Nigel Brown OBE

Dr Vanessa Lawrence CB

Dame Mavis McDonald

Lord Simon of Highbury

Student members 2009–10

(to 30 June 2010)

Mr Thomas Chigbo

Ms Julia Li

Mr David Lowry

(from 1 July 2010)

Mr Anthony Andrews

Mr Rahul Mansigani

Mr Sam Wakeford

The Chancellor, members in class (e) (external members), Student members, Sir Christopher Hum, and Ms Deborah Lowther are not employees of the University. The other members of the Council are employees of the University. No member of the Council receives payment for serving as a member of the Council.

Statement of public benefit

The University is an exempt charity subject to regulation by the HEFCE under the Charities Act 2006. The University reports annually on the ways in which it has delivered charitable purposes for the public benefit.

The Council, in reviewing the University’s activities in this regard, has taken into account the Charity Commission’s guidance on public benefit. The Council is satisfied that the activities of the University as described in these Reports and Financial Statements, and in the Annual Report of the Council, fully meet the public benefit requirements.

The Mission of the University

The Mission of the University is ‘to contribute to society through the pursuit of education, learning, and research at the highest international levels of excellence’. The University makes a significant contribution, through these activities, directly and most obviously to the advancement of education, research, and dissemination of knowledge.

Research

The University is widely recognized as one of the leading research universities in the world both in terms of quality and in terms of scope and breadth. Research is undertaken at the highest level across a wide range of areas. The University takes seriously its obligations to disseminate and make publicly accessible the outcomes of its academic research activities through publication, teaching, conferences, consultancy and other knowledge transfer, and outreach activities. It therefore offers public benefit through the continued advancement of knowledge across the sciences, medicine, arts, humanities, culture, and heritage.

A substantial proportion of the research undertaken in the University across the fields of clinical medicine, biomedicine, physics of medicine, and engineering leads directly to the advancement of health and the saving of lives. Research is also carried out in the area of sustainability, environmental protection, and improvement.

Research work in the University is focused at local, national, and international levels. The products of this research have a wide-ranging influence through the advancement of understanding and its application in scientific and technological advances, and through informing public debate on policy. The impact of the University’s research extends to governments, public sector bodies, and charities.

Education

The University’s research activities feed directly into its teaching at every level. Around 18,000 students, of whom 12,000 are undergraduates, pursue courses across a wide range of disciplines. The quality of the education (and, as importantly, the educational experience) which the University provides is consistently recognized by the University’s status at or near the top of national and international rankings.

The University is committed to admitting students of the highest intellectual potential, irrespective of social, racial, religious, financial or other considerations. The University ensures that individuals from all backgrounds can benefit from the opportunities afforded by a first-rate education and are not unreasonably excluded from those opportunities by the charging of fees. The University ensures that bursaries are available where necessary and outreach activities are undertaken to improve participation by under-represented groups. Financial support is provided to students from overseas through University funds and by trusts associated with the University.

The University is aware that there are significant variations in the educational opportunities, information, and support available to individuals. It therefore invests significant resource and effort into its access and widening participation activities. The University encourages applications from people with disabilities and from mature students.

For the wider community a broad range of lectures, seminars, and courses provide the opportunity for members of the wider public to share in the University’s educational provision. The University’s Institute of Continuing Education offers short non-credit courses, residential, and summer schools.

The University is committed to equipping those who participate in its educational programmes with the highest quality of teaching and pastoral, infrastructural, and academic support. It is fundamental to the University’s mission that its students are personally, academically, and professionally equipped to contribute positively to society. In this regard, the quality and depth of their student experience benefits them directly but also benefits the societies to which they will contribute, through their participation in the workforce and as informed and questioning citizens.

The wider applications of the University’s commitment to disseminating knowledge

The University’s publishing house the Cambridge University Press contributes to the University’s commitment to make publicly accessible the outcomes of academic research activities in Cambridge and from across the world by publishing peer reviewed academic material and other educational publications. Through Cambridge Assessment the University develops and delivers a range of widely used and respected examinations, benefiting the UK and world-wide community by offering internationally recognized qualifications, raising aspirations, and transforming lives.

STATEMENT OF INTERNAL CONTROL

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 2010 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 (primarily through the officers of the Risk Steering Committee) provides briefings (either on a one-to-one basis or in relevant groupings) to those who own or manage central or school level risks.

(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 Deloitte LLP.

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.

STATEMENT OF THE RESPONSIBILITIES OF THE COUNCIL

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 is 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 is 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.

INDEPENDENT AUDITORS’ REPORT TO THE COUNCIL OF THE UNIVERSITY OF CAMBRIDGE

We have audited the financial statements of the University of Cambridge and its group for the year ended 31 July 2010 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 historical cost convention as modified by the revaluation of certain fixed assets.

Respective responsibilities of the Council and auditors

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 law and United Kingdom 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 of the University in accordance with the Statutes and Ordinances of the University and for no other purpose. 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, the Accounts Direction issued by the Higher Education Funding Council for England and United Kingdom Generally Accepted Accounting Practice.

We report to you whether in our opinion, funds 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 Statutes and Ordinances of the University 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, the University has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit.

We 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 2010), the Statement of the Responsibilities of the Council and the Statement of Public Benefit and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. This other information comprises only the Financial Review, the Corporate Governance Statement (incorporating the members of the Council during the year ended 31 July 2010), the Statement of the Responsibilities of the Council and the Statement of Public Benefit.

We also review the statement of internal control and comment if the statement is inconsistent with our knowledge of the University and the group. 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.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board and 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 group’s and 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.

Opinion

In our opinion:

i.the financial statements give a true and fair view of the state of the group’s and the University’s affairs at 31 July 2010, 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, the Accounts Direction issued by the Higher Education Funding Council for England and United Kingdom Generally Accepted Accounting Practice;

iii.in all material respects, funds from the Higher Education Funding Council for England and the Training and Development Agency for Schools, 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

iv.in all material respects, income has been applied in accordance with the Statutes and Ordinances of the University and funds provided by HEFCE have been applied in accordance with the financial memorandum (2008/19) with the Higher Education Funding Council for England and any other terms and conditions attached to them and funds from the Training and Development Agency for Schools have been applied in accordance with the funding agreement with the Training and Development Agency for Schools.

PricewaterhouseCoopers LLP

Chartered Accountants and Registered Auditors

Cambridge

22 November 2010

The maintenance and integrity of the University of Cambridge’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.

STATEMENT OF PRINCIPAL ACCOUNTING POLICIES

Basis of preparation

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.

Basis of accounting

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.

Basis of consolidation

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 31 Colleges 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.

Recognition of income

Recurrent grant

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.

Restricted grant income

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

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.

Capital grants and donations

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.

Academic fees

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.

Examination and assessment services

Income from examination-based assessments is recognised when services are rendered and substantially complete. Income from qualifications not based on examination sessions is recognised in proportion to the number of modules achieved by candidates. This represents a change to the accounting policy adopted in previous years, as disclosed in note 11.

Publishing and printing

Income is recognised on delivery of the goods to the customer.

Other income

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.

Endowment and investment income

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.

Foreign currency translation

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.

Tangible fixed assets

Land and buildings

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

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.

Heritage assets

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 accounting policy in respect of equipment, 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.

Intangible fixed assets: goodwill

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.

Investments

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 and work in progress

Stocks are stated at the lower of cost and net realisable value after making provision for slow moving and obsolete items.

Endowment funds

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.

Pension costs

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.

Segmental reporting

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.