Scottish Canals’ status changed from a public corporation to a non-departmental public body in 2020/21. That change came with a requirement to follow HM Treasury’s accounting guide, including the methodology to be used to value the canal infrastructure and inland waterways.

Although the required valuations for investment properties and land and buildings were conducted, auditors found that Scottish Canals did not get valuations for around £51 million of specialist assets. These included dredging equipment, lock gates and canal basin widening works.

A subsequent valuation, aimed at estimating the cost of replacing these assets in their current condition and existing use, then raised concerns about the accuracy of Scottish Canal’s fixed asset register, amongst other valuation flaws. This meant auditors had to issue a disclaimer of opinion on the accuracy of Scottish Canal’s financial statements, a very unusual step.

Turnover in Scottish Canals’ finance team during this period increased the challenge of fully adopting HM Treasury’s accounting rules associated with its changed status. A new valuation process of the canal infrastructure estate in its entirety will now be undertaken during 2022. It is a substantial piece of work but necessary to support Scottish Canals’ medium-term financial strategy and asset management strategy.

Stephen Boyle, Auditor General for Scotland, said: “Scottish Canals’ core role is to manage infrastructure assets. To plan effectively for the future, it is clearly important that Scottish Canals has a robust record of those assets and their values.

“Scottish Canals’ Board must also be able to satisfy itself that the body has sufficient skills and capacity to deliver the valuation project, and provide the appropriate support to ensure it is delivered to plan.”

A spokesperson for Scottish Canals commented: “From 1 April 2020 Scottish Canals had to change the way it prepares its Annual Report & Accounts in line with the Government Financial Reporting Manual (FReM) and this led to our 2020/21 accounts being restated.

“However, our external auditors, Grant Thornton, raised new queries over the nature of the capital and revenue expenditure on the unique, operational, assets in our care and in the way they have been valued since we became a stand-alone public body in 2012. Subsequently they determined that a Disclaimer of opinion on financial statements should be placed on our 2020/21 accounts while additional work is carried out.

“We are now working, with the support of Transport Scotland, Scottish Government, and Grant Thornton, to resolve this highly complex matter and agree a new way of valuing our entire asset estate. Once this is in place it will inform the way we prepare our Annual Report & Accounts going forward.”

The full report can be found here.