87. In the course of our inquiry, we received submissions critical of the contents and presentation of BNFL's accounts. As a plc, BNFL publishes Accounts approved by appointed commercial auditors, Ernst & Young. The company is under the same statutory obligations as all other plcs. Its Accounts are drawn up using generally applied accounting standards. There is an Audit Committee of Non-Executive Directors. Some aspects of BNFL's business present particular challenges to the objective of clear accounting, including the treatment of payments made on account for future reprocessing, and in particular the complexities of accounting for nuclear liabilities. The note on accounting policies published with the Accounts gives as clear an indication as possible of the accounting policies adopted.

88. In 1999 we received a lengthy written submission from Mr Michael McDermott, subsequently supplemented by further submissions, based on a close analysis of BNFL's accounting practices over the past 30 years as revealed in successive Annual Reports and Accounts. Mr McDermott's memorandum drew attention to a range of issues which he suggested merited examination by the Committee, such as practice on the capitalisation of costs; the reporting of working capital; and the treatment of interest in the profit and loss account. The principal issues can only be settled by detailed examination by accountants. To some extent we expect this task to have been carried out by the various firms of accountants appointed by the Department to report on BNFL. We understand that Mr McDermott's memoranda may have already been passed on to CSFB. We intend to pass on to the National Audit Office copies of the memoranda submitted to us.

89. The Committee also received a submission from Dr McKerron of SPRU, which was critical in general terms of the impenetrability of BNFL's accounts, and made several specific criticisms. BNFL provided a written rebuttal of these.[145]

• Dr McKerron suggested that the recognition of interest on the Government's Magnox undertaking had been made in response to an increase in interest payable. BNFL stated that the inclusion of the sum was required under standard accounting practice because it represented a contractual obligation of HMG. The interest has not been and will not be received until after 2008. Tax is however paid on it.
•  Dr McKerron queried the introduction of a charge relating to reversal of one year's discounting and changes in price levels, suggesting that it was a novelty in the latest accounts. BNFL noted that the two effects of increasing the provisions for a year's inflation in the costs, balanced by the elimination of one year's discounting because "we are one year nearer to discharging these costs". Because current inflation is in line with the discount rate of 2.5% applied, the amounts are broadly similar. BNFL also stated that the discounted reversal element had been included in the previous year's accounts, but at a much lower level because based on pre-Magnox Electric levels of liabilities.

90. A prospective PPP generates its own mechanisms for deciding what value to put on a company which makes a profit overall but trades at a loss or barely at a profit. If prospective equity holders do not like what they read in the Accounts, then they will vote with their wallets and put their money elsewhere. They will however expect a degree of clarity in the Accounts which is not there at present, and much more substance in the body of the Annual Report than is provided. The only statistic in the short page of text on fuel manufacture in the 1998-99 Report is on the fall in the rate of accidents at work. The page on fuel recycling does not even indicate the tonnage of used fuel reprocessed in the year, figures readily supplied to us by BNFL. We look to BNFL to review the transparency of its Accounts and the content of its Report, so that they can become the principle vehicles for conveying an objective picture of the company's performance.