Annual Report and Accounts 2024-25

Accountant in Bankruptcy Annual Accounts 2024-25

1. Accounting policies

1.1 Authority

In accordance with the accounts direction issued by Scottish Ministers under section 19(4) of the Public Finance and Accountability (Scotland) Act 2000, these accounts have been prepared in accordance with HM Treasury’s 2024-25 Government Financial Reporting Manual (FReM). The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector context.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the accounting policies. The accounting policies, and where necessary estimation techniques, selected are done so in accordance with the principles set out in International Accounting Standard 8: Accounting Policies, Changes in Accounting Estimates and Errors.

AiB has considered its ability to continue as a going concern and is satisfied that it is appropriate to prepare the accounts on a going concern basis. AiB has a statutory duty to provide its services.

1.2 Accounting convention

These accounts are prepared on a historical cost basis, as modified by the revaluation of property, plant and equipment, intangible assets and financial assets and liabilities at fair value.

1.3 Accounting Standards

1.3.1 New accounting standards

All new standards issued and amendments made to existing standards are reviewed by Financial Reporting and Advisory Board (FRAB) for subsequent inclusion in the FReM in force for the year in which they become applicable.

1.3.2 Standards issued but not adopted

IAS8 requires disclosure of information relating to the impact of an accounting change that will be required by a new standard that has been issued but not yet adopted.

The standards that are considered relevant and the anticipated impact on the consolidated accounts is as follows:

IFRS 17 – Insurance contracts

IFRS 17 replaces the previous standards on insurance contracts, IFRS 4. Under the IFRS 17 model, insurance contract liabilities will be calculated as the present value of future insurance cash flows with a provision for risk. The Standard will be adapted and interpreted for the public sector context. One major difference from the private sector is that the implementation of IFRS 17 has been delayed from 1 January 2023 (its effective date in the private sector). HM Treasury have used application guidance for IFRS 17, which states that the date of initial application is 1 April 2025. The impact of IFRS 17 has not yet been determined but this will be assessed when further implementation guidance is forthcoming from HM Treasury.

1.4 Critical judgements made in applying accounting policies

Significant areas of judgement

In applying the accounting policies, AiB has had to make certain judgements about complex transactions or those involving uncertainty about future events.

Employee benefit accrual

Averages have been used in the calculation of employee benefits, as staff within the same pay band are at different points on the relevant pay scale due to the application of annual increments.

Contingent liability

The agency has included a contingent liability in respect of future commission payments due to insolvency agents. The figure has been calculated using information from live caseloads and based on assets realised or funds ingathered as at 31 March.

Contingent asset

A contingent asset has been disclosed and represents an estimate of recovery of costs incurred in insolvency cases which remained live at 31 March.

Lease extension options

At lease commencement AiB makes an assessment as to whether we are reasonably certain to be exercising break clauses or extension options. This estimate determines the length of the lease term impacting the lease liabilities and right of use assets. This is reviewed if there is a significant event or significant change of circumstances.

1.5  Revenue

Operating income is income which relates directly to the operating activities of AiB. It comprises statutory fees recovered from bankruptcy cases, fees for debtor and creditor applications for a bankruptcy and fees in relation to registering, advertising and supervising protected trust deeds. It also comprises fees for the administration of DAS and other miscellaneous income.

All income from statutory fees in relation to the administration, audit and supervision of trustees are measured in accordance with IFRS15. They are measured at the fair value of the amounts received and receivable. All revenue is recognised at the date of the event giving rise to the fee.

1.6 Property, plant and equipment (PPE)

Recognition

Property, plant and equipment is capitalised where:

• it is held for use in delivering services or for administrative purposes
• it is probable that future economic benefit will flow to, or service potential be provided to, AiB
• it is expected to be used for more than one financial year
• the cost of the item can be measured reliably

All assets falling into the following categories are capitalised:

• furniture, fittings & equipment and vehicles which are capable of being used for a period which could exceed one year, and have a cost equal to or greater than £5,000
• Information and Communications Technology (ICT) systems are capitalised where they form part of a group of similar assets purchased at approximately the same time and cost over £1,000 in total with the exception of IT peripherals such as headphones, mice and keyboards which are expensed in the year of purchase
• significant improvements to leasehold properties will be capitalised where the total cost of the group of assets is equal to or over £5,000

Where a large asset, for example a building, includes a number of components with significantly different asset lives, such as plant and equipment, these components are treated as separate assets and depreciated over their own useful economic lives.

Measurement

Valuation

All property, plant and equipment assets are measured initially at cost, representing the costs directly attributable to acquiring or constructing the asset and bringing it to the location and condition necessary for it to be capable of operating in the manner intended by management.

Thereafter, in accordance with the FReM, PPE is valued at current value. Plant and equipment assets that have short useful lives or low values (or both) are reported on a depreciated historic cost basis as a proxy for fair value.

Assets under construction are valued at current cost. This is calculated by the expenditure incurred to which an appropriate index is applied to arrive at current value. Assets under construction are also subject to impairment review.

Subsequent expenditure

Subsequent expenditure is capitalised into an asset’s carrying value where it is probable the future economic benefits associated with the item will flow to AiB and the cost can be reliably measured. Where subsequent expenditure does not meet these criteria, the expenditure is charged to the statement of comprehensive net expenditure. If part of an asset is replaced, then the part it replaces is de-recognised, regardless of whether it has been depreciated separately.

Revaluations and impairment

Increases in asset values arising from revaluations are recognised in the revaluation reserve, except where they reverse an impairment previously recognised in the statement of comprehensive net expenditure, in which case they are recognised as income.

Movements on revaluation are considered for individual assets rather than groups or land/buildings together.

Decreases in asset values and impairments are charged to the revaluation reserve to the extent that there is an available balance for the asset concerned and thereafter are charged to the statement of comprehensive net expenditure.

Depreciation

Items of property, plant and equipment are depreciated to their estimated residual value over their remaining useful economic lives in a manner consistent with the consumption of economic or service delivery benefits.

Depreciation is charged on a straight-line basis on each main class of property, plant and equipment as follows:

1.7 Intangible assets        

Recognition

Intangible assets are non-monetary assets without physical substance which are capable of being sold separately from the rest of AiB’s business or which arise from contractual or other legal rights. They are recognised only where it is probable that future economic benefits will flow to, or service potential will be provided to, AiB and where the cost of the asset can be measured reliably.

Intangible assets that meet the recognition criteria are capitalised where they are capable of being used in AiB’s activities for more than one year and they have a cost of at least £1,000.

AiB’s main class of capitalised intangible assets are purchased intangible assets on bespoke case management systems. Expenditure on development is capitalised only where all of the following can be demonstrated:

• the project is technically feasible to the point of completion and will result in an intangible asset for sale or use
• AiB intends to complete the asset and sell or use it
• AiB has the ability to sell or use the asset
• how the intangible asset will generate probable future economic or service delivery benefits, for example: the presence of a market for it or its output, or where it is to be used for internal use, the usefulness of the asset
• adequate financial, technical and other resources are available to AiB to complete the development and sell or use the asset
• AiB can measure reliably the expenses attributable to the asset during development

Expenditure capitalised in line with the above is limited to the value of probable future economic benefits.

Measurement

Valuation

Intangible assets are recognised initially at cost, comprising all directly attributable costs needed to create, produce and prepare the asset to the point that it is capable of operating in the manner intended by management.

Subsequently intangible assets are measured at fair value. Where an active (homogeneous) market exists, intangible assets are carried at current value. Where no active market exists, the intangible asset is revalued, asset will continue to be shown at original cost. Where there is no value in use, the intangible asset is valued using depreciated replacement cost. These measures are a proxy for fair value.

Revaluations and impairment

Increases in asset values arising from revaluations are recognised in the revaluation reserve, except where they reverse an impairment previously recognised in the statement of comprehensive net expenditure, in which case they are recognised as income.

Decreases in asset values and impairments are charged to the revaluation reserve to the extent that there is an available balance for the asset concerned and thereafter are charged to the statement of comprehensive net expenditure.

Intangible assets held for sale are reclassified to ‘non-current assets held for sale’ measured at the lower of their carrying amount or ‘fair value less cost to sell’.

Amortisation

Intangible assets are amortised to their estimated residual value over their remaining useful economic lives in a manner that is consistent with the consumption of economic or service delivery benefits. Amortisation of bespoke computer software is calculated by dividing the net book value at year end by its remaining useful life as at the year end.

Amortisation is charged on a straight-line basis to the statement of comprehensive net expenditure for computer software licences. The useful lives are as follows:

1.8 Disposal of property, plant and equipment, intangible assets and non-current assets held for sale

Disposal of non-current assets is accounted for as a reduction to the value of assets equal to the net book value of the assets disposed. When set against any sales proceeds, the resulting gain or loss on disposal will be recorded in the statement of comprehensive net expenditure. Non-current assets held for sale will include assets transferred from other categories and will reflect any resultant changes in valuation.

1.9 Impairment of non-financial assets

Assets that are subject to depreciation and amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Where an asset is not held for the purpose of generating cash flows, value in use is assumed to equal the cost of replacing the service potential provided by the asset, unless there has been a reduction in service potential.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Non-financial assets that suffer an impairment are reviewed for possible reversal of the impairment. Impairment losses charged to the statement of comprehensive net expenditure are deducted from future operating costs to the extent that they are identified as being reversed in subsequent revaluations.

1.10 Right of use assets

In accordance with IFRS16, at inception of a contract, AiB assesses whether a contract is, or contains a lease. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time. This includes assets for which there is no consideration. To assess whether a contract conveys the right to control the use of an identified asset, AiB assesses whether:

• the contract involves the use of an identified asset
• AiB has the right to obtain substantially all of the economic benefit from the use of the asset throughout the period of use and
• AiB has the right to direct the use of the asset

AiB assesses whether it is reasonably certain to exercise break options or extension options at the lease commencement date. AiB reassesses this if there are significant events or changes in circumstances that were not anticipated.

AiB has elected not to recognise right of use assets and lease liabilities for the following leases:

• low value assets (these are determined to be in line with capitalisation thresholds on Property, Plant and Equipment)
• leases with a lease term of 12 months or less

Recognition

At the commencement of a lease a right of use asset and a lease liability are recognised.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if that cannot be readily determined, the rate provided by HM Treasury (HMT) for that calendar year.

Lease payments included in the measurement of the lease liability comprise the following:

• Fixed payments, including in-substance fixed payments excluding changes arising from future rent reviews or changes in an index
• Amounts expected to be payable under a residual value guarantee
• The exercise price under a purchase option that AiB is reasonably certain to exercise, lease payments in an optional renewal period if AiB is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless AiB is reasonably certain not to terminate early

When the lease liability is re-measured, a corresponding adjustment is made to the right of use asset or recorded in the SoCNE if the carrying amount of the right of use asset is zero.

The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for initial direct costs, prepayments or incentives, and costs related to restoration at the end of a lease. 

The right of use assets are subsequently measured at either fair value or current value in existing use in line with property, plant and equipment assets. AiB currently only has one right of use asset which is for the lease of a building which is subject to regular rent reviews. AiB therefore considers that cost measurement model in IFRS 16 is a reasonable proxy for current value in existing use or fair value.

The right of use asset is depreciated using the straight-line method from the commencement date to the end of the lease term.

1.11 Employee benefits

Short-term employee benefits

Salaries, wages and employment-related payments are recognised in the year in which the service is received from employees. The cost of annual leave and flexible working time entitlement earned but not taken by employees at the end of the year is recognised in the financial statements to the extent that employees are permitted to carry-forward leave into the following year.

Pension costs

Present and past employees are covered by the provisions of the Principal Civil Service Pension Scheme (PCSPS) which is a defined benefit scheme and is unfunded.

AiB recognises the expected cost of providing pensions for their employees on a systematic and rational basis over the period during which they benefit from their services by payment to the PCSPS of amounts calculated on an accruing basis. Relevant disclosures are reported in the remuneration report. Liability for the payment of future benefits is a charge to the PCSPS.

In respect of the defined contribution schemes, AiB recognises the contributions payable for the year.

1.12 Financial instruments

Cash requirements for AiB are met through the Scottish Government and therefore financial instruments play a more limited role in creating and managing risk than would apply within a non-public sector body. The majority of financial instruments relate to receivables and payables incurred through the normal operational activities of AiB which, is therefore exposed to little credit, liquidity or market risk.

Financial assets

AiB classifies its financial assets in the following three categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Financial assets held by AiB have been classified as loans and receivables or cash. Loans and receivables comprise trade and other receivables.

Loans and other receivables are non-interest bearing and are stated at fair value reduced by appropriate allowances for estimated irrecoverable amounts.

Financial liabilities

AiB classifies its financial liabilities in the following categories: at fair value through profit or loss, and other financial liabilities. The classification depends on the purpose for which the financial liabilities were issued. Management determines the classification of its financial liabilities at initial recognition.

Financial liabilities of AiB consist of trade and other payables. These are non-interest bearing and recognised at fair value.

1.13 Related party transactions

Material related party transactions are disclosed in line with the requirements of IAS 24 – Related Party Disclosures.

1.14 Provisions

IAS 37 Provisions, Contingent Liabilities and Contingent Assets apply in full.

AiB provides for legal or constructive obligations that are of uncertain timing or amount at the balance sheet date on the basis of the best estimate of the expenditure required to settle the obligation. Where the effect of the time value of money is significant, the estimated cash flows are discounted using the discount rate prescribed by HM Treasury.

A contingent liability is disclosed where there is either a possible obligation depending on whether some uncertain future event occurs, or a present obligation but payment is not probable or the amount cannot be measured reliably.

A contingent asset is disclosed where there is a possible asset that arises from past events, and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the agency.

1.15 Value added tax

Most of the chargeable activities undertaken by AiB are outside the scope of VAT. Where output tax is charged or input VAT is recoverable, the amounts are stated net of VAT. Irrecoverable VAT is charged to the relevant expenditure category or included in the capitalised purchase cost of fixed assets.

1.16 Segmental reporting

AiB reports on one single core segment which represents the principal objective of the administration and monitoring of statutory debt management and debt relief solutions in Scotland.

1.17 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and any other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Any bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

1.18 Third party assets

Assets belonging to third parties (such as consignation and sequestration funds) are not recognised in the accounts since AiB has no beneficial interest in them. However, they are disclosed in a separate note to the accounts in accordance with the requirements of the Financial Reporting Manual.

1.19 Prior period restatement

In line with the accounting standard IAS8 - Accounting Policies, Changes in Accounting Estimates and Errors, a prior period restatement of the contingent asset disclosure has been made in Note 17. The figures disclosed in 2023/24 incorrectly excluded two elements relating to older cases in the total for the contingent asset. This has no impact on the core financial statements for 2023/24.

Under IAS 37, a provision is recognised where there is a present obligation arising from past events. There have been two provisions recognised in 2024-25.  A provision for the payment of fees due to insolvency agents within the next year of £51,236 has been created.  This relates to fees due at the start of a case and on submission of management information.

An over recovery of repayments to the public purse was identified in historic bankruptcy cases during 2024-25. This issue arose from a calculation error in our case management system and is being progressed by our IT developers to rectify. A provision of £38,774 has been created in respect of further payments that may be due to creditors.

A provision of £5,223 has been set in respect of legal costs.

At 31 March 2024, there were two provisions set aside.

A provision of £45,293 was set for the payment of fees due to insolvency agents, which has been fully utilised.

An over recovery of repayments to the public purse was identified in historic bankruptcy cases and a provision of £29,866 was created in respect of payments that may be due to creditors. This provision has been fully utilised.

AiB has entered into contracts (which are not leases or PFI contracts) for the supply of goods and services necessary to effectively deliver its statutory function, while seeking to achieve value for money. Under the revised definition by the Scottish Government of Financial Commitments, effective as from 1 April 2008, contracts in the normal course of business do not require disclosure.

There were no capital commitments as at 31 March 2025. Contracted capital commitments as at 31 March 2024 were £nil.

AiB has contingent liabilities totalling £373,183.32 as at 31 March 2025 (2023-24 - £309,645 of which £99,698 has been realised). This is in respect of fixed fees expected to be paid out to insolvency agents acting on our behalf.

AiB also set an additional contingent liability in 2023-24 of approximately £185,000 in respect of potential payments to creditors where AiB had over recovered costs in historic bankruptcy cases of which £42,352 has been utilised. The remainder of the liability was removed as the values could now be reliably estimated and so were included in the provision for 2024-25.

As at 31 March 2025, AiB has contingent assets relating to repayments to the public purse in respect of recovery of fees paid out in bankruptcy cases where we are the Trustee. These total £1,778,895.39 (2023-24 - £1,710,031.65 (restated) of which £621,100.05 has been realised). The figures disclosed in 2023/24 incorrectly excluded two elements relating to older cases in the total for the contingent asset. This has no impact on the core financial statements for 2023/24.

AiB is an Executive Agency of the Scottish Government. The Scottish Government, its departments and agencies are regarded as related parties with which AiB has had various transactions in the reporting period.

During the year AiB paid rent, rates and business insurance to North Ayrshire Council with a total value of £304,083.

A total value of £56,552 was paid to Registers of Scotland to register documents in the Chancery and Judicial Registers.

Creditor petition income with a combined total value of £123,750 was raised to a number of Scottish local authorities who are regarded as related parties:

• Argyll & Bute Council
• Clackmannanshire Council
• Dumfries & Galloway Council
• Dundee City Council
• Falkirk Council
• Fife Council
• Highland Council
• Perth & Kinross Council
• South Lanarkshire Council
• Stirling Council
• West Lothian Council

In 2024-2025, no Minister, board member, key management staff or other related party has undertaken any material transactions with AiB.

AiB complies with the Confederation of British Industry prompt payment code and is committed to the prompt payment of bills for goods and services received. Payments are normally made as specified in the contract. If there is no contractual provision or other understanding, they are due to be made within 30 days of the receipt of the goods and services, or the presentation of a valid invoice or similar demand, whichever is later. In 2024-25, the percentage of invoices paid on time was 100% with 0 invoices missing the 30 day payment terms (2023-24 – 99%). Our policy is to pay all invoices that are not in dispute within 10 days. We aim to pay 100% of invoices, including disputed invoices once the dispute has been settled, on time in accordance with these terms. For the year ended 31 March 2025, we paid 99% (2023-2024, 94%) of all undisputed invoices within 10 days of receipt. This represents 434 invoices out of an annual total of 438.

Under the Public Finance and Accountability (Scotland) Act 2000, the Auditor General for Scotland is responsible for appointing the external auditors of AiB. Audit Scotland were appointed from 2022-23. The indicative notional fee for this service in 2024-25 was £55,000 (2023-24- £49,710), which relates solely to the provision of statutory audit services. No payments were made to Audit Scotland other than in respect of the statutory audit.

There were no significant post balance sheet events.